ML20247D327
| ML20247D327 | |
| Person / Time | |
|---|---|
| Site: | Rancho Seco |
| Issue date: | 03/22/1989 |
| From: | Gaebler W SACRAMENTO MUNICIPAL UTILITY DISTRICT |
| To: | Office of Nuclear Reactor Regulation |
| References | |
| AGMF-89-33, NUDOCS 8903310046 | |
| Download: ML20247D327 (21) | |
Text
v gOMUD SACRAMENTO MUNICIPAL UTILITY DISTRICT C P. o. Box 15830, Sacrame .to CA 95852 1830,(916) 452 3211 AN ELECTRIC SYSTEM SERVING THE HEART OF CALIFORNIA AGMF 89-33 March 22, 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 l PRICE ANDERSON ACT RETROSPECTIVE PREMIUM SYSTEM
- LETTER OF GUARANTEE To follow up on our letter of guarantee (GM 89-120) dated February 24, 1989, please find enclosed our audited financial report entitled " Financial Statements as of December 31, 1988 and Auditors' Report".
Members of your staff with questions regarding this document may contact Mr. Richard Vorpe at (916) 732-5259.
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.. G(t b h, }
Walter Gaebler II Chief Financial Officer Enclosure cc w/ encl: J. B. Martin, NRC, Walnut Creek A. D'Angelo, NRC, Rancho Seco i
L' 8903310046 890322 PDR ADOCK0500g2 1
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i DISTRICT HEADQUARTERS O 6201 S Street, Sacramento CA 958'17-1899 f
I FINANCIAL STATEMENTS AS OF R DECEMBER 31,1988 AND I AUDITORS' REPORT I
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I e .c m m m o m ict I
Avrnun ANDERSEN & CO.
SAcn AMimTo, CAUFOIMI A l
1 Report of Independent Public Accountants i 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, 1988 and 1987, and the related statements of income and cash flows for each of
) the three years in the period ended December 31, 1988. These financial state-ments are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audits.
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We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain i
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also 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, 1988 and 1987, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1988, in conformity with generally accepted accounting principles.
l As more fully discussed in Note 6, the status of future operations of the l District's nuclear power plant (Rancho Seco) is subject to the significant uncertainty presented by the Measure C Referendum and the related proposition on the June 1989 ballot. The Measure C Referendum requires the District to use all due diligence to divest itself of Rancho Seco, close Rancho Seco if cet tain per-formance levels are not achieved, and have the proposition of continued operation
, of Rancho Seco be re-ratified by a majority of the voters. The District has l placed the proposition required by the Measure C Referendum on the June 1989 regular election ballot. 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 customers' equity and future statements of income would be substantial.
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Sacramento, California March 7, 1989 s
SACRAMENTO MUNICIPAL UTILITY DISTRICT BALANCE SHEETS ASSETS December 31.
12B. ~ 12.62 i (thousands of dollars).
ELECTRIC UTILITY PLANT Plant in service, at original cost . . . . . . . . . . . ............ $ 1,981,372 $ 1,692,292 Less - accumulated depreciation . . . . . . . . . . . ..... ...... 471.049 415.510 1,510,323 1,276,782 j Plant in service - net . .............. ..........
Construction work in progress . . . . . . . . . . . . . . . . . . . . . . . 195,892 272,152 Investment in joint power agencies (Note 3) . . ........... 52,463 133,155 Nucicar fuel, at amortized cost (Note 1) . . . . . . . . . . . . . . . . . 207.006 214.720 Total electric utility plant - net ............. .... 1.965.684 1.896.80.9.
RESTRICTED FUNDS Revenue bond reserve funds . ........................ 115,450 109,423 Nuclear decommbsioning fund (Note 1) . ............. 54,190 42,054 Funds for jointly owned projects under construction (Note 3) 24.683 Total restricted f unds . . . . . . . . . . . . . . . . . . . . . . . . . 169.640 176.160 CURRENT ASSETS Cash and investments Unrestricted . . ...... ....... ................... 258,154 157,506 Restricted for payment of debt service . . . . . . . . . . . . . . . 39,057 36,809 Designated for deferred compensation benefits (Note 1) . 14,989, 12,935 Accounts receivable, net f Billed customer revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 39,993 37,735 t Unbilled customer revenues (Note 1) . ............... 31,311 Sale of surplus power (Note 7) . . . . . . . . . . . . . . . . . . . . . . 12,114 Other .. ..................................... .. 8,205 6,424 Deferred power supply costs to be recovered within one year (Note 1) . . . . . . . . . . . ......................... 54,999 37,111 1 Materials and supplies, at average cost .................. 38,358 32,014 Accrued interest . . . . . . . . . . . . . . . . . ................... 6,540 6,477 Prepayments . . . .................................... 10.677 5.005 Total current assets . . . . . . . . . . . . . . ....... . .. 502.283 344.130 NONCURRENT ASSETS AND DEFERRED CHARGES Advance capacity payments (Notes 7 and 8) . . . . . . . . . . . . . . 186,271 -0 Unamortized loss on refunding (Note 4) . . . . . . . . . . . . . . . . . 54,472 41,308 Unamortized debt expense . . . . . . . . . . . . . . . . . . . . ....... 24,438 23,931 Noncurrent deferred power supply costs (Note 1) ...... . 0- 30,559 Other............ ... ............................. 9.732 8.798 Total noncurrent assets and deferred charges . . . . .. 274.913 104.596 j Total assets . . ..... .. .. .... . ..... 52.912.520 S2.521.695 The accompanying notes are an integral part of these financial statements.
y SACRAMENTO MUNICIPAL UTILITY DISTRICT l BALANCE SHEETS CAPITALIZATION AND LIABILITIES December 31.
12.G .lMZ (thousands of dollars)
CAPITALIZATION Customers' equity employed in the business Bala nce, beginr in g of yea r . . . . . . . . . . . . . . . . . . . . . . . . . S 665,749 5 655,206-Net income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.501 10.543 Total customers' equity . . . . . . . . . . . . . . . . . . . . . . . . . 671,250 _ 665,749 Long term debt (Note 4) .............................. 1.531.999 1.365.931 Total capitalization ............................ 2.203.249 2.031.680
)
CURRENT LIABILITIES Commercial paper notes (Note 5) . . . . . . ................ 195,086 121,800 A ccou n ts pa ya ble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,313 84,615 Payable for power purchases (Note 7) . . . . . . . . . . . . . ..... 6,701 16,341 Long term debt due within one year (Note 4) . . .......... 13,211 12,918 Accr ued in te rest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,464 23,294 C usto me r de posits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 11,792 10,745 Accrued salaries and vacation ....... ................. 13,583 12,554 Energy and capacity exchange account (Note 1) . . . . . . . . . . . 21,803 32,015 Advance capacity obligations (Note 7) . . . . . . . ...... .... 13.300 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 375.253 314.282 l
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I NONCURRENT LIABILITIES AND DEFERRED CREDITS Advance capacity obligations (Notes 7 and 8) . . . . . . . . . . . . . 147,044 Unamortized gain on refunding (Notes 1 and 4) . . . . . . . . . . . 101,522 106,073 Decommissioning accrual (Note 1) . . . . . . . . . . . . . . . . . . . . . . 54,190 42,054 ~ ,
Energy exchange account (Note 1) . . . . . . . . . . . . . . . . .... 7,479 5,126 l Deferred compensation benefits (Note 1) . .............. 14,989 12.935 .i Other ............................... ......... .. 8.794 9.545 f Total noncurrent liabilities and deferred credits . . . . 334.018 175.733 i
COMMITMENTS AND CONTINGENCIES (Notes 6,7 and 8) i Total capitalization and liabilities . . . . . . . . . . . . 52.912.520 $ 2.521.695
SACRAMENTO MUNICIPAL UTILITY DISTRICT ,
STATEMENTS OF INCOME Year Ended December 31. I 12.63. 123.1 1216.
(thousands of dollars)
OPERATING REVENUES Residential . ................................... S285,363 5234,438 S185,888 Commercial a. .dustrial . . . . . . . ................... 282,916- 234,655 ~ 177,335 Sales of surplus swer (Notes 1 and 7) . .. . . . . . . . . . . . . . . . 7,991 26,475 34,697 Other ....... ....... ............................ 6.860 17.667 15.015 i Total operating revenues ....................... 583.130 513.235 412.935 OPEl ATING EXPENSES Operation Purchased and interchanged power (Note 1) . . . . . . . . . 153,814 208,309 155,431 Power supply costs - over/(under) recovery - net (Note 1 ) . . . . . . . . . . . . . .................. ...... 12,671 (42,670) (25,000)
Nuclear f uel used for generation . . . . . . . . . . . . . . . . .. . . 21,692 100 Production ................... ................. 105,303 89,787 72,895 Administrative and general and other . . . . . . . . . . . . . . . 71,066 66,844 59,677 Maintenance . . . ................. ........ ........ 61,650 70,223 53,173 Depreciation (Note 1) . . . . . . . . . . . . . . . . . . . . . ........ 59,545 50,567 46,166 Decommissioning (Note 1) . . . . . . . . . . . . . . . . . . . ....... 12.255 3.705 5.061 Total operating expenses ....................... 497.996 446.765 367.503 O pe ra tin g in co me . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,134 66,470 45.62 r
l OTIIER INCOME Interest income and other (Note 1) .................... 25,682 27,710 19,350 Allowance for equity funds used during construction (Note 1).......................................... 7.893- 8.116 11.185 Income before interest charges .................. 118.709 102.296 75.967
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INTEREST CIIARGES j Interest on debt ............... ........ ........... 124,689 105,665 88,025 i Allowance for borrowed funds used during construction I (Note 1).......................................... (11.481) (13.912) (8.395)
Net interest charges ........................... I13.208 91.75}. 79.630 l
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... S 5.501 S 10.543 S (3.663) 1 a
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The accompanying notes are an integral part of these financial statements, l
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' S ACRAMENTO MUNICIPAL UTILITY DISTRICT
. STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents
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Year Ended December 31.
1211 '1211 .12.8.ft (thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES Net income ....................................... S 5,501 5 10,543 $ (3,663)-
Adjustments to reconcile net income to net cash provided l by operating activities: . .
I De p r e cia tio n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N 59,545 50,4 7- 46,166-Decommissioning and amortization of n u c le a r f u el . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,044- 3,705 ~ 5,061 Energy bank drawdowns (repayments) . . . . . . . . . . . . . . '(7,859) . 4,848 5,826-PSCR recovery (deferral) . . . . . . . . . . . . . . . . . . . . . . . . . 12,671 ,(42,670) L(25,000)'
Allowance for equity funds used during construction . . (7,893) (8,116) (11,185)
Other, net . . . . . . . . . ' . . . ........................ 3,760 4,790 15,840
! Purchase of advance car 6 'Y ...................... (25,925) 1 Change in operating ass 4 .nd liabilities:
Accou nts receiva ble . . . . . . . . . . . . . . . . . . . . . . . . . . (23,236) (25,654) 3,688 Accou n ts pa ya ble . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,518) (6,153) 23,827 Other working ca pital . . . . . . . . . . . . . . . . . . . . . . . . (727)' (553) (3.642)
Net cash provided by operations . . . . . . . . . . . . . 23.363 (8.693) 46.018 l
CASH FLOWS FROM INVESTING ACTIVITIES .
Construction expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . (144,720) (263,575) '(193,567)
Cost o f n uclea r f u el . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,075) (3,694) (13,502)
Purchases of lang t:rm investments .................. (552,432). (607,860) (453,346)
Proceeds of Ic.ng term investments . ................. 529,843 ' 567,737 501,643 O t h e r, n e t . . . . . . . . . . . . . . . . . . . . . ................... 6,219 7,743 4,448 Non-cash adjustments to investing activities: ;
Accounts payable and other accruals . . . . . . . . . . . . . . . . (3,530) 17,694 9,998 <
Allowaner, for equity funds used during construction . . 7.893 8.116 11.185 i Net cash used in investing activities ........ (167.802) (273.839) .0 33.141) i CASH FLOWS FROM FINANCING ACTIVITIES :'
Proceeds from bond issues . . . . . . . . . . . . . . . . . . . . . . . .. 324,984 546,207 146,850 Repayment and ref unding of bonds . . . . . . . . . . . . . . . . . . . (176,313)-- (238,632) (5,905)
Proceeds (repayment) of commercial paper . . . . . . . . . . . . . 73,286 (3,200) . 25,000 i Other, net....................................... . (1.676) (1.188) (1.211)
Net cash provided by financing activities . . . . . 220.281 303.187 164.734 f !
Net increase /(decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . .... ............. 75,842 20,655 78,511 Cash and cash equivalents at the be gi n n in g o f t he yea r . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . 136.188 115.533 37.022 Cash and cash equivalents at the f end of the year . . . . . . . . . . . . .................... ... S 212.030 S 136.188 5 115.533 The accompanying notes are an integral part of these financini statements.
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I SACRAMENTO MUNICIPAL UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS NOTE 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Organization and Exemption from income am: Property Taxes. The Sacramento Municipal 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
- axing power of all California public agencies. The District is exempt from paymcht of federal and state income taxes and real and personal property taxes.
Method of Accounting. The accountine r~rds of the District are maintained in accordance with generally accepted accounting principles for rate-regulated enterprises, as prescribed by the Financial Accounting Standard.1 Board (FASB) and, where applicable, the Governmental Accounting Standards Board (GASB), and m.erally follow the Uniform System of Accounts for Public Utilities and L.ansees prescribed by the Federal Energy Regulatory Commission (FERC). The District's scWnting records are maintained on a comparable basis with investor-owned electric utilities operating in California.
l 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 Californie statutes. All securities are held by the District's agent in its name. A summary of the District's investments at December 31,1988 and 1987 is showa below.
December 31.
(thousands of dollars)
U.S. Govern me n t Secu rities . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138,113 S 47,022 Co m mercial Pa pe r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,554 4,977 Bankers' Acceptances . . . . . .......................... 234,337 278,075 Local Agency Investment Fund . . . . . . . . . . . . . . . . . . . . . . . . 54.814 54.000 S472.818 5384.074 Total investments are composed of the following:
Un res t ricted f u nds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5258,154 S157,506 Funds restricted for payment of debt service . . . . . . . . . . . . 39,057 36,809 Revenue bond reserve f unds . . . . . . . . . . . . . . . . . . . . . . . . . . 115,450 109,423 Nuclear decommissioning fund . . . . . . . . . . . . . . . . . . . . . . . . 54,190 42,054 Funds for jointly owned projects under construction . . . . . . 24,683 Checks issued but unpaid ........... ........... .... 6,186 13,934 L e ss-ca s h o n h a n d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (219) (335)
S472.818 538A074 Cash and Cash Equivalents. For purposes of the statements of cash flows, cash equis alents include all debt instruments purchased with a maturity of three months or less and all investments in the Local Agency Investment Fund. For the years ended December 31,1988,1987 and 1986 the investments considered cash equivalents were S203.0 million, S136.9 million and $132.3 million,
I respectively.
Rate 4 faking 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 balancing account to remove the effect on the results of operations of fluctuations in net power supply costs (purchased and interchanged power, nuclear fuel and 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 (PSCR) balancing account and will be reflected in future rates. The unrecovered deferred power supply costs to be reflected in future rates at December 31,1988 were 555.0 million.
The Board of Directors has also established a rate-making account for deferral of material losses, j arising from adverse resolutions or settlements of claims and litigation, not previously considered in District rates (See Note 7).
l Surplus Power Transactions. Prior to 1988, under the terms of the Integration Contract with Pacific Gas and Electric Company (PG&E) that expires December 31,1989, any capacity and energy which was not required to serve District load was sold to PG&E. The contract also established an energy exchange account from which the District could withdraw energy, within certain limits, when needed to meet District load Energy which was withdra m from the energy exchange account was recorded as purchased power and energy deposited in the bank was recorded as surplus power sales.
Since 1986, the District has exceeded the limits placed on the energy exchange account and has paid for all energy received from PG&E.
As of January 1988, under the terms of the 1988 Amendment and the Dispute Settlement Agreement with PG&E (see Note 7), the District may no longer withdraw energy from the energy exchange account and must pay for all energy and certain capacity in cash. District surplus energy will be applied against the balance of the energy exchange account, which was an obligation to PG&E of 1,627 GWh as of December 31,1988 valuert at approximately 529.3 million. Repayment of this obligation is recorded as surplus power sales. During 1989, all surplus power must be used to reduce the energy bank obligation or sold to PG&E. Af ter 1989, the District may sell surplus energy to PG&E and other utilities whether or not the balance has been repaid. If the District has not returned the energy within ten years of the termination of the Integration Contract with PG&E, then the District must pay for any remaining balance at rates specified in the Dispute Settlement Agreement. Energy exchange account liabilities are valued at the production cost of the future generation which is planned to return the obligation.
Depreciation. The District provides for depreciation on the historical cost of electric properties oa a straight-line, service-life basis at rates determined by engineering studies. The average annual I composite depreciation rates for the years ended December 31,1988,1987 and 1986 were 3.64 percent, 3.34 percent and 3.35 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 plant.
Plant modifications that do not meet the criteria for capitalization are also charged to expense.
Decommissioning. The District maintains a fund restricted by the Board of Directort to provide I for eventual payment of decommissioning costs. Fund management is currently under District control.
The Distnct's policy is to make .:velized 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 District conducted a study, performed by on independent specialist, to estimate the cost of decommissioning the Rancho Seco Nuclear Power Plant (Rancho Seco). This . idy resulted in an I- estimated cost of $218 millior, in 1988 dollars and is the basis for the current provision for decommissioning. The study assumes that decommissioning will occur af:cr the expiration of the plant's operating license in 2008 and that the dismantling / removal method will be used, in June 1988, the Nuclear Regulatory Commission (NRC) issued Final Rules governing certain aspects of decommission 1g funding plans. As a result of these Final Rules, the District will be I
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required to place its funds with an outside trustee within two years and will be required to adopt -
certain other changes regarding escalation ano earnings assumptions.
Nuclear Fuel. The District amoctizes 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 nachar 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 af ter April 7,19? ?. The District records this charge as a current period expense.
Allowance for 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 ended 1988,1987 and 1986 amounted to approximately 7.7 percent, 7.3 percent and 7.5 percent, j respectively, of eligible plant und:r construction, nuclear fuel, and participation in jointly owned projects under construction. AFUDC capitalized during 1988,1987 and 1986 relating to Rancho Seco was approximately $11.3 million,512.7 million and S13.2 million, respectively.
Deferred Compensation Plan. The District offers its employees a deferred compensation pir.n 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.
Unbilled Revenues. In accordance with a 1988 rate resolution, the District began recording an -
estimate for unbilled revenues earned from the dater the customers were last billed. The accrual at December 31,1988 for unbilled revenues was 53i.3 million. The change is concurrent with the change in the revenue recognition method for rate making purposes, therefore, the increase in revenues had ;
I no material effect on net income.
Accounting Gains / Losses on Bond Refundings. The gains or losses from bond refundings have been deferred pursuant to Board of Directors' resolutions for rate making and accounting purposes, and are recognized through amortization over the life of the applicable bonds issued for purposes of the refundings.
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 retir..:nent system that acts as a common investment and l administrative agent for participating state and local governmental entities in California. The I District's payroll for employees covered by PERS for the year ended December 31,1988 was $99.4 million; the District's total payroll for the same period was $113.4 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
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j 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 employment.
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 af ter age 63. PERS also provides death and disability benefits
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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 step-rate benefits, .
l crtimated to be payable in the future as a result of employee service to date. The measure is intendc 1 to help users assess, on a going-concern basis, the funding status of PERS, assess progress made in accumulating sufficient assets to pay benefits when due, and make comparisons among employers. !
The measure is the actuarial present value of credited projected benefits and is independent of the funding method used to determine contributions to PERS.
The pension benefit obligation was computed as part of an actuarial valuation performed as of June 30,1987 (the most recent actuarial valuation). Significant actuarial assumptions used in the ;
valuation include (a) a rate of return on W investment of present and future assets of 8.5 percent compounded annually (b) projected salary incresses of 5 percent per year compounded annually attributable to inflation,(c) additional salary increases of 2 percent per year compounded annually attributable to merit and general salary increases, and (d) post retirement benefits increases of up to 5 percent per year compounded annually.
The total unfunded pension benefit obligation applicable to the District's employees was $37.1 million at June 30,1987 as follows (in millions): i Pension benefit obligation:
Retirees and beneficiaries currently receiving .
benefits and terminated employees not yet (
receivi n g be n e fits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5102.1 Current employees:
Accumulated employee contributions including allocated investment earnings . . . . . . . . . . . . . . . . . . . . . . . 50.3 i
Employer financed vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92.5 Employer financed non vested . . . . . . . . . . . . . . . . . . . . . . . . . . _ 4 2.
l Total pension bene fit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . 249.1 l Net assets available for benefits - at cost ..................
(market value = $265.4 million) . . . . . . . . . . . . . . . . . . . . . . . . . 212.0 Unfunded pension benefit obligation ................ },J.7J, l
PERS uses the Entry Age Normal Actuarial Cost Method which is a projected benefit cost method. That is,it takes into account those benefits that are expected to be earned in the future as well as those already accrued.
According to this cost method, the normal cost for an employee is the level amount which would fund the projected benefit if it were paid annually from date of employment until retirement. PERS j uses a modification of the Entry Age Cost Method in which the employer's total normal cost is expressed as a level percentage of payroll. PERS also uses the level percentage of payroll method to amortize any unfunded actuarial liabilities. The amortization period of the unfunded actuarial liability ends on June 30,2000.
The significant actuarial assumptions used to compute the actuarially determined contribution requirement are the same os those used to compute the Pension Benefit Obligation as described j above.
j The contribution to PERS for the plan year ended June 30,1988 of $18.1 million was made in accordance with actuarialis determined requirements computed through the actuarial valuation j performed as of June 30,1987. The contribution consisted of (a) 58.2 million normal cost (8.4 percent of current covered payroll) and (b) 56.6 million amortization 6 the unfunded actuarial liability (6.8 percent of current covered payroll). The District contributed 214.8 million (15.2 percent of current
covered payroll) and employees contributed $3.3 million (3.3 percent of current covered payroll).
Trend information gives an indication of the progress made in accumulating sufficient assets i to pay benefits when due. Systemwide ten-year trend information may be found in the California (
Public Employees' Retirement System Annual Reports. For the year ended June 30,1987, available l assets were sufficient to fund 85.1 percent of the pension benefit obligation. Unfunded pension i benefit obligation represents 38.1 percent of the annual payroll for employees covered by the PERS l for the plan year ended June 30,1988. I NOTE 3. PARTICIPATION IN JOINTLY OWNED PROJECTS Central California Power Agency No.1. In 1982, the District and two other northern California public agencies (City of Santa Clara and Modesto irrigation District) 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, provided additional funds toward steam field exploration and development costs for approved acreage, 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 r. minimum of, or otherwise make payment for,50 percent of the annual steam requirement. The District's investment under the series of agreements for steam field exploration and development, including AFUDC, is $52.3 million.
CCPA No. I has constructed and is responsible for operating a two-unit generating plant, Coldwater Creek Geothermal Power Plant (CCGPP). The District has been designated project manager for the construction and operation of both units. Unit No. I was declared commercially operable on June 1,1988 and Unit No. 2 was declared commercially operable on July 18, 1988. The District's owne: ship interest in the jointly owned facilities as of December 31,1988 is as follows:
l CCGPP Units No.1&2 (thousands of dollars)
Plant in service (District share) $93,730 Less - accumulated depreciation 1.514
! 592.216 1988 Operating Expenses (District share) $5,921 Plant Capacity - MW 130 District's Share 50% l l
1 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 or pay for all of the power from the plant. The members of CCPA No. I have agreed to run both units at rated output for the first year of operations to test the limits for equipment warranties and to test the steam deliverability of the geothermal reservoir, j Transmission Agency of Northern California. In 1984 the District and fourteen other California I 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.!! percent of the estimated $425 million cost of the project for 1
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I 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. The District anticipates that TANC will finance its share of the California / Oregon Transmission Project, although the District will have ultimate j responsibility for the cost.
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I NOTE 4. LONG-TERM DEBT Long term debt outstanding at Decumber 31,1988 and 1987 was as follows:
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Revenue Bonds Electric Revenue Bonds, 4 3/4%-8 5/8%, 1989-2018 .......... $ 1,063,725 5 743,270 Taxable Electric Revenue Bonds, 10 9/10 %-11 3/8 %, 1993-1997 . 150,000 Subordinated Electric Revenue Bonds, 7 1/2%-9%, 1993-2010 ... 491.495 491.495 Total Revenue Bonds . . . . . . . . . . .......... . ... 1,555,220 1,384,765 l 3,007 3,960 General Obligation Bonds, 2 %-4 3/4 %, 1989-1992 . .............
South Sutter Water District, Hydroelectric Revenue Bonds, 10 9/10%-11 3/4%,19 8 9-2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,310 15,765 Purchase Agreement, 3 3/4%,1989 2000 . . . . . . . . . . ......... .. 924 984 Total long-term debt outstanding . . . . . . . . . . . . . . . . . . 1,574,461 1,405,474 Less - Amount due within one year ........... ............ . 13,211 12,918 Bond Discount Electric Reve nue Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,413 19,363 Subordinated Electric Revenue Bonds . . . . . . . . . .. ..... 6.838 _
7.262 i Total long-term debt . . . . . . . . . . . . . . . . . . . . . ...... $ 1.5 31.999 $ 1.365.931 Annual debt maturities for 1989 through 1993 are S13.2 million, $16.3 million, $19.. million,
$19.8 million and $22.8 million, respectively.
South Sutter Water District. Hydroelectric 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 l 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 projuct have been capitalized, effective in February 1985 when the project became operational. The bonds mature serially through 2002. The District is obligated for annual debt service payments of approximately $2.3 million without regard for the level of operation of the project. Amounts j expended under this agreement have been reported as purchased power expense.
l 1988 Refunding Bonds. On November 2,1983, the District issued $161.9 million of its Electric Revenue Bonds, Series V, with an average interest rate of 7.75 percent, to refund $150 million of outstanding taxable Electric Revenue Bonds, Series T and U, with average interest rates of 10.9 percent and 11.38 percent, respectively. The net proceeds of $157.7 million (af ter payment of $2.2 million in underwriting fees and other issuance costs, and after deducting the $2.0 million original j issue discount), plus an additional 59.3 million of Electric Revenue Bond Reserve Fund and Sinking l Fund monies applicable to Series T and U bonds, were used to repurchase Series T and U bonds (5152.4 million) and U.S. government securities ($14.6 million). The securit:cs were deposited in an irrevocable trust with an escrow agent to provide for all remaining future debt service payments on and redemptien of (at the earliest call date) the Series T and U bonds. As a result, the Series T and U bonds have been legally defcased, under the terms of the bonds, and the liability for these bonds t
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v have been removed from the Balance Sheet.
Although the refunding resulted in the recognition of an accounting loss under generally accepted accounting principles of $15.8 million for the year ended December 31,1988,and the District increased its aggregate debt service payments by $152.6 million over the next 30 years,it obtained an !
economic gain (difference between the present values of the old and new debt service payments) of
$10.9 million. In accordance with District policy, the loss of $15.8 million has been deferred.
Rural Electrification Administration Borrowings. At December 31, 1988, the District had the following principal amount of general obligation bonds outstanding, due to the United States of America and issued through the Rural Electrification Administration (REA):
Fifth 2% Series, due May 5,1989 $ 154,000 Sixth 2% Series, due November 15,1989 to 1990 513.000 Total outstanding $667.000 During the year ended December 31,1988, the Fourth 2% Series matured. The District remitted S443,000 of principal payments and recorded approximately S19,480 of interest expense associated with the Fourth through the Sixth 2% Series bonds during the year ended December 31,1988. Annual REA bond maturities for 1989 and 1990 are $424,000 and $243,000, respectively.
NOTE 5. COMMERCIAL PAPER NOTES As of December 31,1988, $195.1 million principal amount of the District's commercial paper notes were outstanding. The approximate effective interest rate for the commercial paper notes sold during the 12 months ended December 31,1988, was 6.28 percent, the average commercial paper notes outstanding was $170.7 million and the average term was 38 days. The District's authority to issue commercial paper notes, for other than the purchase of electricity, is limited by state law to approximately $386 million, based upon a percentage of outstanding long-term debt. The District l
currently has $122 million outstanding under this provision (with an additional 538 million authorized but unissued). The Municipal Utility District Act provides an additional 575 million of
) l short term borrowing authority which is limited to the purchase of electricity. As of December 31, 1988, the District has utilized $73 million of this borrowing authority..
Two letters of credit are maintained to support the sale of commercial paper notes. The District compensates the banks for the letters of credit by fee payments. There has not been a term advance l under cither of the letter of credit agreements.
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NOTE 6. RANCHO SECO NUCLEAR POWER PLANT Rancho Seco ia 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 subsequer:t 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 and that, while known to the District and the NRC, had not been adequately compensated for by corrective action.
Restart. The District dec.ided 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 provided for a comprehensive revim 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. 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.
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 the testing requirements through this power level have been successfully completed. Rancho Seco, however, like all nuclear plants, is I subject to periodic unscheduled outages and periods of reduced power production which will affect the plant's overall output icvel. The plant has experienced three such outages since restart. The actual capacity factor from April 1,1988 to February 28,1989 was 44.8 percent.
The most recent outage occurred on January 31,1989, due to the failure of a governor in the auxiliary feedwater system. On February 1,1989, the District received a Confirmatory Action letter from the NRC. This letter requires that the District not restart Rancho Seco prbr tc receiving NRC concurrence. The District has substantially completed all required and necessary investigatory and corrective action items related to this unscheduled outage. The District also requested an assistance visit by the Institute of Nuclear Power Operations (INPO) to assist with determining the causes of the unscheduled cutage. The INPO report cited numerous problems in plant operation, engineering l practices and management as the causes which led to this outage. The District has met with the NRC and INPO to address the causes of the outage and the corrective action items that have been implemented. The restart of Rancho Seco is dependent on the successful completion of corrective action items, testing, reviews and NRC concurrence. The District believes that the items will be completed and NRC concurrence will be obtained in March 1989, which will allow Rancho Seco to restart and operate in 1989 as planned.
l The future of Rancho Seco is subject to the significant uncertainty presented by the Measure C Referendum discussed below. In addition, the continued successful operation of Rancho Seco is also subject to 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 from service by the Measure C Referendum discussed below.
June 1989 Proposition. In the statewide primary election held in June 1988, two measures relating to Rancho 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 j shut down of Rancho Seco as a nuclear generating station. In response to the Measure B Initiative, the District adopted and placed on the June 7,1988 ballot the Measure C Referendum. 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 eighteen months. If performance fell below a minimum monthly capacity factor of 50 percent for four successive months af ter December 31,1988, ,
then the plant would be permanently closed. To restart the plant thereaf ter, or to close the plant for )
other than not meeting minimum performance levels, would require a four-fif ths vote of the District's l Board. In addition, the Referendum called for the District to use all duc diligence to divest itself of l Rancho Seco in the eighteen month period following the election. j At the June 1988 election, the Measure B Initiative was narrowly defeated and the Measure C l Referendum was narrowly passed by the voters. The Measure C Referendum requires that the l continued operation of Rancho Seco be re-ratified by the majority of the voters. The District will place this proposition on the June 1989 regular election ballot. If the voters choose to close Rancho Seco, a power descension process will begin immediately. l FinancialImpact of Rancho Seco. Rancho Seco represents a significant portion of the District's assets and generating capacity. At December 31, 1988, the net book value of Rancho Seco was i approximately $91P million, including 5207.0 million of nuclear fuel. Plant costs including j
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decommissioning are being amortized over 30 years. The most recent estimate of the total decommissioning cost of the plant is 5218 million in 1988 dollar: of which 554.2 million has been funded as of December 31,1988.
The continued operation of Rancho Seco is subject to the uncertainty of the requirements of the I Measure C Referendum (including the June 1989 proposition), and other uncertainties, which are outside the control of the District and, accordingly, the District is unable to provide assurance as to whether Rancho Scao will continue in operation. Realization of the District's investment in Rancho Seco and associated nuclear fuel and the adequacy of the provision for 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
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process, the adverse impact upon the District's customers' 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, -k PG&E requested modifications to the Integration contract. PG&E proposed to pay for capacity only on an as delivered basis until commercial reliability was established and to require the District to pay cash currently for interest on negative capacity and energy exchange account balances. PG&E stated it would withhold payment for undelivered capacity and withheld payments aggregating $5.8 million for December 1985 and S29 million for the 12 months ended December 31,1986. The District believed that the position PG&E took was not in accord with the contract and on March 11,1986, initiated a proceeding before FERC to obtain a ruling that PG&E's action was improper. FERC ruled on December 30,1986 it 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, PG&E filed with the District a formal claim against the District for $34.8 million plus interest. PG&E claimed 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 ond usability". The remaining $7.3 million represents amounts the District had offset PG&E billings to that date as discussed above. The District formally rejected the PG&E claim. On April 23,1986, PG&E filed in the Superior Court a " complaint for declaratory relief on written contract" naming the District as .
defendant. PG&E sought a judgment on matters relating to the operation of Rancho Seco and its impact on the surplus power sales contract. The Court stayed the action pending the outcome of the /
FERC proceedings. /j Surplus power sales for 1986,1987 and 1988 include billings to PG&E subject to the dispute f described above of $30 million, $10.3 million and 50, respectively. The District recovered payments I withheld by PG&E for 1986 of $29 million by offsetting payments due to PG&E for power purchased by the District under the contract.
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The District and PG&E entered into an agreement dated July 6,1987 which provides that, s effective January 1, !987 and until December 31,1987, the District would pay PG&E in fun for all energy provided without offsets of any kind, and PG&E would deposit in an escrow account all amounts billed by the District for excess capacity under the terms of the contract.
I PCaC Dispute Settlement. Based on a March 1988 Memorandum of Understanding, the District and PG&E 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 PG&E claims against -
the District related to Rancho Seco. In return for PG&E's abandonment of those claims and for other benefits that the District will receive under the agreements, among them PG&E's commitment I
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to sell capacity to the District at favorable rates from 1990 through 1994, the District has released j 58.6 million held in escrow for PG&E capacity purchases, will pay $66.5 million in five equal installments over four years, beginning August 1988,and forego $4.1 milhan in receivables for surplus capacity and energy sales. l The total cost of the settlement to the District is approximately 579.1 million. In recognition of )
future reduced capacity cha.ges from a new power purchase agreement with PG&E, that resulted j from the settlement, the Board of Directors has established that this cost will be recovered through J 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 PG&E Contract.
The Amendment provides that the District is not required to return to PG&E 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 D: strict, af ter Jcnuary 1,1988, must be paid for in cash.
Transmission Agreement / Transmission Rate Schedule. The agreements between the District and PG&E required PG&E to file a unilateral Transmission Rate Schedule by November 1,1988 if the parties were unable to negotiate a Transmission Agreement by that date. Having failed to negotiate that agreement PG&E hs filed a Transmission Rate Schedule and the District is asking FERC for a modification of tha. schedule. The District has also filed a motion requesting an expedited hearing and a FERC decision by July 31,1989.
Potential E/ Ject on the District. The Dispute Sett!cment Agreement provides that if it, the 1988 ;
l Contract Amendment, a Transmissioit Agreement, an Interconnection Agreement, and a new PG&E Power Sale Agreement are not approved by FERC before July 16,1991, then the District a td PG&E s would be restored to their respective positions as of January 1,1988 as if tne Dispute Settlement Agreement had never been executed. If the Dispute Settlement Agreement is treated as never having 4 been executed, the disputes between PG&E and the District would, presumably, again become active.
In February 1989, FERC approved the 1988 Contract Amendment, the Dispute Settlement Agreement and the new PG&2 Power Sale Agreement.
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 balancieg account for deferring material losses arising from adverse resolutions or settlements of claims and iitigation that have not been previously considered in District rates. Under this balancing account rr.echanism, recognition of any loss resulting from the PG&E dispute would be deferred for rat -making purposes and recovered over a j future period of time and, therefore, the ultimate outcome of the. disputed surplus power sales will I not have a material adverse impact on the District's customers' equity and future statements of J income.
NOTE 8. COMMITMENTS AND CONTINGENCIES 1
l Commitments. The District's capital expenditures (excluding allowance for funds used during ,
construction) for 1989 through 1991 are estimated to be $497.6 million. Approximately $151.6 million l is for transmission and distribution projects, $209.4 million for nuclear plant modifications and repairs, and $136.6 million for nuclear fue! and other construction.
The District's first geotScrmal unit became commercially operational in December 1983. Under j
m ocam supply agreement, the Distri:t is obligated to pay a minimum of $6.6 million annually during the jperating life of the plant svoject to price level adjustments and, under a transmission service
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l agreement, the District is also obhgated to pay a minimum of 51.1 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 wl'ich will make available 100 MW of firm capacity and associated energy l
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I from 1990 through 2014. In exchange for the firm capacity entitlement, the District was obligated to pay approximately $98 million or 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 effective January 1,1990 through December 31,1999 allowing the District to purchase up to 700 MW of capacity and associated energy and providing for Edison to purchase from the District a portion of its surplus energy. The District is committed to purchase a minimum of 300 MW,250 MW af which the Distric: may elect to purchase only during the summer months, and has an option, which expires July 31,1989, to purchase up to an additional 400 MW of capacity. If the District elects to purchase 250 MW of the 300 MW minimum obligation as summer capacity, then the District has the option to reduce the commitment to 50 MW af ter 1994. The District is responsible for arrangir.g for transmission of all capacity and energy and if the District does not notify Edison of such arrangements by July 31,1989, then the Fdison Power Sale Agreement is terminated. The Edison Power Sale Agreement is expected to be filed and approved by FERC by March 1989. The minimum contract obligation is estimated to be S180 million over the life of the contract.
In July 1988, the District and PG&E entered into a power sale agreement providing for the purchase by the District from PG&E, during the period January 1,1990 through December 31,1999, of a minimum of 600 MW and the option, which expires on July 1,1989, to increase the commitment '
up to 1,000 MW. Additionally, the District has the option to reduce the commitment to 400 MW from January 1,1990 through December 31,1994 and to 0 MW thereaf ter. The minimum contract obligation is estimated to be 5148 million over the life of the contract.
Litigation. A Sl billion class action suit was filed against the District alleging the District I 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 business.
e The Courts denied certification of the class. Unless the rating is reversed, the plaintif fs can proceed only as a group of individuals with individual claims. A 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 51 billion suit was filed on ~
February 10, 1987.
Tests conducted by nationally recognized experts show that maximum exposure to any one individualin the Rancho Seco area is well below the rate allowed bf the United States Environmental Protection Agency. The District believes that any liability on accouns cf such discharges is limited to an amount covered by liability insurance and a federal government indemnity agreement and will I not have a material adversc 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 Health Services (Department) issued a Determination of Imminent or Substantial Endangerment and Remedial Action / Director's Order (Order)against the District and the dealer. The Order requires that a remedial measure be developed and implemented at the site a contain contamhants during the rainy season. The Order furtner requires that the District and the dealer prepare, submit and implement ,1 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 than originally anticipated. The District has implemented an interim remedial measure and removed portions of the contaminated soil as well I
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9 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 containtnent to off-site incineration, with cost estimates ranging from $900,000 to 522.7 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 December 31, 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 customers' equity and future statements'of income.
Nuclear Liability Insurance. The District's potential public liability for claims resulting from l nuclear or radioactive incidents is limited to approximately $7.3 billion as of January 1,1989, under provisions of the Price Anderson Act. The District has insurance coverage of $160 million, through private insurance pools. The remaining ~ $7.1. billion in financial protection would ba provided by assessments against utilities owning nuclear. reactors. The District is subject to a retrospective assessment of up to $63 million per nuclear incident, payable in annual installments of no more than
$10 million. ;
l The District insures against losses for nuclear property damage and decontamination liability using several layers of coverage. The first layer of coverage, through American Nuclear Insurers (ANI), provides the first $500 million in coverage limits. Excess layers from ANI and Nucicar Electric Insurance Limited, Pool II (NEIL II), provide $731.6 million in additional coverage. Total protection is $1.3 billion, which exceeds the NRC requirement of $1.1 billion. The District is subject to a maximum retrospective premium assessment of $7.7 million per year in the event of a loss by any NEIL 11 member.
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