ML20235N381
| ML20235N381 | |
| Person / Time | |
|---|---|
| Site: | Rancho Seco |
| Issue date: | 02/24/1989 |
| From: | Boggs D SACRAMENTO MUNICIPAL UTILITY DISTRICT |
| To: | Office of Nuclear Reactor Regulation |
| References | |
| GM-89-120, NUDOCS 8903010190 | |
| Download: ML20235N381 (105) | |
Text
t
/~N l( iSMUD
~ SACRAMENTO MUNICIPAL UTILITY DISTRICT C 6201 S Street, P.o. Box 15830, Sacramento CA 95852 1830,(916) 452-3211 AN ELECTRIC SYSTEM SERVING THE HEART OF CALIFORNIA GM 89-120 February 24, 1989
' Director of Nuclear Reactor Regulation U. S. Nuclear Regulatory Commission Washington, DC. 20555 Docket No. 50-312 Rancho Seco Nuclear Generating Station License No. DPR-54 PRICE ANDERSON ACT RETROSPECTIVE PREMIUM SYSTEM LETTER OF GUARANTEE-Pursuant to 10 CFR Section 140.21 and Regulatory Guide 9.4, the Sacramento Municipal Utility District intends to use general funds in the event of a retrospective premium assessment. To support this position, we are enclosing our most recent official statement, dated Octcber 27, 1988, which includes a projection of District finances on page A-7. The District will submit audited Balance Sheets and Statement of Net Revenue for 1988 following completion of the external audit currently being conducted by Arthur Andersen & Co. The audit is expected to be complete by March 1,1989.
He trust that this will satisfy the guarantee of payment provisions for 1989.
- As final assurance, the current District policy is to maintain a minimum of
$75 million of unrestricted cash and investment balances.
Members of your staff with questions requiring additional information or clarification may contact Mr. Richard Vorpe at (916) 452-3211, extension 5259.
$ 8J.' &' .
David A. Boggs General Manager Enclosure cc w/ encl: J. B. Martin, NRC, Halnut Creek O A. D'Angelo,,NRC, Rancho Seco j0 q 8903010190 % 2g i2 \
PDR ADOCK PNV .
I
t NEWISSUES in the opinion of Orrick, H rrington & Sutcliffs, bond counsel, bassd on existing statutes, regulations, rulings and court d:cisions, and assuming, among other matters, compliance with certain covenants, interest on the Series V Bonds and the Series W Bonds is excluded from gross income for federalincome tax purposes and is exempt from present State of California personalincome taxes. In the opinion of bond counsel, interest on the Series V Bonds and the Series W Bonds is not a specific preference item for purposes of the federal individual or corporate attemative minimum taxes, although it is included in adjusted net book income and adjusted current earnings in calculating corporate alternative minimum taxable income. Bond counsel expresses no opinion regarding other federal income tax consequences relating to the accrual or receipt of interest on the Series V Bonds or the Series W Bonds. See " Tax Matters" herein.
$SMun SACRAMENTO MUNICIPAL UTILITY DISTRICT
$161,905,000 Electric Revenue Refunding Bonds,1988 Series V
$170,000,000 Electric Revenue Bonds,1988 Series W D:ted: October 15,1988 Due: August 15, as shown below The Series V Bonds and the Series W Bonds will be issued as fully registered bonds and, when issued, wm be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York. The Depository Trust Company will act as securities depository (the Securities Depository) of the Senes V Bonds and the Series W Bonds. Individual purchases of interests in the Series V Bonds and the Series W Bonds will be made in book-entry form only, in the principal amount of $5,000 or any integral multiple thereof.
Purchasers of such interests will not receive bonds representing their interests in the Series V Bonds or the Series W Bonds. Principal and inttrest are payable directly to the Securities Depository by Bank of America National Trust and Savings Association, San Francisco, California, Trustee and Paying Agent. Principal is payable on the dates set forth below. Interest is payable on February 15,1989,and semiannually thereafter on February 15 and August 15 in each year. Upon receipt of payments of principal and interest, the Securities Depository will in turn remit such principal and interest to the Securities Depository's Participants (as such term is herein defined) for a subsequent disbursement to the purchasers of interests in the Series V Bonds and the Series W Bonds, as described herein. The Series V Bonds and the Series W Bonds will be subject to redemption prior to matunty as set forth herein.
The principal of and interest on the Series V Bonds and the Series W Bonds, together with the debt service on other Parity Bonds, tra payable exclusively from and secured by a pledge of the Net Revenues of the Electric System of the District. Neither the credit nor th3 taxing power of the District or the State of Califomia is pledged to the payment of the Series V Bonds or the Series W Bonds, SERIES V BONDS Interest Price or Interest Price or Due Amount Rate Yield Due Amount Rate Yleid 1990. $1,730.000 6% % 100% 1996. $2,560,000 7% % 100 %
1991 , 1,840.000 6% 100 1997. 2.745,000 7.30 7.35 1992. 1,955,000 6.70 100 1998. .
2,940,000 7.40 7.45 1993 , 2,090,000 6.90 100 1999. 3,165,000 7% 7.55 1994. 2.230.000 7 100 2000. 3,400,000 7.60 7.65 1995. 2,390,000 7.15 100
$11,850,000 7%% Term Bonds Due August 15, 2003 @ 99.50%
$97,570,000 Th% Term Bonds Due August 15, 2016 @ 99.25%
$25,440,000 7%% Term Bonds Due August 15,2018 @ 95.25%
(Plus Accrued interest from October 15,1988)
SERIES W BONDS Interest Pdce or Interest Pdce or Due Amount Rate Yield Due Amount Rste Yield 1990. $1.820,000 6% % 100% 1996. $2.690,000 7% % 100%
1991 . 1,925,000 6% 100 1997. 2,880.000 7.30 7.35 1992 2.055.000 6.70 100 1998. 3.090.000 7.40 7.45 1993. 2.195,000 6.90 100 1999. 3.320,000 7% 7.55 1994 . 2.345,000 7 100 2000. 3.570,000 7.60 7.65 1995. 2,505,000 7.15 100
$ 12,440,000 7%% Term Bonds Due August 15, 2003 @ 99.50%
$102,455,000 Th% Term Bonds Due August 15, 2016 @ 99.25%
$ 26,710,000 7%% Term Bonds Due August 15,2018 @ 95.25%
(Plus Accrued interest from October 15,1988)
The Series V Bonds and the Senes W Bonds are offered when, as and if issued and received by the Urvierwriters, subject to the approval of legality by Orrick, Herrir'gton & Sutcliffe, Sacramento, California, bond counsel to the District. Certain legal matters will be passed on for the Distnct by David S. Kaplan, Esq., its General Counsel, and for the Underwnters by their counsel, Mudge Rose Guthrie Alexander & Ferdon. New York, New York. It is expected that the Series V Bonds and the Series W Bonds in definitive form will be ready for delivery in New York, New York, on or about November 2,1988.
Goldman, Sachs & Co.
Grigsby, Brandford & Co., Inc. Merrill Lynch Capital Markets PaineWebber Incorporated Shearson Lehman Hutton Inc.
Smith Barney, Harris Upham & Co.
Incorporated Dated: October 27,1988
NEW ISSUES
- In th3 opinion of Orrick, HIrrington & Sutcliffe, bond counsit, based on existing statut2s, regulations, rulings and court d2cisions, and tssuming, among other mitters, complianc3 with c0rtain covinants, intirsst on the Striza V Bonds and the Serizs W Bonds is exclud2d from gross income for federal income tax purposts and is extmpt from prsstnt State of California personal income taxss. In the opinion of bond counsel, interest on the Series V Bonds and the Senes W Bonds is not a specific preference item for purposes of the federal indiv6 dual or corporate alternative minimum taxes, although it is included in adjusted net book income and adjusted current earnings in cciculating corporate altamative minimum taxable income. Bond counsel expresses no opinion regarding other federal income tax consequences relating to the accrual or receipt of interest on the Senes V Bonds or the Series W Bonds. See " Tax Matters" herein.
$SMU= SACRAMENTO MUNICIPAL UTILITY DISTRICT
$161,905,000 Electrlc Revenue Refunding Bonds,1988 Series V
$170,000,000 Electric Revenue Bonds,1988 Series W i
D:ted: October 15,1988 Due: August 15, as shown below l
The Series V Bonds and the Series W Bonds will be issued as fully registered bonds and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York. The Depository Trust Company will act as secunties drpository (the Secunties Depository) of the Series V Bonds and the Senes W Bonds. Individual purchases of interests in the Series V Bonds and the Senes W Bonds will oe made in book-entry form only, in the principal amount of $5,000 or any integral multiple thereof. ,
Purchasers of such interests will not receive bonds representing their interests in the Series V Bonds or the Senes W Bonds. Principal and interest are payable directly to the Secunties Depository by Bank of America National Trust and Savings Association, San Francisco, California, Trustee and Paying Agent. Principal is payable on the dates set forth below. Interest is payable on February 15.1989,and semiannually thereafter on February 15 and August 15 in each year. Upon receipt of payments of pnncipal and interest, the Secunties i Depository will in turn remit such principal and interest to the Securities Depository's Participants (as such term is herein defined) for a subsequent disbursement to the purchasers of interests in the Senes V Bonds and the Senes W Bonds. as desenbed herein. The Series V Bonds and the Senes W Bonds will be subject to redemption prior to maturity as set forth herein.
The principal of and interest on the Series V Bonds and the Series W Bonds, together with the debt service on other Partty Bonds, tr2 payable exclusively from and s6 cured by a pledge of the Not Revenues of the Electric System of the District. Nesther the credit nor the taxing power of the District or the State of California is pledged to the payment of the Series V Bonds or the Series W Bonds.
SERIES V BCNDS Interest Price or Interest Price of Due Amount Rate Yield Due Amount Rate Yield 1990. $1,730.000 6% % 100% 1996. 52.560.000 79 % 100%
1991. 1.840.000 6% 100 1997. 2.745.000 7 30 7 35 1992. 1.955.000 6.70 100 1998. 2.940.000 7.40 7.45 1993. 2.090.000 6.90 100 1999. 3.165.000 75 7.55 1994 2.230.000 7 100 2000. 3 en 000 ' cc ~ 35 1995. 2,390,000 7.15 100
$11,850,000 74% Term Bonds Due August 15, 2003 @ 99.50%
M7,570,000 7%% Term Bonds Due August 15, 2016 @ 99.25%
$25,440,000 7w% Term Bonds Due August 15, 2018 @ 95.25%
(Plus Accrued Interest from October 15,1988)
SERIES W BONDS Interest Price or Interest Price or Due Amount Rate Yield Due Amount Rate Yield 1990. $1,820.000 6% % 100% 1996. $2.690,000 7% % 100%
1991 . 1,925.000 6% 100 1997. 2.880,000 7.30 7.35 1992. 2,055.000 6.70 100 1998. 3.090.000 7.40 7.45 1993. 2.195,000 6.90 103 1999. 3.320.000 7W 7.55 1994. 2.345,000 7 100 2000. 3.570.000 7 60 7.65 1995. 2,505,000 7.15 100
$ 12,440,000 7%% Term Bonds Due August 15, 2003 @ 99.50%
$102,455,000 7h% Term Bonda Due August 15, 2016 @ 99.25%
$ 26,710,000 7%% Term Bonds Due August 15,2018 @ 95.25%
(Plus Accrued Interest from October 15,1988)
The Series V Bonds and the Series W Bonds are offered when, as and if issued and received by the Underwnters, subject to the approval of legality by Orrick, Herrington & Sutcliffe, Sacramento, California, bond counsel to the Distnct. Certain legal matters will be passed on for the District by David S. Kaplan, Esq., its General Counsel, and for the Underwnters by their counsel, Mudge Rose Guthne Alexander & Ferdon, New York, New York. It is expected that the Series V Bonds and the Senes W Bonds in definitive form will be ready for delivery in New York, New York, on or about November 2,1988.
Goldman, Sachs & Co.
Grigsby, Brandford & Co., Inc. Merrill Lynch Capital Markets PaineWebber incorporated Shearson Lehman Hutton Inc.
Smith Barney, Harris Upham & Co. ,
incorporated Dated: October 27,1988
[u i- ,
.g SACRAMENTO MUNICIPAL UTILITY DISTRICT Sacramento, California BOARD OF DIRECTORS Clifford R. Wilcox, President Cortus T. Koehler, Vice President John T. Kehne Edward A. Smelcff, Jr.
u Ann L. Taylor OFFICERS AND EXECUTIVES '
David A. Boggs Joseph F. Firlit General Manager Chief Executive Oftcer, Nuclear Frank J. Hahn Walter Gaebler 11 Assistant General Manager, Assistant General Manager, Corporate Planning and Contracts Finance Robert Croley John L. Ravera Assistant General Manager, Assistant General Manager, Nuclear Technical Services Corporate and Customer Services Leo A. Fassler James R. Sheller Assistant GeneralManager, Assistant General Manager, District Operations Nuclear Support Sertdces Dan Keuter David S. Kaplan Assistant General Manager, General Counsel and Secretary Nuclear Power Production Richard W. Vorpe Treasurer SPECIAL SERVICES j ORRICK, HERRINGTON & SUTCLIFFE, Sacramento Bond Counsel BANK OF AMERICA NATIONAL trust AND SAv!NGS ASSOCIATION, San Francisco ;
Trustee and Paying Agent R.W. BECK AND ASSOCIATES, Sacramento j Consulting Engineer ARTHUR ANDERSEN & CO., San Francisco Auditors l 1
RAUSCIIER PIERCE REPSNES, INC., San Francisco l Pinancial Consultant Main Office of the District: 6201 S Street, Sacramento, California 958171899 Mailing Address: P.O. Box 15830, Sacramento, California 95852-1830 Telephone: (916) 452-3211 1
l i
No dealer, broker, salesman or other person has been authorized by the District or the Underwriters to give any information or to make any representations with respect to the Series V Bonds or the Series W Bonds other than those contained in this Official Statement, and if given or made, such information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an otter to sell nor the solicitation of an offer to buy, nor shall there be any sale of the Series V Bonds or the Series W Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the District and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or comple.teness by, and is not to be construed as a representation of, the Underwrit-ers. The information and expressions of opinion stated herein are subject to change without notice. The delivery of this Official Statement shall not, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof.
{
IN CONNECTION WITil Tile OFFERING OF THE SERIES V BONDS AND THE SERIES W BONDS THE UNDERWRITERS MAY OVERALLOT OR EFFECT TR ANSACTIONS WHICH STABI-LIZE OR MAINTAIN THE MARKET PRICES OF SUCH BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL ON THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
E TABLE OF CONTENTS Page Page INTRODUCTION . . . . . . . 1 Co n se rv a t io n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 PLAN OF REFUNDING . 2 CAPITAL REQUIREMENTS. OUTSTANDING INDEBT-Tile SERIES v BONDS . . . . . . . . . . .... 3 EDNFSS AND PROJECTED OPERATING
- pplication of Series V Bond Proceeds . 3 R ESU LTS . . . . . . . . . . .... 44 Redemption Provisions . 3 Estimated Capital Requirements ... and......Long-Term THE SERIES W BONDS . . . . . . . . . . .... 4 Debt issuance . . . . . . 44 Application of Series W Bond Proceeds. 4 Outstandmg Indebtedness . 45 Redemption Provisions . . 5 Projected Operatmg Results. 47 NOTICE OF REDEMPTION . 6 THE SERVICE AREA . 48 BOOK. ENTRY BONDS . . . . . . . 6 Growth Statistics . 49 SECURITY FOR Tile BONDS. 8 Agriculture . . . . . . . . . ... ... ... 50 Certain Definitions 8 Government and Other Employment . 51 Allocation of Revenues . 9 Transportation . . . 51 Reserve Fund . 10 Ed ucational Facilit ies . . . . . . . . . . . . . . . . . . . . . . . . 52 Rates and Charges. . . ....... . ... ....... 10 CLAIMS UNDER ADJUDICATION AND OTl!ER Limitations on Additional Obligations Payable from POTENTIAL DEMANDS AGMNST Tile Revenues .. 10 DI ST R I CT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 THE DISTRICT . . . . . . . 13 FACTORS AFFECTING Tile DISTRICT AND Tile organization and Powers . 13 ELECTRIC UTILITY INDUSTRY GENERALLY 55 Management . . . . . 13
SUMMARY
OF CERTAIN PROVISIONS OF Tile Management Systems . 16 RESOLUTION . 57 Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Additional Covenants . 57 CERTAIN OPERATING AND FINANCIAL DATA . 17 Tax Covenants . . . . . . .... 58 Management's Discussion of Operating Results. 19 Amendment of the Resolution . .............. 58 '
1988 Budget and Proposed 1989 Budget . 20 Events of Default and Remedies of Bondholders . 58 Ti!E ELECTRIC SYSTEM 22 Discharge of itesolution. 59 RANCl!O SECO. 22 i n vestme n t o f Fu nds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Restart ........ .... 23
SUMMARY
OF CERTAIN PROVISIONS OF THE Initiative and Referendum . 23 SUBORDINATE RESOLUTION 60 Divestiture . . . . . . . . . . ..... ....... 24 Certain Definitions . . . ........ 60 An Assessment of Terminating Rancho Seco . 25 Subordinated Bond Reserve Fund . 61 Nuclear Fuel . . . . 26 Rates and Charges. . . ......... . ... ........ 61 Decommissioning . 26 Limitatines on Additional Obligations Payable from Setsmology . . . . . . . . 27 Net Subordinated Revenues . 62 OTilER FACILITIES . 27 RATINGS . 62 liydroelectric Generation . 27 UNDERW RITING . 63 APPROV AL OF LEG AL PROCEEDINGS . 63
..$..... TAX MATTERS . 63 Combustion Turbine . 29 Solar Photovoltaic . . . . . . . . . . ... ... 29 MISCELLAN EOUS . 65 Transmission and Distribution Facilities . 30 APPENDIX A-Consulting Engineer's Report by R W.
A n ries of Financial and Operating
%se femn St atistics . B.1 Agreements with PG&E. .. 31 Edison Power Sale . Agreement. . . 35 APPENDIX C-Sacramento Municipal I tility Di. strict F'nancial Statements at December 31,1987 and Au.
Pacific Power and Light Contract. 35 l Power Pool '.treements. 36 ditors' Report . C-1 RATES A ND GIARGES. 37 APPENDIX D-Propmed Forms of Legal Opinions . D-1
^ e Han o co Utilization i O[!NCI!UNS ANNEUTURE' e RESOt RCES . . . . . . ....... .. 41 Puture Generating Resources and Alternatives . 41 i
OFFICIAL STATEMENT Relating to SACRAMENTO MUNICIPAL UTILITY DISTRICT
$161,905,000 Electric Revenue Refunding Bonds,1988 Series V
$170,000,000 Electric Revenue Bonds,1988 Series W This Oflicial Statement describes the Sacramento Municipal Utility District (the District), a political subdivision of the State of California, and its $161,005,000 Electric Revenue Refunding Bonds,1988 Series V (the Series V Bonds) and its $170,000,000 Electric Revenue Bonds,1988 Series W (the Series W Bonds) in connection with the sale by the District of the Series V Bonds and the Series W Bonds. The Series V Bonds are being issued to refund all of the District's outstanding Electric Revenue Bonds, Series T (the Series T Bonds) and the District's outstand-ing Electric Revenue Bonds, Series U (the Series U Bonds). The Series W Bonds are being issued to finance a portion of the District's construction program.
The Series V and Series W Bonds are part of an Electric Revenue Bond authorization for the District (the Bonds) and are issued pursuant to Resolution No. 6649 (the Master Resolution) adopted in 1971, as amended and supplemented, and applicable California law, including the Municipal Utility District Act (Public Utilities Code Sections 12850 to 12860), Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California (Government Code Sections 53582 et seq.) and the Revenue Bond Law of 1941 (Government Code Sections 54300 et seq.). After the issuance of the Series V Bonds and the Series W Bonds, and giving effect to the refunding of the Series T Bonds and the Series U Bonds, $1,063,725,000 aggregate principal amount of the Bonds will be outstanding. The Series V Bonds and the Series W Borxis were authorized on October 27,1988, by the Board of Directors of the District in Resolution No. 88-10-54 (the Twenty Fourth Supplemental Resolution) and Resolution No. 88-10-56 (the Twenty-Fifth Supplemental Resolution), respectively. The Master Resolution and all supplemental resolutions, including the Twenty-Fourth Supplemental Resolution and the Twenty-Fifth Supplemental Resolution, are collectively referred to herein as the Resolution.
The District also has outstanding $491,495,000 principal amount of Subordinated Electric Revenue Bonds,1985 Refunding Series (the 1985 Subordinated Bonds), the proceeds of which were used to refund certain Bonds and other indebtedness of the District. The 1985 Subordi-nated Bonds were issued pursuant to Resolution No. 85-11-1 of the District, adopted on November 7,1985, as amended and supplemented (the Subordinate Resolution). The 1985 Subordinated Bonds are payable solely from the Net Subordinated Revenues of the Electric System and are subordinate and subject in right of payment to the prior payment in full of the Bonds.
The Series V Bonds and the Series W Bonds are being issued independently of one another so that it is not a condition for the issuance and delivery of one such Series that the other such Series must also be issued and delivered.
INTRODUCTION The District is responsible for the acquisition, generation, transmission and distribution of electric power to its service area, which includes the principal parts of Sacramento County and a small adjoining portion of Placer County. The estimated population of the service area was 961,900 as of December 31,1987. For the year ended December 31,1987, the District served an average of 407,170 customers and had total sales of 7,418 million kilowatt hours (kWh). The District owns and operates an electric system which includes generating facilities with an aggregate generating capacity of 1,760 megawatts (MW) and transmission and distribution facilities (see "The Electric System", " Rancho Seco" and "Other Facilities"). The District's power requirerunts exceed its generating capacity and thus the District has contracts with others for the balance of its power requirements (see " Power Purchase Agreements").
The District's 913 MW Rancho Seco nuclear power plant (Rancho Seco), experienced an unplanned outage from December 1985 until restart in March 1988. Since that date, the plant has been deemed commercially operable, has reached a 92 percent power output level and has 1
I e
substantially completed all testing associated with the District's power ascension program. See
" Rancho Seco-Restart" for a description of this outage and restart and the District's power r ascension program. {
At a recent election, the voters of the District narrowly defeated an initiative (the Measure B Initiative) which would have required the immediate shutdown of Rancho Seco and narrowly adopted a referendum (the Measure C Referendum) which allows Hancho Seco to be i operated for a " trial period" of approximately 18 months with continued operation thereafter being conditioned upon voter approval at a second election. This election is scheduled for June 1989. See " Rancho Seco-Initiative and Referendum" for a description of the Measure B Initiative and Measure C Referendum. Also see " Rancho Seco-An Assessment of Terminating Rancho Seco" for a description of the possible effects on the District should the voters of the District decide to discontinue Rancho Seco operation in the June 1989 election. ,
The District and Pacific Gas and Electric Company (PG&E) recently entered into a memorandum of understanding and certain agreements which, together with other companion agreements yet to be completed, are expected to settle all legal disputes between PG&E and the '
District and to provide the District with new post-1989 power supply, interconnection and transmission arrangements. The District has also recently executed power sale agreements with PG&E and Southern California Edison (Edison) which are intended to complement the District's post-1989 power supply requirements (the PG&E Power Sale Agreement and the Edison Power Sale Agreement) (see " Power Purchase Agreements").
Primarily as a result of the outage at Rancho Seco, the District's financial results in 1986 and 1987 and the first six months of 1988 have deteriorated from historical levels (see "Certain Operating and Financial Data").
R.W. Beck and Associates has been retained as Consulting Engineer for the District (the Consulting Engineer) for the purpose of preparing its report dated October 14,1988 (the Consulting Engineer's Report) included in Appendix A hereto, which should be read in its entirety in conjunction with the Official Statement.
PLAN OF REFUNDING s The District previously issued its Series T Bonds in the aggregate principal amount of
$60,000,000 and its Series U Bonds in the aggregate principal amount of $90,000,000, all of which Bonds are currently outstanding. In order to restructure debt service and obtain debt service savings, the District is refunding all of the Series T Bonds and the Series U Bonds from a '
portion of the net proceeds of the Series V Bonds and other funds of the District.
The District will deposit a portion of the proceeds of the Series V Bonds and other available funds in vrust with the Trustee in the Refunding Fund. The money so deposited will be invested in direct obligations of the United States of America (Federal Securities), the interest on and principal of which will be sufficient to pay: (i) the principal of and interest on the Series T Bonds due on August 15,1993 and August 15,1994, and (ii) the interest on the Series U Bonds accruing up to August 15,1992, and to redeem at par the Series U Bonds remaining outstanding on August 15,1992. Upon such deposit and provision for any required redemption notices, all liability of the District in respect of the Series T Bonds and the Series U Bonds will cease. The holders thereof will thereafter be entitled to payment from the District only out of the money or i
Federal Securities so deposited, and the Series T Bonds and the Series U Bonds will no longer be
' outstanding under the Resolution.
The District recently offered to purchase refunded Series T Bonds and Series U Bonds. Any /
l purchases will be made from proceeds of the sale of the Federal Securities used to refund the l Series T Bonds and the Series U Bonds provided that, after any such sale, the Federal Securities remaining in the Refunding Fund will be sufficient to pay the principal of and interest on the Series T Bonds and Series U Bonds not purchased pursuant to such ofter. .
The District may later purchase Series T and Series U Bonds not purchased in accordance with any such offer. Such later purchaser, may be at public or private sale and at such prices 2 s
l .
(which may be higher or lower than those of such offer) and from any source of funds as the District may determine.
THE SERIES V BONDS Application of Series V Bond Proceeds The proceeds of the Series V Bonds (excluding accrued interest) are expected to be applied as follows:
Deposits to Refund Series T and Series U Bonds .. . $147,344,742 Electric Revenue Bond Reserve Fund . . ...... 10,366,031 Costs of Issuance . . . . . . . . ..... .. 230,662 Original lssue Discount . . . .. . .. . 2,044,991 Underwrit! /, Discount .. . . . . .. .. 1,918,574 Total .. . . .. $161,905,000 Accrued interest will be deposited in the Electric Revenue Bond Interest Fund.
Redemption Provisions Optional Redemption. Series V Bonds maturing on and before August 15,1998, are -ot subject to redemption prior to their respective stated maturities. Series V Bonds maturing on and after August 15,1999 (other than the Series V Bonds maturing on August 15, 2018), are subject to redemption prior to their respective stated maturities, at the option of the District, from any source of available funds, as a whole on any date, or in part on any interest payment date, by lot within a maturity, on and after August 15,1998, at the following redemption prices (computed upon the principal amount of Series V Bonds called for redemption), together with accrued interest to the date of redemption:
Series V Bonds Redeemed on and After And Prior to Redemption August 15, August 15, Price 1998. .. . . . 1999 102%
1999. .. . 2000 101 2000. . . . . Maturity 100 Series V Bonds maturing on August 15,2018 are subject to redemption prior to August 15, 2018, at the option of the District, from any source oi available funds, as a whole on any date, or in part on any interest payment (and, if in part, such Series V Bonds to be redeemed to be selected by lot), on and a.fter August 15, 1998, at a redemption price equal to the principal amount of such Series V Bonds to be redeemed, together with accrued interest to the date of redemption.
Mar.datory Redemption. Series V Bonds maturing on August 15,2003, August 15,2016, and August 15,2018, are also subject to redemption prior to maturity, in part, by lot, from sinking fund payments required by the Twenty-Fourth Supplemental Resolution at the principal amount thereof and accrued interest thereon to the date of re mption, as shown below:
Series V Bonds Due August 15,:
Principal Amount of Payment Series V Dates Bonds to be
( August 15) Redeemed 2001. . $ 3,660,000 2002. 3,940,000 2003. . . 4,250,000 3
e e
Series V Bonds Dae August IS,2016 Principal Amount of Sedes V Bonds to be Payment Redeemed Dates . . $ 4,575,000
( August 15) .......... 4,935,000 2004........ .
5,325,000 2005.. .... . . .. ..... . ..... ..
5,745,000 g 2006. .. .. .......
6,200,000 g 2007. . .. ... ..
6,685,000 2008... . 7,210,000 2009. .. .. .... .......
7,785,000 2010........ ..
8,390,000 2011... .. . .
9,055,000 2012.... ..
.. . .. . 9,765,000 2013. ....
10,535,000 2014.. ..... . . .. .
11,365,000 2015.... .. .
2016. . ... . .
15,2018 Series V Bonds Due August Principal Amount of Series V Bonds to be Payment Redeemed Dates $12,260,000 (August 16) .. . . .
13,180,000 2017. ...
2018... ,
d to purchase Series V Bonds maturing Subject to certain exceptions, no Money in the Series V Bond Sinking 15,2018.Fund may be use inking fund payments until all Series V on August 15, 2003, August 15,2016 and August Series V Bond shall be purchased or redeemed from s Bonds of prior maturities have been retired. ith respect to any sinking fund f ll payment t date the aggregate principal amount o a '
The District shall not besinking for any Series V Bonds if at any d deemed through fund the to beoperation paymen in defaultofwthe Ser i nd Series V Bonds theretofore District ispurchased in compliance or redeemeFu ibed with its ra exceeds the aggregate amount of all s n theretofore due and payable and ifd Charges" the under " Security For The Bonds-Rates an THE SERIES W BONDS Application of Series W Bond Proceeds d interest) ~are expected to be applied The proceeds of the Series W Bonds (excluding accrue
$ 154,710,000 as follows: .
10,884,332 Electric Revenue Bond Fund (Construction) . 243,995 Electric Revenue Bond Reserve Fund . . .
. 2,147,173 2,014,500 Costs of Issuance .
OriginalIssue Discount $170,000,000 Underwriting Discount . . .
Total .
Revenue Bond Interest Fund.
Accrued interest will be deposited in the Electric 4
Redemption Provisions Optional Redemption. Series W Bonds maturing on and before August 15,1998, are not subject to redemption prior to their respective stated maturities. Series W Bonds maturing on and after August 15,1999 (other than the Series W Bonds maturing on August 15, 2018), are subject to redemption prior to their respective stated maturities, at the option of the District, from any source tof available funds, as a whole on any date, or in put on any interest payment date, by lot within a maturity, on and after August 15,1998, at the following redemption prices (computed upon the principal amount of Series W Bonds called for redemption), together with accrued interest to the date of redemption:
Series W Bonda Redeemed On and After And Prior to Redemption August 15, August 15, Price 1998. . . . .. 1999 102 %
1999.. . .. .. .. 2000 101 2000. .. ... . Maturity 100 Series W Bonds maturing on August 15,2018 are subject to redemption prior to August 15, 2018, at the option of the District, from any source of available funds, as a whole on any date, or in part on any interest payment (and, if in part, such Series W Bonds to be redeemed to be selected by lot), on and after August 15,1998, at a redemption price equal to the principal amount of such Series W Bonds to be redeemed, together with accrued interest to the date of redemption.
Mandatory Redemption. Series W Bonds maturing on August 15,2003, August 15,2016 and on August 15,2018, are also subject to redemption prior to maturity, in part, by lot, from sinking fund payments required by the Twenty-Fifth Supplemental Resolution at the principal amount thereof and accrued interest thereon to the date of redemption, as shown below:
Series W Bonds Due August 15,2003 Principal Amount of Payment Series W -
Dates Bonds to be (August l5) Redeemed 2001. . . . . .
$ 3,845,000 2002. .. .. .. . . . 4,135,000 2003. . .. 4,460,000 Series W Bonds Due August 15,2016 Principal Amount of Payment Series W Dates Bonds to be
( August 15) Redeemed 2004. . ... . . $ 4,810,000 2005. . .
5,180,000 2006.. .
5,595,000 2007. . . . . 6,030,000 2008. .
6,510,000 2009. . .
7,020,000 2010. . . . . 7,570,000 8,170,000 l
2011. . . .
2012. .
. 8,810,000 i
2013. 9,510,000
' 10,255,000 2014.
'O15. I1,060,000 A)l 6. . .
11,935,000 5
In 4
o a
Series W Bonde Due August 15,2018 Principal Amount of Payment Series W Dates Bonds to be (August 15) Redeemed 2017.. .... . . .. ... . $ 12,875,000 2018. .. ... .. . . .. ... 13,835,000 Money in the Series W Bond Sinking Fund may be used to purchase Series W Bonds maturing on August 15,2003, August 15,2016 and August 15, 2018. Subject to certain exceptions, no Series W Bond shall be purchased or redeemed from sinking fund payments until all Series W Bonds of prior maturities have been retired.
The District shall not be deemed to be in default with respect to any sinking fund payment for any Series W Bonds if at any sinking fund payment date the aggregate principal amount of all Series W Bonds theretofore purchased or redeemed through the operation of the Series W Sinking Fund or otherwise (together with any moneys then in the Series W Sinking Fund) equals or exceeds the aggregate amount of all sinking fund payments for Series W Bonds then and theretofore due and payable and if the District is in compliance with its rate covenant described under " Security For The Bonds-Rates and Charges" NOTICE OF REDEMPTION Notice of redemption for the Series V and Series W Bonds will be given by publication at least once in financial newspapers or journals, selected by the Trustee, of general circulation in San Francisco, California, Chicago, Illinois, and New York, New York, each such publication to be not less than 30 nor more than 60 days before the date fixed for redemption. Notice also will be mailed to the registered owners of any Bonds designated for redemption, but failure to mail such notice or any defect therein will not affect the sufficiency of the redemption proceedings.
See, however, " Book-Entry Bonds."
BOOK-ENTRY BONDS Beneficial ownership interests in the Series V Bonds and Series W Bonds will be available in book-entry form only, in the principal amount of $5,000 or integral multiples thereof. Purchas-ers of beneficial ownership interests in the Series V Bonds and Series W Bonds will not receive certificates representing their interests in the Series V Bonds and Series W Bonds and will not be Bondholders or owners of Bonds under the Resolution.
The Depository Trust Company, New York, New York (1)TC), an automated clearinghouse for securities transactions, will act as securities depository (the Securities Depository) for the Series V Bonds and Series W Bonds. One fully registered bond for each maturity of Series V Bonds and Series W Bonds as set forth on the cover page of this Official Statement, each in the aggregate principal amount of such maturity, will be registered in the name of and held by Cede
& Co., as nominee of DTC. DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a " clearing corporation" within the meaning of the New York Uniform Commercial Code, and a " clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC was created to hold securities on behalf of its participants (the Participants) and to facilitate the clearance and settlement of securities transactions among Participants in such securities through electronic book-entry changes in accounts of the Participants, thereby eliminating the need for physical movement of securities certificates. Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations, some of which (and/or their representatives) own DTC. Access to the DTC 6
1
. 4 system is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly.
Beneficial ownership interests in the Series V Bonds and Series W Bonds may be purchased by or through Participants and will be recorded on the records of the Participants, whose '
interests in turn will be recorded on a computerized book-entry system operated by DTC. Such Participants and the persons for which they acquire beneficial ownership interests in the Series V Bonds and Series W Bonds as nominees (Beneficial Owners) will not receive bond certificates, but each such Participant will receive a credit balance in the records of DTC in the amount of such Participant's interest in the Series V Bonds or Series W Bonds which will be confirmed in accordance with DTC's standard procedures. Each such Beneficial Owner for which a Participant acquires an interest in the Series V Bonds or Series W Bonds, as nominee, may desire to make arrangements with such Participant to have all other communications of the District to DTC which may affect such Beneficial Owner to be forwarded in writing by such Participant and to have notification made of all principal and interest payments. The District may treat DTC (or its nominee) as the sole and exclusive owner of the Series V Bonds and Series W Bonds registered in its name (or the name of its nominee) for the purpose of payment of the principal of and premium, if any, or interest on the Series V Bonds and Series W Bonds, giving any notice permitted or required to be given to Bondholders under the Resolution, registering the transfer of Series V Bonds and Series W Bonds, obtaining any consent or other action to be taken by Bondholders and for all other purposes whatsoever; and shall not be affected by any notice to the contrary. The District shall not have any responsibility or obligation to any Participant, any Beneficial Owner or any other person claiming a beneficial ownership interest in the Series V Bonds or Series W Bonds under or through DTC or any Participant, or any other person which is not shown on the registration books of the District (kept by Bank of America =
National Trust and Savings Association as registrar) as being a Bondholder, with respect to the accuracy of any records maintained by DTC or any Participant; the payment by DTC or any Participant of any amount in respect of the principal of and premium, if any, or interest on the Series V Bonds and Series W Bonds; any notice which is permitted or required to be given to Bondholders under the Resolution; or any consent given or other action taken by DTC as a Bondholder.
Principal of and interest on the Series V Bonds and Series W Bonds and other payments on the Series V Bonds and Series W Bonds will be payable by the District to DTC, which is in turn responsible for remitting such principal, interest or other payment to its Participants for subsequent disbursal to the Beneficial Owners.
For every transfer and exchange of a beneficial ownership interest in the Series V Bonds or Series W Bonds, DTC may charge the Participants and the Participants may charge the Beneficial Owner a sum sufficient to cover any tax, fee or other government charge that may be imposed in relation thereto.
In the event the District determines not to continue the DTC book-entry system or DTC determines to discontinue providing its services with respect to the Series V Bonds or Series W o
Bonds and the District does not select another qualified securities depository, the District shall ,
deliver one or more Series V Bonds or Series W Bonds (as the case mn be) certificates of like principal amount, series and maturity, in denominations of $5,000 or any whole multiple thereof, to the Participants or the identifiable Beneficial Owners in replacement of such Participants' or Beneficial Owners' beneficial interests in Series V Bonds or Series W Bonds. In such event, transfers and exchanges of Series V Bonds and Series W Bonds will be governed by the provisions of the Resolution.
The foregoing description of the procedures and record keeping with respect to beneficial _
ownership interests in the Series V Bonds and Series W Bonds, payment of principal, interest and other payments on the Series V Bonds or Series W Bonds to Participants or Beneficial l Owners, confirmation and transfers of beneficial ownership interests in such Bonds and other I '
7 B
3
, /
s 1
related transactions by and between DTC, the Participants and Beneficial Owners is based solely on the District's understanding of such procedures and record keeping. Accordingly, no repre-sentations can be made concerning these matters and neither the Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the si me with DTC or the Participants, as the case may be.
SECURITY FOR THE BONDS ,
The principal of and interest on the Bonds, together with other Parity Bonds, are payable exclusively from, and are secured by a pledge (effected in the manner and to the extent provided in the Resolution) of, the Net Revenues of the Electric System of the District.
I Neither the credit nor the taxing power of the District is pledged to the payment of the ' '
Bonds, and the general fund of the District is not liable for the payment thereof. The owners of the Bonds cannot compel the exercise of any taxing power of the District or ue forfeiture of any of its property. The Bonds are not a legal or equitable pledge, charge, lien or encumbrance upon any of the District's property (including the Electric System) or upon any of its income, receipts or revenues except the Net Revenues of the Electric System to the extent of the pledge thereof contained in the Resolution.
The following is a brief summary of certain definitions and provisions relating to the security for the Bonds contained in the Resolution. This summary is not to be considered a full statement of the terms of the Resolution and accordingly is qualifled by reference thereto and is subject to the full text thereof. See also " Summary of Certain Provisions of the Resolution."
Certain Definitions
" Electric System" means the entire electric system of the District, together with all "
additions, betterments, extensions and improvements.
" Energy Payments" means, when used with respect to the Electric System, all actual costs incurred, or charges made therefor, by the District in any particular fiscal year or period to which said term is applicable for purchased power (including power purchased from any special district included within the boundaries of the District), electric and thermal energy and capacity under contracts providing for payments by the District for electric or thermal energy or capacity whether or not such energy or capacity is delivered or capable of being delivered or otherwise made available to or received by or for the account of the District.
" Maintenance and operation costs" means all actual maintenance and operation costs ,
incurred by the District (including purchased power and fuel costs) or charges therefor made in conformity with generally accepted accounting principles, exclusive in all cases of depreciation 1 or obsolescence charges or reserves therefor, amortization of intangibles or other entries of a similar nature, interest charges and charges for the payment of principal of District debt.
" Net Revenues" for any fiscal period means the sum of (a) the Revenues for such fiscal period plus (b) the amounts,if any, withdrawn by the District from the Rate Stabilization Fund for treatment as Revenues for such fiscal period, less the sum of (c) all maintenance and operation costs for such fiscal period, (d) all Energy Payments for such fiscal period not included in maintenance and operation costs for such fiscal period, and (e) the amounts, if any, withdrawn by the District from Revenues for such fiscal period for deposit in the Rate Stabilization Fund pursuant to the Resolution.
" Parity Bonds" includes the Bonds and all revenue bonds hereafter issued on a parity with the Bonds as provided or permitted in the Resolution. No Parity Bonds (other than the Bonds) are currently outstanding. ..
" Rate Stabilization Fund" shall mean the fund established in the Resolution. From time to time, after provision for debt service, the District may deposit in the Rate Stabilization Fund from remaining Revenues such amounts as the District shall determine, provided that deposits 8
e
~
, w . .
4 in the Rate Stabilization Fund from remaining Revenues for fiscal years of the District ending on or before December 31,1984 shall be limited to an aggregate of $25 million and deposits from remaining Revenues for each fiscal year of the District ending after December 31,1984, may be made until (but not after) the date 120 days after the end of such fiscal year. The District may withdraw amounts from the Rate Stabilization Fund only for inclusion in Revenues for any fiscal year, such withdrawals to be made until (but not after) 120 days after the end of such fiscal year. All interest or other earnings upon deposits in the Rate Stabilization Fund shall be withdrawn therefrom and accounted for as Revenues. Notwithstanding the foregoing, no deposit of Rs zenues to the Rate Stabilization Fund may be made to the extent such Revenues were included in an engineer's certificate submitted in connection with the issuance of additional revenue bonds payable from Revenues and withdrawal of the Revenues to be deposited in the Rate Stabilization Fund from the Revenues employed in rendering said engineer's certificate would have caused noncompliance with the provisions of the Resolution restricting issuance of additional obligations or securities payable from Revenues or to the extent any withdrawal of amounts from remaining Revenues for the Rate Stabilization Fund for any fiscal year would have reduced the debt service ratio referred to under Reserve Fund" to or below 1.40.
" Revenues" means all charges received for, and all other income and receipts derived by the District from the operation of the Electric System, or arising from the Electric System (consist-ing primarily of income derived from the sale or use of electric energy generated, transmitted or distributed by facilities of the Electric System, but also including receipts from the sale of
- p. serty pertaining to the Electric System or incidental to the operation of the Electric System
, n im services performed by the District in connection with the Electric System and revenues dcGed from certain wholesale, but nct retail, sales of water), but exclusive in every case of any moneys derived from the levy or collection of taxes upon any taxable property in the District.
Allocation of Revenues After making an allocation of Revenues to maintenance and operation costs and to Energy Payments not included in maintenance and operation costs, the Treasurer of the District is required to set aside, on an equal priority with sums set aside for all other Parity Bonds, Net Revenues as follows:
First: To the Electric Revenue Bond Interest Fund, in approximately equal monthly installments on or before the first day of each month, an amount equal to at least one-fifth (%) of the aggregate amount of interest becoming due on the Bonds on the next succeeding semiannual interest payment date, until an amount sufficient to meet said interest payment is accumulated.
Second: To the Electric Revenue Bond Redemption Fund, to be set aside in the Principal Account and Sinking Fund, respectively, in approximately equal monthly install-ments on or before the first day of each month, an amount equal to at least one-tenth ( ) of the aggregate amount of principal becoming due on serial Bonds and the agt,regate minimum sinking fund payments required to be made with respect to term Bonds during the next ensuing 12 months, until an amount sufficient to meet the principal and sinking fund requirenients on all Bonds outstanding is accumulated in said accounts, respectively.
Third: To the Electric Revenue Bond Reserve Fund, such amounts as any supplemental resolution authorizing the issuance of a series of Bonds may require to build up and maintain said fund.
All remaining Revenues, after making the foregoing allocations, will be available to the District for all lawful District purposes. Such remaining Revenues will be used for the purpose 9
. 4 of, among other things, making any required deposits to the Rebate Fund. See " Summary of Certain Provisions of the Resolution-Tax Covenants."
Reserve Fund The Electric Revenue Bond Reserve Fund is a parity reserve fund for the equal benefit of all o Bonds and Parity Bonds outstanding. Moneys in such fund (except any excess over the required balance which may be withdrawn for any District use) shall be used solely for the purpose of making good any deficiency in any fund established for the payment of interest, principal cr sinking fund payments pursuant to the Resolution or any resolution authorizing the issuance of any Parity Bonds.
The Electric Revenue Bond Reserve Fund is required to be maintained in an amount such that the amount in the combined reserve funds of the Bonds and all Parity Bonds then outstanding will at no time be less than the current annual interest requirements an all then outstanding Bonds and Parity Bonds (except bonds for which payment has been provided in advance). Pursuant to the Resolution, tht amounts so held in the reserve funds are required to '
be systematically increased in the event that the District's debt service ratio in any fiscal year (the ratio of Net Revenues during said fiscal year to maximum annual debt service during the period of three fiscal years next following said fiscal year on all Bonds and Parity Bonds then 5 outstanding) shall fall below 1.40. The combined reserve funds cannot be required to exceed the 1 maximum annual debt service on all outstanding Bonds and Parity Bonds.
Rates and Charges The District has covenanted in the Resolution to establish and at all times maintain and ~
collect rates and charges for the sale or use of electric energy generated, transmitted, distrib-uted, or furnished by the District which, together with other income, will yield Revenues at least sufficient, with respect to the ensuing 12 months, to pay and provide for all sums required for maintenance and operation costs and Energy Payments not included in maintenance and operation costs and, in addition, to provide an aggregate sum equal to at least 1.20 times the total amount required for the payment of principal and interest, together with any sinking fund or reserve fund payments, on the Bonds and all Parity Bonds, in each case during such 12 months.
The District has full power to establish rates and charges for all District services, and the levels of such rates are not subject to review or regulation by any other governmental agency, either federal or state. For a more detailed discussion of rates see " Hates and Charges."
s ,
Limitations on Additional Obligations Payable from Revenues The Resolution provides that the District will not, so long as any Bonds are outstanding, issue any obligations payable in whole or in part from Revenues except the following:
(a) Refunding bonds issued solely to refund all or part of the Bonds or Parity Bonds.
(b) General obligation bonds or other securities secured by the full faith and credit of the District.
(c) Additional revenue bonds (including additional Bonds under the Resolution and additional Parity Bonds), payable on a parity with the Bonds, with an equal lien and charge !
upon the Revenues, but only subject to the following conditions:
c (1) Such additional revenue bonds shall have been authorized for and the proceeds therefrom required to be applied to additions, betterments, extensions or improvements to the Electric System (and necessary costs of issuance, interest during construction and reserve funds);
10
(2) The proceedings for the issuance of such additional revenue bonds shall require the District to fix and collect rates and charges in an amount not less, with i respect to such bonds, than the amounts required with respect to Bonds issued under the Resolution; (3) The District shall not then be in default under the Resolution or other resolutions authorizing the issuance of Parity Bonds; and (4) An independent engineer shall certify (i) that Net Revenues, after completion of the improvements proposed to be financed by such additional revenue bonds, will be sufBelent to pay the principal of and interest (and bond reserve fund requirements) on all Bonds and Parity Bonds then outstanding and on such additional revenue bonds; and (ii) that for a period of 12 consecutive months during the 24 months immediately (
preceding the issuance of the additional revenue bonds the Net Revenues have been at least equal to 1.25 times maximum annual debt service on all Bonds and Parity Bonds then outstanding and on such additional revenue bonds (after adjusting Net Revenues to include 75 percent of the estimated additional Net Revenues to be derived from an increase in rates and charges or from the acquisition of an existing revenue producing electric system); and (
(d) Revenue bonds junior and subordinate to the Bonds and Parity Bonds.
-b W
w s
l l #
11 w
s .
o N
99 -s-, ,
l ,,/,_ ROSEVILLE 6 %
g
. .- ~ s
- - - - s ransom
__ f l l. ~~
s' Sacramento SUBSTATION ,s-,,, ft ,
Metropolitan j 230,h Airport
[ McClellan A S.B .
g -
l l SUBSTATION ,e 5 4 SUBSTATION l
- J,
)
IO"O" i
l dRAMENTb * ,
/ \
3 , S BSTATION \
4 Mather Og h
Port of
, A.F.B.
/
j l
- q p
\ #
Sacramento g f 5,
\ _,,a#"#
Executive l SUBSTATION Airport g lg SUBSTATION
/s 1 d .l g l n l 'be
] ,
j l l N
!l ef, $ i \
___.__4=------
/ , ,
x 7 S..
(
Y
!/
!! ~-
I l
g.W
's
\
\
l
- I I
2 SAN FR ANCISCO LOS ANGELES 12
THE DISTRICT Organization and Powers The District was formed by vote of the electors in 1923 under provisions of the Municipal Utility District Act (the Act) enacted by the California State Legislature in 1921 and subse-quently codified as Division 6 of the California Public Utilities Code. District headquarters are in the City of Sacramento and its service area includes the principal parts of Sacramento County and a small adjoining portion of Placer County, Although organized in 1923, the District did not commence electric operations until the start of 1947. At that time the District acquired by cash purchase PG&E's electric system which was located within the District's service area. Since 1947 the District has provided all electric service within its service area Districts formed n m 'he Act have broad powers to acquire, construct, own and operate works for the supplyht .# .ight, water, heat, power, transportation and other services for their inhabitants. The sole activity of the District has been the acquisition, generation, transmission and distribution of electric energy.
The District is governed by the Board, which consists of five directors elected by ward for staggered four-year terms. The Board appoints a General Manager who is responsible for the District's operations. The Board also appoints the Chief Executive Officer, Nuclear (CEO, Nuclear), Assistant General Managers, Accountant, Secretary, Treasurer and General Counsel, all of whom serve at its pleasure. The appointment and removal of other employees falls under the jurisdiction of the General Manager. Except for special administrative and technical personnel, employment is under a civil service system adopted and administered by the General Manager.
The Act confers upon the District the necessary rights and powers for the conduct of its business, including the right to sue and be sued, to exercise the power of eminent domain, to enter into contracts of all kinds, to take property and construct works, to fix rates and charges for commodities or services furnished, to incur indebtedness and issue bonds or other obliga-tions and to invest its funds.
Management The Board makes policy decisions for the District which management administers. The present members of the Board are as follows:
Narne Occupation Term Expires Clifford R. Wilcox, President Agribusinessman December 31,1990 Cortus T. Koehler, Vice President Educator December 31,1988 John T. Kehoe . Businessman December 31,1988 Edward A. Smeloff, Jr. Research Specialist December 31,1990 Ann L. Taylor . .
Businesswoman December 31,1988 Of the three Board members whose terms expire at the end of 1988, Directors Koehler and Taylor are not seeking re-election.
l The management of the District is under the direction of its General Manager who serves at l the pleasure of the Board. Over the past two years, there have been several changes to and I reorganizations of the District's senior management. The most recent change was the June 1988 appointment of David A. Boggs as General Manager. Mr. Boggs replaced Richard K. Byrne whose employment contract was terminated by the Board approximately seven months after his appointment as General Manager. The senior management consists of the following executives:
13
O General Manager. David A. Boggs reports to the Board and was appointed General Manager in June 1988. In the capacity of General Manager, Mr. Boggs is responsible for the overall administration of the District. Prior to his appointment as General Manager, Mr.
Boggs served as Assistant General Manager, District Operations. Prior to joining the District in February 1988, Mr. Boggs held the position of General Manager for the Sacramento Regional Transit District and held various positions at Seattle Metro, Washington State Ferry System, Washington State Department of Highways, Bank of America National Trust and Savings Association and Seattle First National Bank. Mr. Boggs holds a B.A. degree in business administration from Evergreen State College.
Chief Executive Officer, Nuclear. Joseph F. Firlit reports to the General Menager and is responsible for the operations of Rancho Seco. Mr. Firlit was appointed to this position in June 1988. Mr. Firlit joined the District as Assistant General Manager, Nuclear Power Production in May 1987. Prior to joining the District, Mr. Firlit was an employee of the Consumers Power Company, most recently holding the position of General Manager at the Palisades Nuclear Plant. He also has served as General Manager at the Midland Plant; Director of Quality Assurance for all Consumers Power nuclear plants; Director of Manage-ment and Budget, Energy Supply and various other management positions. Mr. Firlit holds a B.S. degree in electrical engineering from University of Michigan and an M.B.A. degree from Wayne State University.
Assistant General Manager, Corporate Planning and Contracts. Frank J. Hahn reports to the General Manager and is responsible for Power Planning as wcll as Power Contracts and Marketing. Mr. Hahn was appointed to this position in June 1988. Prior to this appointment Mr. Hahn served in the former positions of Executive Director, Business Development Office; Deputy General Manager, District Operations; and Assistant General Manager, Planning, Programming and Budgeting. Prior to joining the District in 1985, Mr.
Hahn served as Chief of the Energy Division of the Department of Water Resources (State of California). He has also served on the staff of the California Energy Commission, first as a Siting Division Chief, then as Deputy Executive Director. Mr. Hahn holds a B.S. degree in electrical engineering and an M.S. degree in industrial management from Purdue University.
Assistant General Manager, Nuclear Technical Services. Robert Croley was ap-pointed to this position in July 1988, reports to the Chief Executive Officer, Nuclear and is responsible for Nuclear Engineering; Licensing; Environmental Monitoring and Emergency Preparedness; Materials Management and Project Management. Mr. Croley joined the District in March 1986 as Nuclear Technical Manager. Prior to joining the District, Mr.
Croley was employed for seven years with South Carolina Electric and Gas Company in a number of managerial positions. From 1969 to 1979 Mr. Croley was employed with Westinghouse Electric Corporation in several engineering positions. Mr. Croley holds a B.S.
degree in nuclear engineering from the University of Tennessee and an M.S. degree in nuclear engineering from Kansas State University.
Assistant General Manager, District Operations. Leo A. Fassler reports to the General Manager and is responsible for Energy Operations, Engineermg Services, Distribu-tion Construction, Generation Operations, and the District's participation in the Central California Power Agency. Mr. Fassler was appointed to this position in June 1988, having served in the former position of Assistant General Manager, Administration and Services since August 1986. He has been employed with the District since 1957 and began his career as a survey crew man. Mr. Passler is a certified electrical technician and holds an A.A.
degree in Electrical Technology from Sacramento City College.
Assistant General Manager, Nuclear Power Production. Dan Keuter reports to the CEO, Nuclear and is responsible for overseeing all departments involved in nuclear power production including: Operation; Maintenance; Plant Performance; Radiation Protection; 14
Chemistry; Scheduling and Outage Management. Mr. Keuter was appointed to this position in July 1988. Mr. Keuter joined the District in June 1987 as Director, Nuclear Opertitions and Maintenance. Prior to joining the District, Mr. Keuter was employed for 13 years with !
Portland General Electric Company at the Trojan Nuclear Powcr Plant where he held various positions. From May 1983 to June 1984, Mr. Keuter was loaned to the Institute of Nuclear Power Operations (INPO) as a Senior Operator Evaluator where he led evaluation teams at 12 different nuclear power plants. Mr. Keuter has a B.S. degree in nuclear engineering from Oregon State University.
Assistant General Manager, Nuclear Support Services. James R. Shetler reports to the CEO, Nuclear and is responsible for overseeing departments involved in plant support including: Costs Control / Strategic Planning and Office Services; Management Systems and Information Services; Nuclear Security; Iluman Resources; and Nuclear Training. Mr.
Shetler was appointed to this position in July 1988. Prior to this appointment, Mr. Shetler held various positions including Director Plant Support. Director System Review and Test Program, Director Administrative Services, and Manager, Nuclear Scheduling. Prior to this District appointment, Mr. Shetler was employed at Babcock & Wilcox Company ho.iding the positions of unit manager, product manager, and senior engineer. Mr. Shetler holds a B.3.
degree in chemical engineering from Clarkson College of Technology.
Assistant General Manager, Finance. Walter Gaebler 11 reports to the Genaral Manager and is responsible for Accounting, Treasury, Safety and Risk Management, and Internal Auditing. Prior to joining the District in this position in February 1988, Mr. Gaebler had served as chief financial officer for Massachusetts Municipal Wholesale Electric Com-pany since 1977. Prior to 1977, Mr. Gaebler held various financial positions at Omaha Publie Power District including chief financial officer. Mr. Gaebler holds a B.S. degree in business administration from University of Nebraska.
Assistant General Manager, Corporate and Customer Services. John L. Ravera reports to the General Manager and is responsible for Information Services, Customer Services, Human Resources, Energy Services, Corporate Analysis and Control, and General Services. Mr. Havera was appointed to this position in June 1988 and had previously served as Engineering Manager beginning in 1979. Mr. Havera joined the District in 1960 as an Electrical Engineering Assistant. Mr. Ravera holds a B.S. degree in electrical engineering from the University of California, Berkeley and an M.B.A. degree from California State University, Sacramento.
General Counsel and Secretary. David S. Kaplan has responsibility for all legal matters to which the District is a party or in which it is legally interested. He was appointed as the District's Attorney and General Counsel in 1970. Prior to that time, he was the Assistant Attorney for 15 years. He is an active member of the State Bar of California and received his L.L.B. degree from the University of California at Berkeley. Mr. Kaplan has been with the District since 1956.
Treasurer. Richard W. Vorpe reports to the Assistant General Manager, Finance.
Mr. Vorpe has custodial responsibility of the District's funds and directs the District's financial, investment and customer rates policies. Mr. Vorpe also serves as Treasurer for the Transmission Agency of Northern California and Central California Power Agency. Mr.
Vorpe joined the District in December 1987. Prior to that time Mr. Vorpe held the position of Finance Director with the Community Redevelopment Agency of the City of Los Angeles.
Mr. Vorpe holds an A.B. degree in public policy and an M.B.A. degree from the University of California, Berkeley and a J.D. degree from the University of California, Los Angeles.
15
Management Systems Senior management annually reviews the District's current goals and develops a long-term District strategy. The objectives developed in this process provide direction for the development of an operating and capital budget, management performance plans, departmental plans and a 20 year resource plan.
The District's Program Budget consists of a five-year capital and a two-year operating budget which details program and project requirements as well as financial projections. From the Program Budget, an annual budget is developed and approved by the District as required by the Act. The annual budget is used to measure performance and control expenditures at the various District units (see "Certain Operating and Financial Data").
The Strategic Resource Plan (the Resource Plan) is a 20 year resource plan which is adopted by the District biennially. Although the Resource Plan was last formally adopted by the Board on November 6,1980, it was substantially revised and updated in February 1988 to support a special study by the District and has continued to be updated since that time. The District expects to formally adopt a new Resource Plan in November 1988.
The assessment of future resource requirements for the Resource Plan is based upon a twenty-year load forecasi, which is submitted to the California Energy Commission (CEC). The load forecast is developed on the basis of an econometric and end-use model and reflecta the implementation of a number of conservation and 'ioad management programs. This forms the basis for an integrated resource plan which is based on "least-cost planning" and strikes a balance between load management and conservation programs, new generation and power contracts. Needs identified in the Resource Plan are developed into generatior and transmission projects, load management and conservation programs and negotiation goals which are then assigned to engineering project managers, conservation program managers and nower contracts negotiators (see " Growth Projections and Future Resources-Future Generating Resources and Alternatives").
The District's Business Forecast is a financial model which is based on the Resource Plan, the Program Budget and various financial policies adopted by the District. The Business Forecast projects operating results for the period 1988 through 1992 and is the basis for the Projected Operating Results (the Projected Operating Results) in the Consulting Engineer's Report (see Appendix A). The Business Forecast is revised and updated several times through-out the fiscal year to reflect the current financial and operating assumptions Employee Relations The District has approximately 3,000 employee?, nearly all of whom have civil service status and t>enefits of the California Public Employees' Retirement System (PERS).
The District's employees, other than managers, supervisors, professional and exempt employees, are represented by recognized employee organizations of their own choosing.
Physical force (craft) employees are represented by the International Brotherhood of Electrical Workers (lBEW) and clerical, technical and customer contact employees are represented by the Organization of SMUD Employees (OSE). The District's management meets and confers with these organizations regarding wagos, hours and other terms and conditions of employment.
Agreements reached in these meetings and conferences are sct forth in written memoranda of understanding.
The District recently entered into a memorandum of understanding with the IBEW which expires on December 31,1990 and a memorandum of understanding with OSE which expires on June 30,1991, each of which have been approved by all partis thereto. The District has experienced only one labor interruption, which occurred in January 1980 and lasted for four days. The dispete was a pay-scale issue between the District and the IBEW.
16
M The District's employees are covered by a contributory retirement plan administered by PERS. PERS has reported that the District's share of the actuarially determined unfunded obligation as of June 30,1987 (date of latest actuarial report), was approximately $48 million j after taking into consideration accumulated assets available for benefits of approximately $240 million. The District is presently making payments to the plan which are expected to fully fund its pension liabilities by the year 2000.
CERTAIN OPERATING AND FINANCIAL DATA Certain operating and financial statistics of the District for the four years ended December 31, 1984 through 1987 and for the six month periods ended June 30,1987 and 1988 are summarized below and in Appendix B. The results of operations for the six months ended June 30,1988 are not necessarily indicative of results which may be expected for the entire year ending December 31,1988. The District's audited financial statements, consisting of balance sheets as of December 31,1986 and 1987, and the related statements of income and funds used for construction and nuclear fuel for each of the three years in the period ended December 31, 1987, are set forth in Appendix C.
b OPERATING DATA Six Months Ended June 30, Year Ended December 31, 1988 1987 1987 1986 1985 1984 Number of Customers at 383,796 369,179 End of Period. 419,122 406,598 414,079 399,130 System Peak Demand-kW(1) 1,817,155 1,842,884 1,886,341 1,797,540 1,850,695 1,730,123 KWh Sold (in thousands):
To Customers . . . . . 3,668,303 3,679,682 7,418,577 7,014,936 6,881,631 6,359,811 Surplus Power (2) .
~4,802 566,883 2,539,323 Total kWh Sold . .
3,668,303 3,679,682 7,418,577 7,089,738 7,448,514 8,899,137 Average kWh Sales per 9,609 Residential Customer. 4.363 4,633 8,914 8,901 9,544 Number of Equivalent Full-Time Employees 2,843 2,786 2,842 2,743 2,562 2,419 at End of Period .
(1) A record system peak demand of 2,109 MW was set on July 18,1988.
(2) Includes deliveries to the energy exchange account as described in " Power Purchase Agreements-Agreements with PG&E."
l l
l 17
4 FINANCIAL DATA Six Months Ended June 30, Year Ended December 31, 1988 1987 1987 1986 1985 1984 Summary finca:::
(thousands of dollars)
Operating Revenues . .
$ 255,727 8 233,819 8 513,235 8 412,935 $ 357,536 8 344,792 Operating Expenses. 227,189 198,800 446,765 367,503 341,609 246,961 Operating Income. 28,538 35,019 66,470 45,432 15,927 97,831 Other Income . 14,763 18,067 35,826 30,535 48,656 34,329 Interest Charges. . (52,514) (44.388) (91,753) (79,630,) (73,739) (60,402)
Net Income (loss) $ (9,213) $ 8.698 $ 10.543 $ (3,663) $ (9,156) $ 71,758 Selected Balance Sheet c 1rdormation Net Plant in Service . $ 1,396,426 $ 1,198,962 $ 1,276,782 $ 1,176,157 $ 1,094.417 $ 1,025,106 Construction Work in Progress . 340,698 380,796 405,307 302,644 241,478 188,087 Electric Utility Plant-Net. 1,956,287 1,792,010 1,896,809 1,689,827 1,533,419 1,398,352 Total Assets. 2,759,573 2,373,868 2,521,695 2,151,400 1,940,558 1,907,744 Capitalization-Customers' Equity . 656,536 663,904 665,749 685,206 658,869 668,025 tong-Term Debt . 1,358,472 1,220,198 1,365,931 1,035,545 894,038 975,983 DEBT SERVICE COVERAGE RATIOS Year Ended December 31, ,
1987 1986 1985 1984 Parity Debt Service Coverage Ratio 3.20 3.25 1.41 2.44 Subordinate Debt Service Coverage Ratio . 1.78 1.69 1.41 2.44 Fixed Charge Ratio . 0.92 1.00 1.08 1.60 The Parity Debt Service Coverage Ratios and the Subordinate Debt Service Coverage Ratios shown on the above table are required to be calculated on an annual basis pursuant to the Resolution and the Subordinate Resolution, respectively. In 1985 the District substantially reduced the debt service require-ments on the Parity Bonds through refunding certain Bonds and other indebtedness of the District by the issuance of the 1985 Subordinated Bonds.
As shown in the table below, the Parity Debt Service Coverage Ratio is calculated by dividing Net Revenues by annual debt service on the Parity Bonds, while the Subordinate Debt Service Coverage Ratio is calculated by dividing Net Revenues by the combined annual debt service on the Parity Bonds an<1 the Subordinated Bonds. The Fixed Charge Ratio is not provided for in the Resolution or the Subordinate Resolution, but is calculated by the District by dividing the amount by which Revenues (excluding certain non-cash revenues) exceed current period expenses (excluding certain non-cash expenses) by the combined annual debt service on allindebtedness of the District.
18
i w
The method of calculating the Subordinate Debt Service Coverage Ratio and the Fixed Charge Ratio are illustrated below.
METHOD OF COMPUTATION OF DEBT SERVICE RATIOS For the Year Ended December 31,1987 (dollar amounts in thousands) Resolution Basis Fixed (Subordinated Charge Debt) Basis
$513,235 $513,235 Operating Revenues. .
28,500 29,002 Interest and Other Income. .
22,028 -
AFUDC. .
564.265 541,735 Total Revenues . ..
Operating Expenses (excluding depreciation):
Purchase Power and Other Operation and Maintenance Expenses 435,162 435,162 and Taxes . . . . . . . . . . ..
Deferred Power Supply Costs' (42,670) --
Decommissioning . .
- 3.705 392.492 438,867 Total Operating Expenses .
$171,773 $102,868 Net Revenues.
1987 Debt Service: 53,606 61,366 Parity Bonds . . . . . .
42,703 42,703 Subordinate Bonds . - 1,131 General Obligation . .
- 7,066 Commercial Paper .
$ 96,309 $112,266 Total Debt Service . .
1.78 0.92 Debt Service Ratio . ,
Management's Discussion of Operating Results Prior Periods. For the year ended December 31,1986, the District reported a $3.7 million net loss. Rancho Seco's outage during all of 1986 had an adverse impact on the District's operating results for the year. Operating expenses in 1986 reflected a $61.1 million increase in purchased power required to meet District load. This increase in purchased power costs and a reduction in interest income due to lower investment yields 'was partially offset by an incresse in revenues from sales to customers resulting from rate increases. The 1986 net loss was reduced as a result of a deferral of $25 million of purchased pow. r costs which, while paid in 1986, were recognized as an expense and substantially recovered in 1987 through the Power Supply Cost Rate (PSCR) mechanism. The PSCR mechanism is described in more detail below under " Rate na w Mechanism".
For the year ended December 31,1987, the District reported net income of $10.5 million.
This was primarily the result of increased revenues from sales to customer s resulting from rate increases, partially offset by increased operating expenses. Operating expenses increased due to purchased power requirements from the continued Rancho Seco outage and the lower than normal hydroelectric generation. These increased operating expenses were reduced by a net deferral of $42.7 million of power supply costs through the PSCR mechanism. The deferred l power supply costs, while paid in 1987, are expected to be recovered and recognized as l expenses in 1988 and 1989.
Period Ended June 30, 1988. For the six months ended June 30, 1988, the District reported a net loss of $9.2 million as compared to net income of $8.7 million for the same period in 1987. Although operating revenues increased $21.9 million (primarily due to rate increases),
total operating expenses increased $28.4 million for the first half of 1988 as compared to the first half of 1987. These increases resulted in part, from the recognition of expenditures at Rancho Seco as expenses during the plant's operation rather than as capital investment as would have been the case if the plant were still in a pre-restart phase. Operations and maintenance expenses increased $18.6 million over the comparable period of 1987 while depreciation and decommissioning expenses increased $8.4 million. Changes in deferred ex-19
I 1-penses offset a decrease in purchased power expense and resulted in increased operating expenses of $1.4 million. In addition to the increase in operating expenses, interest charges increased $8.1 million through the first six months of 1988 as compared to 1987, primarily due to the issuance of the Series T and Series U Bonds in October 1987.
Rate Making Mechanism. In March 1987, the District separated its rates into two components: a power supply cost rate, or PSCR, through which its power supply costs are recovered, and a base rate, through which the remainder of its costs are recovered. Changes in such rates require formal action, after public hearing, by the District.
The PSCR is set to recover projected power supply costs. To the extent actual power supply costs in a period differ from the revenues derived from the PSCR in such period, the difference is carried forward in a balancing account as either deferred revenues or expenses. As a result, net income for the period reflects the projected power supply costs, rather than the actual power supply cost, for such period, llowever, to the extent that the District's actual power supply costs in a period exceed the actual PSCR revenues for such period, cash flow for such period will be adversely affected.
Liquidity. The District's policy is to maintain an unrestricted funds balance of at least $75 million. As of October 1,1988, the District's unrestricted funds balance was $119.2 million and, without giving effect to issuance of the Series W Bonds, .is projected to be reduced to the policy minimum balance by the beginning of the second quarter of 1989. Proceeds of the Series W Bonds are expected to maintain the unrestricted funds balance above the $75 million policy level through 1990.
Recent Rate Action. On October 6,1988, the District directed a 4.3 percent system rate increase to take effect November 1,1988. This rate increase included an adjustment to the PSCR designed to fully recover all deferred costs by the end of 1989. Based on this rate action and on the expected expenditures for 1988 and 1989 described below, the District is projecting Fixed Cherge Ratios in 1988 and 1989 of 1.20 and 1.60, respectively.
1988 Budget and Proposed 1989 Budget The District's original 1988 Budget totaled $767.4 million, with purchased power costs representing $101.9 million of that total. Lower than anticipated hydroelectric generation and a delayed Rancho Seco restart schedule resulted in purchased power requirements increasing in 1988 by $59.7 million. In response to this increase, the District reduced other operation, maintenance and capital costs by $32.2 million, resulting in a revised 1988 Budget of $794.9 mil-lion. The District performed an extensive analysis of its budget to further mitigate these increased purchased power costs. As a result of this analysis, as well as continuing cost reduction measures, the District expects that actual expenditures for 1988 will be approxi-mately $51.5 million below the revised 1988 Budget. The Business Forecast was prepared based on the assumption that these additional cost reductions will be accomplished.
On October 6,1988, the District established a budget limit for 1989 of $680.1 million. The reduction from the revised 1988 Budget is due to reduced purchased power costs resulting from the fact that Rancho Seco is operating, reduced capital expenditures, the fact that Rancho Seco restart has been completed and anticipated cost reductions resulting from the Cost Containment Program described below. The District has begun a broad organizational review and cost containment program (the Cost Containment Program) the purpose of which is to survey every organization within the District, combine those functions that are duplicated and eliminate those functions that are unnecessary. While it is not certain how much of a cost savings the District will realize through the Cost Containment Program, it is anticipated that the savings will be a factor in permitting the District to operate within the 1989 budget limit of
$680.1 million.
20
O
~
SOURCES OF POWER MEGAWATTS '(Capacity) 3500
- ~
3000
~
2500 SYSTEM 2000 PEAK DEMAND ] q; kM 1500
~~ - - -
1000 500 - - - -
0
'50 '55 '60 '65 '70 '75 '80 '85 '90 '95 YEARS LEGEND :
M PACIFIC NORTHWEST CONTRACTS (Purchased Power)
Fiiiiiiil GAS TURBINE / SOLAR - PHOTOVOLTAIC / GENERIC PEAKING M GEOTHERMAL 1+ :::l RANCHO SECO NUCLEAR POWER PLANT M HYDROELECTRIC i I WESTERN AREA POWER ADMINISTRATION (Purchased Power)
M PACIFIC GAS & ELECTRIC and SOUTHERN CALIFORNIA E0ISON (Purchase) 21
l .
THE ELECTRIC SYSTEM l The District is responsible for the acquisition, generation, transmission and distribution of j electric power in its 900 square mile service area. In order to provide such service, the District owns and operates an electric system which includes generation and other power supply resources and transmission and distribution facilities. The District's generating facilities consist of the Rancho Seco nuclear power plant; seven hydroelectric plants; two geothermal plants, one of which is owned by the District (SMUDGEO # 1) and one of which isjointly owned with others I (CCPA); a combustion turbine and a solar photovoltaic facility having an aggregate generating I
capacity of 1,760 MW (see " Rancho Seco" and "Other Facilities").
Mws Rancho Seco (nuclear) . . . 913 Upper American River Project (hydroelectric) . 659 SMUDGEO #1 (geothermal) . 72 CCPA (geothermal) .. .. . . . .. 65 Combustion Turbine . 49 Solar Photovoltaic . . . .. . 2 Total . . .. 1,760 The District's power requirements exceed its generating capacity and thus the District has contracts with others for the balance of its power requirements (see " Power Purchase Agreements").
RANCHO SECO The District began construction of Rancho Seco, a 913 MW nuclear power plant and the District's largest generation resource, in 1968. It was first placed in operation in 1974 and became commercially operable in April 1975. The plant is on a 2,500 acre site 25 miles southeast of Sacramento. The plant uses a pressurized water cooled reactor which was furnished by the Babcock & Wilcox Company (B&W). Cooling is by means of water from the Folsom South Canal.
The initial cost of Rancho Seco, including switchyard and transmission but excluding decommissioning and nuclear fuel, was approximately $342 million. As of June 30,1988, plant modifications have increased this cost by $466 million (including construction work in pro-gress). At June 30,1988 the net book value of Rancho Seco was approximately $935 million, including $219 million of nuclear fuel. Additional plant modifications, emergency preparedness planning, other Nuclear Regulatory Commission (NRC) requirements and renewals and replace-ments are expected to increase the plant cost by approximately $70.7 million in 1988 and by an additional $256.7 million from 1989 through 1992.
Rancho Seco has experienced numerous unexpected outages over its life which have resulted in an average annual capacity factor since 1975 of approximately 39 percent (as of June 30,1988). In the early years of operation, turbine and generator failures were the principal causes of Rancho Seco outages. Annual capacity factors for the years 1981 through 1984 were 35 percent,44 percent,39 percent and 51 percent, respectively. These low capacity factors were primarily due to unplanned outages caused by steam generator tube leaks, auxiliary feedwater header damage, extensive system modifications and inspections and modifi-cations directed by the NRC.
The annual capacity factor in 1985 was 25 percent. This low capacity factor was due to both scheduled and unscheduled outages. The scheduled outages were for refueling and NRC mandated-modifications. The unscheduled outages resulted from: a reactor cooling-system leak; checking and correcting deficiencies in safety-related piping systems; correcting operating and administrative concerns of the Institute of Nuclear Power Operators (!NPO); and analyzing the 22
effects and determining the causes of plant and decay heat pump trips (shut-downs), valve failures and transfer switch malfunctions.
On December 26, 1985, a loss of power to the plant's integrated control system (ICS) resulted in a plant trip and subsequent rapid cooldown of the reactor coolant system and the reactor vessel. An NRC fact-finding team concluded that the fundamental cause of this incident was design weaknesses in the ICS and the equipment it controlled that, while known to the District and the NRC, had not been adequately compensated for by corrective action.
Restart The District decided not to attempt a restart of Rancho Seco until a comprehensive program (which looked beyond the specific causes of the December 1985 outage) of identifying and correcting the reasons for the deterioration in the performance of Rancho Seco and its staff was completed. The District developed a restart plan (the Restart Plan) which defined near-term actions to be taken prior to and during restart and long-term actions to be taken after restart, all of which were intended to assure the safe operation of Rancho Seco and to improve its reliability and availability. The Restart Plan provided for a comprehensive review and upgrading of Rancho Seco's systems and equipment, its management systems and programs and its manage-ment and operating personnel.
On March 30,1988, Rancho Seco was restarted. Since that date, the plant has been operated and tested at a series of planned power output plateaus making up the District's Power Ascension Program. As scheduled, Rancho Seco was declared commercially operable at the 80 percent power plateau in August 1988. Since then, the plant has reached the 92 percent power plateau and substantially all testing requirements set forth in the Power Ascension Program have been successfully completed. Rancho Seco, however, like all nuclear plants, is subject to periodic unscheduled outages and periods of reduced power production which will affect the plant's overall output level. Although the plant has experienced two such outages during the Power Ascension Program, the District continues to expect that the plant will achieve a 1988 average annual capacity factor of 40 percent. Following the completion of the 92 percent power level and prior to the planned refueling outage in mid-1989, the District may choose to operate Rancho Seco at output levels less than the plant's maximum capabilities for the primary purpose of extending the date for the planned refueling outage at Rancho Seco until after the District's (and Northern California's) peak demand, which occurs in the summer months.
The future of Rancho Seco is subject to significant uncertainties which include, without limitation, unanticipated problems or failures at the plant; possible future shortages of opera-tors and other personnel; the possibility that the voters will not approve the continued operation of Rancho Seco at the June 1989 election discussed below; the effect of incidents at other nuclear plants; and failure to satisfy the criteria of NRC, INPO and other independent appraisal teams. Unless the plant is shut down by the voters of the District in the June 1989 election, the District believes the plant should be operable in the future as projected in the Projected Operating Results.
The Restart Plan includes operation and maintenance improvements that are designed to support the continued safe and reliable operation of the plant. These improvements include, among other things, continued operator and key personnel training. Additionally, new low-pressure rotors are scheduled to be installed during the 1989 refueling outage. It is estimated these new rotors will improve Rancho Seco's annual capacity factor by approximately 5 percent.
Initiative and Referendum In the Statewide primary election held in June 1988, two measures were presented to the voters of the District. The first, the Measure B Initiative, would have, if enacted, required the immediate, permanent shut-down of Rancho Seco as a nuclear generating station. In response to the Measure B Initiative, the District adopted and placed on the ballot for the election a second 23
i measure, the Measure C Referendum. At the June 1988 election, the Measure C Referendum was passed by a vote of 52 percent in favor and 48 percent against and the Measure B Initiative was defeated by a vote of 51 percent against and 49 percent in favor.
The Measure C Referendum provided that Rancho Seco would be operated by the District for the duration of the current refueling cycle, a period of approximately 18 months, under certain conditions including the need to have the voters approve at a subsequent election the continued operation of Rancho Seco after such period. See Appendix E for the complete text of the Measure C Referendum.
The District expects to place on the ballot for the June 6,1989 regular election the proposition of continuing operation'of Rancho Seco after 18 months as required by the Measure C Referendum.
Divestiture The District has determined that it is prudent to explore options to oliset the financial and operational risk of owning and operating Rancho Seco. In November 1986, the District deter-mined that a program of risk reduction with respect to Rancho Seco should be developed. In accordance with that determination, the District began identifying and studying the then potentially obtainable alternatives for reducing the risks of Rancho Seco.
As part of the District's consideration of divestiture options, a formal study, called Quality Energy for Sacramento's Tomorrow (QUEST), was completed in February 1988. The QUEST report reached the conclusion that economically similar results could be obtained under either of two options: (i) Rancho Seco operating in the future at an industry representative capacity factor and (ii) purchasing power as a replacement for Rancho Seco. Although the then General Manager recommended stopping the restart efforts at Rancho Seco on the basis of the QUEST report, the District completed the restart and adopted the Measure C Referendum.
The Measure C Referendum requires the District to use due diligence to divest Rancho Seco to a holding company or other legal entity which would assume responsibility for the operation and licensing of the plant. Accordingly, the District is conducting further investigation of options that might be available to divest Rancho Seco. The District has not determined a specific direction or option to pursue for divesting Rancho Seco. Although the District had discussed the proposed transfer of operating responsibilities and ownership at Rancho Seco with potential transferees (including Duke Power Company), there have been no proposals forthcoming which satisfy the District's specific objectives of risk reduction.
On September 29, 1988, the District considered a report of an independent consultant identifying several potential options for divestiture of Rancho Seco. The District decided to investigate one such option, the privatization of Rancho Seco. The privatization option would involve formation of a new private firm, owned by the employees at Rancho Seco, to operate Rancho Seco under a management contract with the District, possibly in connection with an existing qualified operator of nuclear power plants similar to Rancho Seco. The District would continue to own Rancho Seco under this option. The privatization option is in the initial stages of investigation by the District. 1 The District has identified several obstacles which must be overcome in order to complete any transfer or other divestiture of Rancho Seco. Some of these obstacles include the Measure C Referendum, obtaining NRC consent to the transfer of the operating license for Rancho Seco l (which may include a public hearing); other required regulatory approvals including, without l limitation, approvals by Federal Energy Regulatory Commission (FERC) and possibly the utility regulatory commission of one or more states; arranging for the transferee to carry out the District's contract obligation with PG&E with respect to Rancho Seco; complying, if necessary, with the Public Utility IIolding Company Act; and complying with the Act and the provisions of 24
effects of such termination and such effects could be different from, and worse than, those described above.
The Consulting Engineer has reviewed the Termination Assessment and is of the opinion that the assumptions and the District's conclusions with respect to the effect of terminating Rancho Seco are reasonable. The Consulting Engineer is further of the opinion that, based on the Termination Assessment, terminating Rancho Seco would not have a materially adverse impact on the District's operations during the period 1989 through 1992.
Nuclear Fuel The District has in inventory fully fabricated fuel assemblies to sustain plant operations through 1990, and uranium ore for operation through 1994. Contracts are in place for supply of uranium ore through 2000, and for fabrication of the ore into fuel assemblies through 1996. The District expects uranium ore supplies and fabrication services to be readily available through 2008. The total estimated cost of remaining nuclear fuel purchases through 2008 is $541 million, including AFUDC and escalation. The value of completed fuel assemblies and uranium ore in inventory is approximately $170 million. <
On January 7,1983, the Nuclear Waste Policy Act of 1982 became effective. This Act provides the basis on which the federal government will carry out its regulatory responsibility for the final disposition of commercially-produced, high-level radioactive waste materials, which include spent nuclear fuel, through (i) the establishment of a schedule for the develop-ment and implementation of nuclear waste disposal sites, and (ii) the establishment of payments to the federal government to cover the costs of disposal associated both with existing inventories of spent nuclear fuel and with spent nuclear fuel resulting from future electric generation. On June 14,1983, the District and DOE entered into a contract for the disposal of the District's spent nuclear fuel. On June 30,1985, the District elected to prepay its obligation for disposal costs under such contract. The government's facility is expected to be operational by the year 2000. The District is responsible for storage of spent nuclear fuel until the government takes delivery. The District's spent fuel storage will accommodate spent fuel elements until 2000.
Decommissioning
~
The decommissioning of Rancho Seco is required at the end of its design life of 40 years in 2008, unless Rancho Seco is shut down earlier than 2008 or the license of the plant is extende'l.
In June 1988, the NRC issued final rules on general requirements for decommissioning nuclear facilities. The rules require that, within two years of their issuance, nuclear licensees submit a decommissioning report to the NRC. The report must include: (1) a physical decommissioning plan selected from one of the three alternatives approved by the NHC, (2) a cost estimate for decommissioning, and (3) a plan to provide " financial assurance" of the availability of decommissioning funds. The District is in the process of preparing a decommissioning report for i submittal to the NRC. l In January 1980, the District began setting aside funds internally for the eventual decom-missioning. Based on the most recent site specific study concluded in 1987, the total decommis-l sioning cost of the plant is estimated to be $218.7 million in 1988 dollars. As of June 30,1988 l the District's decommissioning fund totaled $48.1 million. As of January 1989, California law requires the District to maintain such a fund to meet decommissioning costs and permits the District to recover all payments made into the fund through the District's rates. In the event of the decommissioning, closure or removal of Rancho Seco, the District is required by California law to provide assistance in finding comparable alternative employment for employees of Rancho Seco who become unemployed as the result of such decommissioning, closure or 26
4 the Resolution, the Subordinate Resolution and the letter of credit and reimbursement agree-ments securing the District's commercial paper notes. No assurance can be given that the District has identified all obstacles to divestiture or that the obstacles which it has identified, or i
that may be identified in the future, can be overcome.
An Assessment of Terminating Rancho Seco The Projected Operating Results for the years 1988 through 1992 included in the Consulting Engineer's Report and as set forth under " Capital Requirements and Funding, Outstanding )
Indebtedness and Projected Operating Results" assume, among other things, that Rancho Seco operates at average annual capacity factors of 40 percent in 1988,51 percent in 1989,55 percent in 1990,80 percent in 1991 and 55 percent in 1992; that continued operation of Rancho Seco is not prevented by the June 1989 election or otherwise; and that, after 1989, other power l purchase contracts and resources, including the PG&E and Edison Power Sale Agreements (as hereinafter defined), will provide all required capacity and energy when the District's generat- )
ing facilities are out of service or when capacity and energy is otherwise needed by the District.
The District may be required to take Rancho Seco out of service permanently as a result of the June 1989 election or for some other reason. The District has attempted to assess the nature and magnitude of the effects of permanently taking Rancho Seco out of service in June 1989 (the Termination Assessment). In making the Termination Assessment, the District's principal assumption is that capacity and energy that otherwise would have been provided by Rancho Seco through December 31,1999 will be replaced by purchases under power purchase contracts, including the PG&E and Edison Power Sale Agreements, at costs which will be comparable to the expected costs of continuing the operation of Rancho Seco as set forth in the Projected Operating Results (assuming that increases in the cost of power under the PG&E and Edison Power Sale Agreements are based on increases in the cost of fossil fuel of approximately 5.5 percent per year).
Based on the Termination Assessment, the District has concluded that terminating Rancho Seco in June 1989 would not have a materially adverse impact on the District's operations through December 31, 1999. The Termination Assessment shows, among other things, that, although the District's rates as a percentage of PG&E's rates for 1989-1992 will be essentially the same as those included in the Projected Operating Results, the recovery of PSCR deferrals would be extended; fixed charge ratios would be lower during certain years than those included in the Projected Operating Results; and, due to a one-time write-off of the net book value of the plant and nuclear fuel in 1989, the District would incur in such year a charge against income equal to such net book value and the District's equity would become negative. l The PG&E and Edison Power Sale Agreements have not yet been implemented, and the PG&E Power Sale Agreement, upon the occurrence of certain conditions, could become null and void in 1991. However, the District believes the PG&E and Edison Power Sale Areements will be fully implemented and will remain effective to their stated termination dates of December 31, 1999. See " Power Purchase Agreements-Agreements With PG&E" and "-Edison Power Sale Agreement" After December 31,1999, the PG&E and Edison Power Sale Agreements will no longer be in effect and the District would be required to either renew such contracts or find other sources of replacement power. The District believes that it will be able to obtain replacement capacity and energy during such period although it is not able to predict the cost of such power or the effect that the cost of such power could have on the operations or financial condition of the District.
The facts and circumstances in existence at the time of, and subsequent to, a termination of Rancho Seco, together with the actual course of action of the District, would determine the 25
removal. The statute authorizes the District to collect sufficient revenues to fund such assistance through the District's rates and charges.
Seismology l The Rancho Seco nuclear plant is located in an area of extremely low seismic activity. After the Oroville earthquake of 1975, studies were made of that region 70 miles north of Rancho Seco. More recently, geologic and seismologic data were developed for the Auburn Dam site, about 40 miles from the plant. Because of the additional information developed from those studies, the District undertook a reassessment of the Sierra Nevada foothill region in the Rancho Seco area. The study was completed in 1981 and concluded that the nearest potential source of seismic activity within the Foothill Fault System was the Poorman Gulch Fault, at least 20 miles from Rancho Seco. The study also concluded that the maximum anticipated seismic effects on Rancho Seco originating from this fault, or from the more distant faults, will not exceed the '
original plant design criteria.
. The District, with the assistance of seismic experts from Bechtel Power Corporation, has reinvestigated the Foothill Fault System. This reinvestigation was initiated at the request of the NRC. In October 1986, the District submitted a report which supports the District's conclusions that significant plant design modifications are not required. A final report was completed in late 1987 which confirms the District's position. The report is currently being reviewed by the NRC.
OTHER FACILITIES Hydroelectric Generation In 1957 the Federal Power Commission issued to the District a license for the Upper American River Project (UARP). This 50-year license was subsequently amended and now includes all segments of the District's hydroelectric facilities located on the South Fork of the American River and its tributaries. The license expires in 2007 and the District expects to be able to timely renew the license.
UARP consists of three relatively large and eight small reservoirs having an aggregate water storage capacity of 426,000 acre feet, eight tunnels with a combined length of over 26 miles, and seven powerhouses containing ten turbines. The combined capacity is approximately 659 MW. These facilities are capable of generating approximately 1.8 billion kWh of electric energy annually under average water conditions. j According to historical records of the District, energy generated from UARP during the period 1981 1987 is summarized in the following table:
Million kWh 1981.. .... . . . .. . 1,268 l 1982 .. .. .. ... ...... .. 3,188 ,
1983 .. .. ... . .. . . .. 3,370 i 1984 .. . .. .. .. .. 2,196 1985. . ..... . . . .. . 1,350 1986. . ...... .. . . . .. 2,600 1987 . . . .. . .. . 950 l l
Current 1988 water conditions are below average, and the District estimates that generation will be 754 million kWh for the year.
27
_ = -
I *
.The following table identifies the individual plants of the UARP, installed capacities and respective years in which they were completed:
Capacity-MW Completed l Jaybird (2 units) . . . . . . .... .. . . ... . .. 139.00 1961,1962 l Camino (2 units) . . . . . . . . . .... . ...... ... 150.00 1963,1968
! Union Valley . . . . . . . . . . . ... ... . . .. . 37.00 1963 Robbs Peak . . . . . . . . . . . . . . . . . . . ... .. 22.00 1965 White Rock (2 units) . . . . . . . . . . . . . . . . . . . . 223.00 1968 Loon Lake . . . . ..... ..... ... ........ ... .... 78.00 1971 Slab Creek (fishwater release generator) . .. . . .40 1983 Jones Fork . . . . . . . . . . . ... . .. .. . 10.00 1985 Total Capacity . . . . . . . . . .. . . .. .. .. 659.40 Gecthermal .
The District has completed and owns and operates a 72 MW net geothermal unit, linown as SMUDGEO # 1, in ti.e Callkrnia Geysers area located in Sonoma County approximately 75 miles west of the City of Sacramento. Since the plant began commercial operatica in December 1983, it has produced approximately 3 billion kWh of electrical energy and has operated at a 96.6 percent capacity factor. Production in 1987 was 614.7 million kWh.
CCPA The District, along with Modesto Irrigation District and the City of Santa Clara, has formed Central California Power Agency No.1 (CCPA), a California joint power agency, which also owns and operates two geothermal units in the California Geysers area. CCPA has completed construction of two geothermal units which are located at, and use steam from, the Coldwater Creek steam field (the Fields). Unit I was declared commercially operable on June 1,1988 and Unit 2 was declared commercially operable on July 18,1988. Together, Unit I and Dtit 2 have a capacity of '132 MW The District is entitled to 50% of the generation output from Unit I and Unit 2. The participants in CCPA have paid their respective shares of CCPA's construction costs for Units 1 and 2.
Steam Field. Geothermal Resources International, Inc. and certain of its subsidiaries (collectively, GEO) have leasehold interests in and are involved in the development and operation of the Fields. Since its formation, CCPA has executed a series of contracts with GEO under which CCPA agreed to provide funds for certain steam field development costs (which have been paid) and committed to construct the generating units. In exchange, CCPA acquired the exclusive right to purchase steam from the Fields for both units under a long term contract, the terms of which require CCPA to take or pay for certain quantities of steam (unless the units are not operating due to specified causes). In addition, CCPA acquired rights to a production
. payment (a royalty based on the revenue from steam sales from the Fields by GEO). GEO has encumbered GEO's interest in the Fields, steam piping system and related assets to secure a loan of approximately $58 million to GEO by Morgan Guaranty Trust Company af New York (Morgan) to finance steam field development.
GEO is experiencing financial diffleulties, which are adversely affecting CCPA's ability to fully utilize Unit 1 and Unit 2. Approximately one-half of the wells drilled by GEO to provide steam to the power plant have obstructions which must be removed. The reduced steam flow caused by these obstructions has temporarily diminished the ability of Unit I and Unit 2 to produce electricity at rated levels. The combined electrical production capacity of Unit I and Unit 2 based on available steam flow and steam quality is curt ently 63 MW. CCPA has retained a consultant which has surveyed the wells and other facilities providing steam to Unit I and Unit 2 and which has agreed with GEO's astimate that removal of the obstructions blocking the wells at.d related repairs will cost approximately $2 million and will take approximately two months.
The consultant has further advised LGPA that the Fields are capable of supplying sufficient 28 1
steam to operate the plant at its full 132 MW capacity but that more wells will be required over the life of the plant than originally estimated.
A number of contractors have placed mechanics liens on the steam field facilities to secure approximately $10 million in unpaid bills for services and equipment provided by such contractors to GEO in connection with the construction of the facilities. One such contractor has taken steps to enforce a judgment in the amount of $1.7 million.
As a result of the insufficient steam flow and the filing of mechanics liens, CCPA has given notice to GEO (and Morgan) of the existence of defaults under the agreements with GEO and is studying its possible remedies and other possible solutions to these problems, including the advancing of funds to GEO as prepayments for steam and the purchase of GEO's interest in the Fields and facilities.
Power Plant. In August 1988, a problem developed in the control system which damaged the turbine generator bearings of Unit I which resulted in Unit 1 being taken out of service. The control system has been repaired and it is expected that the bearings for Unit I will be replaced and the Unit returned to service in November 1988.
Transmission. The CEO approval of the Application for Certification for Unit I and Unit 2 permitted construction of the plant with the expectation that the power from the plant would be transmitted to the District over the Geothermal Public Power Line (GPPL) described below. Due to delays in the licensing of GPPL, however, CCPA filed a tapline amendment to certify an interim transmission interconnection to the existing PG&E transmission system. The amendment was approved, and the plant was connected to the PG&E system in late 1987. CCPA negotiated a transmission service agreement with PG&E which provided interim wheeling for the power from the plant to PG&E's transmission grid. This transmission service agreement was accepted by FERC on July 29,1988. The District has also negotiated a separate agreement with PG&E for wheeling the District's share of the plant to the District's service area. This separate agreement expires on December 31, 1989. If the GPPL is not successfully licensed and constructed, continued wheeling services are expected to be negotiated as part of the proposed Interconnect-tion Agreement with PG&E. See " Power Purchase Agreements-Agreements With PG&E."
The long-term alternatives for transmission from the plant are either to complete GPPL or to exercise an option in the transmission service agreement with PG&E to provide for long-term wheeling. If the option in the PG&E agreement is exercised, CCPA would be required to pay for all or a portion of the costs of reconstruction of the PG&E system to enable the system to handle expected production. The District mm elect which option to follow by January 1,1991.
Combustion Turbine The District, in conjunction with the United States Air Force, has completed the construc-tion of a 49 MW peaking combustion turbine generating plant at the McClellan Air Force Base site. The $20.2 million gas turbine project was completed in January 1986. This turbine is operated either to meet the District's peak load requirements or the Air Wrce's emergency needs.
Solar Photovoltaic In 1980 the District, in cooperation with the DOE and CEC, undertook development of a solar photovoltaic installation at a site adjacent to Hancho Seco. The first 1 MW became operational in July 1984 and is called PV-1. PV-1 cost $12 million, of which the District provided
$3.2 million, DOE provided $6.8 million and CEC supplied $2 million. PV-2, the second 1 MW increment, cost $10.4 million of which $3.6 million was provided by the District and $6.8 million was furnished by DOE.
29 l
1 s
PV-1 has been out of service since April 30,1987, when a fire destroyed its control system. l The District anticipates that repairs to PV-l's control system will be completed and the facility returned to service by tt e end of 1988. PV-2 remains in service. Further development of photovoltaic generation is not currently being pursued by the District.
l Transmission and Distribution Facilities The District supplies power to iM hs M: power substations through a 230 kV transmission ,
system. This system transmits power from the District's generation plants, other than !
SMUDGE 0 #1 and CCPA Units 1 and 2, and interconnects with PG&E and the Western Area Power Administration (Western). Energy produced at the SMUDGEO # 1 and CCPA Units 1 and !
2 generating plants is transmitted to the District under a wheeling agreement with PG&E which j is separate from the PG&E Contract and which expires on December 31, 1989. See " Power '
Purchase Agreements-Agreements With PG&E." Extensive grids of 69 kV and 115 kV sub- j transmission lines emanate from the bulk power stations and deliver power to many distribution substations at strategic load centers in the rural and suburban areas served by the District.
Service to the downtown Sacramento area is supplied by a redundant network system through 115 kV substations. Distribution facilities in the District's service area are comprised of 4 kV,12 l kV and 21 kV overhead and 6.9 kV,12 kV, and 21 kV underground lines. The District utilizes a !
modern distribution system of buried primary and secondary conductors and pad-mounted equipment. All new housing developments within the District are provided with underground distribution service. The District has a maintenance tracking system that follows 24 separate maintenance programs. These programs range from long-term cable and pole replacements to i short-range programs that deal with , specific problems. This system allows the District to monitor the condition of the electrical system and control the resources applied to maintenance of the system.
General Plant In 1960, the District completed and occupied a 128,000-square-foot IIcadquarters Building which has provided for efficient, centralized operations and, until recently, adequately handled ofilce staff requirements. The installation of open plan systems, in conjunction with nearby leased space and modifications to the operations center, has satisfied the short-term need for l
additional of!1ce space. l A 20-year Administrative Space Master Plan outlining the additions of facilities to accom-modate anticipated growth has been developed. A component of this plan includes the recently l completed construction of an approximately 50,000-square-foot building to house and support a ,
new computer-based energy management system. This facility is constructed on District prop- '
erty in close proximity to the IIcadquarters Building. ;
POWER PURCHASE AGREEMENTS The District's power requirements exceed its generating capacity and thus the District has existing or pending contracts with Western, PG&E, Edison and others for the balance of its l
power requirements. These contracts include the agreements described below. '
Western Agreement !
In 1954 the District entered into a 40-year contract with the federal government for the purchase of 290 MW of Central Valley Project (CVP) power delivered to the District each month at the District's system load factor. In 1966, the contract was amended to provide for the purchase of an additional 70 MW under the same general terms and conditions except that its 30 i
availability is subject to the terms of Western's sale and interchange contract with PG&E and to withdrawal on 17-months' notice for project pumping requirements or to serve Trinity County public agencies. On April 15,1983, the District and Western executed a contract amendment and settlement agreement that terminated a lawsuit filed by Western to resolve a dispute over the interpretation of the contract. That agreement extended the contract through 2004, gave the District the right to purchase 100 MW of peaking power (with no associated energy) in addition to its 360 MW of system load factor power and gave the District the right to purchase 360/1152 or 31.25 percent of CVP power marketed between 2004 and 2015. The District agreed to pay increased rates for power from November 1984 through mid 1988. On January 30, 1987, Western announced its proposal and schedule to implement a power and transmission rate adjustment to cover the five-year period beginning May 1988. The rate adjustment was approved by the FERC. Elased on these new rate schedules, the District's cost for Western purchases is expected to decrease by approximately 15 percent and remain below 1987 levels throughout the five-year adjustment period. These reductions are reflected in the Projected Operating Results.
Western may institute proceedings to increase rates to the District and its other customers to recover any increased costs of its own operations. Western is now engaged in negotiations with PG&E regarding the amount of credit Western should receive for capacity that it delivers to the integrated PG&E and Western electric systems during 1988 and subsequent years.
Additionally, PG&E has filed a claim in pending litigation with Western for capacity that it provided to Western from 1980 through 1987 (see " Claims Under Adjudication and Other Potential Demands Against the District"). If the negotiations or litigation result in a determina-tion that Western is entitled to a lesser amount of credit for capacity than that which it now projects, Western will be required to pay increased amounts for capacity to PG&E and will probably seek to recover those increases through higher charges to its customers. Approxi-mately 30 percent of such increased charges would be allocable to the District.
Agreements with PG&E Existing PG&E Contract. In June 1970, the District and PG&E entered into a power sale, exchange and integration agreement (the PG&E Contract). The PG&E Contract expires on December 31,1989 and provides for the integration of the District's generation into the northern California power system. The PG&E Contract origirally provided that the parties would share reserves so that when there is an outage of generation or transmission facilities, the resources of the entire interconnected system are available to meet loads. The PG&E Contract also provided that PG&E would purchase all capacity and energy produced by the District which is surplus to the District's requirernents. Additionally, the PG&E Contract provided that if the District's power supply resources was less than its requirements, PG&E would make capacity and energy available to the District on an exchange basis up to certain limits. There were limits on the amounts of energy (but not upon the amounts of capacity) that the District could borrow from PG&E during 1988 of 750 million kWh and during 1989 of 500 million kWh. Any energy which the District required in excess of such limits had to be purchased from PG&E at a rate halfway between the District's nuclear costs and PG&E's thermal costs. The PG&E Contract, however, has been altered by the 1988 Amendment, described below.
The District and PG&E have agreed the.t they will attempt to negotiate a long-term interconnection agreement to replace the interconnection provisions of the PG&E Contract upon its expiration, and that if such long-term interconnection agreement cannot be negotiated, PG&E will file with FERC a rate schedule pursuant to which PG&E will provide the District with interconnection services needed beginning January 1,1990. For a description of the status of negotiations of an interconnection agreement with PG&E, see the caption " Interconnection Agreement" below.
31
Shortly after the December 26,1985 outage of Rancho Seco began, the District and PG&E became engaged in a series of disputes as to whether PG&E was excused from making any further payments under the PG&E Contract for Rancho Seco capacity until such time as Rancho Seco returned to service and was demonstrated to operate reliably and as to whether PG&E was entitled to refunds of certain amounts paid during 1985 for such capacity. In addition, PG&E withheld payments of bills from December 1985 through 1980 for capacity, and the District i offset these withholdings against amounts owed to PG&E for energy provided to the District under the PG&E Contract. Pursuant to an agreement between the District and PG&E, however, PG&E paid all bills for 1987 for capacity into an escrow account pending resolution of the disputes, and the District paid to PG&E the full amount due for energy during this period. PG&E ;
also claimed that the District should commence paying all interest accruals on negative capacity ;
and energy accounts monthly in cash rather than paying such accruals over time by an exchange of capacity and energy.
These disputes led to actions before FERC and the Sacramento County Superior Court. The FERC action was a request by the District for FERC to declare PG&E's withholding of capacity payments and attempts to change the method of paying for interest on capacity and energy accounts to be unlawful. In the Superior Court action, PG&E sought a judgment declaring, among other things, that it had no obligation to make capacity payments to the District based on any assertion that Rancho Seco had contributed more than zero capacity to the District's resources since prior to January 1985 and that PG&E had no obligation to make further capacity payments until Rancho Seco was demonstrated to be reliable over an appreciable period of time.
Settlement of Prior Disputes with PG&E and Related Agreements. The District and PG&E have concluded a series of agreements designed to resolve these disputes and to provide for power sale and interconnection arrangements after the expiration of the PG&E Contract.
The first of these agreements was a memorandum of understanding executed on January 31, ,
1988, and a supplement thereto executed on March 7,1988 (said memorandum, as so supple-mented, is herein called the MOU) which provide that the parties will negotiate in good faith new contractual agreements relating to the settlement of the disputes and new power sales, transmission, interconnection and facilities connection agreements and set forth the principles of these agreements. Pursuant to the MOU, the District and PG&E on July 27,1988 executed a settlement of disputes agreement (the Settlement Agreement), an amendment to the PG&E Contract (the 1988 Amendment) and a power sale agreement (the PG&E Power Sale Agree-ment). Three other agreements called for by the MOU remain to be completed. The first of these agreements is a transmission agreement whereby PG&E will provide certain transmission service to the District (the Transmission Agreement); the second is an interconnection agree-ment to provide for the interconnected and coordinated operation of the District's and PG&E's systems after the termination of the PG&E Contract (the Interconnection Agreement); and the third is a facilities connection agreement providing for certain connections of the transmission systems of the District and PG&E to accommodate coordinated system operation and enable the parties to meet certain contractual obligations.
The MOU provides that if the parties cannot, by August 1,1988 (which date has been extended informally by the parties), agree to the terms of the Transmission Agreement, then PG&E shall file with FERC, no later than November 1,1988, rate schedules providing for the transmission service for the District that the MOU states are to be included in the Transmission Agreement (the Transmission Rate Schedule). See " Transmission Agreement" below. The MOU provides that if the parties cannot, by May 1,1989, agree to the terms of the Interconnection Agreement, PG&E shall timely file with FERC a rute schedule providing for such interconnect-l tion, coordination and support services (the Interconnection Rate Schedule) as the District I needs after termination of the PG&E Contract.
Settlement Agreement. The Settlement Agreement provides that the District and PG&E have settled and finally resolved all disputes and claims related to any outage or curtailment of 32
t operation at Rancho Seco before January 1988, including, but not limited to, the above-described FERC and Superior Court proceedings. As part of the settlement, the District released to PG&E $8.6 million for capacity payments which had been paid into escrow by PG&E pending resolution of the disputes and agreed to pay into escrow 5 equal annual installments of $13.3 million (the first such installment having been paid on August 29,1988, and each subsequent installment being due on March 9 of each year through 1992). Upon the satisfaction of certain conditions, the amounts held in escrow will be released to PG&E. In the Settlement Agreement, the District and PG&E also waived and released all other claims (other than claims unrelated to the dispute), whether known or unknown, existing before January 1,1988, including claims arising out of the December 26,1985 outage of Rancho Seco.
On September 8,1988, the administrative law judge handling the FERC proceeding ap-proved the Settlement Agreement,1988 Amendment and PG&E Power Sale Agreement. These agreements currently are before FERC for its acceptance. The Diatrict and PG&E have re-sponded to all comments raised to date on these agreements. The District knows of no reason why such acceptance will not be granted by FERC nor does it believe such acceptance will require any changes or conditions unacceptable to either party.
If the PG&E Power Sale Agreement, the Settlement Agreement and the 1988 Amendment are not accepted by FERC without unacceptable changes or conditions on or before July 15,1991,or FERC does not accept the Interconnection Agreement (or the Interconnection Rate Schedule) and the Transmission Agreement (or the Transmission Rate Schedule) on or before July 15, 1991, then these agreements provide that the parties shall be restored to their respective positions as of January 1,1988, as if the PG&E Power Sale Agreement, the Settlement Agreement and the 1988 Amendment had never been executed, without prejudice to any claims or defenses each party may have against the other.
The District has assumed in the Projected Operating Results that the Settlement Agreement will become, and remain, effective. If, however, as described above, the agreements provided for in the MOU are not negotiated and accepted by FERC on or before July 15,1991, the disputes between PG&E and the District settled by the MOU could again become active. If that were to happen, and if the parties were unable to renegotiate a satisfactory power sale agreement, PG&E would be obligated under the PG&E Contract to file with FERC a rate schedule that would provide for operations and transactions between the District and PG&E beginning January 1, 1990, and that would include provisions for the electrical support services and coordination which SMUD will need after January 1,1990. There would be no certainty that the rates at which the District would receive service under such a schedule would be as favorable as those in the PG&E Power Sale Agreement.
1988 Amendment. In the 1988 Amendment, the District and PG&E waived and released all claims which may arise under the PG&E Contract on or after January 1,1988 as a result of the District's operation, non-operation or termination of operation of Rancho Seco, including but not limited to, the District restoring or not restoring Rancho Seco to commercial operation or thereafter removing it from service.
PG&E agreed that the District does not, and will not, owe to PG&E the return of any capacity the District may have borrowed as of January 1,1988. From and after that date, capacity furnished by PG&E to the District may not be returned to PG&E in kind but must be paid for in cash at the rate of $5/kW-month. The amount due PG&E for those purchases has been paid into escrow and will be released to PG&E when the 1988 Amendment is accepted by FERC. The District agreed that, until such time as Rancho Seco returned to commercial operation, PG&E, as of January 1,1988, should owe no further capacity payment to the District.
PG&E Power Sale Agreement. In July 1988, the District and PG&E entered into the PG&E Power Sale Agreement contemplated by the MOU. The PG&E Power Sale Agreement provides for the purchase by the District from PG&E, during the period January 1,1990 through December 33
o 31,1999, of up to 1,000 MW of firm capacity and associated energy. The District is initially committed to purchase 600 MW and has the option, which expires on July 31,1989, to increase that commitment up to the full 1,000 MW or to reduce the minimum purchase to 400 MW provided that the District continues the operation of Rancho Seco. In certain cases, the District may also reduce its power purchase commitment to zero effective no earlier than December 31, 1994, but only if the District has previously elected to purchase the minimum contract amount of 400 MW. PG&E is obligated to deliver capacity and energy purchased from it by the District to the Rancho Seco switchyard or other points of interconnection between PG&E and the District.
The cost of capacity (including the transmission charges to deliver the capacity and energy to the District) is $74/kW-year in 1990 and increases in subsequent years to $152/kW year in 1999. The cost of energy is 115 percent of PG&E's monthly fuel cost for gas-fired steam generation. The District also pays operating and maintenance charges (adjusted for actual costs) for capacity and energy and a start-up charge per net MW of capacity to the District as scheduled. Because the energy is fully displaceable, the District expects its energy purchases under the contract to be minimal when Rancho Seco is operating. During outages of Rancho Seco, the District expects to be able to buy displacement energy from other sources in California and the Northwest at favorable rates.
The PG&E Power Sale Agreement requires the District to maintain in each year a ratio of net revenues for such year to the maximum annual debt service during the next three years of 1.35 to 1; requires the District to determine that estimated revenues for the next 12 months, assuming current rate levels, are sufficient to pay all operation and maintenance costs for such period and to provide 115 percent of the required payments of interest and principal (including sinking fund payments) on all debt of the District during such period; and requires that the carh generated by the District in a year has at least met the cash expenses for such year (other than the principal and interest payments on debt and other debt-related expenses). In the event the '
District fails any of these tests, is in default under the PG&E Power Sale Agreement or an event of default occurs under the Subordinate Resolution, the District must post security for its performance under the PG&E Power Sale Agreement. Such security is to be in the amount of $30 million and may take the form of cash, a letter of credit or other security acceptable to PG&E and the District. I Transmission Agreement. Negotiations for the Transmission Agreement are continuing.
The Transmission Agreement would provide for 400 MW firm bi dkectional transmission and 300 MW of as-available south-to-north transmission between the systems of the District and Edison. In addition to payment of wheeling tariffs, the District may be obligated to contribute capital for certain transmission upgrades to the PG&E system needed to allow contimed firm delivery of power after the late 1990's. Transmission service described under the MOU is to commence on January 1,1990 or the date the Transmission Agreement or the Transmission Rate Schedule is accepted by FERC, whichever is first.
The District does not expect that it will complete negotiations on the Transmission Agreement by November 1,1988. In this event, the MOU provides that, by November 1,1988, PG&E shall file with FERC the Transmission Rate Schedule. The District expects that the Transmission Rate Schedule will be filed by this date.
Interconnection Agreement. Negotiations for the Interconnection Agreement have not started. The District expects that negotiations will be completed by May 1989 with the resulting Interconnection Agreement becoming effective as of January 1,1990, and having a term of 20 ;
years. The Interconnection Agreement would provide for coordinated operation of the electric i systems of the parties, as well as emergency outage reserves and other services which the District may need to operate its system. The MOU outlines certain principles to be included in 34
}
i the Interconnection Agreement. PG&E is obligated to include such principles in its unilateral filing with FERC if the parties are unable to reach agreement by May 1,1989. The Interconnect-tion Agreement is expected to be extremely complex and its negotiation will require resolution of many issues with significant cost implications for both PG&E and the District.
Facilities Connection Agreement. The Facilities Connection Agreement is expected to be executed by the end of 1988. It provides for certain transmission upgrades and exchanges of transmission facilities between the District's system and PG&E's system which are projected to be sufficient to enable the District to import all the power it will require to meet its load through the year 2000. PG&E and the District will share the cost of such upgrades, which are estimated at approximately $4 million.
Edison Power Sale Agreement In August 1988, the District and Edison entered into the Edison Power Sale Agreement for the purchase by the District from Edison, from January 1,1990 through December 31,1999, of up to 700 MW of capacity and associated energy, and for Edison to purchase from the District a portion of its surplus energy. The District is committed to purchase 300 MW,250 MW of which the District may, by July 31,1989, elect to be summer capacity (i.e., purchased during the period May 15 through September 15) and has the option, which expires on July 31,1989, to purchase up to an additional 400 MW (non-summer only). The District is responsible for arranging for the transmission to it of all such capacity and energy. If the District does not notify Edison by December 31,1988 that transmission has been arranged, the Edison Power Sale Agreement shall terminate. The District expects that such transmission will be available to it through the Transmission Agreement or the Transmission Rate Schedule. It is possible that such transmission will not be available before January,1991, in which case the District could have been paying for capacity from January 1,1989 that it was not able to utilize. The Edison Power Sale Agreement is expected to be accepted by FERC by the end of 1988.
The cost of non-summer capacity for the first 5 years is $60 per kW-year, $90 per kW-year during 1995 and increases by $5 per kW-year each year thereafter. Non-summer capacity payments for a year shall be made in twelve equal monthly payments. The cost of summer capacity for the first 5 years is $45 per kW year and 85 percent of the cost of non-summer capacity in subsequent years. Summer capacity payments for a year shall be made in four equal, consecutive monthly payments beginning in April. The cost of energy is 115 percent of Edison's monthly fuel cost for gas-fired steam generation. The District also pays operation and mainte-nance charges in accordance with changes in Edison's operating and maintenance costs and a start-up charge based on Edison's costs.
The District will notify Edison of the amounts of hourly surplus energy it has available for sale, and Edison is obligated to purchase such surplus unless Edison determines that operating conditions will prevent the Edison system from absorbing such surplus. Payment for such energy shall be at the least of 66% percent of Edison's hourly decremental cost of fuel, 95 percent of Edison's decremental cost of economy energy purchases or 115 percent of Rancho Seco production costs.
Pacifle Power and Light Contract The District entered into a power purchase contract with Pacific Power & Light Co. (PP&L) in June 1987. This contract, consisting of three agreements, provides for the purchase of 100 MW of firm power at a minimum capacity factor of 25 percent for a period of 25 years beginning January 1,1990. The purchase price under this contract is $98,230,000 if paid for on January 1, 1988 which is equivalent to $9 per kW month if financed with tax-exempt debt. This purchase price accerues interest from January 1,1988 and must be paid by December 31,1989. The cost of energy is based on the variable costs of PP&L's Jim Ilridger Coal Plant, estimated to be 18 35
mills per kWh in 1990, with estimated annual escalation of 5 percent. See " Capital Require-ments, Outstanding Indebtedness and Projected Operating Results-Estimated Capital Require-ments and Long-Term Debt Issuance" for a discussion of the proposed method of financing the District's obligation under the contract with PP&L.
Power Pool Agreements The District has entered into certain power pool agreements described below for the purpose of providing more efficient and economical use of shared generating and transmission resources.
California Power Pool. An extra-high voltage (EllV) transmission contract was negoti-ated in 1967 with the California Power Pool (comprised of PG&E, Edison and San Diego Gas and Electric Company) which placed in service EHV transmission lines linking the Pacific Northwest and California (the Intertie). This contract provides the District with 200 MW of intertie capacity.
Under the PG&E Contract and prior to execution of the 1988 Amendment, the District could -
use this intertie capacity to import surplus capacity and energy which was available from the Pacific Northwest during Rancho Seco outages and during summer peak periods. Under the 1988 Amendment, the District can use the Intertie capacity during all months of the year. After the PG&E Contract terminates, the District intends to use its EHV capacity to import power to supplement its generating resources. The District's rights to 200 MW of transmission under the EHV contract terminate in 2005. The District's rights will be automatically extended for the life of the project upon completion of the California-Oregon Transmission Project (COTP) (see
" Growth Projections and Future Resources-Future Generating Resources and Alterna-tives-Transmission"). In April 1986 the District entered into a contract with the Northern California Power Agency (NCPA) to sell 50 MW of the District's Intertie capacity to NCPA through December 31,1989.
In January 1986, the District began importing energy over the Intertie under an existing contract with Bonneville Power Administration (BPA). In 1986, when dancho Seco was out of service, the District exceeded the limits on the amounts of energy which it could borrow from PG&E and it purchased from BPA energy that was more economical than energy from PG&E.
During the months of February and March 1986, the District signed contracts with Chelan County PUD, Idaho Power Company, Montana Power Company, B.C. Hydro, Washington Water Power Company, Portland General Electric Company and PP&L enabling the District to expand its market for energy purchases in the Pacific Northwest. The District will continue to purchase energy to the extent available from the Pacific Northwest when it is more economical than energy purchases from PG&E. !
Western Systems Power Pool Agreement. On November 6,1986, the District became a member of the Western Systems Power Pool. This pool is a two year experimental agreement among investor owned utilities and public agencies in the western United States to purchase and sell firm and non-firm power and transmission capacity. The agreement includes an arrangement for daily electronic price quotes which will be set within limits establistad in the agreement.
Electronic price quotations will facilitate the utilization of the least expensive power and transmission. The District's use of the pool will be limited to transactions which can be l integrated under its agreement with PG&E as provided in the 1988 Amendment. On March 11, j 1987, FERC approved operation of the pool. ;
Northern California Power Pool. The District and six other Northern California public entitles havejoined to form the Northern California Power Pool. The pool was formed following a two-year engineering study which showed that the group could save an estimated $50 million annually by pooling resources. The benefits would result from more efficient use of the pool's nearly 5,300 megawatts of shared capacity. Participants include the District, Western, the 36
NCPA, the cities of Santa Clara and Redding, the Modesto Irrigation District and the Turlock Irrigation District. l Members of the power pool have agreed to share their future resource plans with one another and to develop a coordinated resource plan and a transmission plan. Transmission availability is the pool's first priority and the power pool's planning committee has determined that a jointly developed public power transmission system may be the key to the long-term success of the power pool.
RATES AND CHARGES The District has full power to establish the level of rates charged for all District services.
Although rate and revenue levels are not subject to review or regulation by any other governmental agencies, either federal or state, there is potential regulation of rate structures by both the DOE and the CEC.
The policy of the District is to furnish its customers reliable electric service at the lowest rates consistent with sound and prudent business practices and safe operations, while maintain-ing a high level of financial stability and credit. In conformity with this policy, the District's management is endeavoring to develop ways to improve service, to control costs of construction, operation, and maintenance, and to adjust service rates to levels which are reasonably compen-sable. The District has initiated rate-related conservation programs including residential time-of-use rates, air conditioner load management rates, thermal energy storage, auxiliary power, group load curtailment, and curtailable service rates.
District rates have historically been competitive with the rates of other utilities within the state and throughout the nation. The District's current system average rate will be 7.4 cents /kwh as of November 1,1988, and will be an estimated 84 percent of PG&E's system average rate of 8.8 cents /kwh. The following table presents a history of the District's recent rate increases.
RATE REVISION IIISTORY Percent Change in Effective Date Revenuen Navember 1,1988 . 4.3%
October 1,1987 8.0 i March 1,1987. . 19.6 July 1,1986. . . 9.6 November 1,1985 .. . 14.0 March 1,1985. 14.0 In July 1987, the Board Rate Process Committee was established. Its purpose was to develop ways to increase public participation in the ratesetting process and to review the District's rate structure and recommend any needed changes. This Committee was assisted by a Citizens' Rate Advisory Committee comprised of residential and commercial ratepayers. On rate structure issues, the Committee recommended the establishment of a subsidy program for low-income residential customers that would be funded by a 1 percent surcharge collected from all customer classes. Recommendations were also made to adjust class revenue requirements to phase in over l a period of five years the embedded cost-of-service revenue targets, and to adjust rate schedules to more closely track costs. On October 6,1988, the District adopted these recommendations.
The implementation date for the subsidy program and other changes is January 15,1989.
37
1 e
The following table sets forth charges for typical residential usage levels for the District and the neighboring territory which is served by PG&E.
RESIDENTIAL SERVICE (Rates in effect November 1,1988)
Monthly Charge in Percent Energy District Neighboring Higher Than kWh Charges (1) Territory (2) District 240 $20.69 $ 17.04 -17.6%
470 40.40 37.89 -6.2 750 66.06 70.71 7.0 1000 88.98 100.01 12.4 (1) Based on average of Rate 17 winter and summer rates, including a baseline allowance of 310 kWh per month in the winter and 336 kWh per month in the summer to be effective November 1,1988.
(2) Based on PG&E schedule EISB which has baseline rates for the first 393 kWh per month in the winter and 351 kWh per month in the summer and which have no fixed customer ;
charge. l The table bilow shows a comparison as of November 1,1988 of the District's charges for 750 kWh usage per month with similar charges of other California utilities.
STATEWIDE COMPARISON-RESIDENTIAL SERVICE (Rates in effect November 1,1988)
Average Percent ,
Charge 750 liigher Than I kWh District Sacramento Municipal Utility District . . $66.06 -
l Los Angeles Dept. of Water & Power . 63.56 -3.8% l Pacific Gas and Electric Company . 70.71 7.0 ,
San Diego Gas and Electric Company . . . .. . 83.65 26.6 l Southern California Edison Company. . . 74.65 13.0 The average residential customer of the District for the 12 months ended December 31, 1987, used 8,905 kWh of energy as compared with the estimated national average for residential use of 9,195 kWh as shown in Edison Electric Institute reports. Residential customers of the l District paid an average of 7.25 cents per kWh, or 2.4 percent less than the national residential l average of 7.43 cents per kWh, as reported by the Edison Electric Institute. l l
l 38 j
The average commercial / industrial customer of the District for the 12 months ended December 31,1987 used 98,101 kWh of energy as compared with the estimated national average for commercial / industrial use of 126,893 kWh. Commercial / industrial customers of the District paid an average of 5.68 cents per kWh, or 2.2 percent less than the national commer-cial/ industrial average cost of 5.81 cents per kWh as reported by the Edison Electric Institute.
The following table sets forth the charges for typical commercial usage levels for the District and the neighboring territory which is served by PG&E.
COMMERCIAL / INDUSTRIAL SERVICE (Rates in effect November 1,1988)
Monthly Monthly Charge in Percent Demand Energy District Neighboring fligher Than kW kWh Charge (1) Territory
- District 6 750 $ 63.81 $ 76.08 19.2%
12 1,500 117.44 147.16 25.3 70 25,000 1,698.21 2,185.63 28.7 70 50,000 2,790.71 4,121.75 47.7 300 75,000 5,268.46 6,713.38 27.4 300 150,000 8,546.46 12,521.75 46.5 1,000 250,000 17,133.96 20,957.54 22.3 1,000 500,000 28,058.96 35,072.58 25.0
- Based on average of winter and summer rates.
A stabilizing influence on the District's revenue is that a greater-than-average proportion is derived from residential customers and a less-than-average proportion from commercial and industrial consumption, which is normally more sensitive to economic fluctuation.
Percent of Total Sales to District Customer (I)
District 12 Months 12 Monthe Ended Ended June 30, June 30, National 1987 1988 Average (2)
Residential Sales kWh.. 44.0 % 42.9% 34.8 %
Revenue. . . 50.2 49.3 40.5 Commercial and Industrial Sales kWh. .. 55.2 55.2 61.7 Revenue. . . .. . 48.9 48.7 56.1 (1) Percentages quoted do not add to 100 percent because certain classes of sales are not included.
(2) Edison Electric Institute statistics for residential, commercial, and industrial sales only as of December 1987.
The District began experimenting with time-of-use (TOU) rates in 1984. By offering certain residential customers lower prices for off-peak use and higher prices for peak use, the District has determined that TOU rates are a cost-effective means for reducing the need for new (peaking) capacity, and for reducing the cost of the District's future operation. The District approved a permanent voluntary TOU rate option for a limited number of residential customers in April 1986.
39 l
- - __ -_ - _ _ _ _ _ - _ - _ _ _ - _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ - _ _ - _ _ ___a
d i
INSURANCE The District maintains a broad insurance program designed to furnish protection against losses which would have an adverse effect on its financial position or operational capabilities.
The District reviews all insurance policies and modifles the insurance program when construc-tion and operational exposures or developments in the insurance industry warrant it. Despite difficult market conditions in recent years, the District's insurance program has continued to be enhanced. This has been made possible by long-term agreements with Lloyds of London for property coverages, and with industry pools for liability coverages . Ilowever, in the event costs are excessive or coverage unavailable in the future, the District intends to employ other risk management techniques (such as additional loss prevention programs, risk transfer or self-insurance) to manage its loss exposures where and if necessary.
The District has in effect all-risk, non-nuclear property insurance with a limit of $150 million per occurrence. Sublimits of $100 million apply to property damage arising out of earthquake and/or flood, and to business interruption / extra expense coverage.
The District has in place non-nuclear comprehensive public liability and property damage insurance with limits of $100 million per occurrence. Sublimits of $25 million apply to liability resulting from inundation due to dam failure and pollution liability.
Nuclear property insurance for Rancho Seco is purchased from American Nuclear Insurers, Mutual Atomic Energy Liability Underwriters, and Nuclear Electric Insurance Limited. The District maintains financial protection in the amount of $1.24 billion, subject to deductibles ranging from $250,000 to $1,347,588, depending upon the type of property damaged. The deductible is $5 million for carthquake and flood perils. This insurance is an "all risk" coverage which omits the standard nuclear exclusion normally found in conventional property policies.
These policies comply with the NRC requirement that claim payments must be used for decontamination and debris removal to ensure that the reactor is maintained in safe and stable condition before repairs are made.
The District maintains nuclear liability insurance and agreements of indemnity with the federal government under the provisions of the Price-Anderson Act, which limits liability to
$7.216 billion per nuclear incident. This liability would be met by the combination of private insurance coverage of $160 million and an assessement of $63 million against each of the 112 U.S. commercial nuclear reactors, payable in annual installments of $10 million.
Other types of insurance in force include non-owned aircraft liability; workers' compensa-tion for claims in excess of a self-insured retention of $350,000 per occurrence; crime, including coverage for faithful performance of all officers and employees, money and securities, and forgery and counterfeiting of securities; data processing equipment and media; valuable papers; boiler / machinery; and builder's risk for structures under construction.
l 40
1 GROWTH PROJECTIONS AND FUTURE RESOURCES I The District's projections of population, customers, peak demand, sales, and operating j revenues are shown in the table below.
The District's actual peak load in 1988 was 2,109 MW (due primarily to a hotter than normal summer) versus a projected peak of 1,921 MW, The peak load expected in 1989 is 1,927 MW, which is lower than the actual 1988 peak because of substantial increases planned in load management efforts and projected normal summer weather.
GROWTH PROJECTIONS l System "h'u nd kWh Sales (millions) Operating Populatfon Customers kW To Surplus Revenue Year (July 1) (Average) (thousands) Customers Power Total (thousands) 4 Actual 1981 806,200 339,755 1,617 5,694 1,313 7,007 $ 194,802 1982 830,600 345,496 1,489 5,673 2,694 8,322 $241,151 i 1983 851,100 351,202 1,641 5,955 2,043 7,998 $267,230 !
1984 . , 866,199 361,968 1,730 6,360 2,539 8,899 $344,792 1985. 883,700 376,150 1,851 6,8F 2 567 7,449 $357,536 1986 914,000 392,546 1,789 7.015 75 7,090 $412,935 1987 941,000 407,170 1,865 7,418 0 7,418 $513,235 Compound Annual Growth Rate . 3.1% 2.4% 4.5% - - 17.5%
Projected 1988. . 952,063 421,630 2,109' 7,520 347 7,867 $551,327 1989 , 972,316 436,238 1,927 7,660 1,281 8.941 $590,530 1990 , , 993,000 450,441 1,935 7,802 1,555 9,357 $646,199 1991. 1,011,925 463,745 1,971 7,946 2,774 10,720 $693,330 1992 1,031,210 475,591 2,002 8,125 1,663 9,788 $731,528 Compound Annual Growth Hate . 2.0% 3.1 % 1.3% 2.0% - - 7.3%
- Actual.
Future Generating Resources and Alternatives The District conducts analyses of resource alternatives available for its service area for the next 20 years, culminating in the Resource Plan. The Resource Plan sets forth nuclear, hydroelectric, geothermal, combustion turbines, energy storage, purchased power and exchange agreements along with energy conservation and load management as the primary options for meeting projected demands, The Resource Plan emphasizes flexible resources which can be operated in either a peaking or intermediate mode as a complement to the District's current resource mix, which is currently dominated by base load units. In addition, a significant effort will be dedicated toward applying conservation and load management techniques to reduce the need for greater resource development. TOU rates are expected to be used extensively to augment load management and to give customers options for electric cost reduction.
The following is a description of certain resources under consideration by the District.
Whether the District commits to a project under consideration is dependent upon, among other things, the District's needs, the availability of better alternative resources and economic, technical, licensing and environmental feasibility. Completion of resources committed to in the future may be dependent upon, among other things, regulatory approvals and the ability to obtain financing.
Power Sales Contracts. In addition to the agreements with PG&E, Edison and PP&L (see
" Power Purchase Agreements"), the District may enter into other power sales, purchase and exchange agreements. Potential parties for such agreements include the State of California Department of Water Resources, Sierra Pacific Power Company (SPP), BPA and the pooling of certain power companies and agencies in Northern California and the Pacific Northwest.
41
Ilydroelectric. The District is considering the development or acquisition of several projects. Ilowever, commitment to these hydroelectric projects will depend on specific project costs and financing. Hydroelectric projects such as the U.S. Bureau of Reclamation's Auburn Dam project are being followed with interest. This project would become attractive if the power cost allocations and financing became favorable, and if the project were designed to provide dispatchable firm power. Also the District is studying the possible addition of capacity and storage to its existing UARP. No assurance can be given that the District will further develop any of these hydroelectric resources. Consequently, none of these potential projects are specifically represented in the Resource Plan.
Cogeneration. The District is currently considering the construction of a 49.5 MW cogeneration project at a food processing plant. The project, if constructed, would operate primarily during July, August and September to provide capacity and energy to the District's electric system. During the balance of the year this project would provide stand-by capacity for the District.
Commercial -nd industrial sources within the District's service area have been evaluated to determine then gatential for cogeneration. The District has developed an avoided-cost pricing policy for purchase of electrical power from cogeneration facilities and is presently considering combinations of wheeling, recapture, and other pricing mechanisms to encourage increased development of cogeneration potential. The District is committed through contractual arrange-ments to purchase peaking power from Poppy Ridge Partners beginning in November 1989. The partnership has developed a low-BTU gas cogeneration project which consists of two 0.7 MW generators in the southern portion of the service area.
Coal-Fired Generation. The District is considering the purchase of long-term firm capac-ity and energy associated with coal-fired generation plants in the Northwest. Power from these resources would be imported using the District's transmission rights on the Intertie transmission system, and will blend with other District resources to serve future District loads.
Energy Storage. Energy storage is attractive as one of the District's future resources because of the desirability of operating base load generation plants at a high load factor and due (o the large swings of daily system load factor, caused by summer air conditioning loads. The District is investigating compressed air energy storage utilizing one of the many spent natural gas fields in the Central Valley area. Likewise, studies of hydroelectric pumped storage are progressing. Either would provide an appropriate resource for the District utilizing proven technology at identifiable costs.
Independence Through Transmission. Initiated in February 1988, the Independence Through Transmission (ITT) directive was to develop a strategic plan to achieve for the District unencumbered transmission access to power markets that are competitive with PG&E for power purchases, exchanges, and sales. The resulting strategy includes development and construction of transmission projects, development of wheeling agreements, and legislative and regulatory activities.
GPPL. The District, in a joint effort with NCPA, Modesto Irrigation District and the City of Santa Clara, is seeking a license to build the GPPL, a proposed transmission link to the Geysers geothermal field, which is anticipated to have a nominal capacity of approximately 800 MW.
Under the current agreement, the District is entitled to 45 percent of the 230 kV transmission line. Ilowever, the Districi's projection of production from the Geysers area has since been reduced. As a result, the District intends to negotiate with other GPPL participants to reduce its participation percentage prior to construction of the project. The GPPL participants plan to obtain the necessary permits to build and complete the line by January 1,1991. The projected i cost to the District is approximately $42 million. The completion of this project is necessary to provide firm long-term transmission for the electric power generated by the SMUDGEO ** I and CCPA's Units 1 and 2. The District has a transmission agreement with PG&E which expires on 42
December 31,1989 for wheeling power from SMUDGEO # 1 and its share of CCPA's Units 1 and
- 2. The Application for Certification ( AFC) for the GPPL is currently undergoing review at the CEC. The CEC is expected to render a decision on the AFC in late 1988. Construction of the GPPL cannot begin until the AFC is approved.
Transmission. The District and other California public utilities have formed a joint powers agency called the Transmission Agency of Northern California (TANC). This agency has joined with nearly all California utilities to share in the construction and ownership of the COTP, a 500 kV transmission line between central California and southern Oregon. TANC is the lead agency for the construction of the COTP. The District will be entitled to 207 MW of transmission capacity which will facilitate power exchanges with the Pacific Northwest. The COTP consists of the upgrade of a portion of a Western transmission line from 230 kV to 500 kV and the construction of a new 500 kV line from Southern Oregon to near Redding, California.
The COTP is expected to be completed in 1992 and to cost $439 million. The District's share of the project costs will be approximately $64 million.
The COTP has fulfilled all environmental requirements, and land acquisition is expected to begin by the end of 1988. The investor-owned utilities require California Public Utilities Commission certification before they can participate in COTP. This certification process is not proceeding as originally scheduled. If the investor owned utilities are unable to participate in COTP because these issues cannot be resolved, or for any other reason, then the COTP could be scaled-down.
The District and the Sierra Pacific Power Company are proceeding into the licensing phase of the District /SPP Intertie Project which would interconnect the two utilities across the Sierra Nevada mountains. This 345 kV transmission line is expected to have a capacity of approxi-mately 400 MW between the two utilities. The line is expected to be in service by 1993. The draft environmental impact report is expected to be released in 1989.
Other Generating Alternatives. Solar (thermal), wind, and biomass energy are still being developed for utility-sized applications. Biomass generators are small but potentially useful sources of supplemental energy. Small-scale wind installations may have economic potential in the near term for some applications. The District is following the developments in these areas but does not have plans for any power plant based on these technologies.
Conservation In April 1977, the District adopted a long-range energy conservation policy and subse-quently adopted the objectives of promoting the cost-effective use of energy and optimizing the use of District resources through conservation, load management and pricing techniques. The District works with local governmental bodies to enact and implement conservation policies.
Major programs the District has implemented include the Air Conditioning Load Management Program, Conservation Sales Program, Home Energy Management Program, Commercial Audit Program, Peak Load Rebates Program, Commercial Lighting Incentive Program, Curtailable Service Program, and Auxiliary Power Systems Program. These programs and activities are designed to reduce consumption and to improve system load factor.
The Resource Plan projects an aggressive effort in the load management area. By 1991 it is estimated that a total of 220 MW of load can be reduced by expanding existing load management programs. Such load reduction is included in the Projected Operating Results. The District also is evaluating implementation of new load n.anagement programs, including residential and com-mercial thermal energy storage, district cooling, and time-of-use rates to achieve even higher i levels of load reduction (see " Rates and Charges").
43
e CAPITAL REQUIREMENTS, OUTSTANDING INDEBTEDNESS AND PROJECTED OPERATING RESULTS Estimated Capital Requirements and Long Term Debt Issuance For the period 1988 through 1992, the District has projected capital requirements of approximately $976 million, as shown below.
ESTIMATED CAPITAL REQUIREMENTS (in thousands)
Service Area Improvements and Other to Existing Total System Power Generation Nuclear Capital Improvements Supply (2) Plant Fuel Requirements 1988... . .. . . .... $ 96,762 $ 992 $ 72,887 $ 4,950 $ 175,591 1989. .... . .... .. 75,251 123,475(3) 82,565 3,000 284,291 1990. . . .. ... ... .. 66,239 9,159 63,393 23,000 161,791 1991 . .. ...... . 72,285 29,480 67,104 0 168,869 1992..... . .. . 136,963(1) 0 48,411 0 185,374
$447,500 $ 163,106 $334,360 $30,950 $975,916 (1) Includes $64 million of capital expenditures for the District's share of construction of the COTP.
(2) Does not include capital requirements related to the CCPA geothermal units which were funded by proceeds from a prior Bond issue.
(3) Includes $117,308,000 to finance the Pacific Power and Light Contract.
The following is an estimated schedule for the issuance of revenue bonds to finance a portion of the capital requirements described above.
Principal Amount Year of Revenue Bonds 1988. . . . . . $ 170,000,000
- 1989. .. . . . . 0 1990. . .. . 0 1991.. .. . 40,000,000 1992. . 70,000,000
$280,000,000 !
- Series W Bonds.
The District presently anticipates these financings will be accomplished through the issu-ance of Bonds under the Resolution. The balance of funds needed to meet estimated capital requirements is expected to be provided from internally generated cash.
In addition, the District anticipates that it will finance the Pacific Power and Light Contract by issuing approximately $120 million in certificates of participation in 1989. The payments on the contract which will secure such certificates of participation will probably be treated as Energy Payments or as maintenance and operation costs under the Resolution (see " Security for the Bonds-Certain Dermitions"). Pursuant to the Resolution, Energy Payments and mainte-nance and operation costs are senior to the payment of debt service on Bonds, including the Series V Bonds, the Series W Bonds and Parity Bonds.
i 44
Outstanding Indebtedness The District has financed its capital requirements through the sale of general obligation bonds and notes, revenue bonds and commercial paper and from internally generated funds.
Long-Term Bonds. Since its inception, the District has issued $102,589,000 principal amount of general obligation bonds of which $3,960,000 was outstanding at December 31,1987.
Since the beginning of operations in 1947, the District has levied no taxes and has paid all of the principal and interest due on its long-term debt from revenues of its electric operations. The District projects net revenues sufficient to continue this practice.
The following tabulation shows the principal amount of the District's revenue bonds projected to be outstanding after the issuance of the Series V Bonds and the Series W Bonds and the defeasance of the Series T Bonds and the Series U Bonds. Projected Principal Dste of Amount issue Outstanding Issue Electric Revenue Bonds Series P,4%% to 8%% July 1985 $ 179,690,000 Series Q,4%% to 7%% May 1986 146,510,000 Series R,4%% to 7%% March 1987 233,175,000 Series S,4%% to 7%%. March 1987 172,445,000 Series V,6%% to 7%% Nov.1988 161,905,000 Series W,6%% to 7%% . Nov.1988 170,000,000 Total Electric Revenue Bonds. 1,063,725,000 Subordinated Electric Revenue Bonds 1985 Refunding Series,7%% to 9% Nov.1985 491,495,000 Total Revenue Bonds. $ 1,555,220.000 Short-Term Notes. The .Act authorizes the District to incur short-term indebtedness up to the lesser of either the annual average of the total revenues for the three preceding years or 25 percent of the District's total outstanding bonded debt. The District exercises this authority through the issuance of promissory notes in the form of tax-exempt commercial paper (Notes).
The District currently has $121,991,000 principal amount of Notes outstanding which, under the provisions of the Act, is to be repaid solely from revenues and may be issued for a maximum term of seven years. The District has approximately $36 million authorized and unissued for other capital purposes. The Act also authorizes the I)istrict to incur short-term indebtedness for the purchase of electricity. The District has fully utilized this authority with the issuance of
$73,096,000 principal amount of Notes.
The table below summarizes the District's commercial paper program which consists of four series of Notes, all of which are backed by direct-pay irrevocable letters of credit (LOC).
Principal Amount of Notes Outstanding Series C. $ 59,724,000 Series D. 24,300,000 Series E . 62,267,000 Series F 48,796.000 Total $ 195,087,000 Under the LOC, a total of $200 million may be advanced for principal and interest on the Notes. The resulting obligations of the District and the Notes secured thereby are secured by a pledge of Net Revenues junior to the liens securing the Bonds and the Subordinated Bonds.
45 I
4 Drawings under the LOC, to the extent not repaid immediately from the proceeds of commercial paper or other available District funds, are repayable over a 3 year period with interest. The Notes presently have credit ratings of A-1+/P-1.
PRINCIPAL AND INTEREST REQUIREMENTS ON BONDED INDEBTEDNESS (thousands of dollars)
Total Total Total Parity Total Parity Bond Total General Debt Service Total Debt Service Debt Service Debt Service Obligation Before Subordinated Before After After Calendar Bond Series V Bond Series V and Debt Service (l) Series V and Series V and Year Debt Service and Series W Debt Service Series W Series V(1) Series W(1) Series W(2) Series W(2) 1989. . $ 1,082 8 81,037 $ 42,703 $ 123,740 $ 9,779 $ 10,268 8 84,306 8 127,009 1990 899 79,877 42,703 122,580 14,169 14,881 92,149 134,852 1991 , 654 81,689 42,703 124,392 14,171 14,872 93,954 136,657 1992 655 81,191 42,703 123,894 14,167 14,877 93,457 136,160 1993 0 103,105 52,668 155,773 14,171 14,880 85,378 138,046 1994 . 0 101,100 54,186 155,286 14,166 14,878 86,636 140,822 1995 0 96,715 54,179 150,894 14,170 14,874 88,691 142,870 1996 0 99,746 54,184 153,930 14,169 14,880 91,724 145,908 1997 0 100,722 54,183 154,905 14,169 14,875 92,695 146,878 1998 0 63,622 54,183 117,805 14,163 14,875 92,660 146,843 1999 0 63,581 54,184 117,765 14,171 14,876 92,628 146,812 2000. 0 63,580 54,187 117,767 14,168 14,877 92,625 146,812 2001 0 63,535 5/.181 117,716 14,170 14,881 92,586 146,767 2002 0 62,610 52,631 115,241 14,166 14,873 91,649 144,280 2003 0 64,378 52,629 117,007 14,171 14,877 93,426 146,055 2004 0 63,384 52,632 116,016 14,167 14,882 92,433 145,065 2005 0 63,327 52,628 115,955 14,166 14,873 92,366 144,994 2006 0 51,430 64,482 115,912 14,168 14,880 80,478 144,960 2007 0 51,377 64,477 115,854 14,168 14,874 80,419 144,890 2008 0 51,312 64,484 115,796 14,171 14,879 80,362 144,846 2009 0 51,252 63,686 114,938 14,168 14,877 80,297 143,983 2010. 0 51,190 63,677 114,867 14,106 14,874 80,230 143,907 2011 0 51,113 0 51,113 14,173 14,878 80,164 80,164 2012 0 51,063 0 51,063 14,165 14,874 80,102 80,102 2013 0 50,988 0 50,988 14,170 14,881 80,039 80,039 2014 0 50,985 0 50,985 14,167 14,877 80,029 80,029 2015 0 60,908 0 50,908 14,168 14,874 79,950 79,950 2016 0 44,275 0 44,275 14,168 14,878 73,321 73,321 2017 0 31,997 0 31,997 14,168 14,878 61,043 61,043 2018 0 0 0 0 14,169 14,873 29,042 29,042
$3.290 $ 1,921,089 $ 1,188,273 $3,109,362 $420,662 $441,696 $2,514,839 $3,703,112 (1) Excludes accrued interest, as of the date of initial delivery, on Series V Bonds and Series W Bonds.
(2) Reflects the defeasance of Series T Bonds and Series U Bonds.
Forecast of Debt Service Coverage Ratios. The following table shows the Parity Debt Service Coverage Ratio, the Subordinate Debt Service Coverage Ratio and the Fixed Charge Ratio based on the Projected Operating Results. See the table in "Certain Operating and Financial Data" for an example of how these ratios are calculated.
1988 1989 1990 1991 1992 Parity Bond Debt Service Coverage Ratio , . 2.62 2.33 2.70 2.77 2.82 Subordinate Debt Service Coverage Ratio . 1.69 1.60 1.84 1.92 1.98 Fixed Charge Ratio ,
1,20 1.60 1.50 1,55 1.60 46
_ _ _ _ - - - M
Projected Operating Results Based on the Business Forecast prepared by the District and reviewed by the Consulting Engineer and certain other information, the Consulting Engineer has prepared the Projected Operating Results for the period 1988 through 1992 which appear in the Consulting Engineer's Report as " Projected Operating Results" (see Appendix A). The Consulting Engineer's Report must be read in ;ts entirety to understand the assumptions and considerations on which the projections are based. While R.W. Beck and Associates believes the assumptions are reasonable for the purposes of the Consulting Engineer's Report, they are dependent upon future events, and actual conditions may differ from those assumed. To the extent that the actual future conditions vary from those assumed, the actual results will vary from the projections.
In the Consulting Engineer's Report, the Consulting Engineer has stated the following:
"In the preparation of this report and the opinions that follow, we made certain assumptions with respect to conditions which may occur in the future. In addition, we have used and relied upon certain information provided to us by the District and others which we believe to be reliable. We have not independently verifled this information and offer no assurances with respect thereto. We believe the use of such information is reasonable for purposes of this report. However, some assumptions will invariably not materialize as stated herein or may vary significantly due to unantici-pated events and circumstances. Therefore, the actual results can be expected to vary from those forecast to the extent that actual future conditions differ from those assumed by us or provided to us by others. The principal assumptions and considera-tions made by us and the principal information provided to us by the District and others include the following:
- 1. Capacity and energy will continue to be available from PG&E as needed by the District through 1989 under the PG&E Contract, the 1988 Amendment, and the Settlement Agreement.
- 2. After 1989, new contractual agreements with PG&E, Edison and others will provide capacity and energy, as needed, when District resources are out of service and will provide for purchase and sale of capacity and energy by the District under other circumstances.
- 3. The District's future generating resources, transmission projects, and agree-ments for power purchases, transmission and interconnection will be availa-ble as described and shown herein and in the Official Statement, or the District's load and reserve requirements will be supplied by similar resources with similar cost characteristics.
- 4. No rate increase in 1989 and rate increases of 5.6 percent in 1990,0.9 percent in 1991, and 7.3 percent in 1992 will result from rate actions taken by the District.
- 5. Annual plant capacity factors for Rancho Seco, based on average monthly capabilities, estimates of maintenance, refueling and modification schedules, and unscheduled outages (estimated at 20 percent) will be as follows:
approximately 40 percent,51 percent,55 percent,80 per cent, and 55 percent for the years 1988 through 1992, respectively.
- 6. Energy generation from the District's hydroelectric resources will be less than average in 1988 and 1989, reflecting the actual precipitation during the 1987-1988 season, reservoir refill during 1989 and average generation thereafter. l 47
___--__-___-_______-____-__-_a
Q v
- 7. Non-nuclear generation operations and maintenance expenses increase at an average rate of 4.2 percent through 1992. Transmission, distribution, cus-tomer accounts and administrative expenses increase at a rate of 7.2 percent through 1992 to reflect system growth. Construction expenses increase at an average rate of 4.7 percent per year. Natural gas, geothermal steam and the cost of energy from PG&E and Edison increases at a rate of approximately 5.5 percent per year through 1992. The Consumer Price Index increases at an average rate of 4.2 percent per year through 1992.
- 8. Estimated PG&E system average system costs,in mills per kilowatt-hour, will be 88.0,90.9,98.5,98.9 and 104.2 for 1988 through 1992, respectively.
- 9. Projected revenues from sales to retail customers are not affected by load management programs.
Based upon our studies, investigations and analyses, and the principal Assumptions and Considerations set forth in this report, we are of the opinion that:
- 1. Based on historical costs and trends, the current Rancho Seco operations, and other facters, the Projected Operating Results during the study period 1988-1992 are reasonable.
- 2. To obtain debt service coverage ratios indicated in the Projected Operating Results, it will be necessary in 1990 and ensuing years to secure more revenues than would be available from the presently approved rates.
- 3. The retail rate levels required to achieve the forecasted revenues in the Projected Operating Results are expected to remain lower than the comparable rate levels of PG&E.
- 4. The District can obtain long-term and other agreements after 1989 common in the industry with other utilities for standby service when District resources are out of service and for sale and purchase of capacity and energy under terms and conditions that are no less favorable than those assumed in the Projected Operat-ing Results for 1990,1991, and 1992."
THE SERVICE AREA The District is the sole distributor of electric power within an area of approximately 900 square miles in central California, one of the fastest growing areas of the state. The service area includes the state capital, Sacramento, the populous areas principally to the northeast and south of the city, the productive farm lands to the north and south, and the area known as Folsom, which began receiving service from the District in November 1984. Sacramento is located 85 miles northeast of San Francisco and is tha seventh most populous metropolitan area in California.
The District's electric system supplies power to a population of 901,900 whose purchases were approximately 7.4 billion kWh for the year ended December 31,1987. The District serves an estimated 98 percent of the population of Sacramento County which includes 90 percent of the county's assessed valuation.
48
Growth Statistics By virtue of its favorable location with respect to raw materials such as minerals, timber, agricultural products and abundant and low-cost water supply, and its strategic position as a transportation center and the state capital, the Sacramento area has enjoyed a relatively steady increase in most measures of growth. Shown below is population data for Sacramento County (years 1970-1987) and a projection as prepared by the District for the years 1990,1995,and 2000.
1970 ... ........... ... ... .... . .. ..... ... . 634,373 1980 .. ........ .... ...... ...... .... . .. ,, ... 783,381 1985 .. . .. .. ... . . .. .. .... . ... 883,700 1987 .... . .... .... .. . .. . .... ... .. . . . 941,000
> 1990.... .... . . ... ....... .. . . .. 993,000 1995 .. . .... . .. . .. ... . . . . 1,091,300 2000 .. .... ... ... .. . .. . . . ... 1,184,000 Utility connections and building activity for the past ten years are shown in the following tables.
UTILITY CONNECTIONS Electric kWh Sales to Customers Customers Number of Telephone District (in thousands) Gas Service Access Year Area (1)(2) (1)(2) Accounts (3) Lines (4) 1978.. . . ... ....... .. .. 309,735 5,150,866 244,819 637,032 1979 .. .. ... .. .. . 324,438 5,471,031 250,022 646,778 1980 ... .. ... ..... . . 335,091 5,351,868 254,026 678,175 1981... ... . . . . .. 343,159 0,694,465 256,430 691,538 1982.... . .. ... . 347,835 5,673,253 257,829 696,695 1983 ....... ..... .... ... . .. . 354,757 5,954,618 260,417 480,067 1984 . . . ... . . . 369,179 6,359,811 263,628 471,327 1985 .... ..... . 383,796 6,881,631 266,191 482,351 1986... . .. . . . . 399,130 7,014,936 264,608 496,629 1987 . 414,079 7,418,577 265,794 513,681 (1) Source: Sacramento Municipal Utility District.
(2) For the year ended December 31.
(3) Source: PG&E.
(4) Source: Pacific Bell. Statistics as of 1984 are recorded only for access lines, which do not include extensions.
l' 49 i
a e
BUILDING ACTIVITY New Residential Value of all Construction Building Permits, :
All Units, Including >
Based on Commercial and Permits (1) Industrial (1) 1978.... .......... . . .. ... .. . . .. 12,443 $ 461,258,594 1979 .......... ... . .. .... .. .. ... 13,561 531,500,489 1980.................. ... . .. ............. 6,561 540,128,905 1981. ............ .... ... .. . . ... .. 3,658 461,331,805 1982...... ........ . .. .. ...... 3,843 190,381,693 1983........... ... . .. . .... . ... . 7,724 712,859,172 1984........ . ..... ........... .. . 5,850 931,891,838 1985...... ...... .. .. .. .. . ..... 7,298 873,201,270 1986..... . . ... . .. . . . .. .... 11,091 1,203,887,300 1987. ..... .... .... ............ . . . ...... 9,960 1,788,638,000 (1) Does not include cities of Galt, Folsom or Isleton.
Source: Sacramento City and County.
Agriculture Agriculture is one of Sacramento's economic keystones and the city is in the center of an !
important food packaging, processing, and canning industry serving an area whose annual agricultural output for 1987 approximated $1.3 billion. Sacramento County alone contributed over $184 million of the total. It is a center for the sale and repair of farm equipment and machinery and for the production of fertilizers, animal fodder and other farm supplies.
Agriculture throughout the area is highly diversified and intensive. Important crops include l rice, sugar beets, tomatoes, corn, pears, almonds, walnuts, honey, hops, olives, and berries.
Livestock and dairy products constitute a large segment of total farm income, particularly in Sacramento County.
The following table shows the value of agricultural production for Sacramento County and for other counties which comprise a nine-county area. The latest information available for all l agricultural data is as of December 31,1987. l VALUE OF AGRICULTURAL PRODUCTION Nine-County Area-1983 Through 1987 (in thousands) 1983 1984 1985 1986 1987 Sacramento . . . . ... $ 167,772 $ 181,517 $ 191,370 $ 181,417 $ 184,074 Butte . . . . . . . .. 146,050 188,517 162,364 181,516 202,095 Colusa . . . . . .. 111,338 140,815 141,557 143,275 149,049 1
Glenn . . . 130,567 148,997 145,617 150,272 161,918 '
Placer . .. . 44,702 53,581 51,920 50,335 51,080 Sutter . . . . . . 205,335 261,692 255,476 229,365 216,184 Tehama. . .. . ... 72,051 77,901 76,072 72,847 80,329 Yolo . . . . 162,209 204,257 190,003 171,517 186,631 Yuba.. ...... . 56,334 77,291 72,557 66,986 81,441 Total . . $ 1,096,358 $ 1,334,568 $ 1,286,936 $ 1,247,530 $ 1,312,801 i
Source: State of California l Department of Food and Agriculture I 50 l
Government and Other Employment As the capital of the nation's most populous s, tate, Sacramento benefits from the stabilizing influence of a large government sector. State headquarters, three federal military installations, the city, county, and various special districts combine to make government the largest employer in Sacramento Of the 163,700 government employees estimated to be in the metropolitan area, approximately 5,400 are employed by the city,11.,700 by the county, and 28,900 by the federal I government. The balance of 117,700 are employed by the state and other political subdivisions including school districts.
T1 . overall level of government employment in Sacramento continues to grow at a moderate pact.. The relatively stable population of government employees provides the retail and service sectors with a firm market for their goods and services.
Construction, finance, insurance, real estate, transportation, communications, and utilities round out the major sectors of employment and industry in the Sacramento area.
Taxable sales in Sacramento County have shown continual growth over the past several years, as reflected in the table below.
SACRAMENTO COUNTY TAXABLE SALES (in thousands) 1978. ... . . . . . ... . $3,757,507 1979.. . ... ... .. .. . . 4,303,214 1980. . . . . . .. . . 4,425,450 1981.. . . .. 4,703,775 1982. . . 4,897,238 1983. .. . . . . . . . .. . 5,543,871 1984,. . . ... . 6,415,981 1985. ... .. . 7,146,889 1986.. . . . . ... . 7,597,823 1987. 4 . . . . . 8,108,467 Source: California State Board of Equalization.
Transportation Excellent transportation service is provided in Sacramento. Water-borne facilities are under the jurisdiction of the Sacramento-Yolo Port District. Four major freeway routes converge in Sacramento. Interstate Ilighways 5 and 80 and U.S. Ilighways 50 and 99 as well as many state highways, provide fast passenger and freight connections to all points in the nation. The Southern Pacific and Union Pacific railroads, both transcontinental lines, have junctions in Sacramento.
A light rail transit system has been developed to move commuter traffic to and from the downtown area. The first phase opened for operation in March 1987. Subsequent extensions will link the most populous areas of the county with rapid transit.
The Sacramento Metropolitan Airport is located approximately 11 miles north of downtown Sacramento. It is served by seven major airlines and three commuter airlines which together offer numerous scheduled flights daily to all principal cities on the West Coast as well as direct flights to other major U.S. cities including Denver, New York, and Chicago.
The Port of Sacramento and the associated 90-mile deepwater channel to San Francisco Bay provide an important link to Sacramento's extensive rail, highway, and air transport facilities by permitting ocean-going vessels to reach Sacramento in less than eight hours.
51
I a l .
i i
Educational Facilities '
There are eight elementary, two high school and six unified school districts and 346 private schools in the county. .nerican River College, Sacramento City College, Consumnes River College and Sierra College offer two-year higher education programs while California State University, Sacramento, the University of California at Davis and National University provide four-year undergraduate and graduate programs.
CLAIMS UNDER ADJUDICATION AND OTHER POTENTIAL DEMANDS AGAINST THE DISTRICT California Sportfishing Protection Alliance Complaints. In June,1984, the California Sportfishing Protection Alliance (CSPA) filed complaints before FERC and the California State Water Resources Control Board (WRCB) alleging that the District and the owners of nine other hydroelectric projects have failed to comply with the minimum streamflow requirements of their permits and licenses and asking that those permits and licenses be cancelled and that the project owners be required to establish a $10 million fund for implementing a plan to restore preproject fishing conditions. On December 19,1985, the WRCB adopted a resolution directing the District and three other project owners to submit, on April 1,1986, plans of operation that ensure that minimum streamflow release requirements are met at all times, and directing that a notice of threatened violation be issued. The District complied with the WRCB resolution by submitting a plan on April 1,1986. It submitted a final, revised plan in June 1986, and that plan was accepted by the WRCB by a letter dated July 25,1986. Thus, the State proceeding has been concluded in a satisfactory manner. The plan submitted by the District provides for installation of improved measuring devices below some of its dams but will not have any significant effect upon the operation of the District's hydroelectric projects.
The FERC proceeding has moved more slowly. Representatives of FERC held an informal I meeting with CSPA and the project owners on June 19,1985. On September 9,1987, the FERC j Director, Division of Inspections, sent the District a letter stating the FERC staff had found that i violations of the license minimum flow conditions did occur and directing the District to comply {
with certain requirements. One of the requirements was that the District meet with the WRCB l and the California Fish and Game Department to determine if the violations had caused any long term impact on fishing resources. The meeting was held on October 14,1987. The WRCB representative present at the meeting stated that data accuracy was so questionable that the Board would deal only with what had to be done to avoid under- releases in the future. lie said that the District had been doing a good job under the plan it had filed with the Board in 1986. On July 12,1988, the District wrote a letter to FERC advising that it had complied with all of the requirements of the FERC letter of September 9,1987. In the opinion of the District's counsel, the probability is that FERC will ultimately conclude that compliance by the District with the plan that the District filed with WRCB in 1986 will resolve the issues raised by the CSPA complaint.
Fass Metals Site Contamination. The State Department of IIcalth Services (the Depart-ment) conducted tests for polycholorinated biphenyls (PCBs) at the Fass Metals Company site {
in Richmond, California, in 1984 and 1985. The Department advised Fass Metals that PCB ;
contamination substantially in excess of allowable limits was present at the site and that Fass Metals was responsible for clean up. The site is, and has been used as, a scrap metal recycling facility. The District sold scrap distribution transformers to Fass Metals during the 1970s and early 1980s. Pass Metals has advised the District that Fass believes that the District's trans-formers caused the PCB contamination and that the District is therefore responsible for clean up of the site. Fass intends to file a claim for indemnity with respect to any clean-up costs, and a damage claim for alleged business impacts. On March 25,1985, Californians for Responsible Toxics Management, a nonprofit corporation, filed a claim against the District stating that the 52
s corporation intends to add the District as an additional defendant in a class action suit it has filed against Fass Metals in the Contra Costa County Superior Court. In that action Californians for Responsible Toxics Management seeks an order requiring abatement of the contamination.
The District has not been served as a defendant in the case.
On April 19, 1986, the Department issued a Determination of Imminent or Substantial Endangerment and Remedial Action / Director's Order (the Order) against both Fass Metals and the District. The District, the Department, Fass Metals and the Regional Water Quality Control Board negotiated the terms of the Order and have executed a stipulation wherein the District and Fass Metals agreed to comply with the Order, and the Department agreed not to impose penalties for past actions, providing there is no substantial failure or refusal to comply with the Order. The stipulation reserves to the Department the ability to (i) enforce the Order, (ii) pursue its administrative costs, and (iii) pursue costs of implementing remedial action at the site or liabilities arising from future operations at the site.
The Order requires that a remedial measure be developed and implemented at the site to contain contaminants during the rainy season. The District and Fass Metals implemented such a program for the winters of 1986,1987 and 1988. The Order further requires that the District and Fass Metals prepare, submit, and implement a remedialinvestigation (testing) plan for soils and ground water to the Department. Testing has been completed and show no groundwater contamination. Soil testing results, however, show that the extent and depth of contamination is greater than originally anticipated, up to 20 feet deep in certain areas. The District has implemented an interim remedial measure and removed portions of the contaminated soil as well as a large quantity of transformers from the site.
The Order further requires that a feasibility study be prepared to assess clean-up alterna-tives. The District recently completed the study, which evaluated 13 possible soil remedies at the site, from passive containment to off-site incineration, with cost estimates ranging from
$900,000 to $22.7 million. Once the feasibility study has been approved by the Department, a detailed remedial action plan will be submitted for Department and Regional Water Quality Control Board review. This plan will include a schedule for the remedial methodology recom-mended to clean up or mitigate contaminants on site. Until the remedial action plan is approved, the cost of remediation at the site remains uncertain. The District currently estimates that the total cost of compliance with the Order and final clean up will be approximately $3 million. The District intends to comply fully with the Order.
PG&E Litigation Against the Western Area Power Administration. On February 22, 1984, PG&E filed a petition in the United States Claims Court seeking damages of approximately
$31 million (later amended to approximately $51 million) on the ground that the Western Area Power Administration, the Federal agency that markets power from the Central Valley Project, had breached the contract under which the PG&E and Western systems are integrated by refusing to make payments for capacity delivered to PG&E by Western and later withdrawn or "unbanked" by Western. The contract between PG&E and Western provides that Western shall contribute its Project Dependable Capacity (PDC) to the integrated PG&E/CVP systems. The dispute between PG&E and Western arose because the parties disagreed on the amount of PDC for which Western was entitled to credit after July 1,1978. In July,1984, PG&E and Western reached a settlement agreement applicable to 1984 and all prior years. The settlement was later made applicable to 1985,1986 and 1987. The settlement has had no adverse impact upon the District. However, no agreement has yet been reached on the manner in which PDC will be determined for the period subsequent to 1987. If the determination of PDC for those years l requires Western to make higher payments to PG&E than those it now projects, Western will l seek to recover those increases through higher charges to its customers, and approximately 30% j of such charges would be allocable to the District. On September 20,1988, PG&E filed a first l amended counterclaim and cross-claim in the action referred to in the following paragraph, in 53
e that counterclaim and cross-claim PG&E asks the court to issue a declaratory judgment establishing the long-term PDC at the amounts contended for by PG&E.
On August 4,1988, PG&E filed a counterclaim and cross-claim against Western in an action that Western had filed against PG&E, NCPA and six of the NCPA member cities in the United States District Court for the Northern District of California. By its counterclaim and cross-claim PG&E seeks a declaration that Western owes it $21.6 million for capacity it provided to Western between 1980 and 1988. PG&E contends that it underfilled Western during those years because it failed to apply a ratchet provision in the PG&E-Western contract to the billing price. Western contends that the PG&E claim for the years prior to 1988 is barred by the settlement referred to above. If PG&E is successful with its counterclaim and cross- claim, Western will probably seek to recover the $21.6 million through higher charges to its customers, and approximately 30% of l such charges would be allocable to the District.
Rancho Seco Liquid Ellluent Discharge Litigation. On March 15,1985, a group of people who live in the vicinity of Rancho Seco filed a class action claim for $1 billion against the District. The claimants alleged that due to an erroneous formula calculation, the District allowed excessive amounts of radioactivity in the liquid effluent discharges from Rancho Seco. A study carried out by experts from the Lawrence Livermore National Laboratory shows that the maximum exposure to any one individual in the Rancho Seco area ranged from 2 to 17 millirem per year. The United States Environmental Protection Agency (EPA) allowable dose is 25 millirem per year. Therefore the District is confident that it will be able to establish that its discharges did not endanger the public. A suit based on the allegations in the March 15 claim was filed in Sacramento County Superior Court on October 2,1985. Discovery in that action has been proceeding. However, on September 22,1986, the court issued a ruling denying plaintiffs' motion for certification of the class. .
On August 25,1986, a second class action claim in the amount of $500 million was filed by some of the people who filed the first claim. The second claim alleges that the claimants learned additional matters after June 6,1986, as a result of which they allege intentional misconduct and deceit in connection with the releases of radioactivity. The claim names a number of District employees as well as the District itself. On November 19,1986, an additional group represented by the same counsel as the original plaintiffs, filed a complaint in intervention. On February 10, 1987, an amended complaint was filed that replaced the previous complaints and added a number of legal theories. The complaint is not a class action complaint. The case may go to trial ,
in 1989.
The District maintains liability insurance and a federal government indemnity agreement for Rancho Seco to ensure maximum liability under the Price-Anderson Act. In the opinion of the District's counsel, any liability of the District on account of the discharges alleged is limited to and covered by that insurance and indemnity agreement.
Organization of SMUD Employees Litigation. On September 17, 1986, the OSE, the employee organization that represents the District's clerical, technical and customer contact employees, filed a claim against the District seeking $360,000 per month beginning July 1,1986, on the ground that the District's issuance of a Standard District Procedure prohibiting the use of alcohol during meal breaks entitles District employees to compensation during such breaks. On February 10, 1987, the District was served with an OSE complaint based upon that claim. On February 9,1987, the OSE served the District with a second claim based on the same matter. The second claim differed from the first claim in that it alleged that under the Federal Fair Labor Standards Act the employees are entitled to have their damages doubled. In the opinion of the District's General Counsel, the likelihood that the OSE will recover on these claims is remote.
Folsom Distribution System Condemnation. The District has on file a condemnation action through which it seeks to acquire from PG&E the electric distribution facilities serving the area in the vicinity of Folsom that was annexed by the District. The District values the 54
property sought to be condemned at approximately $6 mil'an. PG&E initially sought an award of approximately $20 million but has recently stated that hs appraiser will testify to values as high as $46 million. The case may be tried in 1989.
If the District pays more than its $6 million valuation for the Folsom distribution facilities, either through a settlement or because judgment in a higher amount is rendered against it, the excess will be recovered by the levy of a surcharge on rates in the annexed area. Such a surcharge was one of the conditions of the annexation.
Contract Dispute with PG&E. The District's contract dispute with PG&E is described 1 under " Power Purchase Agreements-Agreements with PG&E". !
Dispute with GEO. CCPA's dispute with GEO is described under "Other Facilitle -CCPA." ,
j FACTORS AFFECTING THE DISTRICT AND THE ELECTRIC UTILITY INDUSTRY GENERALLY Over the past decade the electric utility industry has been subjected to increased levels of monitoring and nuclear regulation. Expanded environmental safeguards and licensing proce-dures, in conjunction with the adverse effects of inflation, uncertain fuel availability, the increased cost of capital, and heightened legal activity have served to delay the construction and to increase the cost of new facilities. In addition, costly modifications to existing facilities and/or limitations on their use have been imposed.
The business environment is also rapidly changing. Inter-fuel competition, self-generation, PURPA, and independent power producers have created a competitive atmosphere. Electric utility no longer have a monopolistic control over generation and in some cases are not the sole -
supply options for electric energy.
Legislation. There is growing concern by the public, the scientific community, and Congress regarding environmental damage resulting from acid precipitation due to fossil-fuel combustion. Congressional support for action to reduce acid precipitation is building, and there are many pending legislative proposals. Some impose cost burdens for emission cuts on electric utilities and their customers through a nationwide kWh tax on all electricity sold, even that from non-fossil-fueled sources. If such legislation were to pass, the District could be required to make considerable contributions to a clean-up fund.
Nuclear Regulation. The District is subject to continuing regulation by the NRC in connection with the licensing, construction, and operation of Rancho Seco. NRC regulations require extensive review of both the radiological and environmental aspects of this facility. The NRC from time to time requires that the design of the nuclear power plant or certain of its components be reanalyzed using newly developed data and techniques. If changes are necessary or desirable the NRC requires modifications to the plant or its components as a condition of its continued operation. The District has incurred, and expects to continue to incur, substantial expenditures as a result of these requirements.
The NRC has issued numerous regulations relating to the design, construction, and opera-tion of all nuclear electric generating facilities. These NRC regulations seek to enhance emer-gency preparedness by (a) improving operator training; (b) redesigning the control room to improve operator response in event of an emergency; (c) constructing technical and operational support centers; (d) augmenting the emergency power supply; and (e) making minor modifica-tions to the containment building.
The District and other utilities operating nuclear plants will find. It impossible to meet a portion of the existing NRC deadlines for the installation of plant modifications. The NRC is 55
o e
i reviewing its current deadlines and anticipates some adjustments in their requirements. Ilow-ever, no adverse impact upon the continued operation of Rancho Seco is expected as a result of these unavoidat>1e delays.
The i%trict, in conjunction with local, state, and federal emergency response organizations, has condacted several exercises of the emergency plans for Rancho Seco. The latest such exercise was successfully conducted and evaluated by the NRC and FEMA in October 1988.
While the overall adequacy of the plans has been affirmed, numerous minor refinements continue to be required. The District has satisfied the majority of the modifications requested. State legislation requires the District to provide up to $617,000 annually to state and local emergency planning authorities to modify and maintain their response plans and personnel expertise to assure they are in a state of readiness. The current legislation contains a sunset provision which will terminate this obligation on January 1,1993, unless otherwise extended by the State Legislature. The Board has authorized additional expenditures based on justification of need.
Hazardous Materials Regulation. The District has developed a hazardous materials management program to replace equipment which has been identifled under EPA guidelines as being potentially hazardous. This program has been accelerated and is estimated to cost the District over $1.5 million annually during the next four years.
The disposal of low-level radioactive waste is the subject of recent legislation in both the United States Congress and in the California State Legislature. Under 1980 federal legislation, states are responsible for safely disposing of low-level waste generated within their borders.
The low-level waste produced at Rancho Seco is currently shipped to a facility in Richland, Washington for disposal.
The Federal Low-Level Waste Policy Act amendments of 1985 provide an additional seven ;
I years (January 1986 to December 1992) for out-of-state disposal of low-level waste, subject to significant volume reductions by commercial nuclear reactors and substantial surcharges for disposal, both phased in over the seven-year period. Timely progress by California toward developing an in-state facility is also required to prevent loss of access to out-of-state facilities during the seven-year transition. If completion of a California facility is delayed, the District's interim access to out-of-state facilities could be threatened. Even with steady progress, the provisions of the pending federal legislation will significantly increase District cost because of the surcharges and the need to reduce the volume of waste. Finally, indications are that when California does open a disposal facility, regulations may require engineered barriers thus increasing future disposal costs over current shallow land burial technology.
The District's interim on-site facility to store dry, low-level, radioactive waste material has been completed and is currently in service. Its design permits expansion, if necessary, until a permanent disposal site is available.
Business Environment. The District faces an increasingly competitive and possibly deregulated climate. FERC is actively exploring open transmission access and market based pricing. State lawmakers are involved with life or baseline legislation. Industries are threaten-ing to disconnect and self-generate or move to low cost geographical areas. Qualified facilities and independent power producers are active in obtaining power contracts through federal or state legislation. In response to these forces, the District is seeking access to power supplies and markets through transn'ission; is developing a competitive rate structure; and is developing a long term strategic business plan. The primary elements of the plan will be available early in 1989. )
no
s
SUMMARY
OF CERTAIN PROVISIONS OF THE RESOLUTION The following is a summary of certain provisions of the Resolution. Other provisions or the Resolution are described under the caption " Security for the Bonds." This summary is not to be considered a full statement of the terms of the Resolution and accordingly is qualified by .
reference thereto and is subject to the full text thereof. l Additional Covenants The Resolution contains the following additional covenants, among others:
(a) That the Electric System will be maintained in good repair, working order and condition at all times, and will be continuously operated in an efficient and economical manner.
(b) That no electric energy shall be supplied free by the District, and a reasonable wholesale charge will be made for water distributed at any cost to the District and such charge will be deemed Revenues; but the District may supply without charge water furnished to it without distribution cost, and any moneys received from any retail sales of water will not be deemed Revenues.
(c) That all taxes and governmental charges and other lawful claims which might become a lien on the Electric System or the Revenues or impair the security of the Bonds will be paid and discharged when due.
(d) That the District will comply with all lawful orders of any governmental agency or authority having jurisdiction in the premises (except while the validity or application thereof is being contested in good faith) and with all necessary permits and licenses issued by the NRC.
(e) That no lease or agreement will be entered into, or sale or other disposition of essential property made, that would impair the operation of the Electric System or the rights of Bondholders with respect to the Revenues.
(f) That proper records and accounts will be maintained of all transactions relating to the Electric System and the Revenues (open to inspection by the Trustee and the holders of not less than 10 percent in principal amount of the Bonds), to be audited annually by an independent certified public accountant within 90 days after close of the fiscal year, and copies of such financial statements supplied to Bondholders on request.
(g) That insurance adequate in amounts and as to risks covered will be maintained against such risks as are usually insurable in connection with similar electric systems, and in addition public liability and property damage insurance in amounts not less than
$1,000,000 per accident and adequate fidelity bonds on all officers and employees of the District handling or responsible for District funds, subject in each case to the condition that such insurance is obtainable at reasonable rates and upon reasonable terms and conditions (see " Insurance" for a description of the District's insurance).
(h) That the net proceeds realized by the District in the event all or any part of the Electric System is taken by eminent domain proceedings will be applied to the redemption or retirement of all Bonds and Parity Bonds if sufficient therefor, and,if not, then pro rata to the redemption or retirement of Bonds and Parity Bonds or to new facilities if the additional Revenues to be derived therefrom will sufficiently offset the loss of Revenues resulting from such eminent domain so that the ability of the District to meet its obligations will not be substantially impaired.
57
l l
l *
(i) That the District will at all times use its best efforts to maintain the powers, functions and duties now reposed in it pursuant to law.
(j) That the District will establish and at all times maintain and collect rates and charges for the sale or use of its electric energy sufficient to permit the District to purchase power or issue and sell Bonds or Parity Bonds to finance additions, betterments, extensions and improvements to the Electric System as may be reasonably necessary to satisfy its then projected electric demand upon its Electric System, and that unless the Board determines that the District will be able to satisfy such demand through the purchase of electric energy, the District will proceed with all reasonable diligence to issue and sell such Bonds or Parity Bonds.
Tax Covenants The District agrees in the Resolution not to take any action which would cause the Series V Bonds or the Series W Bonds to be " private activity bonds," " federally guaranteed" or
" arbitrage bonds," all as defmed in the Internal Revenue Code of 1986, as amended. The District also agrees to establish separate Rebate Funds for the Series V Bonds and the Series W Bonds and to deposit therein such amounts as are necessary to ensure that the Series V Bonds and the Series W Bonds are not " arbitrage bonds" Such deposits will be made from any Revenues legally available to the District after payment of maintenance and operation costs and Energy Payments, principal of and interest on the Parity Bonds, principal of and interest on the Subordinated Bonds, and any other obligations secured by the Revenues. Amounts in the Rebate Fund, and any earnings thereon, shall be paid to the United States Government as provided in the Rebate Certificate.
The District shall not be required to comply with the foregoing provisions if and to the extent that such noncomplian'ce will not result in inclusion of interest on the Series V Bonds or the Series W Bonds in gross it.come for purposes of federal income taxation, as evidenced by an opinion of nationally recognized bond counsel.
Amendment of the Resolution The Resolution and the rights and obligations of the District and of the holders of the Bonds may be modified or amended at any time pursuant to the affirmative vote at a meeting of Bondholders, or with the written consent without a meeting, of the holders of 60 percent in aggregate principal amount of the Bonds then outstanding, provided that no such modification or amendment shall (i) extend the fixed maturity of any Bond, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon or reduce any premium payable upon the redemption thereof, without the consent of the holder of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds required for consent to an amendment or modification, without the consent of the holders of all the Bonds then outstand-ing. Modifications or amendments may be made, without the consent of any Bondholders, to add covenants of the District or to surrender rights reserved by the District in the Resolution, to cure ambiguities or defective or inconsistent provisions or in regard to questions arising under the Resolution without adversely affecting the interests of the Bondholders, or to provide for the issuance of a series of Bonds, subject to the provisions contained in the Resolution with respect thereto.
Events of Default and Remedies of Bondholders The Resolution declares each of the following to be an event of default:
(a) Failure to pay the principal of and premium on any Bond when due and payable; 58 L______________________. M
(b) Failure to pay any installment of interest on any Bond when due and payable, if such default continues for a period of 30 days; tc) Default by the District in the observance of any of the covenants, agreements or conditions on its part in the Resolution or in the Bonds, if such default continues for a period of 60 days after written notice thereof (specifying such default and requiring the same to be remedied) has been given to the District by the Trustee, or to the District and the Trustee by the holders of not less than 25 percent in aggregate principal amount of the Bonds at the time outstanding; and (d) If, under the provisions of any law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the District or of the whole or any substantial part of its property, and such custody or control shall not be termi-nated or stayed within 60 days.
In the event of default, the Trustee or the holders of not less than a majority in aggregate principal amount of the outstanding Bonds may, upon written notice to the District, declare the principal of all outstscding Bonds, and the interest accrued thereon, to be due and payable immediately. The Trustee is appointed as trustee to represent Bondholders and may take such action as may seem appropriate to it, and, upon the wutten request of the holders of 25 percent in aggregate principal amount of the outstanding Bonds, and upon being furnished with indemnity satisfactory to it, will take such action on behalf of Bondholders as is specified in such written request. Each Bondholder is entitled to proceed to protect and enforce the rights vested in such holder by the Resolution by such appropriate judicial proceedings as such holder deems most effectual.
The rights of Bondholders are limited and restricted to the use and application of Revenues as provided in the Resolution and do not extend to the levy of any attachment or execution upon j or forfeiture of any of the properties of the District or to any moneys derived by the District from the levy or collection of taxes.
In addition to the limitations on remedies contained in the Resolution, the rights and remedies provided by the Bonds and the Resoluthn, as well as the enforcement by the District of contracts with customers of the Electric System, may be limited by and are subject to bankruptcy, insolvency, reorganization and other laws affecting the enforcement of creditors' rights.
Discharge of Resolution The Resolution may be discharged by depositing with the Trustee in trust, moneys or Federal Securities or general obligation bonds of the State of California, in such amount as the Trustee shall determine will, together with the interest to accrue thereon, be fully sufficient to pay and discharge the indebtedness on all Bonds at or before their respective maturity dates.
Investment of Funds Moneys in any fund established by the Reschition may be invested in bonds, notes, certificates of indebtedness, bills, banker's acceptances or other securities in which funds of the District may be legally invested as provided by the law in effect at the time of such investment.
At present this investment authority includes obligations of the United States and certain of its agencies, certain bonds issued by the State of California or any of its political subdivisions, municipal corporations or public districts (including the District), obligations issued or assumed by the International Bank for Reconstruction and Development, the Tennessee Valley Authority, the Inter-American Development Bank or the Export-Import Bank of Washington, certain banker's acceptances and certain securities in which California commercial banks are author-ized to invest their funds. Reserve Fund investments must mature on or before the final maturity 59
O of the Bonds, provided that at least 50 percent shall be invested in obligations which mature within 12 years of the date of investment. Investments constitute a part of the fund or account I from which the investment was made, and any interest or income is treated as Revenues.
SUMMARY
OF CERTAIN PROVISIONS OF THE SUBORDINATE RESOLUTION The 1985 Subordinated Bonds are payable solely from the Net Subordinated Revenues of the Electric System and are subordinate and subject in right of payment to the prior payment in full of the Bonds. The provisions of the Subordinate Resolution are solely for the benefit of the holders of Subordinated Bonds, and the Subordinate Resolution may be amended without the necessity of obtaining the consent of the holders of any of the Bonds.
The following is a brief summary of certain definitions and provisions of the Subordinate Resolution. This summary is not to be considered a full statement of the terms of the Subordinate Resolution and accordingly is qualified by reference thereto and is subject to the full text thereof.
Certain Definitions
" Assumed Interest Payments" means for any fiscal year or period interest which would twerue during such fiscal year or period on an amount equal to the then unamortized balance of the remaining sum of Assumed Principal Payments and at an interest rate calculated by multiplying 1.15 times the interest rate on the date of such calculation on the Parity Subordi-nated Debt to which such Assumed Principal Payments relate.
" Assumed Interest Rate" for any Parity Bond or Parity Subordinated Debt means for any
( fiscal year or period an interest rate calculated by multiplying 1.15 times the interest rate thereon on the date of such calculation.
" Assumed Principal Payments" means for any fiscal year or period the sum of the following amounts falling within such fiscal year or period each Excluded Principal Payment amortized equally over the years (pro rata in the case of a partial year) in the period commencing on the I stated due date for such Excluded Principal Payment and ending on the date 30 years from the date of issuance of the Parity Subordinated Debt to which such Excluded Principal Payment relates,
" Bond Debt Service" means all amounts required to be paid under the Resolution from Net Revenues for principal, interest and reserve fund requirements on the Bonds and all Parity Bonds then outstanding, as the same become due and payable.
" Excluded Principal Payments" means such payment of principal of Parity Subordinated Debt which the Board of Directors determines (on a date not later than the date of issuance of such Parity Subordinated Debt) that the District intends to pay with moneys which are not Revenues. No such determination shall affect the security for such Parity Subordinated Debt or the obligation of the District to pay such payments from Revenues. No payment of principal of Parity Subordinated Debt may be determined to be an Excluded Principal Payment unless it is due within 30 years from the date of issuance of such Parity Subordinated Debt.
" Net Revenues" for any fiscal period means the sum of (a) the Revenues for such fiscal period plus (b) the amounts, if any, withdrawn by the District from the Rate Stabilization Fund for treatment as Revenues for such fiscal period, less the sum of (c) all maintenance and operation costs for such fiscal period, (d) all Energy Payments for such fiscal period not included in maintenance and operation costs for such fiscal period, and (e) the amounts, if any, withdrawn by the District from Revenues for such fiscal period for deposit in the Rate Stabilization Fund pursuant to the Subordinate Resolution.
60 l
s
" Net Subordinated Revenues" means Net Revenues less Bond Debt Service.
" Parity Subordinated Debt" means the 1985 Subordinated Bonds and all revenue bonds of the District having an equal lien and charge upon Net Subord!nated Revenues and therefore payable on a parity with the 1985 Subordinated Bonds.
" Subordinated Bonds" means the 1985 Subordinated Bonds and all revenue bonds hereafter issued under the Subordinate Resolution.
Subordinated Bond Reserve Fund The Subordinated Bond Reserve Fund is a parity reserve fund for the equal benefit of all of the Subordinated Bonds (except Subordinated Bonds issued hereafter which by their terms are not secured by the Subordinated Bond Reserve Fund) Moneys in such fund (except any excess over the required balance which may be withdrawn for any District use) shall be used solely for the purpose of making good any deficiency in any fund established for the payment of interest, principal or sinking fund payments on the Subordinated Bonds secured thereby.
The Subordinated Bond Reserve Fund is required to be maintained in an amount such that the amount in the combined reserve funds for the 1985 Subordinated Bonds and all Parity Subordinated Debt then outstanding will at no time be less than the current annual interest requirements on all Subordinated Bonds and Parity Subordinated Debt (except Subordinated Bonds and Parity Subordinated Debt for which payment has been provided in advance or which is not secured by the Subordinated Bond Reserve Fund). Pursuant to the Subordinate Resolu-tion, the amounts so held in such reserve funds are required to be systematically increased in the event that the District's debt service ratio in any fiscal year (the ratio of Net Revenues during said fiscal year to maximum annual debt service during the period of three fiscal years next following said fiscal year on all Bonds, Parity Bonds, Subordinated Bonds and Parity Subordinated Debt then outstanding) shall fall below 1.35. For the purpose of the above calculation, Excluded Principal Payments shall be disregarded (but interest on the Parity Subordinated Debt to which such Excluded Principal Payments relate shall be included until but not after the stated due date when principal payments on which Parity Subordinated Debt are scheduled by their terms to commence) and Assumed Payments and Assumed Interest Payments shall be included. In addition, the Subordinate Resolution provides that the Assumed Interest Rate will be utilized for certain of the above calculations for all Bonds and Parity Subordinated Debt issued at a variable rate, or a rate subject to periodic adjustment or to being fixed at some data after issuance. The combined reserve funds cannot be required to exceed the maximum annual debt service on all outstanding Subordinated Bonds and Parity Subordinated Debt.
Rates and Charges The District has covenanted in the Subordinate Resolution to establish and at all times maintain and collect rates and charges for the sale or use of electric energy generated, transmitted, distributed, or furnished by the District which, together with other income, will yield Revenues at least sufficient, with respect to the ensuing 12 months, to pay and provide for all sums required for maintenance and operation costs, Energy Payments and, in addition, to provide an aggregate sum equal to at least 1.15 times the total amount required for the payment of principal and interest, together with any sinking fund or reserve fund payments, on all Bonds, all Parity Bonds, all Subordinated Bonds and all Parity Subordinated Debt, in each case during such 12 months. For the purpose of such calculations, the Subordinate Resolution provides that the Assumed Interest Rate will be utilized for certain periods for debt issued at a variable rate or a rate subject to periodic adjustment or to being fixed at some date after issuance. ,
61
o Limitations on Additional Obligations Payable from Net Subordinated Revenues The Subordinate Resolution provides that the District will not, so long as any Subordinated Bonds are outstanding, issue any obligations payable in whole or in part from Net Subordinated Revenues except the following:
(a) Subordinated Bonds authorized pursuant to the Subordinate Resolution.
(b) Parity Subordinated Debt payable on a parity with the Subordinated Bonds, with an equal lien and charge upon the Net Subordinated Revenues, but only subject to the following conditions:
(1) Such Parity Subordinated Debt shall have been authorized for any lawful purpose; (2) The proceedings for the issuance of such Parity Subordinated Debt shall require the District to establish, fix and collect rates and charges in an amount not less, with respect to such Parity Subordinated Debt, than the amounts required pursu-ant to the rate covenant described under " Rates and Charges;"
(3) The District shall not then be in default under the Subordinate Resolution or other resolutions authorizing the issuance of Parity Subordinated Debt or under the Resolution or any other resolution authorizing the issuance of Parity Bonds; (4) An independent engineer or an independent certified public accountant shall certify (i) that Net Revenues, after completion of the improvements proposed to be financed by such additional Parity Subordinated Debt, will be sufficient to pay the principal of and interest (and bond reserve fund requirements, if any) on all of the Parity Bonds and Parity Subordinated Debt then outstanding and on such additional Parity Subordinated Debt; and (ii) that for a period of 12 consecutive months during the 24 months immediately preceding the issuance of the Parity ,
Subordinated Debt, the Net Revenues have been at least equal to 1.20 times the I maximum aggregate annual debt service on all Parity Bonds and Parity Subordi-nated Debt then outstanding and on such additional Parity Subordinated Debt (after adjusting Net Revenues to include 75 percent of the estimated additional Net Revenues to be derived from an increase in rates and charges or from the acquisition of an existing revenue producing electric system). For purposes of the above calculation, Excluded Principal Payments shall be disregarded (but interest on the Parity Subordinated Debt to which such Excluded Principal Payment relates shall be included until but not after the stated due date when principal payments on such payments on such Parity Subordinated Debt are scheduled by their terms to commence) and Assumed Principal Payments and Assumed Interest Payments shall be included. The Subordinate Resolution also provides that, where the actual rate is not known, the Assumed Interest Rate will be utilized in the above calculation for debt issued at a variable rate or a rate subject to periodic adjust-ment or to being fixed at some date after issuance; and (5) Counsel shall render an opinion that such Parity Subordinated Debt has been duly I authorized in conformity with law and all prior proceedings of the District.
(c) Revenue Bonds junior and subordinate to the Subordinated Bonds and all Parity Subordinated Debt.
i RATINGS i 1
Moody's Investors Service (Moody's) and Standard & Poor's Corporation (S&P) have given the Series V Bonds and the Series W Bonds ratings of Baa and BBB, respectively. Ratings were 62 t
s applied for by the District and certain information was supplied by the District to be considered in evaluating the Series V Bonds and the Series W Bonds. Ratings reflect only the respective views of such rating agencies, and an explanation of the significance of such ratings may be obtained only from the rating agency furnishing the same. There is no assurance that such ratings will be retained for any given period of time or that the same will not be revised downward or withdrawn entirely by the rating agency furnishing the same if, in their judgment, circumstances so warrant.
UNDERWRITING The Underwriters have jointly and severally agreed, subject to certain customary conditions to closing, to purchase the Series V Bonds from the District at an aggregate underwriting discount of $1,918,574.25 from the initial offering price of the Series V Bonds set forth on the cover page hereof and to purchase the Series W Bonds from the District at an aggregate underwriting discount of $2,014,500.00 from the initial offering price of the Series V Bonds set forth on the cover page hereof. The Underwriters will be obligated to purchase all Series V Bonds if any Series V Bonds are purchased and will be obligated to purchase all Series W Bonds if any Series W Bonds are purchased. It is not a condition to the issuance, delivery and put chase of one such Series that the other such Series must also be issued, delivered and purchased. The Underwriters have agreed to make a public offering of the Series V Bonds and the Series W Bonds at the respective initial offering price set forth on the cover page hereof, plus accrued interest. The Series V Bonds and the Series W Bonds may be offered and sold to certain dealers (including underwriters and other dealers depositing such bonds into investment trusts) at prices lower than such public offering prices, and such public offering prices may be changed, from time to time, by the Underwriters. The Underwriters are Goldman, Sachs & Co.; Grigsby, Brandford & Co., Inc.; Merrill Lynch Capital Markets; PaineWebber Incorporated, Shearson Lehman llutton Inc., and Smith Barney, Harris Upham & Co., Incorporated.
APPROVAL OF LEGAL PROCEEDINGS Legal matters rela'ed to the authorization, issuance, sale and delivery of the Series V Bonds and the Series W Bonds are subject to the approval of Orrick, Herrington & Sutcliffe, Sacra-mento, California, Bond Counsel. The approving opinions of Bond Counsel will be delivered with the Series V Bonds and with the Series W Bonds in substantially the forms appearing in Appendix D hereto. Bond Counsel undertakes no responsibility for the accuracy, completeness or fa:rness of this Official Statement. Certain legal matters will be passed on for the Underwrit-ers by Mudge Rose Guthrie Alexander & Ferdon, New York, New York, Counsel to the Underwriters. Certain legal matters will be passed on for the District by ITavid S. Kaplan, Esq.,
its General Counsel.
TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe, Bond Counsel, based on existing statutes, regulations, rulings and court decisions, interest on the Series V Bonds and the Series W Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes. The proposed forms of the opinions of Bond Counsel are included in Appendix D hereto.
The Internal Revenue Code of 1986 (the " Code") imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal tax purposes of interest on .,bligations such as the Series V Bonds and the Series W Bonds. The District has covenanted to comply svith certain restrictions designated to assure that interest on the Series V Bonds and the Series W Bonds will not be included in federal gross income. Failure to comply 63
i f
1 with these covenants may result in interest on the Series V Bonds and the Series W Bonds being included in federal gross income, possibly from the date of issuance of the Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Series V Bonds and the Series W Bonds may affect the tax status of interest on the Series V Bonds and the Series W Bonds.
Bond Counsel is further of the opinion that interest on the Series V Bonds and the Series W Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes. Bond Counsel, however, observes that interest on the Series V Bonds and the Series W Bonds is included in adjusted net book income and adjusted current earnings in calculating corporate alternaive minimum taxable income.
Certain requirements and procedures contained or referred to in the Resolution or other relevant documents may be changed and certain actions may be taken, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of nationally recognized bond counsel. Orrick, IIerrington & Sutcliffe ex-presses no opinion as to any Series V Bond or Series W Bond or the interest thereon if any such l change occurs or action is taken upon the advice or approval of bond counsel other than Orrick, I Herrington & Sutcliffe.
1 Although Bond Counsel has rendered an opinion that interest on the Series V Bonds and the l Series W Bonds is excluded from federal gross income, the accrual or receipt of interest on the j Series V Bonds and the Series W Bonds may otherwise affect a Bondholder's federal tax liability.
The nature and extent of these other tax consequences will depend upon the Bondholder's particular tax status and the Bondholder's other items of income or deduction. Bond Counsel expresses no (. pinion regarding any such other tax consequences.
1 In the opinion of Bond Counsel, the difference between the principal amount of each Series V Bond maturing on August 15,1997,1998,1999,2000,2003,2016 and 2018 and each Series W Bond maturing on such dates and its initial offering price to the public (excluding bond houses and brokers) at which price a substantial amount of such obligations are sold will constitute originalissue discount, and the original issue discount on each Series V Bond and Series W Bond, as it accrues daily on a yield to maturity basis from the date of delivery of the Series V Bonds and the Series W Bonds to the date of maturity is excluded from gross income for federalincome tax purposes and from State of California personal income taxes under exuting statutes, regulations, rulings and court decisions.
l
! 64
___________-__A
MISCELLANEOUS This Official Statement includes descriptions of the terms of the Series V Bonds, Series W Bonds, the PG&E Contract and other agreements with PG&E, the Edison Power Sale Agreement, power supply contracts with certain other parties, pooling agreements, the CCPA agreements, the Resolution, the Subordinate Resolution, and certain provisions of the Act. Such descriptions do not purport to be complete, and all such descriptions and references thereto are quallfled in their entirety by reference to each such document.
Copies of the Resolution, which forms a contract with the holders of the Series V Bonds and the Series W Bonds, will be made available upon request.
This Official Statement has been duly authorized by the Board of Directors of the District.
SACRAMENTO MUNICIPAL UTILITY DISTRICT By /s/ DAvm A. Bocas General Manager 65 l
l l
l
APPENDIX A R.W BECX ANDASSOCIATES Point West Gardens a 1851 Heritage Lane a Sacramento, Califomia 95815 4926 P. O. Box 255468 s Eacramento, Califamia 95865 5468 Telephone 6) 929 3653 m Fax (916) 929 1710 October 27,1988 Board of Directors Sacramento Municipal Utility District 6201 S Street Sacramento, California 95817 Directors:
Subject:
Consulting Engineer's Report Presented herewith are the results of our analyses and investigations with respect to the proposal by the Sacramento Municipal Utility District (District) to issue Electric Revenue Refunding Bonds,1988 Series V (Series V Bonds) and Electric Revenue Bonds,1988 Series W (Series W Bonds) as more fully described in the Official Statement of the District to which this report is appended (Official Statement). The Series V Bonds are being issued to refund all of the District's outstanding Electric Revenue Bonds, Series T, and the District's outstanding Electric Revenue Bonds, Series U. The Series W Bonds are being issued to finance a portion of the District's construction program. Projected Operating Results for the District presented herein are for the period 1988 through 1992.
The District The District began operations on December 31,1946, and presently provides service in an area of approximately 900 square miles including a major portion of Sacramento County and a small adjoining portion of Placer County, California. The District is the fourth largest publicly owned utility in the continental United States in terms of the number of customers.
The Divrict has the following selected statistics during the 12-month period ended Decem-ber 31,1987:
Number of Customers at End of Period .. 414,079 Electricity Sales to Customers-megawatt hcurs . . . 7,418,577 Electricity Sales of Surplus Power-mep watt-hours . O Operating Revenues (000):
Sales to Customers. . . $ 486,760 Sales of Surplus Power (1) . $ 26,475 Total Operating Revenues . . . $ 513,235 Gross Investment in Utility Plant (000) (2) . $ 2,097,599 Net Investment in Utility Plant (000) (2) . $1,682,089 Customers' Equity (000). $ 665,749 I Long-Term Debt as a Percentage of Total Capitalization 67.2 %
(1) Reflects deliveries to the capacity exchange account established under the Power Sale, Exchange and Integration Contraer with Pacific Gas and Electric Co.
(2) Includes construction work in progress and excludes nuclear fuel.
A-1
e l
Customers and Sales Statistics L The District's forecast of the peak electric demand and energy is determined primarily through the use of econometric and end-use modeling techniques. The forecast includes the effects of programs for conservation and load management and is utilized for long-range resource planning. The District's forecasted system demand and energy requirements through 1992 and the number of customers to be served are as follows:
Projected Customers, Kilowatt-hour Sales and System Power Requirements 1988 1989 1990 1991 1992 Number of Customers (Year-End):
Residential . . . ... . . .. ... 380,872 393,649 405,916 417,160 426,871 Commercial / Industrial . . . . . .. 48,110 49,844 51,471 52,943 54,208 Total . . . . .. ... .... . 428,982 443,493 457,387 470,103 481,079 Kilowatt-hour Sales (Millions):
Residential . . . . . .... .. . . 3,274 3,340 3,421 3,485 3,578 Commercial / Industrial . . . . . . . . . 4,246 4,319 4,380 4,461 4,547 Total . .. ., . 7,520 7,659 7,801 7,946 8,125 System Kilowatt-hour Requirements including losses (Millions) . . . . . 8,059 8,122 8,307 8,446 8,641 Peak Demand (MW) (Including Losses) .... . ... ... .. . . 2,109' 1,927 1,035 1,971 2,002 System Load Factor (%) . . . . . . . 43.6% 48.1% 40.0% 48.9% 49.3%
- Actual -
Power Supply Resources The District owns and operates an integrated electric system which includes generation, transmission and distribution facilities. The District's generating facilities currently consist of the Upper American River Project (UARP), a seven plant hydroelectric project located on the l South Fork of the American River and its tributaries; the Rancho Seco Nuclear Power Plant j (Rancho Seco), a nuclear-fueled, steam-electric generating unit, located approximately 25 miles j southeast of the City of Sacramento; two geothermal steam electric generating plants located in !
Sonoma County approximately 75 miles west of the City of Sacramento, one of which is owned !
by the District (SMUDGEO #1) and one jointly owned with others (CCPA No. I and No. 2); a 49-megawatt combustion turbine; and two 1-megawatt photovoltaic power plants (SMUD PV) located near Rancho Seco.
The District owns transmission facilities that interconnect its nuclear, solar and hydroelec- l tric facilities with the regional transmission network and provides a loop transmission system to !
its distribution system. These facilities include operations at 230-kV,115-kV and 69 kV. The District purchases a portion of its power requirements from the U.S Department of Energy, l Western Area Power Administration (Western), the Camp Far West hydroelectric project, and from eight Pacific Northwest utilities. The District also has a Power Sale, Exchange and Integration Contract with the Pacific Gas and Electric Company (PG&E and the PG&E Contract).
The PG&E Contract provides, among other things, all the capacity and energy needs of the District that are not supplied from other sources. The PG&E Contract terminates on Decem-ber 31,1989. To provide power supply resources for the District's needs after 1989, the District has executed several agreements and is in the process of negotiating additional arrangements A-2
i 0
for transmission and interconnection services from PG&E and for other power supply services from entities within California and other Western states.
The District and PG&E have also entered into agreements to settle numerous outstanding disputes related to past operations under the PG&E Contract and to establish agreed procedures for operations until 1990. These agreements are referred to as the Settlement Agreement and the 1988 Amendment, respectively. Power sale contracts for the ten year period after 1989 have.
been executed with PG&E and with the Southern California Edison Company (Edison), (PG&E and Edison Power Sale Agreements, respectively).
Three additional agreements with PG&E will be needed to be effective by 1990; a Transmis-sion Agreement to enable transactions between the District and Edison; a Facilities Connection Agreement to determine cost responsibilities for certain transmission facilities; and an Intercon-nection Agreement to provide for, among other things, power scheduling, reserve sharing, transmission service, and the purchase and sale of capacity and energy between the District and PG&E. The District expects these three agreements to be negotiated, executed by the parties, and accepted by PERC in a timely manner in order to become effective by January 1,1990.
Principlea to be included in these three agreements ' rre negotiated and agreed upon initially in a Memorandum of Understanding (MOU) which m.ld require PG&E to file rate schedules unilaterally with FERC if negotiations do not reacn specific agreements. In the event PG&E makes such unilateral filings, the District could contest any and all provisions that are not fair and reasonable.
In 1954, the District entered into a 40-year contract with Western for the purchase of 290 MW of Central Valley Project (CVP) power. Later increased to 360 MW, CVP power is delivered each month to the District at its monthly system load factor. In 1983, the District and Western executed a contract amendment that, among other things, extended the contract through 2004.
In May 1988, Western implemented new rate schedules. Based on these new rate schedules, the District's cost of CVP power decreased 15 percent and it is expected to remain below 1987 levels for the five-year period ending April 1993.
The D; strict has also entered into a power purchase contract with Pacific Power & Light Co.
(PP&L) in June 1987 to provide capacity and energy deliveries to the District for a 25 year term beginning on January 1,1990.
For a more detailed discussion of the District's present and projected power supply resources, see " Rancho Seco", "Other Generating Facilities", " Power Purchase Agreements" and
" Growth Projections and Future Resources" in the Official Statement.
l A-3
-i n
f The following table shows the power supply resources projected to provide for the projected peak demand and energy requirements of the District for the years 1988 through 1992 and -
included in an earlier section of this report, " Customers and Sales Statistics."
Projected Resources to Meet Load Requirements Energy Kilowatt-Hours (Millions) 1988 1989 1990 1991- 1992 Power Supply Resources: .
UA R P ( 1 ) ' . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 754 1,370 1,929 1,942- 1,938
- R an cho Seco . . . . . . . . . . . . . . . . . . . . . . . . . . 3,148 4,001- 4,295- 5,880. 4,468
. Western Purchases . . . ...... ......... 1,965 1,965 1,998- 1,983 1,990 SM UDGE0 # 1, CCPA . . . . . . . . . . . . . . . .
647 945 586 536 624 Combustion Turbine (McClellan AFB) . . . 4 14 1 2 '2 Pacific Northwest Purchases . . . . . .. 1,007' 470 656 636 1,062 PG&E Purchases (3) . . . . . ...... .... 890 661 70 70 71 Edison Purchases (4) . . . . . . . . . . . . . . . . 0 0 323 163 146 Total Resources . . . . . . . . . . . . . . . . . . 8,415 9,426 9,858 11,212 10,301 Energy Load . . ..................... 8,059 8,122 8,307 8,446 8,641 Su rpl u s . . . . . . . . . . .. . .. ..... 356 1,304 1,551 2,766 1,660 Net Capacity. Megawatts 1988 1989 1990 1991- 1992 Power Supply Resources:
UARP.,........................... '659 659 659, 659 659 Rancho Seco . . . . . . . . . . . . . . . . . . 0(2) 818 875 875 875 Western Purchases . . . . . . . . . . . .. 360 360- 360 360 360 SMUDGEO # 1, CCPA . . . . . ... 97 129 121 121 121 l 0 96 96 143 I Pacific Northwest Purchases . . . . . . . . . 143
, Combustion Turbine (McClellan AFB) . . . 50 50 49 49 49 PG&E Purchases (3) . . . . . . . . . . ..... 1,468 559 550 559 550 ,
Edison Purchases (4) . .. ... .... 0 0 291 291 291 jl Total Resources . . . . . . . . . . . . . . . . 2,777 2,575 3,001 3,010 .3,048 Peak Dem and ( 5 ) . . . . . . . . . . . . . . . . 2,109 1,927 1,935 '1,971 2,002 Reserve Capacity (6) , . . . . . . . . 526 470 1,066 1,039 1,046 (1) Reflects 1988 below average water conditions and average water conditions each year thereafter, includes Camp Far West.
(2) Based on the 1988 Amendment, the capacity rating on Rancho Seco during July,1988 was zero (0). The plant is now commercially operating, has completed operating tests required under the PG&E Contract for capacity credit, and is currently rated at 818 MW.
(3) PG&E Contract terminates on December 31,1989 and will be replaced in part by PG&E ]
Power Sale Agreement. I (4) Edison Power Sale Agreement.
(5) .1988 is actual. Future estimated peak demand includes cumulative reductions due to impacts of load management programs; as follows:
1989-167 MW,1990-186 MW,1991-203 MW, and 1992-220 MW.
(6) Reserve margins as required pursuant to the PG&E Contract through 1989 and pursuant to assumed provisions of an Interconnection Agreement thereafter.
A-4
('
I
i Capital Requirements in planning for the future, the District has prepared an estimate of its capital requirements for the period 1988 through 1992. Continuing growth in the number of customers requires expenditures for additional generation, transmission, distribution, and other facilities. Addition-ally, mandatory modifications to Rancho Seco will require significant capital expenditures in the next several years. While the extent of these modifications cannot be determined precisely, the District has estimated nuclear capital expenditures of approximately $327 million for 1988 through 1992. Other capital expenditures are based on historical expenditures, present esti-mates of generating plant costs, and projections of other influencing factors, such as inflation.
Projected Capital Requirements (P (Thousands of Dollars) 1988 1989 1990 1991 1992 Existing Resources:
Nuclear (2) $ 70,747 $ 80,945 $ 62,599 .$ 65,893 $ 47,260 UARP 1,075 1,164 325 726 664 SMUDGE 0 # 1 . 853 430 442 444 445 Other. . .. . 212 26 27 41 42 Transmission Projects (3). . 8,014 6,778 5,886 7,017 70,651 Service Area (4) 88,748 68,473 60,353 65,268 66,312 Nuclear Fuel (5) 4,950 3,000 23,000 0 0 Resources Under Development (6) 992 123,475 9,159 29,480 _
0 Total ,
$ 175,591 $284,291 $ 161,791 $ 168,869 $ 185,374 (1) As estimated by the District and consistent with the projected operating results.
(2) Includes estimated capital for NRC required modification in addition to the new turbine rotors and normal renewals and replacements for Rancho Seco.
(3) Includes estimated capital requirements for the GPPL transmission line, the SMUD/SPP line, California-Oregon Transmission Project and other system transmission projects.
(4) Estimated capital required for distribution and general plant additions, renewals and replacements.
(5) Includes estimated front-end costs of the nuclear fuel cycle prior to use in the reactor.
(6) Includes $117,308,000 in 1989 related to the PP&L purchase.
A-5
Projected Operating Results We have reviewed the Business Forecast of the District which contains estimates of future electric revenues, operating expenses and capital requirements. These projections rely on favorable outcomes of certain events. Projected electric revenues from the sales of electricity are based on the District's current rate schedules assumed to be increased by amounts as indicated in the footnotes to the following table and on the peak load and energy requirements shown herein. Projected operating expenses are based upon the Settlement Agreement as well as the PG&E Contract, and the 1988 Amendment which terminate on December 31,1989.
Beginning in 1990, there will be changes in the purchase and sale transactions between the District and other utilities, including PG&E. Purchased power costs for standby services are expected to increase after 1989. Other operating expenses are based upon production cost estimates for resources identified, a stable and productive labor force, and moderate inflation and Rancho Seco continuing to operate at the average annual capacity factors as specified in the footnotes to the following table for the period 1988 through 1992.
The District's Business Forecast includes projected capital requirements through 1992 in the amount of $859 million, excluding the amount required to finance the PP&L power purchase contract. The PP&L purchase is amortized in the Projected Operating Results as annual purchase power expenses. Future debt issues combined with rate increases are calculated to be suflicient to pay for the necessary capital requirements. Revenue bond issues in the amount of $125 mil-lion, excluding the issae of Series V and Series W in 1988, are presently anticipated to be required prior to 1993. Based upon our review of the District's Business Forecast, we have derived the following table of the District's Projected Operating Results for the period 1988 through 1992.
A-6 l
0, 3, 3, 1,75,2, 8, 9, 6, 7, 6, 3, 7, 2 1 1 n
S 58 3 4751 8 62 73321 7691 7 81 227 6212 6 78 62 71 94 2 1 5 o 26 6
9 6
6425 8 1 41 42 2 1
f
$ $ $ $ $ $8 8$ $ $1 n o
D s E 90 9 0282 2 01 88685 8I 00 1 34 73 90 9 0 40 e T 90 9 5939 7 04 46993 5460 0 91 00 90 0 7 85 t 1,0, 1, 8,2,7,8, 7, 9, 5, 1,2,8,0,0, 6, 5, 8, 8, 2, 6, 3, 0, 7, 80, 6, 2 1 1 o E 88 6 3591 0 361 17 6907 8 56 22 2 7 n C
J O
O 03 6
4 6
6424 8 1
41 31 81 226 3021 4 42 2 71 94 1 4 1
t o
R
$ $ $ $ $ $$ $$ 8 $ o P F
(
)
00 0 2905 6 03 6531 4 1 970 2 00 03 20 5 3 00 30 3 92 1 3 03 26592 3920 7 77 40 80 2 3 66 6, 9, 5, 4, 7, 0 2, 2, 9, 1, 5, 8, 0, 8, 8,6,7,3, 2, 6, 0, 7, 7, 0, 7, 2, 2 1 1 5 C 54 0 62 5
9 5
96 51 1
3 0 7
1 41 31 94003 91 226 71 22 1 886 6 32(
1 2
66 22 71 94
$ $$ 8 1 1 1
8 4
1 70 7 9104 4 03 46071 5290 1 00 03 40 7 2 90 20 2 71 6 5 05 54636 6670 4 7 70 00 7 6 62 1,2, 3, 2, 0, 1, 4, 7, 0, 3, 6, 8,1,1, 3, 9, 5, 2, 7, 1, 1, 7, 1, 2, 1, 2 1 1 S
T ? 65 31 5
1 5
5 27 65 8 7 2 4 1
53 21 02999 7300 4 1 1 1 1 5 0442 0 1 41 2
8 7
8 82 74 1 8 0 3
1 L
U S 97 6 9 02 33764 421 8 3 60 63 1 6 6 36 0 0
2 82 79 E 20 3 7, 5, 2 0
3, 9
0, 27366 6772 7 4,1,0,3,7, 1, 0, 6, 0, 7, 0
6, 00 6, 7, 1, 0, 5, 3 1 R
G
? $
20 3 74 4
1 5
8 0
2 0
1 41 1 09 5812 21 223 3772 7 1 4 1
1 3
5 32 54 1 7 4 0
1 N
I T 87 5 39 3 1
3 04 6
35391 6980 7 81 557 7528 6 80 89 3 34 35 5 32 4 5
2 90 60 A 2, 6, 9, 4, 6, 4,3,4,9,9, 2,6,8,5, 0, 7, 7, 4, 1, 6 9, 3 11 R )s ? 84 2 73 5
5 2
1 40402 81 223 4751 1 1 09 2 4
3 4
30 44 1 5 0 9
Er a $
3 1
4 1 3
1
$ 8 $$ 8 $
Pl $
OloL D d AC 97 6 75 3 7
2 52 73 82532 4236 80435 5838 0 1 70 70 3 3 80 5 60 0 1
4 18 40 Ef I 5, 9, 5, 3, 4, 7, 7,8,5,8,1, 6,8,5,5, 0, 5, 5, 2, 3, 1 6 9 1, I 1 1 ToRU 5 60 7 4 21 58398 4238 5 1 1 05 5 9 1 1 9 21 2 9631 1 8 8 8 Cs T 3 3 2 1 E dnIS $ $ $ $ $ $ $ $ $
H J
Osa 20 2 8 01 52564 1 1 83 2 30 30 94 6 4 40 Ru 90 9 4, 3, 7, 1
2, 92 7, 3, 31 637 5478 0 3,4,6,4,5, 7,0,6,8, 6, 4
6, 4
6, 68 9 3, 9, 9, 4
2 46 21 Poh Dt 5 22 40 4 21 3 4
4 3
32 21 90274 4000 5121 2 0432 9 21 1
1 8
7 8
8 7
8 $
1 4 4 8
8 N( )
1 A 1
(
L 1 9 0 0 56 24753 2885 1 1 0 1 0 67 4 9 98 02 3 2 03 43527 9342 1 2 2 77 7 9 95 A
51 93 2, 6, 58 5,6,5,4,3, 4,7,5,4, 7, 1, 1, 3, 2 7, 2 22 C
I 60 7 5 6 8
1 351 40 51 89 9 5 2I 2 3351 0 0
7 0
7 1 2 3 7
2 2 1 1 2 R $ $ $ $ $ $ $ $ 8 O
T S
I H
)
V e
- n. .u o d e ec ne i
n ic ivv t
c a v r e u
r S r eR e S
.s t
R, S t t e
.n , . .t b a
.o Q) s eb en Did .
C .
P1 n dD
. ,3 n e) s . . g dr e .
io ic8 se n ) od n bo c
n r . t i 2 s (s Bn Ibu e
v e
w .
e c
u v(
. b rl e n
a ep
.r
.u
.D 1
( ied r n eb uI . .
.S Seb ne
.) o r s e ) .n irs e x e s e vd .
2 R . P 5
.t .d u:e(I eu d ic en )
) na .. )isd en E . .s n
)(r _e n c s e vn Ra g
e n
.)
s3 . 4 se
) d (
n7DaGn gs ne eid u e e b v 41
- l sr s wi
(
o ta:s-r s e(ses a es s( a e h i n t u)U o (n i o o(nntd nsdt:i n0 s e r e yRe : nr .
tn6et c ioa it e1 d Rebv v v n n Rv I S
r e tyy e(
iirii r
t co cian a oe aa vt eeP re es eh sas c u r ut Mut SI e it eip b t ums d cnon pe) ue v( n eR r atect PPr a ou pnwrhcah a ru eR t
d c t n
et Oeou cr cch P o udo u rd nrdi ocoO R9 Fr Ne eb u nt y P a v gP i aa e D
/ /
o: ssg e S
vs lp pPPr ur s ci g (e o a l Dei l inri l ieet eur lax dnPuPuP la PoaPo t
el uub r r r isAa r lan v r RCu S o t E er imf t d e a ootr Oi a a tannea go f Tgsn eEo r n
T t
o rPnrPmrt a oa es ot t
a oe onRP tads bl b r c l t oReeDh e nnTb I tyr e Tb eae TegRRnd vv eriers int o at s&sihe lch et l ach enmiTr aoin cc eedC t s ih t c eGdt pI a u SuDre m a aee r laa l
arWPEO r u u
. ut r ut rt m leNOpeNOTs ud Orw e tyi rt au laeeo r nm rt t eeeI i x be e eP CA t hl o irPF vNN pSS F O ot hGC F
_ t p et l a o
_ O O NOA P TO C yg f ll
- (1) Assumed retail rate increases of 5.6 percent in 1990,0.9 percent in 1991, and 7.3 percent in 1992.
(2) Sale of Surplus Power and Purchased Power reflect, in part, variations in hydroelectric generation see table under " Hydroelectric Generation" in the OfBcial Statement. Hydroe-lectric generation is assumed to be below average in 1988 and 1989 and average in 1990, 1991 and 1992.
(3) 1988 and 1989 amounts pursuant to the PG&E Contract, Settlement Agreement, and 1988 Amendment.1990 through 1992 expenses are based on the PG&E Power Sale Agreement.
(4) Includes costs associated with CCPA, Pacific Northwest and Camp Far West.
(5) Includes accrued charges for nuclear waste disposal for prior years and charges at one mill /kWh after the effective January 7,1983 date of the Nuclear Waste Disposal Act of 1982.
(6) Includes fuel expense for SMUDGE 01 and Combustion Turbine (McClellan AFB),
(7) Includes operation and maintenance expense for SMUDGEO 1, Combustion Turbine (McClellan AFB), solar and electric systems operations.
(8) Also includes taxes.
(9) Primarily interest; includes interest on reserve accounts from existing and future bond issues and other District funds.
(10) Reflects recognition of $25 million for unbilled revenues in 1988 and deferrals of net l purchased power costs of $30 million in 1986, $42.7 million in 1987, and net purchased power cost recoveries of $12.0 million in 1988, $55.7 million in 1989, and none thereafter.
(11) Includes $47.1 million from settlement of Western litigation.
(12) Total Net Revenues includes allowance for funds used during construction (a non-cash item).
(13) Based on the following assumed interest rates and subsequent bond issues: $170 million in 1988 at 8.75 percent; $40 million in 1991 at 7.5 percent; and $70 million in 1992 at 7.2 percent.
(14) See "Certain Operating And Financial Data" in the OfBeial Statement for method of calculation.
Assumptions and Considerations In the preparation of this report and the opinions that follow, we made certain assumptions with respect to conditions which may occur in the future. In addition, we have used and relied l upon certain information provided to us by the District and others which we believe to be ;
reliable. We have not independently verified this information and offer no assurances with respect thereto. We believe the use of such information is reasonable for purposes of this report.
However, some assumptions will invariably not materialize as stated herein or may vary significantly due to unanticipated events and circumstances. Therefore, the actual results can be expected to vary from those forecast to the extent that actual future conditions differ from those assumed by us or provided to us by others. The principal assumptions and considerations made by us and the principal information provided to us by the District and others include the following:
- 1. Capacity and energy will continue to be available from PG&E as needed by the District through 1919 under the PG&E Contract, the 1988 Amendment, and the Settlemer Agreement A-8 I
l I
- 2. After 1989,- new contractual agreements with PG&E, Edison and others will provide capacity and energy, as needed, when District resources are out of service and will provide for purchase and sale of capacity and energy by the District under other circumstances.
- 3. The District's future generating resources, transmission projects, and agreements for power purchases, transmission and interconnection will be available as described and shown herein and in the Official Statement, or the District's load and reserve require-ments will be supplied by similar resources with similar cost characteristics.
- 4. No rate increase in 1989 and rate increases of 5.6 percent in 1990,0.9 percent in 1991, and 7.3 percent in 1992 will result from rate actions taken by the District.
- 5. Annual plant capacity factors for Rancho Seco, based on average monthly capabilitSs, estimates of maintenance, refueling and modification schedules, and unscheduled out-ages (estimated at 20 percent) will be as follows: approximately 40 percent,51 percent, 55 percent,80 percent, and 55 percent for the years 1988 through 1992, respectively.
- 6. Energy generation from the District's hydroelectric resources will be less than average in 1988 and 1989, reflecting the actual precipitation during the 1987-1988 season, reservoir refill during 1989 and average generation thereafter.
- 7. Non-nuclear generation operations and maintenance expenses increase at an average rate of 4.2 percent through 1992. Transmission, distribution, customer accounts and administrative expenses increase at a rate of 7.2 percent through 1992 to reflect system growth. Construction expenses increase at an average rate of 4.7 percent per year.
Natural gas, geothermal steam, and the cost of energy from PG&E and Edison increases at a rate of approximately 5.5 percent per year through 1992. The Consumer Price Index increases at an average rate of 4.2 percent per year through 1992.
- 8. Estimated PG&E system average system costs, in mills per kilowatt-hour, will be 88.0, 90.9,98.5,98.9 and 104.2 for 1988 through 1992, respectively.
- 9. Projected revenues from sales to retail customers are not affected by load management programs.
Opinions Based upon our studies, investigations and analyses, and the principal Assumptions and Considerations set forth in this report, we are of the opinion that:
- 1. Based on historical costs and trends, the current Rancho Seco operations, and other factors, the Projected Operating Results during the study period 1988-1992 are reasonable.
- 2. To obtain debt service coverage ratios indicated in the Projected Operating Results, it will be necessary in 1990 and ensuing years to secure more revenues than would be available from the presently approved rates.
- 3. The retail rate levels required to achieve the forecasted revenues in the Projected Operating Results are expected to remain lower than the comparable rate levels of PG&E.
- 4. The District can obtain long-term and other agreements after 1989 common in the industry with other utilities for standby service when District resources are out of service and for sale and purchase of capacity and energy under terms and conditions that are no less favorable than those assumed in the Projected Operating Results for 1990,1991, and 1992.
An Assessment of Terminating Rancho Seco The District has attempted to assess the nature and magnitude of the impact of permanently taking Rancho Seco out of service in June 1989 (Termination Assessment). In making the Termination Assessment, the District's principal assumption is that capacity and energy that otherwise would have been provided by Rancho Seco through December 31, 1999 will be replaced by purchases under power purchase contracts, including the PG&E and Edison Power Sale Agreements, at costs which would be comparable to the expected costs of continuing the A-9
1 operation of Rancho Seco as set forth in the Projected Operating Results (assuming that increases in the cost of power under the PG&E and Edison Power Hale Agreements are based on increases in the cost of fossil fuel of approximately 5.5 percent p' r year).
Based on the Termination Assessment, the District has conclu led that terminating Rancho l Seco in June 1989 would not have a materially adverse impact e the District's operations through December 31,1999. The Termination Assessment shows, au ?ng other things, that, although the District's rates as a percentage of PG&E's rates for 1989-19C will be essentially the same as those included in the Projected Operating Results, the recovery oi P" deferrals would be extended; fixed charge ratios would be lower during certain years than those i.lcluded in the Projected Operating Results; and, due to a one-time write-off of the net book value of the plant and nuclear fuel in 1989, the District would incur in such year a charge against income equal to such net book value and the District's equity would become negative.
The PG&E and Edison Power Sale Agreements have not yet been implemented, and the PG&E Power Sale Agreement, upon the occurrence of certain conditions, could become null and void in 1991, llowever, the District believes the PG&E and Edison Power Sale Areements will be fully implemented and will remain effective to their stated termination dates of December 31, f 1999. See " Power Purchase Agreements-Agreements With PG&E" and "-Edison Power Sale l Agreement" in the Official Statement.
After December 31,1999, the PG&E and Edison Power Sale Agreements will no longer be in effect and the District would be required to either renew such contracts or find other sources of replacement power. The District believes that it will be able to obtain replacement capacity and -
energy during such period although it is not able to predict the cost of such power or the effect that the cost of such power could have on the operations or financial condition of the District.
The facts and circumstances in existence at the time of, and subsequent to, a termination of Rancho Seco, together with the actual course of action of the District, would determine the effects of such termination and such effects could be different from, and worse than, those described above.
We have reviewed the Termination Assessment ant re of the opinion that the assumptions and the District's conclusions with respect to the effect of terminating Rancho Seco are reasonable. Further, based on the Termination Assessment, we are of the opinion that terminat-ing Rancho Seco would not have a materially adverse impact on the District's operations during i the period 1989 through 1992. ;
We have furnished to you certain technical information contained in the Official Statement under the captions " Capital Requirements, Outstanding Indebtedness and Projected Operating Results-Projected Operating Results" and " Rancho Seco-An Assessment of Terminating Rancho Seco." In our opinion, the information contained therein and ascribed to us is accurately presented.
Respectfully submitted,
/s/ R. W. Beck and Associates A-10
i APPENDIX B SACRAMENTO MUNICIPAL UTILITY DISTRICT
SUMMARY
OF INCOME (thousands of dollars)
Six Months Ended June 30, Year Ended December 31, 1988 1987 1987 1986 1985 1984 Operating Revenues:
Residential . . . . . . . . . . . . . . . . . . . . $126,579 $108,940 $234,438 $ 185,888 . $ 156,920 $130,604 Commercial and Industrial . . . . . .. 125,132 105,518 234,655 177,335 138,431 107,245 Other.. ...... . . ...... . .. 3,500 9,53 17,667 15,015 11,228 4,643 Total '. . . . . . . . .. ... .. 255,211 224,007 486,760 378,238 306,579 242,492 Sales of Surplus Power . . ... . 616 9,812 26,475 34,697. 50,957. 102,300 Total operating revenues . .. 255,727 233,819 513,235 412,935 357,536 344,792 Operating Expenses:
Operation . .
Purchased Power . . . . . . . . . . . . . . . 90,920 97,194 208,309 155,431 94,327- 32,827 Amortization of 1986 > deferred purchase power costs . . . ... 357 6,695 24,643 - - -
Power supply costs to be recovered in future years . . . . . . . . . . . . . . .... (24,511) (28,279) (67,313) (25,000) - -
Nuclear fuel ~used for generation . 3,863 - -
100 12,475~ 23,790 Production . , .. . .. . 51,686 43,779 89,787 72,895 73,691 58,227 Other. .... .. .... ....... . . 36,742 31,385 66,844 59,677 56,500 , 51,501 Maintenance . . . . ........... . 33,369 31,902 70,223 53,173 57,661 38,408 Provision for depreciation . . . . 28,657 24,640 50,567 45,978 40,890 35,991 Provision for decommissioning . . . 6,106 1,770 3,705 5,249 6,065 6,217 Operating costs to be recovered in .
~
future years . . . , . . . . . . . . . . . - (10,286) - - - -
Total operating expenses . . ... . 227,189 198,800 446,765 367,503 341,609 246,961 Operating Income . . . ...... . 28,538 35,019 66,470 45,432- 15,927 97,831 Other Income:
Allowance for equity funds used dur-ing construction . . . . . . . . . 4,222 3,665 8,116 11,185 13,143 11,100 Interest income and other . . . 10,541 14,401 27,710 19,350 35,513 23,229 Income before interest expense . . . . . 43,301 53,085 102,296 75,967 64,583 132,160 Interest Charges:
Interest on debt . . . . . . . . . . ..... 60,411 50,205 105,665 88,025 79,182 70,185 Allowance for borrowed funds used during construction .. .. (7,897) (5,818) (13,912) (8,395) (5,443) (0,783)
Net income (Loss) . . . $ (9,213) $ 8,698 $ 10,543 $_ (3,663) $ (0,156) $ 71,758 l
l B-1
at SACRAMENTO MUNICIPAL- UTILITY DISTRICT -
OPERATING STATISTICS Six Months Ended June 30, Year Ended December 31, 1988 1987 1987 1986 1985 1984 Customers at End of Period:
. Residential . . . . . .. ... . . 372,003 361,264 367,797 354,951- 341,301 328,534 Commercial and Industrial .. 45,729 43,977 44,905 42,843 41,224 39,407 Other....... . ...'.... 1,390 1,357 1,377 1,336 1,271 1,238 Total . ..... ...... . 419,122 406,598 414,079 399,130 383,796 369,179 kWh Sales (in thousands)+ ,.
Residential . . . . . . . .. . 1,615,544 1,664,038 3,229,269 3,100,721 3,193,193 3,086,443 Commercial and Industrial . 2,023,548 1,987,267 4,130,506 .3,851,439 3,632,819 3,220,085 Other.. . .. . ,. . .... ... 29,211 28,377 58,802 56,776 55,619 53,283 .
Total . . . . . . . . . 3,668,303 3,679,682 7,418,577 7,014,936 - 6,881,631 6,359,811 3 Sales of Surplus Power. . .
- - - 74,802 566,883 2,539,326 Total.. . . .. . 3,668,303 3,679,682 7,418,577 7,089,738 7,448,514 8,899,137 Source of Energy Sold kWh (in thousands):
Generated by District .. . . . . 1,189,039 -766,019 1,513,345 3,161,737 3,849,751 6,545,254 Purchased or exchanged . 2,610,215 3,044,331 6.274,386 4,291,263 4,034,428 2,820,598 Total . . . . . . . . . . . .... 3,799,254 3,810,350 7,787,731 7,453,000 7,884,179 '9,374,852 Less system losses and unac-counted for . ... . 130,951 130,668 369,154 363,262 435,665 475,715 Total . . .. . . . . . . . 3,668,303 3,679,682 7,418,577 7,089,738 7,448,514 8,899,137 System Peak Demand (kW) . . . . 1,817,155 1,842,884 1,886,341 1,797,540 1,850,695 1,730,123 Average kWh Sales per Residen-tial Customer . . ... ....... . 4,363 4,633 8,9 i4 8,901 9,544 9,609 .
Average Revenue per kWh Sold: I Residential . . . . . . ..... 7.84 e 6.55t 7.26e 5.984 4.91 t 4.234 !'
Commercial and Industrial . . . . 6.18e 5.31t 5.68e 4.60t - 3.814 3.339 3
B-2 l
I k.
D FINANCIAL STATISTICS (thousands of dollars)
June 30, Year Ended December 31, 1988 1987 1987 1986 1985 1984 Balance Sheet Information:
Electric utility plant-
$1,127,788 8 977,348 $1,064,257 $ 962,312 8 878,729 $ 815,742 Production ... . .. . ..
Joint power agency production 50,500 - - - - -
Transmission and distribution . . 567,354 525,738 536,985 499,396 461,666 424,943 General . . . . . . . . . . . .. . 91,979 87,203 91,050 81,638 77,826 70,954 Construction work in progress. 340,698 380,796 405,307 302,644 241,478 188,087 Nuclear fuel . . . .. . .. .. 219,162 212,251 214,720 211,026 197,524 185,159 Total.... . ...... ... .. 82,397,481 $ 2,183,336 $2,312,319 $2,057,016 $ 1,857,223 $1,684,885 Accumulated depreciation . . . . . $ 441,194 8 391,326 8 415,510 $ 367,189 $ 323,804 $ 286,533 Capitalization-Long-Term Debt . $ 1,358,472 $1,220,198 $1,365,931 $ 1,035,545 $ 894,038 8 975,983 Customers' Equity . . . . . .. . 8 656,535 $ 663,904 8 665,749 8 655,206 $ 658,869 8 668,025 Percent long term debt . . . . . . 67.4 64.8 67.2 61.2 57.6 59.4 Percent customers' equity . .. 32.6 35.2 32.8 38.8 42.4 40.6 B-3 j
3 APPENDIX C REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Sacramento Municipal Utility District:
We have audited the accompanying balance sheets of SACRAMENTO MUNICIPAL UTILITY DISTRICT (a political subdivision of the State of California) as of December 31,1987 and 1986, and the related statements of income and funds used for construction and nuclear fuel for each of the three years in the period ended December 31,1987. These financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audits.
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 examin-ing, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes 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.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sacramento Municipal Utility District as of December 31,1987 and 1986, and the results of its operations and funds used for construction and nuclear fuel for each of the three years in the c iod ended December 31,1987, in conformity with generally accepted accounting principles.
As discussed more fully in Note 6 to the Financial Statements, the status of future operations of the District's nuclear plant (Rancho Seco) is subject to the significant uncertainty presented by the Measure C referendum. The Measure C referendum requires the District to use due diligence to divest of Rancho Seco, close Rancho Seco if certain performance levels are not achieved, and have the proposition of continued operation of Rancho Seco be re-ratified by the voters. If significant portions of the investment in Rancho Seco are not recovered through successful operation of the plant, or the ratemaking process, the adverse impact upon the District's customer's equity and future statements of income would be substantial.
ARTHUR ANDERSEN & CO.
San Francisco, California, February 19,1988 (except with respect to the matters discussed in Notes 6,7, and 8, as to which the date is October 7,1988).
1 C-1 i
o o
SACRAMENTO MUNICIPAL UTILITY DISTRICT l BALANCE SHEETS ASSETS December 31, 1987 1986 (thousands of dollars)
ELECTRIC UTILITY PLANT Plant in service, at original cost . . . .. $ 1,692,292 $ 1,543,346 Less-accumulated depreciation. . . . .. . . . 415,510 367,189 Plant in service-net . .. 1,276,782 1,176,157 Cor struction work in progress .... . . . 272,152 213,040 Jointly owned projects under construction (Note 3) . 133,155 89,604 Nuclear fuel, at amortized cost (Note 1). . 214,720 211,026 Electric utility plant-net. .... .. . . 1,896,809 1,689,827 RESTRICTED FUNDS Revenue bond reserves. . . . . . . .. . . . . .. . . 109,423 86,136 Nuclear decommissioning fund (Note 1) . ... 42,054 38,458 Funds for jointly owned project under constr"etion (Note 3) 24,683 67,426 Total restricted funds. . . . 176,160 192,020 CURRENT ASSETS Cash and investments Unrestricted . . . .. . .. 157,506 97,697 Restricted for payment of debt service . 36,809 22,039 Designated for deferred compensation benefits (Note 1) . 12,935 10,876 Accounts receivable, net Customers . ... . . ... 37,735 25,537 Sale of surplus power (Note 7) 12,114 -
Other . .. ..... .. ... . . 6,424 5,082 I Deferred power supply costs to be recovered within one year (Note 1) . ... . . . 37,111 24,643 Materials and suppi. , at average cost . 32,014 27,744 Accrued interest . . . . . . . .. . . 6,477 5,813 Prepayments . . 5,005 3,095 Total current assets . . . 344,130 22.5,526 NONCURRENT ASSETS AND DEFERRED CIIARGES Unamortized loss on refunding (Note 4) . 41,308 21:,562 Unamortized debt expense ... . . 23,931 18,565 Noncurrent deferred power supply costs (Note 1) 30,559 357 Other . . . . .. ... 8,798 5,543 ;
Total noncurrent assets . . 104,596 47,027 j Total assets .. . .
$ 2,521,695 $ 2,151,400 The accompanying notes are an integral part of these financial statements.
I l i C-2 .
l t
t 1;
ki~ g '
Aj SACRAMENTO MUNICIPAL UTILITY DISTRICT '
! BALANCE SHEETS
. CAPITALIZATION AND LIABILITIES December 31, 1987 1986 (thousands of dollars).
CAPITALIZATION
, Customers' equity. employed in the business '
Balance, beginning of year . ........ .. ... ..... ... $ 655,206 , -$ '658,869
-Net income (loss) for the year . . . . . . . . . . .. . . . . . . . . . . . . . . . . 10,543 (3,663)
Total customers' eqtilty . . . . ....... . ........... ...
. 665,749 055,206
' Long-term debt ( Note '4 ) , . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,365,931- '1,035,545 Total capitalization ~. . ...... ......... ............ 2,031,680 1,690,751 CURRENT LIABILITIES Commercial paper note (Note 5) .. .. .... .. . . .... . 121,800 125,000
-Accounts payable . . . . ..... ........... .. ... . . . . . . . 84,615 62,016 Payable for power purchases (Note 7) . . . . . . . . . . . . . . . . . 16,341- 26,285
'Long-term debt due within one year . . . . .. ... .. .. = 12,918 7,707 Accrued interest . ... ......... .. . ........ . ... ... 23,294 .20,969 Customer deposits . . . . . . . . . . . . . . . . . . . . ..... .. . 10,745 , 9,781 Accrued salaries and vacation . . . . . . . . . . . . . . . . . . . . . . . . . 12,554: 10,666
' Energy and capacity exchange account (Note 1) ...... . .. 32,015 15,399
. Total current liabilities. , . . . . . . . . . ... .. .... . 314,282 277,823 NONCURRENT LIABILITIES AND DEFERRED CREDITS Unamortized gain on refunding (Note 4) .... . . .. .. . 106,073 110,099 Decommissioning accrual (Note 1). ..... . ...... . .. ... 42,054 38,458
' Energy exchange account (Note 1) .......... .. ..... .. . 5,126 16,894 Deferred compensation benefits (Note 1) . . . . . . . . . . . . . . . . . . 12,935 10,876 Other ....... ..... . .... ..... ..... .. .... ... ... 9,545 '6,499-
. Total noncurrent liabilities . .. . ...... .... ... .., 175,733 182,826 COMMITMENTS AND CONTINGENCIES (Notes 6,7 and 8)
Total capitalization and liabilities . . . . . . . . . . . . . . . . $ 2,521,695 $2,151,400 The accompanying notes are an integral part of these financial statements.
C-3
e SACRAMENTO MUNICIPAL UTILITY DISTRICT STATEMENTS OF INCOME Year Ended December 31, 1987 1986 1985 (thousands of dollars)
OPERATING REVENUES Residential ... ... ...... .. ..... .. .. . . $234,438 $185,888 $156,920 Commercial and industrial. . . . .... .. . .. . .. 234,655 177,335 138,431 Sales of surplus power (Notes 1 and 7) . . . . .. 26,475 34,697 50,957 Other... . . . . .. . . ........ .. . . 17,667 15,015 11,228 Total operating revenues . . . . . . . .... .. 513,235- 412,935 357,536 OPERATING EXPENSES Operation Purchased and interchanged power (Note 1) . . . . 208,309 155,431 94,327 Power supply costs-(under) recovery-net (Note 1) . . .... .. . .. ... ... .. . . . (42,670) (25,000) -
Nuclear fuel used for generation. .. . .. ..
100 12,475 Production . . . . . . . . . . . . .... ... . .. .. . .. 89,787 72,895 73,691 Administrative and general and other. . . . . . . . 66,844 59,677 56,500 Maintenance . . . . . . . . . . .. .. . .. .... . . 70,223 53,173 57,661 Depreciation (Note 1) . . . . . . . . . . . . . . . 50,567 46,166 41,074 Decommissioning (Note 1) . . . . . . . .... . .. 3,705 5,061 5,881 Total operating expenses . . . . . . . . . . . 446,765 367,503 341,609 Operating income .... . ... ... .. . 66,470 45,432 16,927 OTIIER INCOME Interest income and other (Note 1) . ...... . . .. 27,710 19,350 35,513 Allowance for equity funds used during construction P,116 11,185 13,143 Income before interest charges . .. ..... 102,296 75,967 64,583 INTEREST CIIARGES Interest on debt. . . .. .. .. . . . . ... . 105,665 88,025 79,182 Allowance for borrowed funds used during construction . . . . . . . . . . . . .. . ..... . (13,912) (8,395) (5,443)
Net interest charges. . . . . . . . . . . . . . ..... . 91,753 79,630 73,739 NET INCOME (LOSS) . . . . . . . .. .. ... . . $ 10,543 $ (3,663) $ (9,156)
The accompanying notes are an integral part of these financial statements.
C-4
SACRAMENTO MUNICIPAL UTILITY DISTRICT '
i STATEMENTS OF FUNDS USED FOR CONSTRUCTION AND NUCLEAR FUEL Year Ended December 31,
' ,1987 1986 1985 l
(thousands of donars)
FUNDS PROVIDED FROM Operations Net income (loss) . . . . . . . . . . . . . .. ....... ...... $ 10,543 $ (3,663) $ (9,156)
Items in net income (loss) not affecting working capital-Depreciation. . ....... .... .......... ....... 50,567 46,166 41,074 Decommissioning . . . . . . . . . . . . . . . .. . .. .. .. 3,705 5,061 5,881 Nuclear fuel used for generation . . . ... . . .... - -
12,475 Allowance for equity funds used during construction . . . . . . . . . . . . .... .. ...... ... . (8,116) (11,185) (13,143)
Other ........ ...................... ........... 1,858 6,008 (1,485)
Total funds provided by operations . . . . . . . . . . 58,557 42,387 35,646 External financing Electric and subordinated electric revenue bonds. . . . 546,207 146,850 659,802 Commercial paper notes, net .. . . . . . . . . . . . . . . . . . . . (3,200) 25,000 '10,000 South Sutter Water District bonds (Note 4) . . . . . . . - - 16,880 Total funds provided by external financing . . . . . 543,007 171,850 686,682 Other changes Decrease in working capital (excluding paper notes) - - 149,314 Reduction in restricted funds. . . . . . . . . . . . . . . . 42,743 .32,139 11,059
. Deferral of gain from refunding bonds . . . . .. . .. - -
114,056 Other ....... ......................... .. .... .. - 15,593 18,643 Total funds provided by other changes . . . . . . . . . . 42,743 47,732 293,072 Total funds provided . . . . . . . . . . . . . . . . . . . . . 644,307 261,969 1,015,400 FUNDS USED FOR OTHER TilAN CONSTRUCTION AND NUCLEAR FUEL Increase in noncurrent deferred power supply costs . . . 30,202 357 -
Increase in deferred power supply costs to be recovered within one year . . . . . . . . . . . . . . . . . , . . . 12,468 24,643 -
Increase in working capital (excluding commercial paper notes and deferred power supply costs) . . . . . 69,477 22,677 -
Payments of long-term debt . . . . . . . . . . . . . . . . ..... 217,584 5,905 777,830 Additions to restricted funds . . . . . . . . . . . . . . . .... . 26,883 12,503 8,503 Deferral of loss from refunding bonds . . . . . . . . . . . . . . . 21,048 - 24,292 Payment for disposal of spent nuclear fuel, . . . . . . . . . -- - 28,570 Other ................... ...... ..... ... . ..... 7,492 - -
Total funds used for other than construction and nuclear fuel . . . . . . . ........... ... 385,154 66,085 839,195 FUNDS USED FOR CONSTRUCTION AND NUCLEAR i FUEL j Construction and nuclear fuel expenditures . . . . . . 259,153 195,884 176,205 j Allowance for equity funds used during construction. 8,116 11,185 13,143 -l TOTAL FUNDS USED FOR CONSTRUCTION AND 1 NUCLEAR FUEL . . . . . . . ...... .. . . .. . . $267,269 $207,069 $ 189,348 I The accompanying notes are an integral part of these financial statements.
C-5 1
i
)
o SACRAMENTO MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Organization and Eremptionfrom Income and Property Ta.res. The Sacramento Munici-pal Utility District (District) was formed and operates under the State of California Municipal '
Utility District 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 XIII 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.
Method ofAccounting. The accounting records of the District are maintained in accordance "
with generally accepted accounting principles for rate-regulated enterprises, as prescribed by the Financial Accounting Standards Board (FASB) and, where applicable, the Governmental Accounting Standards Board (CASB), and generally follow the Uniform System of Accounts for Public Utilities and Licensees prescribed by the Federal Energy Regulatory Commission (FERC). The District's accounting records are maintained on a comparable basis with investor-owned electric utilities operating in California.
Cash and Investments. The investments in restricted and unrestricted funds are valued at cost which approximates market.
The District invests its funds in accordance with the Municipal Utility District Act and other California statutes. All securities are held by the District's agent in its name. A summary of the District's investments at December 31,1987 and 1986 is shown below.
Deceml>er 31, 1987 1986 - ,
(thousands of dollars) .
- U.S. Government Securities $ 47.022 0 58,811 l Cemmercial Paper 4.977 10,314 i
Bankers' Acceptances. . 278,075 165,288 Local Agency Investment Fund. 54,000 105,000
$384,074 $339,413 Totalinvestments are composed of the following:
Unrestricted funds $ 157,506 $ 97,697 Funds restricted for payment of debt service 36,809 22,039 Revenue bond reserve funds 109,423 86,136 Nuclear decommissioning funds 42,054 38,458 Funds for jointly owned projects under construction 24,683 67,426 Comingled deferred compensation funds . -
1,315 Checks issued but unpaid . 13,934 26,522 Less cash on-hand . (335) (180)
$384,074 $339,413 Rate-Making Balancing Accounts. The District's Board of Directors has authority to establish the level of rates charged for all District services. During 1986, the Board of Directors established a rate-making b.' lancing account to remove the effect on the results of operations of fluctuations in net power supp y c ats (purchased and interchanged power, nuclear fuel and C-6
steam supply costs, offset by surplus power sales). Fluctuations from budgeted levels utilized in the rate-setting process are recorded in the Power Supply Cost Rate (PSCH) balancing account, and will be reflected in future rates. The unrecovered deferred power supply costs to be refl < in future rates at December 31,1987 was $67.7 million. The Board of Directors has also estabushed a rate-making account for deferral of material losses, arising from adverse resolu-tions or settlements of claims and litigation, not previously considered in District rates (See Note 7).
Surplus Power Transactions. Capacity and energy which is generated by the District but not required to serve District load is sold to the Pacific Gas and Electric Company (PGandE) pursuant to a power sales contract that expires December 31,1989. The power sales contract is currently the subject of a dispute. The nature of the dispute is described in Note 7.
The contract established an energy exchange account in which the District is required to deposit and maintain a positive balance of 350 GWh. The District may withdraw energy from that account during times when District generation is insufficient to serve District load. After a withdrawal from the energy exchange account, the District must replace the energy withdrawn from the account and restore the positive balance to 350 GWh prior to making sales of energy to PGandE under other provisions of the contract.
Prior to January 1,1986, there was no limit on the amount of energy which could be withdrawn from the energy exchange account even if the amount withdrawn exceeded the 350 GWh maintained in the account by the District. The agreement which extended the term of the contract to December 31,1989, however, placed limits on the amount of energy which could be withdrawn from the energy exchange account effective January 1,1986. Any energy which the District requires in excess of such limits must be paid for on a current basis at contracted rates.
The limits for 1988 and 1989 are 750 GWh and 500 GWh, respectively. At December 31, 1987, the District was obligated to return withdrawals of 1,880 GWh to the energy exchange account.
Energy which is deposited in and withdrawn from *he energy exchange account is recorded in the District's income statement as surplus power sales and piirchased power, respectively, with the corresponding amounts reflected as a deferred charge or as a liability. Energy exchange account liabilities are valued at the production cost of future generation which will be used to return the obligation.
The contract also established a capacity exchange account to record capacity exchange transactions between the District and PGandE. Capacity borrowed from PGandE to meet District load is recorded as purchased power in the District's income statement. and as a liability in the capacity exchange account on the District's balance sheet. Capacity returned to PGandE under the contract is recorded as surplus power sales and reduces this liability. Once the capacity exchange liability has been fully satisfied, capacity sales are billed to PGandE at contract rates.
Capacity sales and capacity exchange account liabilities are valued using the estimated cost per unit of-capacity for certain of the District's generating plants. As of December 31,1987, the District was obligated to return to PGandE 150 megawatt-months of capacity valued at
$3.1 million.
Depreciation. The District provides for depreciation on the historical cost of electric properties on a straight-line, service-life basis at rates determined by engineering studies. The average annual composite depreciation rates for the years ended December 31,1987,1986, and 1985 were 3.34 percent,3.35 percent, and 3.26 percent, respectively.
The costs of replacement property units are capitalized. Repair and maintenance costs are charged to expense, including such costs associated with refueling the Rancho Seco nuclear C-7
plant. Plant modifications that do not meet the criteria for capitalization are also charged to expense.
Nuclear Puel. The District amortizes the cost of nuclear fuel to nuclear fuel expense on a unit-of-production basis. Under the Nuclear Waste Policy Act of 1982, the Federal government assumed responsibility for the permanent disposal of spent nuclear fuel. The District is charged a fee for the disposal of spent nuclear fuel in the amount of one mill per kWh on electricity generated by the nuclear power reactor after April 7,1983. The District records this charge as a current period expense.
For dMposal costs related to nuclear fuel used to generate electricity prior to April 7,1983, the District's liability under the Act was computed to be $28.7 million. In 1984 the District accrued interest on this obligation amounting to $5.2 million as a result of tentatively selecting a deferred payment option under 'he Act. In 1985 the District opted to select a current payment option, paying its obligation in full on June 30,1985. The $5.2 million of previously accrued interest is included in other income in 1985.
Decommissioning. The District maintains a fund restricted by the Board of Directors to provide for eventual payment of decommissioning costs. Fund management is under District control. The District's policy is to make levelized contributions to the fund in amounts which, along with interest earned by investing fund assets, will be sufficient to provide for payment of decommissioning costs as incurred.
The current provision for decommissioning of the nuclear plant was based on a total cost in 1987 dollare of $123 million. The District conducted a study, performed by an independent specialist, to reevaluate the estimated cost of decommissioning the nuclear plant. This study resulted in an estimated cost of $218 million in 1988 dollars. The study assumes that decommis-sioning will occur after the expiration of the plant's operating license in 2008, and that the dismantling / removal method will be used.
Budgeted additions to the decommissioning fund for 1988 under the previous funding plan were estimated at $7.3 million. Based on the latest study, the decommissioning provision for 1988 is estimated to be approximately $12 million.
Alloivancefor Funds Used During Construction. The District capitalizes, as an additional cost of construction work in progress, nuclear fuel, and its participation in jointly owned projects under construction, an allowance for funds used during construction ( AFUDC) which represents the cost of borrowed funds used for such purposes and a return on equity funds when so used. AFUDC is a non-cash item and is capitalized and depreciated along with the related fixed assets and reflected in rates for future recovery. In the majority of applications, the amount capitalized is determined by a formula prescribed by FERC. The total allowance for funds used during construction for the years 1987,1986, and 1985 amounted to approximately 7.3 percent, 7.5 percent, and 7.5 percent, respectively, of eligible plant under construction, nuclear fuel, and participation in jointly owned projects under construction. AFUDC capitalized during 1987 and 1986 relating to Rancho Seco was approximately $12.7 million and $13.2 mil-lion, respectively.
Deferred Compensation Plan. The District ofTers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. Until paid or made available to the employee or other beneficiary, all amounts of deferred compensation, all property and rights purchased with those amounts, and all income attributable to those amounts, property or rights are subject to the claims of the District's bondholders and general creditors. Participants' rights under the plan are equal to those of general creditors. The District has the duty of reasonable care in the selection of investment alternatives but neither the District nor its directors or officers have any liability for losses under the plan.
C-8
Reclassifications. The District has changed the presentation of decommissioning expense and deferred power supply costs in prior year financial statements to conform to the presenta-tion in the 1987 financial statements. The reclassification did not result in a change in total operating expenses for 1986 or 1985.
NOTE 2. DEFINED BENEFIT PENSION PLAN.
The District contributes to the Public Employees Retirement System of the State of California (PERS), an agent multiple-employer retirement system that acts as a common investment and administrative agent for participating state and local governmental entities in California. The District's payroll for employees covered by PERS for the year ended Decem-ber 31,1987 was $94.4 million; the District's total payroll for the same period was
$111.3 million.
All permanent District employees working more than twenty hours per week are eligible to participate in PERS. Benefits vest after five years of service. Upon retirement, participants are entitled to an annual retirement benefit, payable monthly for life,in an amount equal to a benefit factor times their highest average monthly salary over any 36 consecutive months of employ-ment. The applicable benefit factor is based on age at retirement and years of credited service, and ranges from 1.1 percent per year of credited service for retirement at age 50 to 2.4 percent per year of credited service for retirement at or after age 63. PERS also provides death and disability benefits to covered employees. Benefit provisions and all other requirements are established and governed by state statute.
The " pension benefit obligation" is a standardized disclosure measure of the present value of pension benefits, adjusted for the effects of projected salary increases and r+cp-rate benefits, estimated to be payable in the future as a result of employee service to date. Tc pension benefit obligation was computed as part of an actuarial valuation performed as of June 30,1986, using the entry-age normal actuarial cost method, which is also the method used by PERS to determine contribution rates. The standardized pension benefit obligation disclosure required by GASB Statement No. 5 is determined using the " credited projected benefits" actuarial method. This amount will be computed by PERS beginning with the June 30,1987 actuarial valuation, but is not expected to be materially different from the pension benefit obligation under the entry-age normal actuarial method.
Significant actuarial assumptions used in the valuation process include (a) a rate of return on the investment of present and future assets of 8.5 percent a year compounded annually, (b) projected salary increases of 7 percent a year compounded annually, attributable to inflation and seniority / merit, and (c) post-retirement benefit increases of up to 5 percent a year compounded annually.
The pension benefit obligation applicable to the District's employees, using the entry-age normal actuarial cost method, was $258.9 million at June 30,1986, date of the latest actuarial valuation. Plan assets available for benefits totaled $184.6 million (at cost plus an actuarial adjustment of 4.2 percent to reflect a portion of unrealized gains). Thus, the District's unfunded pension benefit obligation as of June 30,1986 was $74.3 million. PERS cannot provide, as of the June 30,1986 actuarial valuation, a breakdown between vested and non-vested benefits and employer contributions.
PERS funding policy provides for actuarially determined employer contributions at rates which, in conjunction with employee contributions, will provide sufficient assets to pay benefits when due. The rate for the District employees' contributions is a set percentage of annual covered payroll. The District's contribution rates for normal cost and amortization of the unfunded pension benefit obligation are determined using the entry-age normal actuarial funding method. The District's unfunded pension benefit obligation is being amortized over the period ending in the year 2000 using the level percentage of payroll method.
C-9
a The District contributes to PERS in accordance with actuarially determined requirements.
For the plan years ended June 30,1987,1986, and 1985, the District's employer contributions totalled 20.8 percent, 23.6 percent, and 23.9 percent, respectively, of eligible payroll. Actual contributions for the years 1987,1986, and 1985 amounted to $18.5 million, $19.6 million, and
$17.6 million, respectively. Employee contributions are a constant 3.5 percent of eligible payroll.
For the plan year beginning July 1,1987, the District's PERS employer contribution rate is 18.7 percent of eligible payroll.
NOTE 3. PARTICIPATION IN JOINTLY OWNED PROJECTS UNDER CONSTRUCTION Central California Power Agency No.1. In 1982 the District and two other northern California public agencies formed a joint powers agency entitled Central California Power Agency No.1 (CCPA No.1), for the purpose of participating in the exploration, development, and production of electricity from geothermal resources. Since its formation, CCPA No. I has entered into a series of agreements for the development of a geothermal steam project with certain entities having leasehold interests in the California Geysers geothermal area. Under this series of agreements, CCPA No. I advanced $26 million towards the acquisition of rights to purchase steam, agreed to provide additional funds toward steam field exploration and develop-ment costs for approved acreage limited to $62 million, and committed to construct two 65 MW geothermal steam electric generating units. In exchange, CCPA No. I acquired rights to a production payment (a royalty based on the revenue from steam sales) and the exclusive right to purchase steam under a contract. The steam contract terms require CCPA No. I to take a minimum of, or otherwise make payment for,50 percent of the annual steam requirement.
Under the series of agreements for steam field exploration and development, CCPA No. I had expended $63.5 million as of December 31,1987. The District's total obligation of $35 mil-lion under these agreements had been paid at December 31,1985.
CCPA No. I will own and be responsible for constructing and operating a two-unit generating plant. The District has been designated project manager for the construction of both units which is estimated to cost $225 million. The District will fund 50 percent of both units and will be entitled to 50 percent of the power produced. At December 31,1987, the District had expended $79.3 million under this obligation. Both units are expected to be in commercial operation in 1988. It is the intent of the District and the other members of CCPA No. I to enter into power sales contracts with CCPA No. I to take and pay for all of the power from the project.
Transmission Agency of Northera California. In 1984 the District and fourteen other California municipal utilities formed a joint powers agency entitled the Transmission Agency of Northern California (TANC). TANC has joined with nearly all California utilities to share in the construction and ownership of a 500 KV transmission line between central California and southern Oregon which will facilitate power exchanges with the Pacific Northwest.
TANC has agreed to pay 45.11 percent of the estimated $425 million cost of the project for approximately 42.29 percent of the transmission capacity estimated to be 1,600 MW. The District has a 30.6 percent interest in TANC and will be entitled to approximately 200 MW of transmission capacity at an estimated cost of $60 million.
C-10
0 NOTEw ' ANG-TERM DEBT Long-ten i debt outstanding at December 31,1987 and 1986 was as follows:
1987 1986 (thousands of dollars)
Revenue Bonds Electric Revenue Bonds,4% 9% %, 1988-2016 . $ 744,380 $ 547,935 Taxable Electric Revenue Bonds, 10"/w%11%%,
1993-1997 .. . . .. 150,000 -
Subordinated Electric Revenue Bonds, 6%%-9%,
1993-2010 . . . .. 491,495 491,495 Total Revenue Bonds . .. 1,385,875 1,039,430 General Obligation Bonds,2 4 % %, 1988-1992 . . 2,850 4,909 South Sutter Water District, Ilydroelectric Revenue Bonds,10%%-11%%,1988-2002 15,765 16,175 Purchase Agreement, 3 % %, 1988-2000 . 984 1,042 Total long-term debt outstanding 1,405,474 1,061,556 Less-Amount due within one year . . . 12,918 7,707 Bond Discount Electric Revenue Bonds . .
19,363 10,618 Subordinated Electric Revenue Bonds . .
7,262 7,686 Total long-term debt . . .
$ 1,365,931 $ 1,035,545 Annual debt maturities for 1988 through 1992 are $12.9 million, $13l2 million, $12.8 mil-lion, $15.4 million, and $15.8 million, respectively.
South Sutter Water District, Ilydroelectric Revenue Bonds. The District is obligated to purchase power from the South Sutter Water District project under a contract that has the effect of transferring substantially all the economic benefits of the project to the District and making the District liable for all debt service on $16.9 million of bonds issued at an effective cost of 11.48 percent by the South Sutter Water District in August 1982. Accordingly, the obligation and project have beert capitalized, effective in February 1985 when the project became opera-tional. The bonds mature serially through 2002. The District is obligated for annual debt service payments of approximately $2.3 million which commenced in 1985 without regard for the level of operation of the project. Amounts expended under this agreement have been reported as purchased power expense.
Restricted Demand Bonds. In 1984, the District issued $120 million of Electric Revenue Bonds, Series 0, which were refunded during 1987, the proceeds of which were restricted by the Board of Directors to fund the District's participatory share in the geothermal plant described in Note 3. Fund management is under District control. In January 1986, the Board of Directors authorized the District to release up to $30 million if funds were needed for other projects. The District has never used these funds for other projects, but if released, it is the intention of the District to replenish funds withdrawn.
1987 Refunding Bonds. On March 5,1987, the District issued $236.6 million of its Electric Revenue Bonds, Series R, with an average interest rate of 6.60 percent, to advance refund
$211 million of outstanding Electric Revenue Bonds, Series N and 0, with average interest rates of 9.51 percent and 7.84 percent, respectively. The net proceeds of $223.3 million (after payment of $3.6 million in underwriting fees, insurance, and other issuance costs, and after deducting the $9.7 million original issue discount), plus an additional $3 million of Electric Revenue Bond Reserve Fund monies applicable to the Series N and O bonds, were used to purchase U.S. government securities. These securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on and redemption of (at C-11
0 _
e the earliest call date) the Series N and O bonds. As a result, the Series N and O bonds have been legally defeased, under the terms of the bonds, and the liability for these bonds has been removed from the Balance Sheet.
1 Although the advance refunding resulted in the recognition of an accounting loss under generally accepted accounting principles of $21.1 million for the year ended December 31,1987, ,
the District in effect reduced its aggregate debt service payments by $35.6 million over the next 30 years (at Series O interest rates fixed as of the refunding date) and obtained an economic gain (difference between the present values of the old and new debt service payments) of
$16.8 million.
The accounting loss resulting from the refending, as well as the gain or loss resulting from prior refundings, have been deferred pursuant to a Board of Directors' resolution for ratemak- r ing and accounting purposes to be recognized through amortization over the life of the applicable bond issued for purposes of the refundings.
NOTE 5. COMMERCIAL PAPER NOTES As of December 31,1987, $121.8 million of the District's commercial paper notes was outstanding at an effective interest rate of 6.77 percent. The approximate effective interest rate for the commercial paper notes sold during the 12 months ended December 31,1987, was 5.51 percent, the average commercial paper notes outstanding was $123 million and the average term was 18 days. The District's authority to issue commercial paper notes is limited by state law to approximately $345 million, based upon a percentage of outstanding long-term debt. The District's Board of Directors has set a limit on the use of this authority of $100 million. The Municipal Utility District Act provides an additional $25 million of short-term borrowing authority which is limited to the purchase of electricity. As of January 1,1988, this authority was increased to $75 million.
A letter of credit is maintained to support the sale of commercial paper notes. The District compensates the bank for the letter of credit by fee payments. There has not been a term advance under the letter of credit agreement.
NOTE 6. RANCHO SECO NUCLEAR POWER PLANT The Rancho Seco Nuclear Power Plant (Rancho Seco) is a 913 MW generating plant with the nuclear steam supply system designed by Babcock and Wilcox (B&W). Prior to 1985, Rancho Seco provided approximately 55 percent of the District's generating capacity and energy production and had operated at an average capacity factor of 50 percent as compared to an industry average of approximately 60 percent.
On December 26, 1985, a loss of power to the plant's integrated control system (ICS) resulted in a plant trip and subsequent rapid cooldown of the reactor coolant system and the reactor vessel. An NRC fact-finding team concluded the fundamental cause of this incident was design weaknesses in the ICS and the equipment it controlled that, while known to the District and the NRC, had not been adequately compensated for by corrective action.
Restart. The District decided not to attempt a restart of Rancho Seco until a comprehen-sive program (which looked beyond the specific causes of the December 1985 outage) of identifying and correcting the reasons for the deterioration in the performance of Rancho Seco and its staff was completed. The District developed a restart plan (the Restart Plan) which provided for a comprehensive review and upgrading of Rancho Seco's systems and equipment, its management systems and programs and its management and operating personnel.
On March 30,1988, Rancho Seco was restarted. The plant has been declared commercially operable and is currently operating a 92 percent power output level. The future of Rancho Seco is subject to the significant uncertainty presented by the Measure C Referendum discussed f below. In addition, the continued successful operation of Rancho Seco is also subject to C-12
uncertainties outside of the control of the District, including but not limited to the following:
unanticipated operational problems; equipment or systems failures at the plant; possible future shortages of operators and other personnel; the possible effects of incidents at other nuclear plants; or the failure of the District to satisfy the criteria of NRC, INPO and other independent appraisal teams in future inspections or evaluations of plant, operator or management performance.
The District believes that Rancho Seco should be operable in the future, as planned, unless it is required to be removed frou service by the Measure C Referendum discussed below.
Initiative and Referendum. In the statewide primary election held in June 1988, two measures relating to Hancho Seco were presented to the voters of the District (the Measure B
! Initiative and the Measure C Referendum). The Measure B Initiative would have, if enacted, required the permanent shut-down of Rancho Seco as a nuclear generating station. In response to the Measure B Initiative, the District adopted and placed un the June 7,1988 ballot the Measure C Referendum. The Measure C Referendum provided that Hancho Seco would be operated by the District for the duration of the current refueling cycle, a period of approxi-mately eighteen months. If performance fell below a minimum monthly capacity factor of 50 percent for four successive months after December 31,1988, then the plant would be perma-nently closed. To restart the plant thereafter, or to close the plant for other than not m 3eting minimum performance levels, would require a four-fifths vote of the District's Beard. In addition, the Referendum called for the District to use all due diligence to divest itself of Rancho Seco in the eighteen month period following the election.
At the June 1988 election, the Measure B Initiative was narrowly defeated and the Measure C Referendum was narrowly passed by the voters. The Measure C Referendum requires that the continued operation of Rancho Seco, after the eighteen month period, be re-ratified by the majority of the voters. The District expects to place the proposition of continuing operation of Rancho Seco afte the eighteen month period on the June 1989 regular election ballot.
Financial Impact of Rancho Seco. Rancho Seco represents a significant portion of the District's assets and generating capacity. At December 31,1987, the net book value of Rancho Seco was approximately $907 million, including $215 million of nuclear fuel. Plant costs including decommissioning are being amortized over 30 years. The most recent estimate of the total decommissioning cost of the plant is $218 million in 1988 dollars of which $42 million has been funded as of December 31,1987.
The continued operation of Rancho Seco is subject to the uncertainty of the requirements of the Measure C Referendum, and others, which are outside the control of the District and, accordingly, the District is unable to provide assurance as to if Rancho Seco will continue in operation. Realization of the District's investment in Rancho Seco and associated nuclear fuel and the adequacy of the provision of estimated future decommissioning costs are dependent upon future events. If significant portions of the investment in Rancho Seco are not recovered through successful operation of the plant, or the rate-making process, the adverse impact upon the District's customer's equity and future statements of income would be substantial NOTE 7. DISPUTED SURPLUS POWER SALES Background. In February 1986, citing the prolonged Rancho Seco outage as a basis for its action, PGandE requested modifications to the surplus power sales contract described in Note 1.
PGandE proposed to pay for capacity o?.ly on an as delivered basis until commercial reliability is established and to require the District to pay cash currently for interest on negative capacity and energy exchange account balances. PGandE stated it would withhold payment for undeliv-cred capacity and withheld payments aggregating $5.8 million for December 1985 and $29 mil-lion for the 12 months ended December 31,1986. The District believes that the position PGandE has taken is not in accord with the contract and on March 11,1986, initiated a proceeding before FERC to obtain a ruling that PGandE's action was improper. FERC ruled on December 30,1986 it C-13
e had jurisdiction over the dispute. The FERC hearing before an administrative law judge commenced on September 29,1987 and concluded on October 30,1987. In January 1988, before a decision was rendered, the administrative law judge resigned and a new judge was assigned to the case.
On April 4,1986, PGandE filed with the District a formal claim against the District for l $34.8 million plus interest. PGandE claims that the District wrongfully collected $27.5 million of capacity payments for the period January 1985 through November 1985, "because SMUD (the District) has failed over an extended time period, including 1985, to operate and maintain its Rancho Seco Nuclear Power Plant in a manner intended to reasonably ensure Rancho Seco's reliability and usability". The remaining $7.3 million represents amounts the District has offset PGandE billings to that date as discussed above. The District has formally rejected the PGandE claim. On April 23,1986, PGandE fded in the Superior Court a " complaint for declaratory relief on written contract" naming the District as defendant. PGandE seeks a judgment on matters relating to the operation of Rancho Seco and its impact on the surplus power sales contract. The Court has stayed the action pending the outcome of the FERC proceedings.
Surplus power sales for 1985,1986, and 1987 include billings to PGandE subject to the dispute described above of $33 million, $30 million, and $10.3 million, respectively. The District has recovered payments withheld by PGandE for 1985 and 1986 of $5.8 million and $29 million, respectively, by offsetting payments due to PGandE for power purchased by the District under the contract. Therefore, the District -has reflected the payable for power purchases as of December 31,1986 as the net amount due to PGandE.
The District and PGandE entered into an agreement dated July 6,1987 which provides that, effective January 1,1987 and until December 31,1987, the I)istrict will pay PGandE in full for all energy provided without offsets of any kind, and PGandE will deposit in an escrow account all amounts billed by the District for excess capacity under the terms of the contract.
PGandE Dispute Settlement. Based on a March 1988 Memorandum of Understanding, the District and PGandE adopted a Dispute Settlement Agreement on July 27, 1988 which was effective as of January 1,1988. The Dispute Settlement provides for settlement of all existing PGandE claims against the District related to Rancho Seco. In return for PGandE's abandonment of those claims and for other benefits that the District will receive under the agreements, among them PGandE's commitment to sell capacity to the District at favorable rates from 1990 through 1994, the District has released $8,565,000 held in escrow for PGandE capacity purchases, will pay $66,500,000 in five equal installments over four years, beginning August 1988, and forego
$4,061,000 in receivables for surplus capacity and energy sales.
The total cost of the settlement to the District is approximately $79,126,000. In recognition of future reduced capacity charges from a new power purchase agreement with PGandE, that resulted from the settlement, the Board of Directors has established that this cost will be recovered through rates over the life of the new power purchase agreement. Thus, the District has deferred the cost of the settlement in the Balance Sheet pending future rate recovery.
1988 Amendment. The District also adopted a 1988 Amendment to the existing PGandE Contract. The Amendment provides that the District is not required to return to PGandE any capacity which was borrowed as of January 1,1988. The Amendment further provides that the provisions of the energy exchange account are no longer applicable except for the return of energy borrowed, plus in kind interest, over the term of the 1988 Amendment, and the Power Sale Agreement. Future energy and capacity purchases by the District, after January 1,1988, must be paid for in cash.
Potential FJfect on the District. The Dispute Settlement Agreement provides that if it, the 1988 Contract Amendment and a new PGandE Power Sale Agreement are not approved by FERC before July 16,1991, then the District and PGandE shall be restored to their respective positions as of January 1,1988 as if the Dispute Settlement Agreement had never been executed. If the C-14
Dispute Settlement Agreement is treated as never having been executed, the disputes between PGandE and the District would, presumably, again become active.
The District's Board of Directors, which has authority to establish the level of rates charged for all District services, has established a rate-making balancing account for deferring material losses arising from adverse resolutions or settlements of claims and litigation that have not been previously considered in District rates. Under this balancing account mechanism, recognition of any loss resulting from the PGandE dispute would be deferred for rate-making purposes and recovered over a future period of time and, therefore, the ultimate outcome of the disputed surplus power sales will not have a material adverse impact on the District's financial position and results of operations.
NOTE 8. COMMITMENTS AND CONTINGENCIES Commitments. The District's capital expenditures (excluding allowance for funds used during construction) for 1988 through 1990 are estimated to be $652.7 million. Approximately
$232.2 million is for transmission and distribution projects, $261.9 million for nuclear plant modifications and repairs, $137.7 million for nuclear fuel and other construction, and $20.9 mil-lion for the development of the projects described in Note 3.
The District's first geothermal unit became commercially operational in December 1983.
Under its steam supply agreement, the District is obligated to pay a minimum of $6.6 million annually during the operating life of the plant subject to price level adjustments and, under a transmission service agreement, the District is also obligated to pay a nunimum of $1.1 million annually until 1990 for transmission of the energy to the District.
On June 10,1987 the District entered into a Power Entitlement Assignment Agreement with Pacific Power and Light which will make available 100 MW of firm capacity and associated energy from 1990 through 2014. In exchange for the firm capacity entitlement, the District was ob!igated to pay approximately $98 million on January 1,1988. The District had the option to defer this payment until December 31,1989 or, under certain conditions, to pay it in monthly installments over the term of the agreement. The District elected to defer payment and interest began accruing from January 1,1988 at the lesser of the prime interest rate or 9.5 percent.
Energy received under the agreement will be paid for as delivered and cannot exceed 657,000 megawatt-hours per year. The District has a minimum annual take-or-pay commitment for this energy of approximately $4 million beginning in 1990 through the term of the agreement.
In August 1988, based on the March 1988 Memorandum Of Understanding, the District and Southern California Edison (Edison) entered into a power sale agreement from the effective date of January 1,1990 through December 31,1999 for up to 700 MW of capacity and associated energy and for Edison to purchase from the District a portion of its surplus energy. The District is committed to purchase a m!nimum of 300 MW and has an option, which expires July 31,1989, to purchase up to an additional 400 MW of capacity. The District is responsible for arranging for transmission of all capacity and energy and if the District does not notify Edison of such arrangements by December 31,1988, then the Edison Power Sale Agreement is terminated. The Edison Power Sale Agreement is expected to be filed and approved by FERC in October 1988.
The minimum contract obligatian is estimated to be $180 million over the life of the contract.
In July 1988, the District and PGandE entered into a power sale agreement providing for the purchase by the District from PGandE, during the period January 1,1990 through December 31, 1999, of up to 1,000 MW of capacity and associated energy. The District is initially committed to purchase 600 MW and has the option, which expires on July 1,1989, to increase the commitment up to the full 1,000 MW. Add.tionally, the District has the option to reduce the commitment to 400 MW from January 1,1990 through December 31,1994 and to O MW thereafter, depending upon the date when Rancho Seco achieves Commercial Operation as defined in the Power Sale Agreement. The minimum contract obligation is estimated to be $148 million over the life of the contract.
C-15
4 e
Litigation. A $1 billion class action suit and two separate suits seeking damages of
$16.3 million were filed against the District alleging the District allowed excessive amounts of radioactivity in the liquid effluent discharges from the District's nuclear power plant, Rancho Seco, injuring the claimants and their land, crops, livestock and businesses. The two separate suits were settled in 1986 by the District's insurer. 'With regards to the class action suit, the Courts denied certification of the class. Unless the ruling is reversed, the plaintiffs can proceed only as a group of individuals with individual claims. o second class action claim in the amount of $500 million was filed alleging intentional misconduct and deceit in connection with such releases. An amended complaint combining the $500 million claim with the $1 billion suit was filed on February 10,1987.
Tests conducted by nationally recognized experts show that maximum exposure to any one individual in the Rancho Seco area is well below the rate allowed by the United States Environmental Protection Agency. The District believes that any liability on account of such discharges is limited to an amount covered by liability insurance and a federal government indemnity agreement and will not have a material adverse impact on the District's financial position and results of operations.
The District has been notified that scrapped distribution transformers which were sold by the District and disposed of by a dealer are suspected of containing polychlorinated biphenyls (PCB's) and responsible for contaminating the dealer's site. In April 1986, the California State Department of Ilealth Services (Department) issued a Determination of Imminent or Substantial Endangerment and Remedial Action / Director's Order (the Order) against the District and the Dealer. The Order requires that a remedial measure be developed and implemented at the site to contain contaminants during the rainy season. The Order further requires that the District and the dealer prepare, submit, and implement a remedial investigation (testing) plan for soils and groundwater to the Department. Testing has been completed and shows no groundwater contamination, however, soil testing results show that the extent and depth of contamination is greater then originally anticipated. The District has implemented an interim remedial measure and removed portions of the contaminated soil as well as a large quantity of transformers from the site.
The District recently completed a feasibility study which evaluated 13 possible soil remedies at the site, from passive containment to off-site incineration, with cost estimates ranging from $900,000 to $22.7 million. Once the feasibility study has been approved a remedial action plan will be submitted for approval. Until the remedial action plan is approved, the cost of remediation at the site remains uncertain. Based on estimates prepared by a consultant, the District believes that the total cost of compliance will be approximately $3 million which has been accrued as of June 30,1988. The District believes that compliance with the Order and final clean-up costs will not have a material adverse impact on the District's financial position and results of operation.
Nuclear Liability Insurance. The District's public liability for claims resulting from any nuclear incident was limited to $720 million, at December 31,1987, under provisions of the Price-Anderson Act ( Act). The coverage for this liability is provided by insurance, assessments and government indemnification under the Act. Under the terms of the Act, the District is subject to a retrospective assessment of up to $5 million per incident involving any licensed nuclear reactor in the United States. Total assessments payable in any one year are limited to
$10 million.
Congress has enacted an amendment to the Act. The amendment increased the public liability under the Act for claims arising from any nuclear incident to approximately $7 billion.
The District is subject to a retrospective assessmant of up to $63 n.illion per nuclear incident, with total assessments payable in any one year limited to approximately $10 million.
C-16
o O
APPENDIX D Law Offices ORRICK, HERRINGTON & SUTCLIFFE 555 Capitol Mall Sacramento, California 95814
[Date of Closing]
Sacramento Municipal Utility District Sacramento, California Sacramento Municipal Utility District Electric Revenue Refunding Bonds,1988 Series V (Final Opinion)
Ladies and Gentlemen:
We have served as bond counselin connection with the issuance of $161,905,000 principal amount of revenue bonds of Sacramento Municipal Utility District, a municipal utility district organized and existing under the laws of the State of California (herein called the " District").
Said bonds are designated the " Sacramento Municipal Utility District Electric Revenue Re-funding Bonds,1988 Series V" (herein called the " Series V Bonds"). The Series V Bonds are part of an issue (herein called the " Bonds") authorized to be issued under Resolution No. 6649 of the Board of Directors of the District, adopted January 7,1971 (herein called the " Master Resolution"), as supplemented and amended by later resolutions of said Board of Directors (as so supplemented and amended, herein called the " Resolution"), including Resolution No. 88 54, adopted October 27,1988 (herein called the " Twenty-Fourth Supplemental Resolution"),
and pursuant to the provisions of Chapter 6 of the Public Utilities Code of the State of California and Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California. The Series V Bonds are being issued for the purpose of refunding the District's Electric Revenue Bonds, Series T (herein called the " Series T Bonds") and Electric Revenue Bonds, Series U (herein called the " Series U Bonds").
In such connection, we have examined the form of the Series V Bonds, the Resolution, certificates of the District, the Trustee and others as to certain factual matters, and such other documents and matters deemed necessary by us to render the opinions set forth herein.
Certain requirements and procedures contained or referred to in the Resolution and other l relevant documents may be changed and certain actions may be taken or omitted, under the I
circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of nationally recognized bond counsel. No opinion is expressed herein as to any Series V Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of bond counsel other than ourselves.
The opinions expressed herein are based on an analysis of existing statutes, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities.
Such opinions may be affecte<1 by actions taken or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. We have assumed the genuineness of all documents and signatures. Also, in examining the documents and matters referred to in the second paragraph hereof, we have not undertaken to verify independently the accuracy of the factual matters represented, warranted or certified in such documents, and we have assumed compliance with the covenants and agreements contained in the Resolution including covenants and agreements compliance with which is necessary to assure that future actions or events will not cause interest on the D-1
Series V Bonds to be includable in gross incorne for federal income tax purposes. In addition, we call attention to the fact that the rights and obligations under the Resolution and the Series V Bonds are subject to bankruptcy, insolvency, reorgamzation, moratorium and other similar laws affecting creditors' rights, to the application of equitable principles and to the exercise of judicial discretion in appropriate cases.
Based on and subject to the foregoing and in reliance thereon, as of the date hereof, we are of the opinion that:
- 1. The Series V Bonds have been duly authorized and issued by the District in accordance with the laws of the State of California and in accordance with the Resolution and are valid, legal and binding obligations of the District, payable in accordance with their terms.
- 2. Principal of and interest on the Series V Bonds and all other Parity Bonds (as defined in the Resolution), including other series of the Bonds, are payable from and are secured by a lien on the Net Revenues of the Electric System (as those terms are defined in the Resolution), and such Net Revenues are pledged to the payment of principal of and interest on the Bonds and other Parity Bonds. The District is not obligated to pay the principal of or interest on the Bonds except from the Net Revenues, and neither the credit nor the taxing power of the District is pledged for the payment of the principal of or interest on the Bonds.
- 3. The Master Resolution has been duly and validly adopted and all supplemental resolutions thereto, including the Twenty-Fourth Supplemental Resolution, are permitted thereby and have been duly and validly adopted in accordance therewith, and the Resolu-tion is valid, legal and binding upon the District.
- 4. Interest on the Series V Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income tax. Interest on the Series V Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted net book income and adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding the other federal income tax consequences caused by the receipt or accrual of interest on the Series V Bonds.
- 5. The difference between the principal amount of each Series V Bond maturing on August 15,1997,1998,1999,2000,2003,2016 and 2018, and its initial offering price to the public (excluding bond houses and brokers) at which price a substantial amount of such obligations are sold will constitute original issue discount. The original issue discount on each Series V Bond, as it accrues daily on a yield to maturity basis from the date hereof to the date of maturity is excluded from gross income for federal income tax purposes and from State of California personal income taxes under existing statutes, regulations, rulings and court decisions.
Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE Per D-2
e e-Law Offices ORRICK, HERRINGTON & SUTCLIFFE 555 Capitol Mall Sacramento, California 95814
[Date of Closing]
Sacramento Municipal Utility District Sacramento, California Sacramento Municipal Utility District Electric Revenue Bonds,1988 Series W X (Final Opinion)
, S, ,
Ladies and Gentlemen:
We have served as bond counsel in connection with the issuance of $170,000,000 principal rmount of revenue bonds of Sacramento Municipal Utility District, a municipal utility district organized and existing under the laws of the State of California (herein called the " District").
Said bonds are designated the " Sacramento Municipal Utility District Electric Revenue Bonds, 1988 Series W" (herein called the " Series W Bonds"). The Series W Bonds are part of an issue (herein called the " Bonds") authorized to be issued under Resolution No. 6649 of the Board of Directers of the District, adopted January 7,1971 (herein called the " Master Resolution"), as supplemented and amended by later resolutions of said Board of Directors (as so supplemented and amended, herein called the " Resolution"), including Resolution No. 88-10-56, adopted October 27,1988 (herein called the " Twenty-Fifth Supplemental Resolution"), and pursuant to the prWisions of Chapter 6 of the Public Utilities Code of the State of California. The Series W Bonds are being issued for the purpose of financing a portion of the District's construction program.
In such connection, we have,exatik.d the form of the Series W Bonds, the Resolution, certificates of the District, the Trustee and others as w certain factual matters, and such pjpgr_ ~ j_
documents and matters deemed necessary by us to render uv opinions set hiYh7re'II Certain requirements and procedures contained or referred to in the Resolution and other
( _ relevant documents may be changed and certain actions may be taken or omitted, under the
- circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of nationally recognized bond counsel. No opinion is expressed herein as to any Series W Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of bond counsel other than ourselves.
The opinions expressed herein are based on an analysis of existing statutes, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities.
Such opinions may be affected by actions taken or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. We have assumed the genuineness of all documents and signatures. Also, in examining the documents and matters referred to in the second paragraph hereof, we have not undertaken to verify independently the accuracy of the factual matters represented, warranted or certified in such documents, and we have assumed compliance with the covenants and agreements contained in the Resolution including covenants and agreements compliance with which is necessary to assure that future actions or events will not cause interest on the Series W Bonds to be includable in gross income for federal income tax purposes. In addition, we call attention to the fact that the rights and obligations under the Resolution and the Series W Bonds are subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws ' '
affecting creditors' rights, to the application of equitable principles and to the exercise of judicial discretion in appropriate cases.
D-3
4 Based on and subject to the foregoing and in reliance thereon, as of the date hereof, we are of the opinion that:
- 1. The Series W Bonds have been duly authorized and issued by the District in accordance with the laws of the State of California and in accordance with the Resolution and are valid, legal and binding obligations of the District, payable in accordance with their terms.
- 2. Principal of and interest on the Series W Bonds and all other Parity Bonds (as defined in the Resolution), including other series of the Bonds, are payable from and are secured by a lien on the Net Revenues of the Electric System (as those terms are defined in the Resolution), and such Net Revenues are pledged to the payment of principal of and interest on the Bonds and other Parity Bonds. The District is not obligated to pay the ',r-principal of or interest on the Bonds except from the Net Revenues, and neither the credit nor the taxing power of the District is pledged for the payment of the principal of or interest '7 on the Bonds.
- 3. The Master Resolution has been duly and validly adopted and all supplemep.td1 resolutions thereto, including the Twenty-Fifth Supplemental Resolution, are permitted thereby and have been duly and validly adopted in accordance therewith, and the Rdsolu-tion is valid, legal and binding upon the District. ,
- 4. Interest on the Series W Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income tax. Interest on the Series W Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted net book income and adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding the other federal income tax consequences caused by the receipt or accrual of interest on the Series W Bonds.
% . - A J._,T,he difference between the prmcipal amount of each Series W Bond maturing on August 16l 1637,1999,1999,3)00, 2003,2016 and 2018, and its initial offering price to the public (excluding bond houses and brokers) at which price a substantial amount of such obligations are sold will constitute original issue discount. The original issue discount on each Series W Bond, as it accrues daily on a yield to maturity basis from the date hereof to the date of maturity is excluded from gross income for federal income tax purposes and from State of California personal income taxes under existing statutes, regulations, rulings and court decisions.
Faithfully yours, ORRICK, IIERRINGTON & SUTCLIFFE Per D-4
APPENDIX E THE RANCHO SECO UTILIZATION ORDINANCE WHEllEAS the Sacramento community has benefited from power generated by the Rancho Seco Nuclear Generating Station for the past fourteen (14) years, WHEREAS in recent years modifications that have been made to the Rancho Seco Nuclear Generating Station amount to over four hundred million dollars, thus enhancing its usefulness for the Sacramento Municipal Utility District, WHEREAS the ascent to power under Sacramento Municipal Utility District management and the careful surveillance with approval of the Nuclear Regulatory Commission indicate that the Rancho Seco Nuclear Generating Station can be operated safely, WHEREAS the production of efficient and economic energy is vital to the future well being of the community and to insuring adequate jobs and homes in the 1990s, Be it enacted and ordained by the Board of Directors of the Sacramento Municipal Utility District:
The Sacramento Municipal Utility District shall operate the Rancho Seco Nuclear Generating Station for the duration of the current refueling cycle, a period of approximately 18 months, with the following conditions:
- 1. All due diligence will be exercised in the eighteen (18) month time frame to divest the Sacramento Municipal Utility District of the Rancho Seco Nuclear Generating Station to a holding company or other legal entity which would assume responsibility for the operation and licensing of the generating station.
- 2. The Sacramento Municipal Utility District must strive to achieve an annual performance goal of seventy percent (70%) capacity factor in the operation of the Rancho Seco Nuclear Generating Station beginning with the month that the plant achieves full power, and, if at any time after December 31,1988, the performance level falls below a fifty percent (50%) monthly capacity factor for four successive months, then the plant will be permanently closed unless the Sacramento Municipal Utility District Board of Directors determines by a four-fifths vote that contmued operation is in the best economic interest of the District.
- 3. The Rancho Seco Nuclear Generating Station shall not be closed prior to its first refueling, except as provided in the preceding paragraph, unless (a) the Nuclear Regulatory Commission orders such closure on the ground that its continued operation places the public health or safety at risk, or (b) the Sacramento Municipal Utility District Board of Directors determines by a four-fifths vote that continued operation is not in the best economic interest of the District.
- 4. Nothing in this ordinance shall preclude the Sacramento Municipal Utility District from operating the Rancho Seco Nuclear Generating Station by other than nuclear fuel.
- 5. If any provision of this ordinance or the application thereof is held invalid, that invalidity shall not affect the other provisions or applications of the ordinance which can be given effect without the invalid provision or application, and, to this end, the provisions of this ordinance are severable.
- 6. Evaluation of the Rancho Seco Nuclear Generating Station performance will be conducted in a full scale public hearing at six month intervals by an outside, indepen-dent, quallfled consultant, reporting to the Board, and the proposition of continued operation of Rancho Seco after eighteen (18) months must be re-ratified by a majority of those voting at a general or special election called for that purpose.
This ordinance will be entitled "The Rancho Seco Utilization Ordinance"
s %
APPENDIX E THE RANCHO SECO UTILIZATION ORDINANCE WHEREAS the Sacramento community has benefited from power generated by the Rancho Seco Nuclear Generating Station for the past fourteen (14) years, WHEREAS in recent years modifications that have been made to the Rancho Seco Nuclear Generating Station amount to over four hundred million dollars, thus enhancing its usefulness for the Sacramento Municipal Utility District, WHEREAS the ascent to power under Sacramento Municipal Utility District management and the careful surveillance with approval of the Nuclear Regulatory Commission indicate that the Rancho Seco Nuclear Generating Station can be operated safely, WHEREAS the production of efficient and economic energy is vital to the future well-being of the community and to insuring adequate jobs and homes in the 1990s, Be it enacted and ordained by the Board of Directors of the Sacramento Municipal Utility District:
The Sacramento Municipal Utility District shall operate the Rancho Seco Nuclear Generating Station for the duration of the current refueling cycle, a period of approximately 18 months, with the following conditions:
- 1. All due diligence will be exercised in the eighteen (18) month time frame to divest the Sacramento Municipal Utility District of the Rancho Seco Nuclear Generating Station to a holding company oc other legal entity which would assume responsibility for the operation and licensing of the generating station.
- 2. The Sacramento Municipal Utility District must strive to achieve an annual performance goal of seventy percent (70%) capacity factor in the operation of the Rancho Seco Nuclear Generating Station beginning with the month that the plant achieves full power, and, if at any time after December 31,1988, the performance level falls below a fifty percent (50%) monthly capacity factor for four successive months, then the plant will be permanently closed unless the Sacramento Municipal Utility Listrict Board of Directors determines by a four-fifths vote that continued operation is in the best economic interest of the District.
- 3. The Rancho Seco Nuclear Generating Station shall not be closed prior to its first refueling, except as provided in the preceding paragraph, unless (a) the Nuclear Regulatory Commission orders such closure on the ground that its continued operation places the public health or safety at risk, or (b) the Sacramento Municipal Utility District Board of Directors determines by a four-fifths vote that continued operation is not in the best economic interest of the District.
- 4. Nothing in this ordinance shall preclude the Sacramento Municipal Utility District from operating the Rancho Seco Nuclear Generating Station by other than nuclear fuel.
G. If any provision of this ordinance or the application thereof is held invalid, that invalidity shall not affect the other provisions or applications of the ordinance which can be given effect without the invalid provision or application, and, to this end, the provisions of this ordinance are severable.
- 6. Evaluation of the Rancho Seco Nuclear Generating Station performance will be conducted in a full scale public hearing at six month intervals by an outside, indepen-dent, qualifled consultant, reporting to the Board, and the proposition of continued operation of Rancho Seco after eighteen (18) months must be re-ratified by a majority of those voting at a general or special election called for that purpose.
This ordinance will be entitled "The Rancho Seco Utilization Ordinance"
_ _ _ -