ML12221A356
| ML12221A356 | |
| Person / Time | |
|---|---|
| Site: | Susquehanna  |
| Issue date: | 12/31/2011 |
| From: | Allegheny Electric Cooperative |
| To: | Office of Nuclear Reactor Regulation |
| References | |
| Download: ML12221A356 (30) | |
Text
I Several investor-owned utilities (IOUs) have experienced 2011, Allegheny distinguished Electric itself as a Cooperative, leader in a Inc. rate increases as they adjust to market-based rates.
competitive energy environment, adding These IOUs are also seeing the emergence of alternative electric generation suppliers (EGSs) entering their service to its legacy of service and reliability -
territories and marketing to their customers. Customers while setting the pace for others to follow.
now have the option to switch generation providers.
As the clock struck midnight on December 31, 2010, a This era of "Electric Choice" has changed the landscape new era began in Pennsylvania - one that opened the of power supply in the region.
electric generation market inthe state to full competition. SETTING THE PACE This occurred as the remaining caps on electric On January 1,2011, Allegheny Electric Cooperative, utility generation rates - initiated under the electric restructuring process that began in the mid-1990s - Inc. (Allegheny), the power provider for 14 electric distribution cooperatives in Pennsylvania and New were lifted at the close of 2010.
Jersey, entered this era with the lowest generation With the removal of rate caps, rate inthe two states. Unlike the IOUs, who sold off or
- generation suppliers now operate transferred ownership of their generation assets under in a fully competitive environment electric restructuring, Allegheny held onto its power where rates can be influenced resources. Today, this strong foundation in self-owned, by industry and market changes. baseload generation resources provides approximately two-thirds of our energy needs, leaving Allegheny and its member cooperatives much less affected by market r volatility than the IOUs. As a result, Allegheny is able to deliver a very competitive rate on a consistent basis.
As IOUs suddenly had to contend with market-influenced rate increases and competition from EGSs, Allegheny's members enjoyed continued rate stability with a generation rate that set the pace for the rest of the region. Infact, Allegheny continued to deliver wholesale DR. JAMES DAVIS rates that were lower than they were in 1987 - on an actual basis, without adjusting for inflation.
FRANK BETLEY ALLEGHENY ELECTRIC COOPERATIVE, INC._________________
Throughout 2011, Allegheny maintained this pace - with no power suppliers able to match Allegheny's rate. Given the competitive generation market today, this is a striking achievement, and one in which our cooperative Allegheny recorded another year of excellent financial program can take great pride.
results. Highlighted by better-than-expected margins, This strong rate position reflects another solid year our strong financial position allowed the retirement of for Allegheny's performance as a generation and
$3.5 million in patronage capital to our members in transmission (G&T) cooperative. Thanks to our 2011, bringing the total retired since 2006 to more than diversified "Patchwork Quilt" of power resources, $20 million. Further, Allegheny assigned over $12 million Allegheny enjoys tremendous flexibility in operational to members as patronage capital for 2011.
and financial matters. Having this innovative approach Since its inception in 1946, Allegheny has returned to power supply management in place played a key role 28 percent of its total assigned margins to members in in handling an extended maintenance outage in 2011 at the form of capital credit retirements. This exceeds the our Susquehanna Steam Electric Station nuclear facility national G&T average of 24.8 percent - and another in Luzerne County. Despite the outage, we were able to indication of Allegheny's solid financial position.
quickly secure alternative power resources to maintain reliability and mitigate the impact on rates - thanks That's a legacy of service and reliability that is hard to to the responsiveness and agility our Patchwork Quilt find these days. Energy companies seem to come and go, approach provides. but 65 years later, Allegheny Electric Cooperative is still here and thriving. We're sticking to our core mission of Also in 2011, we took advantage of a timely opportunity to delivering a reliable source of power at a competitive rate become the owners of the Raystown Hydroelectric Project
- and we're doing it better than anyone else in the region.
in Huntingdon County - a facility we have leased since it became operational in 1988. Through our strong position, As Allegheny enters this new era in electric generation, we were able to respond quickly to this opportunity to there is no doubt the energy industry will continue to acquire the facility, which has been a reliable source of change. Through all the changes of the past 65 years, renewable energy for us over the years. Allegheny has proved it has the staying power to be a leader in this industry. Moving ahead, we look forward to SIXTY-FIVE YEARS IN THE MAKING setting the pace for many years to come.
Year after year, this strength is evident in Allegheny's continued positive financial performance. In 2011, ANNUAL REPORT 2011
Allentown, Pa.-based PPL Corporation, owns the remaining A llegheny of strength inits 2011 continuedPatchwork innovative to show the 90 percent and operates the boiling water reactor facility.
Quilt strategy of power supply management. In2011, this 10 percent share of SSES provided 1.74 The strategy involves securing power in billion kilowatt-hours of electricity to Pennsylvania and different amounts, from different sources, for New Jersey electric cooperatives. Considering dual unit different periods of time. Developed over the outages, the capacity factor of Unit 1 was 84.1 percent; past several years, the plan helps further Unit 2 achieved a calendar year capacity factor of 71.9 percent. This corresponds to an average annual composite diversify Allegheny's power resources - all capacity factor for the facility of 78 percent.
the more prudent, given the volatility of the energy market and difficult economic Both units experienced outages in2011. Unit 1,considered by the Nuclear Regulatory Commission since 2010 to climate of the past few years.
be the largest boiling water reactor interms of thermal The Patchork Quilt plan adds complementary pieces to a power and generating capacity, was offline for 39 days solid foundation of Allegheny-owned or -controlled power for replacement of turbine blades. The planned refueling resources. Combined with a stong financial position, outage of 40 days for Unit 2 was extended to 89 days for Allegheny enjoys tremendous flexibility inbeing able to turbine blade replacements as well.
react to market changes and operational issues, including The extended power uprate for Unit 2, which increased maintenance outages at our facilities. That strength allowed the plant's output to a nominal 1,250 MW of electricity, Allegheny in2011 to continue to successfully achieve our core also was completed during the refueling outage.
mission of stable and affordable wholesale power rates for our member cooperatives inPennsylvania and New Jersey. RAYSTOWN HYDROELECTRIC PROJECT Here is a look at Allegheny's 2011 Allegheny's Raystown Hydroelectric Project isa two-unit, power supply portfolio:
21-megawatt, run-of-river hydropower facility located r SSUSQUEHANNA at Raystown Lake and Dam in Huntingdon County, Pa.
STEAM ELECTRIC Thanks to favorable weather conditions, Raystown STATION had a near-record production year in 2011, providing Allegheny owns 10 percent of approximately 113 million kilowatt-hours and equating the Susquehanna Steam Electric to 3.6 percent of Allegheny's requirements for the year.
Station (SSES), a 2,501-megawatt, The plant maintained a 99 percent availability.
two-unit nuclear power plant InOctober of 2011, Allegheny successfully completed the located inLuzeme County, Pa.
purchase of the lease agreement that has been inplace PPL Susquehanna, a division of ALLEGHENY ELECTRIC COOPERATIVE, INC. I
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since 1988 for the Raystown hydropower facility. As a and transmission charges Allegheny and its member result of the purchase, Allegheny became the lease owner cooperatives must pay for purchased power, and reduces while continuing in the position of the lessee. Staff began the need for new generating capacity. The system reduces efforts to eliminate other lease structure components and transmission zone peaks and, during summer peaks, to reflect Allegheny as the sole Federal Energy Regulatory reduces Allegheny's capacity obligation under procedures Commission hydro license holder. established by the PJM Interconnection.
Allegheny staff operates the hydroelectric project inclose Over the past year, the CLMS reduced cooperative cooperation with the Baltimore District of the U.S. Army Corps purchased power costs by more than $5.3 million, of Engineers, which controls water releases from Raystown bringing total net power cost savings achieved since Lake, the largest man-made body of water in Pennsylvania. December 1986 to more than $107.1 million. Currently, 204 substations are being utilized for load control with NEW YORK POWER AUTHORITY approximately 50,600 load control receivers installed on Since 1966, Allegheny has purchased power generated appliances (mostly water heaters) in the homes of electric by hydroelectric projects located along the Niagara and cooperative consumer-members.
St. Lawrence rivers in upstate New York. Both facilities are operated by the New York Power Authority (NYPA). Beginning in 2007, Allegheny took steps to update the system. New CLMS-related equipment was placed on-line In2011, Allegheny received an allocation of 33 megawatts beginning in 2008 and by the end of 2009, Allegheny's from the projects for the benefit of the 14 member member cooperatives were in the process of installing cooperatives. Since 1966, itis estimated that NYPA new field equipment in their respective substations. At the generation has saved the electric distribution cooperatives end of 2011, field equipment installations were completed
$357 million ($10.8 million in2011), compared to the cost of at 159 of the 204 substatons. The partcipating member purchasing the same amount of electricity from other sources.
cooperatives have also installed 20,28nwvM &
LOAD MANAGEMENT In 1986, Allegheny and its member electric distribution cooperatives in Pennsylvania and New Jersey launched the Coordinated Load Management System (CLMS) to reduce electricity consumption during peak demand periods.
By shifting use of residential water heaters, electric thermal units, dual fuel home heating systems and other special equipment in the homes of volunteer cooperative consumer-members to off-peak hours, the CLMS improves system efficiency, cuts costly demand
Allegheny cooperatives andcontinue its 14 member to be very active RENEWABLE ENERGY ASSISTANCE PROGRAM in meeting consumer-members' desires As a positive partner inthe Commonwealth's alternative to support energy efficiency, clean and energy initiatives, Allegheny provides a program to renewable energy generation, and a secure assist cooperative consumer-members who want to install a clean energy generation system at their home, energy future for electric cooperatives.
farm or business. The Renewable Energy Assistance.
In addition to Allegheny's investments in Program (REAP) provides grants to electric distribution clean and carbon-free nuclear and hydro- cooperatives to help cover various interconnection power resources, and our demand-side costs, such as metering equipment and distribution efficiency measures, here are some of our transformers. The program also pays for certain other initiatives for a better environment: transitional costs to help ensure that other electric cooperative consumer-members do not subsidize the INTERCONNECTED PROJECTS operation or installation of small renewable energy Allegheny and its member distribution cooperatives generation systems - such as anaerobic digesters, wind actively worked with cooperative consumer-members turbines or solar units. Since 2006, REAP has provided who were considering the addition of renewable energy nearly $345,000 in interconnection grants among 11 projects to their homes or businesses. By the end member cooperatives. Inmany ways, REAP reflects of 2011, there were 238 consumer-member-owned the electric cooperative tradition of members helping renewable energy projects that had been interconnected, members, and continues to strengthen Allegheny's including six digesters, 47 wind turbines, 184 solar history of addressing environmental and energy photovoltaic arrays, and one small challenges in a cost-effective and fair way.
hydroelectric facility. We expect to interconnect additional projects ENVIRONMENTALLY FRIENDLY on a regular basis. See map on HYDROELECTRIC POWER foldout, next page. InJuly 2009, our Raystown Hydroelectric Project was recognized as a Pennsylvania Tier 1 renewable generation resource by the Commonwealth's Altemative Energy Program Administrator. The certification as a Tier 1 resource allows Allegheny to market renewable energy certificates (RECs) generated by the plant to other load-serving entities ALLEGHENY ELECTRIC COOPERATI VE, INC.
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/i WY ALLEGHENY ELECTRIC COOPERATIVE, INC. TERRITORY CT Adams Electric New Enterprise Rural no Sullivan County Rural @1 Valley Rural Electric Cooperative, Inc. Electric Cooperative, Inc. Y Electric Cooperative, Inc. Y Cooperative, Inc.
Gettysburg, Pa. New Enterprise, Pa. Forksville, Pa. Huntingdon, Pa.
() Bedford Rural Electric Northwestern Rural Electric (o) Sussex Rural Electric (*) Warren Electric Cooperative, Inc. Cooperative Association, Inc. V Cooperative, Inc. Cooperative, Inc.
Bedford, Pa. Cambridge Springs, Pa. Sussex, N.J. Youngsville, Pa.
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Parker, Pa. Indiana, Pa. Mansfield, Pa.
(*) Claverack Rural Electric () Somerset Rural Electric *J United Electric Cooperative, Inc. Cooperative, Inc. Cooperative, Inc.
Wysox, Pa. Somerset, Pa. DuBois, Pa.
V 2Q11 FACT SHEET ANNUAL REPORT 2011
20 11 c4Awkf 6(SCaIC jws&q~A Y"a BOARD DIRECTORS f Dr. Jlam Davis Curtin Rakestruw U Jay Grove Kathryn Cooper-Winters Chairman Vice Chairman Secretary Treasurer Director, Tri-County REC Director, Sullivan County REC Director, Adams EC Director, Northwestern RECA Robert Guyer Herman Blakley Lowell Friedline Director, New Enterprise REC Director, REA Energy Director, Somerset REC
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Thomas Webb Stephen Marshall Robert Holmes Dave Turmor Director, Sussex REC Director, United Electric Director, Valley REC Director, Warren EC Craig Colantoni David Dulick Todd Sallad Vice President General Counsel Vice President Finance &Accounting Power Supply &Engineering
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BKII CPAs & Advisors 217.429.2411 225 N. Water Street, Suite 400 Fax 217.429.6109 P.O. Box 1580 Decatur, IL62525-1580 www.bkd.com Independent Accountants' Report Board of Directors Allegheny Electric Cooperative, Inc.
Harrisburg, Pennsylvania We have audited the accompanying consolidated balance sheets of Allegheny Electric Cooperative, Inc.
(Cooperative) as of December 31, 2011 and 2010, and the related consolidated statements of margin, comprehensive margin, members' equities, and cash flows for the years then ended. These financial statements are the responsibility of the Cooperative's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Allegheny Electric Cooperative, Inc. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
April 24,2012 Praxitx MEMBER -
- experiencelBKD GLOBAL ALLIANCE OF INDEPENDENT FIRMS
ASSETS 2011 2010 Electric Utility Plant, at cost Inservice (see Note 2) $918,250 $868,151 Less accumulated depreciation (723,994) (710,597) 194,256 157,554 Construction work in progress 6,737 10,940 Nuclear fuel inprocess (see Notes 1 and 3) 32,110 29,235 Net electric utility plant (see Notes 1,2 and 3) 233,103 197,729 Investments and Other Assets Investments inassociated organizations (see Note 4) 27,490 27,556 Nuclear Decommissioning Trust (NDT) (see Notes 1 and 5) 79,497 73,080 Non-utility property, at cost (net of accumulated depreciation of
$6,563 in2011 and $6,254 in2010) 5,824 4,171 Assets of consolidated variable interest entity Non-utility property, at cost (net of accumulated depreciation of $1,058 in2011 and $1,052 in2010) 15 21 Deferred tax assets, net (see Note 10) 9,357 12,927 Derivative investments (see Note 6) 4,665 10,677 Other noncurrent assets 435 11,435 127,283 139,867 Current Assets Cash and cash equivalents 15,207 31,345 Investments (see Notes 1 and 4) 45,264 57,167 Derivative investments (see Note 6) 10,843 30,087 Accounts receivable, members (see Note 1) 17,062 16,560 Accounts receivable, affiliated organization - 4 Other receivables 1,738 825 Inventories (see Note 1) 8,669 8,516 Other current assets 1,541 2,582 Assets of consolidated variable interest entities Cash and cash equivalents 860 543 Accounts receivable, affiliated organization 14 174 Other receivables 9 10 Other current assets 1,139 755 Total current assets 102,346 148,568 Deferred Charges (see Note 7)
Capital retirement asset - 957 Deferred asset plan - NDT investments 3,869 3,315 Deferred asset plan - forward swaps 3,832 6,886 Other 13 25 7,714 11,183 Total assets $ 470,446 $ 497,347 ALLEGHENY ELECTRIC COOPERATIVE, INC.
MEMBERS' EQUITIES AND LIABILITIES 2011 2010 Members' Equities (see Note 1)
Membership fees $3 $3 Patronage capital 59,939 54,369 Donated capital 38 38 Unrestricted net assets 100 100 Retained earnings 15,323 9,123 Members' equities 75,403 63,633 Accumulated other comprehensive income 15,352 14,158 Total equities 90,755 77,791 Asset Retirement Obligation (see Note 8) 148,050 142,355 Long-Term Debt (see Note 9) 165,119 152,401 Current Liabilities Current installments of long-term debt 7,164 5,858 Financial transmission rights (see Note 6) 4,665 7,618 Derivative liability - forward swaps (see Note 6) 9,097 25,524 Accounts payable and accrued expenses 18,029 19,080 Accounts payable, affiliated organization 10 3 Liabilities of consolidated variable interest entities Accounts payable and accrued expenses 1,488 1,996 Accrued postretirement benefit cost (see Note 13) 311 216 Accounts payable, affiliated organization 88 88 Total current liabilities 40,852 60,383 Other Uabilities and Deferred Revenue Deferred income tax obligation from safe harbor lease (see Note 15) 308 617 Financial transmission rights (see Note 6) 5,577 5,412 Derivative liability - forward swaps (see Note 6) 9,097 Deferred credits (see Note 16) 19,785 49,291 25,670 64,417 Total liabilities and members' equities $ 470,446 $ 497,347 See Notes to Consolidated Financial Statements ANNUAL REPORT 2011
2011 2010 2011 2010 Operating Revenues $ 227,937 $204,921 1 Operating Expenses Operations Purchased capacity and energy costs 109,453 97,160 Transmission Operation 28,307 23,871 Maintenance 310 255 Production Operation 26,816 25,177 Maintenance 15,018 13,160 Fuel 10,847 10,586 Depreciation 6,631 5,822 Accretion of asset retirement obligation 5,695 5,475 Amortization of capital retirement asset 957 54 Administrative and general 12,234 11,676 Property and other taxes 547 728 Total Operating Expenses Before Interest 216,815 193,964 Operating Margin Before Interest Expense 11,122 10,957 Interest Expense (10,445) (10,467) I Operating Margin 677 490 I Non-operating Margins Non-operating rental income 1,489 1,399 Non-operating rental expense (1,442) (1,367)
Interest income 5,504 6,061 Settlement proceeds 6,818 Capital credits and other income 2,277 2,540 14,646 8,633 Net Margin $15,323 $ 9,123 See Notes to Consolidated Financial Statements
___________________ALLEGHENY ELECTIC COOPERAMiE INC.
2010
$15,323 $ 9,123 Net Margin 17 OftfO comPrem"Siv margI!
postretirement benefit Plan (77) t 4,444 unrealized appreciation in investmen~It, $16,517 comphenis*e Margin $16,517 $13,584 See Notes to Consolidated Financial Statements IPJIUAL IMPORT 2011
IEMBERSHIP DONATED PATRONAGE FEES CAPITAL CAPITAL Balance, January 1, 2010 $3 $ 38 $49,462 Patronage capital retirement (3,010)
Patronage capital assignment 7,058 Patronage capital - NDT (earnings) losses 859 I Net margin Transfer of postretirement benefit obligation I Other comprehensive margin Balance, December 31, 2010 3 38 54,369 (3,553) 6,262 2,861
$38 $
ACCUMULATED TOTAL OTHER UNRESTRICTED RETAINED MEMBERS' COMPREHENSIVE TOTAL NET ASSETS EARNINGS EQUITIES MARGIN EQUITIES
$10O $7,917 $57,520 $9,826 $ 67,346 (3,010) (3,010)
(7,058)
(859) 9,123 9,123 (129) 4,461 100 9,123 63,633 14,158 77,791 ,
(3,553) (3 (6,262)
(2,861) 15,323 15,323 15,323 1,194 1,194
$100 $15,323 $ 75,403 $15,352 $ 90,755 See Notes to Consolidated Financial Statements
2011 2010 Operating Activities Net margin $15,323 $9,123 Items not requiring (providing) cash Depreciation and fuel amortization 16,294 14,498 Amortization of capital retirement asset 957 53 Accretion of asset retirement obligation 5,695 5,475 Deferred income taxes 3,570 (1,069)
Loss on disposal of equipment 393 9 Other than temporary losses 909 Change in Investments inassociated organizations 66 12 Accounts receivable, members (502) (69)
Other receivables (912) (359)
Inventories (153) 2,702 Derivative investments 25,256 (11,594)
Other current and non-current assets 11,657 (1,865)
Accounts payable and accrued expenses (1,559) 1,872 Accounts payable, affiliated organizations 171 (196)
Derivative liability - forward swaps (25,524) 9,334 Financial transmission rights (2,788) (23)
Accrued postretirement benefit 18 -
Other liabilities and deferred charges (27,303) (7,798)
Net cash provided by operating activities 21,568 20,105 A
_____________________________ ALLGHlENY ELfCTICR COOPERATIVE INC. __________________
2011 2010 Investing Activities Additions to electric utility plant and non-utility property, net (43,742) (31,016)
Proceeds from investments, net 11,640 18,325 Purchase of other investments (5,792) (5,836)
Net cash used in investing activities (37,894) (18,527)
Financing Activities Principal payments on long-term debt (5,942) (5,468)
Proceeds from issuance of long-term debt 10,000 Patronage capital retirement (3,553) (3,010)
Net cash provided by (used in)financing activities 505 (8,478)
Net Decrease in Cash and Cash Equivalents (15,821) (6,900)
Cash and Cash Equivalents, Beginning of Year 31,888 38,788 Cash and Cash Equivalents, End of Year $16,067 $ 31,888 Supplemental Cash Rows Information Interest paid $10,438 $10,521 Income tax received (paid) 200 (375)
Plant purchased with long-term debt 9,966 See Notes to Consolidated Financial Statements ANNUAL REPORT 2011
[NOTE NATURE OF OPERATIONS AND
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Allegheny Electric Cooperative, Inc. (Cooperative) is a rural electric cooperative corporation established under the laws of the Commonwealth of Pennsylvania. The Cooperative extends unsecured credit to its members, with credit extended to two members of 18% and 13%, respectively, and one member of 18% of accounts receivable at December 31, 2011 and 2010, respectively. The Cooperative either finances or obtains approval for 100 percent of its outstanding debt with the National Rural Utilities Cooperative Finance Corporation (CFC).
The Cooperative is a generation and transmission cooperative. The member cooperatives' primary service areas are rural areas throughout much of Pennsylvania and a portion of New Jersey. The Cooperative's primary operating asset is its 10 percent undivided interest in the Susquehanna Steam Electric Station (SSES), a 2,501-megawatt, two-unit nuclear power plant, co-owned by a subsidiary of PPL Corporation (PPL).
The Board of Directors of the Cooperative, elected by its members, has full authority to establish electric rates to its member cooperatives. Rates are established on a cost of service basis. The Cooperative's Board of Directors has established a deferred revenue account to offset future increases in power supply costs.
Principles of Consolidation The financial statements include the accounts of the Cooperative and a variable interest entity, Continental Electric Cooperative Services, Inc. (CCS), of which the Cooperative has determined it is the primary beneficiary.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Variable Interest Entity and Change in Accounting Principle Alegal entity is referred to as a variable interest entity (VIE) ifany of the following conditions exist: (1)the total equity investment at risk isinsufficient to permit the legal entity to finance its activities without additional subordinated financial support from other parties, or (2)the entity has equity investors who cannot make significant decisions about the entity's operations or who do not absorb their proportionate share of the expected losses or receive the expected returns of the entity.
AVIE's primary beneficiary is the entity that has the power to direct the VIE's significant activities and has an obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE.
AVIE must be consolidated by the Cooperative ifit isdeemed to be the primary beneficiary of the VIE.
All facts and circumstances are taken into consideration when determining whether the Cooperative has variable interests that would deem itthe primary beneficiary and, therefore, require consolidation of the related VIE or otherwise rise to the level where disclosure would provide useful information to the users of the Cooperative's financial statements.
Inmany cases, it isqualitatively clear whether the Cooperative has the power to direct the activities significant to the VIE. Inother cases, a more detailed qualitative analysis and possibly a quantitative analysis are required to make such a determination.
The Cooperative monitors the consolidated VIE to determine ifany reconsideration events have occurred that could cause itto no longer be a VIE. The Cooperative reconsiders whether itis the primary beneficiary of a VIE on an ongoing basis. Apreviously consolidated VIE is deconsolidated when the Cooperative ceases to be the primary beneficiary or the entity isno longer a VIE.
CCS is considered to be a variable interest entity and the Cooperative isdetermined to be the primary beneficiary of CCS. As such, the assets, liabilities, and results of operations have been consolidated into these financial statements.
ALLEGHENY ELECTRIC COOPERATIVE, INC.
Basis of Accounting The Cooperative substantially maintains its accounting records inaccordance with the Federal Energy Regulatory Commission's (FERC) uniform system of accounts as modified and adopted by the U.S.
Department of Agriculture, Rural Utilities Service (RUS).
In accordance with FERC guidelines, the Cooperative also maintains its accounts in accordance with Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) Topic 980, Regulated Operations.
Deregulation Pennsylvania retail electric customers have the choice of selecting the power supplier, or generator, from which they buy electricity. The ability to choose alternative energy suppliers has not significantly affected the Cooperative's operations or ability to recover its costs through future rates charged to its members.
On a regular basis, the Cooperative re-evaluates its application of FASB ASC Topic 980, Regulated Operations,and Topic 980-20, Discontinuationof Rate RegulatedAccounting. The Cooperative has determined that regulatory assets and liabilities should continue to be accounted for under the provisions of Topic 980 because it is reasonable to assume that the Cooperative will continue to be able to charge and collect its cost of service-based rates.
Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted inthe United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial report, and the reported amounts of revenues and expenses during the years then ended. Actual results could differ from those estimates.
Electric Utility Plant Electric utility plant is carried at cost. Depreciation of electric utility plant is provided over the estimated useful lives of the respective assets on a straight-line basis, except for nuclear fuel, as follows:
Nuclear Utility Remaining License Life Plant Production (Extended to 2044)
Transmission 2.75%
General plant 3%-12.5%
Nuclear fuel Units of heat production Non-Nuclear Utility Plant 3%-33%
Hydroelectric Production Plant 5%
Maintenance and repairs of property, and replacements and renewals of items determined to be less than units of property are charged to expense. Replacements and renewals of items considered to be units of property are charged to the property accounts. At the time properties are disposed of, the original cost, plus cost of removal less salvage of such property, is charged to accumulated depreciation.
ANNUAL REPORT 2011
Non-utility property acquisitions are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is charged to expense on a straight-line basis over the estimated useful life of each asset.
The estimated useful lives of non-utility property range from 3 to 50 years.
Nuclear Fuel Nuclear fuel is charged to fuel expense based on the quantity of heat produced for electric generation. Under the Nuclear Waste Policy Act of 1982, the U.S. Department of Energy (DOE) is responsible for the permanent storage and disposal of spent nuclear fuel removed from nuclear reactors. The Cooperative currently pays PPL for its portion of DOE fees for such future disposal services. During 2011, the Cooperative received a cash settlement related to the permanent storage and disposal of spent nuclear fuel as reported in non-operating margins inthe consolidated statements of margins.
Investments Investments are classified as "available for sale" and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
For debt securities with fair value below amortized cost when the Cooperative does not intend to sell a debt security, and it is more likely than not, the Cooperative will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.
The Cooperative's consolidated statement of margin as of December 31, 2011, reflects the full impairment (that is,the difference between the security's amortized cost basis and fair value) on debt securities that the Cooperative intends to sell, or would more likely than not be required to sell before the expected recovery of the amortized cost basis. For available-for-sale debt securities that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized inother comprehensive income.
The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections.
For equity securities, when the Cooperative has decided to sell an impaired available-for-sale security and the entity does not expect the fair value of the security to fully recover before the expected time of the sale, the security is deemed other-than-temporarily impaired in the period inwhich the decision to sell is made.
The Cooperative recognizes an impairment loss when the impairment is deemed other than temporary even ifa decision to sell has not been made.
Cash and Cash Equivalents Cash and cash equivalents consist of bank deposits in federally insured accounts, temporary investments and money market funds.
The Cooperative places its cash and temporary investments with high quality financial institutions. For purposes of the statements of cash flows, the ALLEGHENY ELECTRIC COOPERATIVE, INC.
Cooperative considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents are carried at cost.
Pursuant to legislation enacted in 2010, the FDIC will fully insure all noninterest-bearing transaction accounts beginning December 31, 2010 through December 31, 2012, at all FDIC-insured institutions.
Effective July 21, 2010, the FDIC's insurance limits were permanently increased to $250,000. At December 31, 2011, the Cooperative's cash accounts exceeded federally insured limits by approximately $4,779,000, which was held ina money market fund at Wells Fargo.
The Cooperative's cash and investments are in a variety of financial instruments. The related values as presented inthe financial statements are subject to various market fluctuations, which include changes in the equity markets, interest rate environment and the general economic conditions. The Cooperative's credit losses have historically been minimal and within management's expectations.
Accounts Receivable Accounts receivable are stated at the amount billed to members. Accounts receivable are due in accordance with approved policies. An allowance for doubtful accounts has not been recorded because all accounts receivable are considered fully collectible.
Derivatives Derivatives are recognized as assets and liabilities on the consolidated balance sheet and measured at fair value.
For exchange-traded contracts, fair value is based on quoted market prices. For nonexchange-traded contracts, fair value is based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques for which the determination of fair value may require significant management judgment or estimation.
Inventories The Cooperative accounts for certain power plant spare parts using a deferred inventory method. Under this method, purchases of spare parts under inventory control are included in an inventory account and then charged to the appropriate capital or expense accounts when the parts are used or consumed. Inventories are carried at cost, with cost determined on the average cost method.
Patronage Capital Current and future margins (excluding earnings from the Nuclear Decommissioning Trust), will be assigned as patronage capital.
Income Taxes The Cooperative accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results intwo components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Cooperative determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized inthe period in which they occur.
Deferred income tax expense results from changes indeferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
ANNUAL REPORT 2011
Uncertain tax positions are recognized ifit is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more-likely-than-not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, ifany. Atax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.
The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management's judgment. At December 31, 2011 and 2010, no uncertain tax positions have been identified.
The Cooperative would recognize interest and penalties on income taxes, ifany, as a component of income tax expense.
Revenue Recognition Revenue from the sale of electricity to members is recorded based on contracted power usage billed under the Cooperative's current rate schedule.
Comprehensive Margin Comprehensive margin consists of net margin and other comprehensive margin, net of applicable income taxes.
Other comprehensive margin includes unrealized appreciation (depreciation) on available-for-sale securities, unrealized appreciation (depreciation) for which a portion of an other-than-temporary impairment has been recognized in margin, and changes inthe funded status of the postretirement plan.
Impairment of Long-Uved Assets The Cooperative evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate that carrying amount may not be recoverable. Ifa long-lived asset is tested for recoverability and the undiscounted estimated future cash flows is expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. No asset impairment was recognized during the years ended December 31, 2011 and 2010.
F neý ELECTRIC UTILITY PLANT IN SERVICE 2011 2010 (Inthousands)
Production $ 637,913 $604,190 Transmission 41,998 41,232 General plant 4,525 3,842 Nuclear fuel 211,445 198,608 Other 22,369 20,279 Total $918,250 $ 868,151 11111ROJIN SUSQUEHANNA STEAM ELECTRIC STATION The Cooperative owns a 10 percent undivided interest in SSES. PPL owns the remaining 90 percent. Both participants provide their own financing. The Cooperative's portion of SSES's gross assets, which includes electr utility plant inservice, construction and nuclear fuel in progress, totaled $650 million and $643 million as of ALLEGHENY ELECTRIC COOPERATIVE, INC.__.........
December 31, 2011 and 2010, respectively. The Cooperative's share of anticipated costs for ongoing construction and nuclear fuel for SSES is estimated to be approximately $124 million over the next five years. The Cooperative receives a portion of the total SSES output equal to its percentage ownership. SSES accounted for approximately 55% and 59% of the total kilowatt hours sold by the Cooperative during the years ended December 31, 2011 and 2010, respectively. The balance sheets and statements of margins reflect the Cooperative's respective undivided share of assets, liabilities and operations associated with SSES.
INVESTMENTS Associated Org=anizations 2011 2010 (inthousands)
National Rural Utilities Cooperative Finance Corporation (CFC)
Subordinat ed Term Certificates, bearing interest at 5.8%,
maturing Jzanuary 1, 20260') $15,005 $15,569 National Rural Utilities Cooperative Finance Corporation (CFC)
Subordinat ed Term Certificates, bearing interest at 3%,
maturing J anuary 1, 2014(1) 86 128 National Rural Utilities Cooperative Finance Corporation (CFC)
Member Ccapital Securities, bearing interest at 7.5%,
maturing Mlarch 24, 2044() 10,000 10,000 Other 2,399 1,859 Total $ 27,490 $27,556 (1) The Cooperative is required to maintain these investments pursuant to certain loan and guarantee agreements.
Such investments are carried at cost.
Investments The Cooperative makes temporary investments of excess corporate funds ininvestment accounts managed by qualified registered investment advisors. The amortized cost, which includes any premiums or discounts at acquisition, and approximate fair values of these investments are as follows:
2011 2010 (Inthousands)
Debt securities Amortized cost $ 39,208 $ 50,061 Realized loss (187) -
Unrealized gains 2,477 2,078 Unrealized losses (214) (233) 41,284 51,906 Equity securities Amortized cost 4,042 2,447 Unrealized gains (62) 314 3,980 2,761 Total investments at fair value 45,264 54,667 Investments, at cost with National Rural Utilities Cooperative Finance Corporation Medium term notes - 2,500
$45,264 $57,167 The Cooperative's debt securities consist of corporate.bonds, an auction rate security, and U.S. government agency securities. Equity securities consist of mutual funds. Corporate bonds inCFC and U.S. government agency securities comprise approximately $19 million and $5 million and $22 million and $6 million of the debt securities in2011 and 2010, respectively.
Maturities of investments at December 31, 2011:
Amorized Approimate Cost Fair Value (Inthousands)
One year or less $14,772 $14,796 After one through five years 28,291 30,468
$ 43,063 $45,264 In2011, the Cooperative recorded other-than-temporary impairment on a specific debt security. The cost-basis of this investment has been adjusted to reflect recognition of this impairment. Total other-than-temporary impairment reflected inthe statement of margins for 2011 was $187,000 for this temporary investment. No other-than-temporary impairment was recorded for 2010.
ALLEGHENY ELECTRIC COOPERATIVE, INC.