ML093140254
| ML093140254 | |
| Person / Time | |
|---|---|
| Site: | Palo Verde  |
| Issue date: | 10/29/2009 |
| From: | Weber T Arizona Public Service Co |
| To: | Document Control Desk, Office of Nuclear Reactor Regulation |
| References | |
| 102-06086-TNW/KAR | |
| Download: ML093140254 (274) | |
Text
.,::::::::;:;::>
10 10 CFR 50.71(b) 10 CFR 72.80(b) 10 LAI'IS Palo Verde Nuclear Nuclear Thomas Thomas N. Weber Weber Leader Department Leader 623-393-5764 Tel. 623-393-5764 Mail Station 7636 PO Box 52034 Generating Station Generating Regulatory Affairs Affairs Fax 623-393-5442 Phoenix, Arizona 85072-2034 102-06086-TNW/KAR 102-06086-TNW/KAR October 29, 2009 October ATTN: Document Control Control Desk Nuclear Regulatory U.S. Nuclear Regulatory Commission Washington, DC 20555-0001
Dear Sirs:
Subject:
Palo Verde Nuclear Generating Station (PVNGS)
Nuclear Generating (PVNGS)
Units 1, 2, and 3 Units Docket Docket Nos. STN 50-528/529/530 Submittal Submittal of 2008 Annual Financial Reports Reports Pursuant Pursuant to 10 CFR 50.71(b) and 10 CFR 72.BO(b), 72.80(b), enclosed please find copies of the the 200B 2008 Annual*
Annual Financial Reports for the Participants Participants who jointly own PVNGS and do not file file aa Form 10-Q10-Q with the Securities Securities and Exchange Commission or aa Form 1 with the Federal Energy Energy Regulatory Regulatory Commission. These Participants are Salt River Project, Southern California California Public Power Authority and Los Angeles Department Department of Water and Power.
The remaining Participants Participants who jointly own PVNGS file a Form 10-Q 10-Q with the Securities Securities
\ and Exchange Commission or a Form 1 with the Federal Federal Energy Regulatory Regulatory Commission and are thereby exempt from filing an Annual Financial Report. These Participants Participants are EI El Paso Electric Electric Company, Arizona Public Service Service Company, Southern Southern California Edison Company and Public Service Service Company Company of New Mexico.
No commitments commitments are being made to the NRC by this letter. Should you have have questions questions regarding this submittal, please contact Russell A. Stroud, Licensing Licensing Section Leader Leader at (623) 393-5111.
(623) 393-5111.
Sincerely, Enclosure Enclosure OVLAVI/
4 TNW/RAS/KAR/gat TNW/RAS/KAR/gat cc: E. E. Collins Jr. NRC Region IV Regional Administrator (w/o Enclosure)
J. R. Hall NRC NRR Project Manager Manager (w/o Enclosure)
R. II Treadway NRC Senior Inspector for PVNGS (w/o Enclosure)
Senior Resident Inspector Enclosure)
A member of the STARS (Strategic Teaming Callaway
- Comanche Peak
- Diablo Canyon Teaming and Resource Canyon
- Palo Verde Resource Sharing) Alliance Verde ** San Onofre Onofre
- South Texas Texas
- Wolf Creek iC1/26)OcL
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NAVGA., HA'G.IE
.SRP 2009 ANNUAL REPORT
About SRP Salt River Project Project (SRP) provides provides reliable, reliable, reasonably priced priced electricity and water to more than 2 million people in in Central Arizona.
As one of the nation's largest public power utilities, we provide provide generation, transmission generation, transmission and distribution distribution services to homes homes and businesses in in our 2,900-square-mile 2,900-square-mileservice service area. We also are the the area's largest water supplier, with with: managemenl management responsibilities for. for 13,000-square-mile wat~rshed.
a 13,000-square-mile watershed.
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For more than than a century, SRP has hasdemonst~ateid demonstrat6d foresight foresight in providing,' providing Iessential resources to meet the ne6ds of bur power customers and essential resources ta meet the needs 'of our power customers and '
shareholders and to water shareholders help the to' nelp thegr~aterPhoenix'metropo'litcin greater,.Phoenix metropolitan .
area grow,int<;>
grow-into one of the most vibrant vibrclnt regions in the country. cou.ntry.,: . ..
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multimedia reports, multimedia reports, slideshows and ',icdeoss`bout- 'vid~os about tlt prog~~'m~/:~
th'ei' prog0ram's,"
S products and services services we offer.
About This Report Report measures were taken this year Several measures year to reduce the. the costs and and environmental impact of producing environmental producing this annual annual report. The The audited financial statements
'audited statements and notes pages cqn~be can,'be accessed accessed onli~e online at www.srpnet.com/annualreport.
www.srpnet.com/annualreport, then selecti thensele'Ct',',
"audited financials." This "auditedfinancials." This reduced redu~edthe ..;'umbe~o(
thenurmber- page~,liy 50%.
Of.page',,by 50%..
This report also is is printed recycled p6pbirýcontaining printed on recyCledpciper, contairiingl'bO%post- 100% post-consumer waste. .,>~~~t;,;i:':,'*'*-.,." * - : .' ..
'. ,:~::' \ ,I t' SRP at SRP at aa GlancE:l.r;X;09 Glance FY090 . ',.' .
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For more highlights, see page 23.' 4)
- > ', On the Cover , ' ... ...
- 4 44* 4 4
', '4 Scenic and expansive Roosevelt Lake is a ptrimary source of surface water for the greater Pho~enix " 4
. ' metropolitan area The lake was farmed by the consfruction of Theodore Roosevelt Dam in the early 7 900s, which marked the beginniing ofi SRP .. '
. . .. .'4 -" ""' 4" 4:-*,. . . " ,- *. . .. 2. .. 4.... . . .;
Contents Letter to Water to Electric Electric Customers, Customers, Shareholders and Bondholders Water Shareholders Bondholders .......... 4 Letter from the General Manager ...............
General Manager .. 6 Power...... 8 Energy-efficiency eff6rts 'align SRP's ppublicp6we~.missior;*
gkith SRP's ubliic'powermission.- '..
of acting inethebestointerests oof ourcustomers our:c~stomers*a~d~~~m~uniti~s.*.;:
and communities.. .
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SRP works to secure a sound water future forArizona while a encouraging efficiency and conservation.
Environmental ...... 12 From biomass to wind power, we are expanding our po*rf.folio of sustainable energy sources.
. un,m ...... ..... .. 14
- 'SRP isproud to support a numb'er of :community* -,:
organizations through funding, le*dershi Vo unteerism .'
M anagement's Financial 4444 4
44 4..
4444~4 4
44~~444 444
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", and* Operational Summary 16 44 44 4 4444444 4
- ~44 4 j~ 4 ~4 44 44 4 4.. 44 a4 444, 444 Boards and Councils .... 20
- a Copoat Inomto ... 22 44 44 444 44 4 Financiatl andOprmationa.Stiic 22 4 4.4 444 44 4 44 4 4. 4 444
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~ 44 4 4 <4,4~4 SRP 2009 ANNUAL REPORT 4 4. 4
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John M. Williams Jr., Presidenl Presideni David Rousseau, Vice President David President Letter to Electric Customers, Customers, Water Shareholders Shareholders and Bondholders In the past year, there has been much discussion about In about system capital projects, but with an'eye an 'eye on retaining to retaining the flexibility to the-state the state of our nation's economy and the challenges challenges it embrace new technologies. At the same time, we adjusted projected embrace projected presents to us aiL presents all. electricity needs to reflect a more reasonable electricity reasonable pacepace of growth.
growth, WeWe are confident that this is is a temporary slowdown slowdown and we will return to In Arizona, where the recession hit particularly hard, In prior growth trends.
priar housing market has suffered the housing suffered terribly, job losses continue and business has been difficult. For For SRP, thisthis Our primary focus on infrastructure additions is is the commercial electric customer growth has slowed dramatically, means electric Springerville operation of Unit 4 at Tucson Electric Power Co.'s Springerville impacting revenues and creating impacting creating spending constraints. Generating Station in in eastern Arizona. Scheduled Scheduled for the end of Fortunately, at SRP we have spent more than 100 100 years the calendar the calendar year, year, the the aggressive construction program aggressive construction program is is moving moving navigating changing service demands and and infrastructure infrastructure Construction of extra-high-voltage forward. Construction extra-high-voltage transmission lines, as needs, as well as challenges presented during periods of sub-transmission and substation expansions, cantinues, well as sub-transmission continues.
uncertainty. That experience economic uncertainty, experience helps chart a helps us chart course now, steady course now. SRP has launched programs that reward customers for launched two new programs shifting electric use from more-expensive, on-peak to lower-cost, This year, we cut operating costs, This costs, reduced reduced our workforce workforce hours. By signing up off-peak hours. up for one ofof these plans and and shifting the and continued to look look for ways to hold expenses in in time of time of day day power power isis used, used, customers customers cancan lower lower their their electric electric costs costs check. We saved money by delaying delaying several electric several electric decrease the need and help SRP decrease need to generate or buy higher-priced higher-priced 4
electricity.
electricity. Our Our new new residential customer SRP EZ-3"-
residential customer EZ-3'" plan,plan, general fund general fund to reimburse reimburse prior prior capital expenditures and capital expenditures and so named named because because it rewards customers customers whowho reduce reduce electric electric $100 million
$100 million will will pay back short-term loans back short-term loans in SRP's SRP's use use during during three three peak hours, will be available available onon request request in commercial commercial paper paper program.
program.
January 2010. The January The second new plan is SRP second new SRP Power Power Partner"',
Partner.... ,
demand-response program aa demand-response commercial customers who program for commercial who Total Total operating operating revenues revenues for the year year were $2.76 billion, billion, voluntarily reduce can voluntarily reduce their usage whenwhen SRP SRP needs power on needs power up up slightly slightly from the previous year. Combined net the previous net revenues, revenues, short notice.
notice. SRP's bottom SRP's bottom line, were aboutabout $170
$170 million before fair-value fair-value accounting accounting adjustments. This about the same This is about same as the the prior prior In managing watersheds of the Salt managing the watersheds Salt and Verde Verde rivers, rivers, wewe fiscal and we fiscal year, and we consider consider that quite quite aa good good performance performance in in took an important step forward by an important by finalizing finalizing an an agreement agreement such such a tumultuous tumultuous year. However, However, after fair-value adjustments adjustments with the White Mountain Apache Apache Tribe to quantify quantify the tribe's tribe's (mark to market),
to market), SRP ended ended the year with a net a net loss ~f of water rights at the headwaters headwaters of the SaltSalt River, where where a million. The fair-value
$247 million. fair-value adjustments were driven driven in large large significant water originates. This pact percentage of SRP water significant percentage declines in the stock part by the substantial declines stock market market andand thethe helps certainty for SRP water shareholders helps ensure certainty shareholders and allows market for natural gas. Over Over the term, we do the long term, do development of a reliable development reliable domestic surface water supply for expect to "realize" not expect "realize" these these losses.
tribal members. The groundbreaking 2004 Arizona The groundbreaking Arizona Indian Indian Settlement Act served as the umbrella Water Rights Settlement umbrella thatthat immune to current While SRP isn't immune current events, ourour solid record of made this possible.
possible. performance over time speaks for itself. Our philosophy performance philosophy of advocates aa balance resource stewardship advocates balance of sound science, science, agreement with the Town of Payson We also formalized an agreement Payson customer value and resource preservation as a foundation for customer for that will resolve long-standing long-standing issues over rights to water addressing emerging addressing emerging issues. Being flexible and adapting to within and adjacent arrangement will adjacent to the town. The arrangement changing conditions changing conditions makes good businessbusiness sense.
provide further certainty certainty to Payson, Payson, and to SRP shareholders, shareholders, with regard to water supplies in in northern Gila County. In recognition of the outstanding service our employees In provide, SRP onceonce again scored highest for residential The Salt River Project Agricultural Improvement Improvement and Power Power customer satisfaction among large large utilities in the West, utilities in District's latest latest bond sale, completed completed in in January, caught the the according to a study by J.D. Power Power and Associates. It's the the attention of both Wall Street and Main Street. In attention In this new 1Oth time in 11 10th Il years SRP has received received this top honor.
honor.
approach, SRP offered bonds first to retail buyers, who came came out in in good numbers, purchasing more than a third of the the We are are well-positioned well-positioned to to make make the most most ofof opportunities opportunities as as offering. Including offering. Including premiums and discounts the total net net themselves, and we have confidence they present themselves, confidence in what the the proceeds were $764 million. About $480 million will fund future holds.
electric system capital expenses, $180 million went into SRP's electric SRP's Johdnt l Jr. David Rousseau David Rousseau President Vice President Vice President 55 SRP 2009 ANNUAL ANNUAL REPORT
claims of of the White White Mountain Mountain Apache Apache Tribe, Tribe, and efforts efforts to provide provide water to the Town of of Payson Payson from C.C. c.c. Cragin Cragin Reservoir, are ongoing.
ongoing.
Discussions Discussions withwith Valley Valley cities cities continue continue on a drought drought protection protection plan plan to refurbish refurbish existing existing wells wells and and co-locate new new wells.
wells. Also, Also, wewe areare identifying identifying available available water sources sources to provide provide for areas areas of growth growth within the boundaries boundaries of our our electric electric service area, area, but outside outside SRP's SRP's traditional water service boundaries.
service boundaries.
It It is business business as usual usual in in the notional national energy policy policy arena, arena, but the the state regulatory regulatory policy policy debate debate about the resumption resumption of competition competition remains remains unresolved.
unresolved. The issue has been further complicatedcomplicated by the the intervention intervention of renewable suppliers.
renewable suppliers.
The issue of global global climate changechange andand the contribution of greenhouse greenhouse gases from fossil fuel generation, generation, asas itit did last year, dominates dominates the public policy policy arena. SRP, concerned concerned with both existing existing and newnew base-load generation, is bose-load generation, is an on active active participant participant in both national debates regional and national debates as policy options emerge. We We are also pursuing development development of technologies technologies to capture and sequester sequester Letter from the General General Manager Manager carbon dioxide dioxide emissions.
Plans by a number number of utilities moved forward during the year to post year has been one of virtually no customer This past customer growth license new nuclear license new generating units.
nuclear generating units. We are monitoring these are monitoring these in an economy economy that has been flat. We continue, however, to activities and reviewing the nuclear activities nuclear option, but remain concerned prepare for the resumption of sustained prepare sustained growth growth inin advance advance of with cost with cost escalation, uncertainty of escalation, uncertainty of regulatory actions and regulatory actions and lock lack of of the inevitable turnaround. While gross revenues grew slightly, spent fuel management management policy direction.
results were adversely financial results accounting adversely affected by a new accounting standard and changes in in fair value of fuel and purchased purchased During During thethe year we continued year we continued aa program program targeted targeted outside outside of SRP's SRP's power contracts. traditional water traditional water service service area, area, in in which aa group group ofof representative representative electric customers are helping review and comment on issues such Precipitation on the watershed was sufficient to fill the Precipitation as facility siting and and pricing. Management's Management's two-year pilot pilot program reservoirs for the second straight year,year, and although the status is entering the final phase of evaluation.
is of continued drought is is still in question, our water shareholders in question, can be assured assured we continue to have have adequate supplies. Although growth in in SRP's electric electric service territory is is still off, itit isis With full reservoirs there With there has beenbeen no no need for supplemental expected the greater Phoenix metropolitan area will resume growth water purchases.
water in 2011.
in 2011. Current trends indicate 0.5% growth in in the coming coming year. year.
resolve issues related We are working to resolve related to the Verde Verde Natural gas, Natural gas, the the pricing pricing of which which hashas been been extremely extremely volatile volatile the the watershed that River watershed that would infringe on on the rights rights of of SRP's SRP's remains the last several years, remains the most significant electric production shareholders. Efforts toto implement terms of the settlement settlement of expense. Pricing adjustments reflectingreflecting such volatility continue, 66
along with fuel hedging, hedging, which has worked well in in mitigating mitigating More than 222,000 customers have elected SRP's SRP's customer customer impacts. Time-of-UseTM Time-of-Use' pricing plan,plan, the third-largest time-of-use initiative initiative in the U.S. A in A typical customer on this program lowers their bill 7% 7%
This year we have expanded energy-efficiency programs expanded the energy-efficiency programs during peak periods, thereby by limiting power use during thereby assisting in in we offer offer customers. This effort involves a comprehensive comprehensive peak-load management.
peak-load management.
customer customer education education program program with various print and electronic electronic communications energy-saving information.
communications which provide energy-saving information. In excess of 400,000 customers are currently In currently served by a "smart We have added added to programs programs for residential residential and commercial meter," a technologically technologically sophisticated meter capable capable of two-customers, as well as new programs, programs, which incentivize incentivize communication with the potential to manage way communication manage particular particular purchases of energy-efficient energy-efficient equipment and products. These home electrical loads. Customers Customers are able to view the prior day offerings will expand program offerings expand over the next year.
year. usage on the Internet and receive text messages and/or e-mails e-mails projecting monthly electric proiecting electric bills based upon consumption consumption of SRP's energy-efficiency energy-efficiency programs complement complement the changeschanges electricity month-to-date.
made in the standard pricing plan design mode design inin FY08 to better better reflect cost patterns patterns during during summer summer peak usage. They J.D. Power and Associates has conducted conducted surveys reporting reporting that that included the introduction of july-August July-August peak period perceptions of SRP remain strong.
customer perceptions strong. We have received have received pricing and higher pricing for monthly usage in in excess excess of the highest score score for residential residential customer satisfaction satisfaction in in the West West 2,000 kilowatt hours during during the six-month summer billing billing in 10 of the last 11 years. And we have in have received the highest highest period. Our expectation is is customers will alter consumption scores for business customer satisfaction satisfaction in in the West region in in patterns inin responding responding to these changes. three of the six years that SRP has participated participated in the survey.
Additionally, our residential residential and commercial commercial call centers were We have expanded expanded our renewable renewable portfolio. SRP is is increasing increasing certified by J.D. Power Power and Associates for the fourth consecutive consecutive the level of sustainable sustainable resources. Over the next 10 years, the the year. Certification year. Certification demonstrates demonstrates SRP's commitment commitment to delivering delivering portion of SRP's energy energy supplied supplied by sustainable sustainable resources, resources, high-quality service to customers.
customers.
including energy-efficiency energy-efficiency and demand-response demond-response programs, is targeted is targeted to grow from about 7% today, to 15%. 15%. Our challenges of an aging workforce SRP understands the challenges workforce andand plans include geothermal, solar and distributed include new wind, geothermal, distributed recognizes how important itit is recognizes is to manage manage resulting personnel generation generation resources.
resources. This means aa large large portion of the the Development initiatives, changes. Development mentoring, apprenticeship initiatives, mentoring, apprenticeship expected expected' growth in in customer needs is is planned to be met by opportunities and rotational programs opportunities programs continue continue to be top increasing SRP's sustainable increasing sustainable resources.
resources. priorities for us.
We continue continue to expand expand existing, and include include new, value- Our workforce, in what has become become a challenging environment, added elements elements to our award-winning award-winning customer service customer service in past years deserves full credit for successes this past as in post fiscal programs. More than 84,000 customers currently participate participate year. SRP's elected officials, partnering year. partnering with management, in SRP in SRP M-Power"', the largest M-Power"1', the largest voluntary prepayment electric voluntary prepayment electric continue to supply continue supply the the foundation foundation for growth growth toto continue continue andand forfor service program program inin North America. An in-home in-home display, improvement to occur.
ongoing improvement occur.
showing real-time real-time power usage, helpshelps customers lowerlower power consumption consumption by 12%, 12%, on average. There are 55 locationslocations in in our service territory where customers may purchasepurchase powerpower
. from kiosks designed by SRP.
Richard H. Silverman General General Manager Manager 7 SRP 2009 ANNUAL ANNUAL REPORT
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envir6nmrrentalstewoardship. Improved ~', 'jV~e'~e We've ~~~7r?ass~9 su.rpassed the 80,000rmark on t~h~ 80;OO?/flOCk on pýrpay p'~e.p~y ~~ters',\1Vh, metfe-rs with,' .', t ,',. e,
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programd'of its kindin'North America. . i", I' Iv'
,', ,':,f' ;", efficiencies can'.lowe~"fu<el can lower'fue expenses, expe'nses"defer,the,building defer the bu ilding of ofnrew new ,'f\:M-Power" 'M~Powe' thelargest e)argest program:of itS kind'in North,Nmerica: ';'
- ,/,",;~;:';:j:,~,,?-:\~,,/ ,~I) \"1 ,"- r~;l~t.tt~"' ~ .. I',t~ t" ,,' jl,.,.{)"":'~~~ " ~ ;,; ( },j,"""",t~:". /'%Yf"i,:"~' .z:;/'f;'\;; "!~'" "~::t: "'~"'" ":":l:'~ :" "\, 1"!',1" '~\'~'jl:\'i.~
- '.H" ~': :'~HP: power.plants,and,:r~,cjuce
- 'Y;:~' 1'1<<;.\ 4"v;+/-,~'
andreduce re'quin3d Yj"Ni!:i-' ~,'
required reserv~s,"lt,s nJI r reserves. It's tre I, II" (!~,r.
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" ,,'j y, ,WOfjl.i?5worlds fo'~,~J~~, for SRP 'O~?t~'~toT:erSour customers :a,~d: and ~ha!eFol.ger~
shareholders. "".' j'., h":J >;:f;' ~ ,', .p~~ci" M' 2,Si~ti,Oh p:i ~Q, 1nf')<?,'/b!iV:e',~)?ae!, f9tth'e"~I~ctri~"':'
Power Association as op innovative modelfor the electric : ":<',.
" "~,\~ r'--'l/,M-/ ,/,,;;;' ~ ~\'f~' r .. ," 'I} r ";1 ('I' ~ :;:1) ~ ,I,,'" '. I""~:; l' t. ' \ . ' - < f: <-It t, ~"""j'j,' ~t'd /:"'(' 1i'(~\<"0' ;,' * (" .~~ \; ., :t~{ c,>.
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~:'",i!1\)I":<\f~),i,~l~I\~t'.~ ;j1,,\'V, "'~~,I;iI "~,r',/',,,,I" 9i1' ;;.;;:w."',\~.4 "'~<;~4.1,~~'f" '1"1 \'~j/"i~.h "1,,'1 tj,
. ,As leader in deploYing, As a leaderc,lfil deploying smart meter" meter rtechnolo technology " SRP R ,r:lO;W, now consumptitcmnby12%,
cons 0n,'b 2-%;,0' on average, verage. I I ' ?, , ' , , 1 ' ," 4, "1, '" ; ,
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,,",se~ves serves more than 400,000 400,OOO,resldentlal residential ana'ouslness and business customers customers ,3' , ,I, "/, j ,"" '," , , '" ' ' .:"" IF ,<" It., '1 t\/jii'I, ~.:'\"" .,"-~~f;f~t,,:I'-" ,'" 'l'l ," :'~' .. ';., \. ,< '~~'!:>' <f ;", '.1 . I, ' ~j'"hJ"1 ".,." j("::~.r~"/~ jl: '~\,~,}, "I, j', i~ >- ,,'
wi~~lt~"efEJ withthese ,rD~t~r~" mieters wh:h which tra,Q~'r.nit transiit reol:!ime., real timre information i~for,m}]t!o~;, ,:,,',:; ('J; :,' ~w,~ne~c>~!'1}ear\ While our near-term generation 'a,\19, EJrtn gepergti<?n transmission 1\': ,: :,:. .n" i,;':;,' ;;',' .', ,,, and ,t\,q~s.~iS,~i:<i[1, (r~lessly';a~dtt ~'I~"ctricitY.,us~t/;ihis wirelessly about electricity use This means customers can means ~c~~tomers ca~:; ,t, \~<::(I:> A e:pa)~s"i~rr~r~-rfs expansio'n plansare less than previous years ~re"less tha~"'p.rev'ious ~~ars; Ifie~ibjlityflexibility 'is"the is the :~ I; ~ "t " )
'j).-tf~ ;7~~ ~ '~ ",:,~ ~ '::~:< ?<\':~ ,r':,; \':' ,/1> ~ "~'" . _"' \l.\!,',_ ',J". " '. ~~(:f;. ~ ~::" :' ~". :;j~" ,;?) >, 'I;-t'~~: ~r >c,:~,,~,~ : ; >( '">'::< ".""", ::'<J:~ ,T:'3:~'!,".:,:7-;*~*',:v: \,:~~.,,: .. ( : :~,~: _;;\: f .:~ ~.~. :.,:',," .~., ~. :t:': '.~t~~ , :', ::. *:':r~'I>~:i~:.;'~ 1 ,~~; :~.~:::;,r \~', )" .. " .
l;trqs:kan~'adiusl track and adjust tbei/ their '~i,lergycon~umpti6f) energy consumption via via,:,e'[11*a,il.()nd.texr,~:*\.'keyt0¢ccpmrj1pi:lotin~r,dYn,dmiC
-e-mailand text key to accommodating dynamic economic ~.cof19mic, ch9~gE31;;\1 change A . : '::"".::-' *.:>';*~~:::L
,~"; 1< ;:i~t11l\,~l~; ,\Y!: ,:.;\i!i): :. h,:,:,' ,t:".; '.< >: "/>'~'~'F'; '~:,,:: .' \,,:,,',: ,~, " , ;.,': '<":' ,.<t: ~:~\~ (:~ ~~ :;:. :_~: }":~_;:~' ~;. "" <,' ': " . <j? " :;'.~:~' >'A;_, ;.,., 1/- .;.' '~.,' :~. ~::!! .:~<. :.:::' ,I.. :"~.' .. ;,," " ~~ ! : ". ~.", . :' ;.:" ( ":.~' ' "'. '
> ~lm~s'sbge messa e nOtificdti9ns notifications...-Thes!"l:rileters Thesemeters alsqa.llow~RP.to. also allow SRP to offe"r offer l : ,;~::si4QO;r:negawatt 400 megawott (MW) unit atSpringerville at .Sp~i8geryille: C3E:'n~rati Generating Station in, ng :Statiorvi nl' I,- ,
, ,.J~; ;,::' t',~t*~~* **~~L,".;l--\~'*~*; ;'~2J,;, ,~:' ~;.:< '< ';:.",: " ** ~.:.'., .' ; _:"':'. '. ':" '- \'::':. ~ :', ." ': :.;. i, *.. * ..: -' 't", :-. ~:' ' ..' '-; !;":)~: '-;,:": ~_< -.f'--:!";" ,'. :. ,',~ '.:.. '~'.' :"" '-:' ~ ..::'" .1>. <.' : .1" ';. . r . :;: :.'
- ;~,~.:;,j':~:{?:,:cu_st6ine'rs*,priGirig:options thatfit their lifestyles; such ;as our " ;<',;easterh pii'ncg optibns thot'.fittheir,lifestylesisuch:.os':our*.::
rcustors' Arizona ecjuipped, wfiththe latest emissions' eastern Ariz,i;>nd;equippedwith,ibe emissions'technology,-,, tecri161.SS9y,:, 1l":<<;Yt~"\~ ::.'\:*r'.~'*;/>(:*",:,'I>\t*,:;> .. *:':""~I~*rJ.'.., ~,::'~,,:,:_',~:',:;>.. ',-.'> :-*~"~,J[<:;::':.'}":~.'< . .- <'; : r.::.'-L~:.. \;, (r!** /,:;;.f'!~:~>,\,~~~\';;,"\~:':.;~,: .'; .;.:' . . ;... : .~~.,.r:~;' ~ i*~I~~:,\* .. ', ;t:~; , .,.: >
.. EZ:3*plan,
*~Z:"~* pran,whicnrewards*pa .whidh rewards-pdrticipa5ntS rticipa rits'whocon~~rve. who conserve energy e'~emY for fo( ..,I:>o>h),~qh~pu!fto is on schedule to be'ginAproviding-energ b,~g!J1' prq~i~!ng ,:~,~~rgy.:t~.t~e',S.RP'syste~ .to thqeSRP system .bi~ Iby.;
lust thire hou~s
'just'tKree hodu'rs ci,d6y. a,day. Smart S~art meters meters also are a key component c~mponent the encdof
'the end 'of, 29Q9:' 2009." " ". , , ,',', .. '.
. in in SRP's Smart Grid Grid System, Syst~m. ,whi~hwill which will connect connect customers to t~ . ' .' 7 : " , . - '.
The Silver King-to- King-to*GoldfieldGoldfield 230-kilovolt 230*kilovolt (kV)'tro~~mission (kV)'transmissionline line~ea'rnea"r * . <,. future clean energy energy:sources sources such sucb~s as .~olarsolar, and wind. wind .. Superior for upgraded this year to improve was upgraded Springervitle.and the 64MW of improve energy output'expected ene.rgydelivery ~,!Iiv.,!ry capability, f*am capability, both. t*e newDry Lake both for.Spiingervifle,and the 64MW of output expected from the:new Dry Lake' >c.
'<: '1in~/rpi(Kt*~~O(Snb"::fI~ke ..: ":!" ,'.:':' " .:~ , 0 ' ' : : : - : ; ' : . , . . . . ,
Wind Praject!nearSnawflake. Throughince~tiv~s
'. Through incentives and andoth~r'pmgrams,o~r other programs, our resid~nti~L~~d residential. and- InIsIeinphabto:athe smart
- Jiisetpnolo::Th'e sinortgrid grid of tamorrab tomorrow wiil will ~xPC!nd expand uaon up*on.the the techn6logy technology of aof ,. ,I taday.. ," * .
t?i:\ay . '.' '. '< .
- "commercial
,commercial 'custbmers 'customers are creating crieating more energy-efficient eriergy- efficient"'
.... .*:.homes'and **.*:h6rn~s:;Mrb'~~lding~'.;thi~
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buildings., This ~eci/
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year, more
;;;~r~'tha~*26iOPO{usf~rn~is*
than 20 000 customers
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. 7h re than 20M.. ..
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Securing YourWater*Supply Your Water Supply V V I 4I~' V. 4 ~ .1 1 K CA I 'I~"~
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A A wet winter'thatwinter'that filled SRPr~servoirsalmost SRP reservoirs almost to the brim will will' water water wisely wiselyreduce~the reduces the 6mounrofen~rgy amount of-energy n~eded needed to supply supply' and ' go into the books as one of th~ the most positive years on record,
~
treat i~; r~dl!cing
, treatit,, reducing costs costs and energy demand.
energy demond, SRP reservoirsreser;oi'rs reached near-capacity, near capacity, requiring requiring water wate(releases releases invasive quagga mussel remains at fhe forefront The invasive,quaggamlisseiremairls at forefrontof'our ofour ' at Roosevelt Dam. Domin in Februa~y February to makeroomfcir'odditio~al make room for additional contingen~y planning. contingency planning,' While While:these non-native, thumbnail-si~ed these ,!lon-native, thumbnail-sized runoff. On the Verde, runoff, Verde, reservoirs filled Iwith r'ijh:e6r1y-seaso~ early-seaso-n runoff, shellfish have shellfish have been observed 9b~er~ed atthe S~P/CentralSRP/Central ArizonaArizo[la Project and major water users were w~re asked to take tak~ "free "free water" to help help int~rconnect interconnect. near near, Granite ,Reef Reef. Diversion Diversion Dam,Dam, adult mussels ," adultn',ussels with the surplus,Plentiful surplus. Plentiful surface water water suppliessupplies on both bot~theha~e the have rf ri6tbee~ ;s~en:d~0nsir~cimihin the:canalsystem::How~Jer,"~ur been 'seen'downstreamn the canal system. However, our , Salt and and Verde river,watersheds~tron~j6te river watersheds translate ,into into 'securifyfor. security for'the the 'cbht;n~enc~~,lbr,8'!g~';ffc~~~,s:(),~'t~~,'Bb~e~tiMf~f'ci conitingeIncy planning focuses on the potential for a '~,~~~!?ci~:~~i~9~::: more damaging, Volley - and Valley and,the .the likelihood of reduced reduced groundwater'pum'ping groundwater pumping linf~statiOiljW~c()nti.A~~~~'a~is~sspot~ntialiim~aCts Sinfestation. We continue to assess potential impacts toSR~'k;~:o":;,,:;~ to SRP's
,0,).
foe 0 for at1least another year. 1,0,1 M6th" Ylr. ,., ",. ' ", ~~:~;:,;::,*I~iit~i~,~O~I"~'.~.o,~(j#;t~,~'~~;?f,d~;;I;~~~;th ..**...
, water infrastructureand the most effective mreans of'dealng with this- ýroblemr -
', .... "~~.,~.~~ , , ' , ,.* : ,'; .,1',;.. * * -:,',(,:.- *j""A,)~~.',.",: !,:',.:,v,,):~;~l., \ ... ~'. ~':'i ;~'"c ,,;>':"..,., ~>,,' ",:t":ic'~~
As the area's laigestrwater provider, SRP works with
, ,Asthe'ar~as,largesrw_aterp~ovlder~~S,8P~orks'wlt~",v' <:~,;,',r ,," ,_ ';'," '," n / ' , ",{ ,,'" ' / "_ .", , " , ~
'.1.' ,-,-,,,; **.:""""Y~'l:::*'-">'i,::')c:, '*.,**~*:~"~5:;'~*';~:~~~:';.":*.~:?~7?(:*~.;:"**,~,'-r.,.,."/~:l":', '. ,~,'$ 'A~ ~ ,~ ~"tM~*~ ';)': ~'1: ' ,f'.y.. ,,"", """,\,
*.stakeholders topromote
- .;.',~tak~h~ld~r~,t6promote the wJ~~.~p:~::oi*,of~r~,~.(lp.,t"he ~);,:" ::! .. ,Prep~,r;atiops:c?~tin;u.~:f6J\ th,ftime when "groundwater, will ,ploy a the vise- use of water. and;the Preparations -continue for the ,tim.wh ngrobndwaterwill play -,
larger.role, at least~temporarily, in meeti'g deman Long t,
,.'*~dopiioilof
'.adoptiohnof 6-.shared ci;sh~red siewa!(Lship~i~ds~i:.s;~~s~ing:tJ1~:"
stewardship mindset Stressing th'e : ".,- ::. Id~ger;role;'~t :i~a~t:i~mp'(f~b
.' ,,- .; ',: '.,' t,'.: ':'~'" '., '" . -~,.- ,.:\: ('~f *~2,,:.\~. '~'*;;-.~~~' .}. ,";,-.;::';' i.' ~,I., *., ,!'ol ~ , ';' . -~",'. .,
'" impC;r,!ciric~,:of end-LJse~, il1yeit1iient)nn l~,is}rl:ission,~;,ye,:.
importance of end-user-investmient this mission,'we,. :;. - , ~, plann,ing. p1aningfo6futuie fcirfuttJre gro~undwdter ,~",,,,~,t"" supplies:is,critical. This past year',
. , ,'~::' '. ' : . " , . l~ ~~ ,,':t ' .... ' ~~:.. ,~,,~. _~:h*,:J"..>.;...; h',;;::t' ~(_.~:;. ,'l -: :," ;," " :' ,,'~";'
fallinrg landvalu6s
. - ,.. :"'~:' / . .,:,.,
created opportunities to obtain sites for futre'
'contiriuedan()rigoing
, 'contirnued an-ongoing research resea/dif:jrOgrejih;on'lgridscape"0ater on landscapeer~grdm Water .. ,Jdllirigland'va!
- . ~ ,.. : ; .::" :. """: '.,: '. "'.:, "::.~' /,.. t:~./":'/'~:.<::~:-**"";>',t~,.-,;' :_::'R.~*,1~ - ~t ':~:::::"J':'-,"' ,~,> t\ '~:t':"
"'" use, which, is responsible for which isresP9nsibie fora[1~,stimate,d]O')f~dTesicJ~jtial an estiriated .70%ofresidential well fatciliies.
': welHdcil I SRP alsO makes regular deposits into underground-water cohnurmptibn. We held an:ene'perforance'of . , *'nc~'C;f ".
a tc the" c':':~, h.: e. wd1water storacte asa savinqs -account for later, use. ' - . ,
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U PR?rli Sppo S rtindg::9.*.~\q~fq\i'r;)l;~hle;~,!Jr'Yc~¢t g a S ut inable Future
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As we bll'becomemore (, all become more aware'of'the aware-of the value of sustainability, ' of of the'future to en'sure ensure efficiency:,
. . . , oN, decrease foel effic:iehcy; decrease *
- fuel costs, reduce *
, SRP can help J ~ , "
Arizolna become help Arizona become an even better
,A ~ .' .
better place to work, work gree~house,ga~ emissions
. .:greenhouse-gas e_missions-~nd.le'ssen and:lessen dependeri~e dependence On on and andlive:live: ;
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foreign oil. foreign " ". Part of sustainability means exploring new ways of generating As the rapid customer-growth of recent years pauses, we re Par;- of su~tair:lability me~n~' .- p~wer, That;s'wh power That 's whyy SRP utilizes a diverse and growing portfolio buildi ng upon our own internal expertise to focus on of. renewable resources to meet the electric needs of our renewable projects. Our strategy includes pursuing additional' - customers ,renewable energy purchases as well as building and opeerating
-, - "k; , " .. our own eienewable energy projects,. . , - -. . .
- '-':;';:;(", :i:, ,
c' Some yearrs ye.a(s bac~,weback we pledged to grow our- portfol'iooet e' h .. -
.-'. frieridly. ge~~rot'ion resouices Just in this decade, our supply friendly generation We also continue continue to promote solar energy in Arizona.
to promote
. 'of
- re'~e~~6Ie r~sburces such as wind and solar has nearly
-of' reinewaBle:resburces
.i .' : . . ' .':~ '. ,~! "'~
This year, SRP was recognized by. by the Solar Solar Electric ,Fower Associdtr~r;1~~~;~~~:ofthe ~ation wh.en l' ...., - -'. *
"tripled .Ojrgoal
- tripled" 9lk goal is to h6ve is.to have 15%obf retail sales from renewable Associaatnsoneorfthe top top utilities in the nation utilities in '
" ,'. '. ':.. ' , . a025 ;
integrating ~~. 7j/~"'" solar into our energy mix, on both the customer integ'roting~~~lar into our energy mix, on both the -'---'-"'"---'-'
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.- ....;ond and utility:;sid,es utility:,sides of the the meter, meter. -
J:'-' : : - : ' : ' ; " " .-" '. Todaymore .than 20%.of SRP's energy is produced without 7' , . greenhouse-gas.emissions. And that figure is growing. This,':; In addition'to improving-our..own operations io reduce ,... year 78MW ihnnehw-geothermal and wind resources were'- greenhouse- gas emissions, SRPis w%; rki ng with vendors to added, enough to.power, nearly 20,000"homes. One such :,.,assess their sustainability efforts Just as our ven:dors .a.d. effort is the Dry Lake Wind Project, thefirst commercial rcustomerswind - ,their are evaluating own individual carbo*n* footprint, farm in Arizona..SRP also prowides in:nivs residential =er . i d tmmitte farmin riz~na..SP~oscproide inentvesto esiental ve're committed to managing future env'ir~onme'ntal challenges , j and.commercial customers interestedin installing solar on and opportunities with determination and c i their homes or businesses. , - - - - - .. -,.
-SPR ""iMpurchse theýenti u4lpT of the EDryLake W~ninPrtoject im
.I' - . -- - - northeasternArizona the fistofitskindn th state eWifd farm be Wer'e also working with the automotive indusry to support ZPe orerated byLberdrolo Renebl i piode electrcity to power bout
/15,000 h'omes the'rollo'ut of p'lugin hybrid electric vehicles. It' important r hsit photo SRP iýcentives h*bo proects,to busiess c -,
* . -- -' <'t*:A - o; :, r , ;
- f. residenrtialcust"om rs-to plan now for incorporating these cars into he power g..
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;a difference. funding to ara'ootbrkkl Vinin Valleyshungryasod ank, rnig75,900 ýmo6r~e mneals to the.
Valleyshungry as agrowing number of families-struggled to put
~tI;!~~';:'!' ,: ,>~
SRP stands strong in support ofnumeo s food on their tables. and organizations throughout the Valley that bring hope and. e*,*".' enrich lives': Through lendingleadership talentproviding :V\(e'SJI~o We also t.Q6K:pcfi<;m:t9*~~elpp~ople tooklaction to help people who w8o'are having diHi~ulty are hO'viqg difficulty, .... .
~ '~;rL'" ,';'., ". . . . . '"'<~~"." ('." *~;~~!,.,;:*t*':*.: "po ','\~',:} '<"\,
donations nd. the passionate spirit of our employee volunteers, . keeping the lights lights on at at home. home During During the year, we matched matche'd .'
," ..., -~ !:'1 ~1'" 1 ;'~;.;:',', /~/ :'(' ,iJ;':J;":~, !\~,'0~*'iG<"., ;"~;l" i~,'!F' . ,: .' I'> ..,"',}~:t~ ~,~y~' ';" >,. . '. n::, '.' "'<;: t/~<,,1-' '~ .. ;
we are ableto make a real difference in the' world in which we ....... ~~. customer custpmercQr:itribution*s\~ql)dr,aise*9:*rn.()rfl::thdn;$300)O.OO~ifid;eli~f contributions and raised more than $300,000 in relief '. live and work. :. 'i~~~l~)<? funds to '~;I helpp*~~;;b~.~~~~a*yu*~i customers*pay:utility i~~~;:~'iUsi:~! bills. . 1,1. '.':** ,.;.r;;I~: .'
'.",.~",' .. ,. /1" .f":tt" <:,,;y~_ .' :.'",,~.'~
.*Almost i'Joio,;85% 85% of ~/ SRP SRP empl~yee'a;e.
employees are, ih,al,~di~ invoved in t~;i;'~m,"J~it(~; their comunities . Our o",~mploy;;";d emplo*yee-led annual a~:6al /"dca; fundrdising campaign reached
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in some way. Thisyear thatVolunteer work includedbiling ' $1.5 millioon 'a record amountthat was especially notable unique H9abitat roHumanity homt,e:-4::an
,.;' aa~'Jniq.ue~Habitat;fcrif;HurTian(tY" environmentally: ..,,'.,<' '.:: .bec(iU.se~the' home -an ,.envir.6rimentallY;~:t: because the campaign, campaign was conduccted. ' as the national economic
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fijerjdIY:ho~use:eqllj'pped"with
- friendly houseiequipped with waier"arid energy-efficiency "'\"c,~ crisis water- and 'energ'y':efficiency' cris.is'-1o~.'cihfol,ding~':rhe'inoney was unfolding. The money colle2j~q collecdtd from fro'm f~ir' employees'.
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01>;4 '/"'*I<'-.\,:.,:*,!-.t:::;~ .~ ... ,:* . ~".';.. .. '1.', .:'~~*'~*r*,,**.,l[,,;,< ,::,,~,,"_*.:'f("~;"~~'<"':"l ..;;,:[,'t~'.*, ',:\;.,.,:.'.::,'".,,;~\_;:':;""~',.' .... , ,
.' features, inctllding including a a .solar solar photovoltaic photovoltaii: system. system. "i'" '$~'ppo:~is;n~qp'rofit.age*r\c.ies,*se~.virig,peqple.
supports nonprofit agencies serving people-throughout-Arizona. throug
" *'\Qufi(:1gthey"e.cjrtnel:?r6ad~'sq()pe.of:SRP;scommunitY;sYI?p£"r,i\
Dinghe thyear the broad scope of SRP s community support :' At'§BI?';'9ur;b'usjness:~u;lt~:e: SRPour business bAt culture prci.m6tes~the:iimp9rt~n*~e" promotes the importance of sharing
;\ .~ >_ t-,.,).'!~:. ~ ';.'.;>.:~~.;;,,:,~.," J'.'~/:t..;.'.,:,,\>"\;;:.~'1,::1"/::"'" "~'<'.: :/~~~',::r'.J'.A~:>% J",' ",,:\' <."":"';:;;::('~<";~>:":'\'~;""<<"';':'.',",'0".~:,,'.c","1- ',-: ,;~/ ";,1 : ;~:.!"."
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-was about $3 ~3. n1illion~iH million in charitable charitable;contriDut~oQsq~a.z09;9007:"
contributions and 700,000 .. tim~.a0dl time talent with indtp!ent, V'(it~i~!f]~r~':7;W:h~n. others'.When we applyI the th(s.a same ...~~:'-"""~ commitment 1 '.. "'~<<.';....:,:~.';.;'.' ':\:.'.r~-':~"',;}*:.*,.*, _,1" !"~""~,¥_"':"<<;~*II.') ";-~":'i"l~' '.'-;'~"'.'~': ,.,',;*'i,*.~*,*,- ,,> *.** i',.~ 1 ",~?~':',~J;.l.1:1' :"t,.',4. ~, ' ,
" ,IiQurs hours in*':v6Iu'!t.ee(time.
involunteer time Muchd Much of this focus is.on is on education, ucdtion*;i .. ':, :'~xperti5e'dnd expertise dnd teamwork-we t.eiJmwoc~:we us.e, uS'e to to. serve our electric customers
- <<"~-::~,;:"',' .. ,,:,':",\':""1>'."<:;'":"'-;:"; .>.- . . :~~:~:.";::-';'.'~~,:>.:.~~,~> "."r. *.!,' '~,~:.<
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'..'. ,.:.I;?:~cd~5e:v.:itl:l.*;the:f6l!iidafi()n.pfa9t:J~litye,d because with*hte foundation of a quality education, **ild:.s*;:~" a child's . .' prd.~.aiers~9~e and water shareholders to helping people in need we see the
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."~ :./oppOrhJ'nities:orei0itf:1hJt Sopportunities are without i:lirnit$)lncparti'culor limits. In particular we support math '., :impOGt impact 6f of ',,'nr, our i>tIArJ< efforts .* :;!iXi~'ri"H an*idit inspires us to remain engaged in h'*
. <r",\*~*~d:~~{~~~~:~,~,J~~h()n:~:t~e**fi~):d~:.ih~i,~~I~:~Bi~$:tQ, and science education, the fields that will bring the talented .,.:,:oG~;~.JR;'~'~iti~~~ our communities.
empi~y:~et~f employees tomorrow to o~r' of t6mormvdo do~~st~p:>0ithf~hdi'n bur doorstep .With funding from ."....
.. . . .~than ,: '.'ever .'>,
" SP .';.'sfinancial
. ~ '.." . J. an,J :'. ,:ex
.' expert ".The DesertVBloanical Garden in Phoenix relie5s0 public sUport, including gr'nts public sources tighter than ever, SRP s financ a", ,and from SRP, to present conseýrvfotanand educational piograms, o:promotiýg
-:,< greater pU,blic spurcesJighte~ than~yer; .. . : .',<.. " , .'.'.<', .-:':; I: " . .*, , fund1erstanding, and stewardship of the Sonoran Desert. ',i ' ," " ::,..
,*a\s,s;iS!~~~:~
assistance . :t~"::iJ;,c~~Ss:;~t~d~2,t~\;**,:".,-.:~::'y.,;::o to teachers; students and schools inArizona, demonstrates how
.pslJiqnptro!es now.J~eyoyve.rof:*gi the power of giving makes a .nffe*eet"hoo* Ad pjditional support hepe fedthe"hungr throug . Sta'-
" .' '~ , . , .
"- ** ,' -4 ... .. ... . ... . ~ . .. . . .... .1.-,,.... *" * - . -... .
- b Z * <* .... '*'. .
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Ig a hand makes As the eco*nomy cortinued to shed we providedadditional fundingdto area"f odmel 700 th
-a an.3 '7' ' w banks,!bringing 7500maemlstth'
>' >. .*9'.4','
Valleyss.hungry as a growing number of families struggled to put stob~nsp ort, of numerous.n n r ;': " * ' "" " * : " " ,.,,: . ,: SRP standsOstrong-in, supor of .... agencies ftgu"nonprofit food f on their t tables. e -and,org6anizati6ns throughout the Valley', that bring i*.qp:e,and" eadrshp talent providin.g 5 We also took ation,to' help'people wh.o are havingddiculty d:onations and the 'passiornatte::spirit of 6ur*employee volun*t'ers :keepingglthe]iights or"t hohne. During'theyear we matched, e are able.to make a real differ~5ce in the world in,.whichwe customr& contributions,and raised more thah $300,000 in relief. l,:,]iand'wOrk.: de .' .. : billsI ; .
'live and~w~rkfundls to ,help custri'ers,' a'y iitili _bl Alm'stf 85% of SRP employees are invol'vecldin'rtheir co nmunities ,Our.'employee-led annual fundraising 'campaign,,reached j"-',.
*$1.5 million --a record amount that wasespeid'yll notable, in 'so6re wdyý/. This year that, vo'lunte'r w6rk included buildic-ing a unique Habitat for Humanity home an enironmentally because the campaign was conducted as the national economic nfriendly 'h eqbippedu ddwit water- and, energy-efficiency crisis was unfolding. The money collected from employees.'%
features, in'clu~ding aýol'rrph'otovoltaic system supports nonprofit*gencies serng people througHou t Arizona. During' th~e year the broad scope' of SRP's community supiport At SRP, our business culture promotes 1the importance of shari w~~.as about $3 million in charitable'contributions and 700,000 time and talent with others. When we apply the same commitment,r hours involunteertime.. Muh is:ofthisfocus on education, xpe.rtise and teamwork we use to serve' eoltric custom'ers because wvith the foundation of a quality educatior, a childs and water shareholders to helping people in need we see the opportunitiesare without limits In particular wesupport math impact of our efforts and it inspires us to remain engaged, in and scien'ce eauOation, the fieldsrthat will bring the talented our. communities. employees of tomor'rw:to our doorsft. With fundig' fron esert Botancal on b pport ncudnU grants public sources tighterthan 'everi SRP s financial and expert from SRP, to pesent conservation "adcatiana programs promot'ng greater* - understandingand st~ea~wrdhip of ihe Sonoran.Desert. a~sisianceto te~che'rs;' s;*ud~~ts~A*ds~~o~i~:.iri* assistance to teachers,- students and schools in Arizona s,&*;
" :........ -/" ..: ."-:.... -~, .. ';';~," < "\": ":":.",: >,.,,~.. ~/ -*lnset~hbto Addition£al suporbthelpecdfeed the hlungr,'y throughSt ;Mary's.
derT]<?ilstf(:l!e~. demonstrates hovi how ,Ihe t,be.powe,rpower of,gi,:iilgrn?kes' of giving'. ek a
~ * ~ 1 . . . .
- Management's Financial Management's and Operational Operational Summary Overview Business Overview of Business Peoria, Scottsdale Gilbert, Peoria, Scottsdale and Tolleson. The Association Association also also The Salt River Project Agricultural Improvement and Power Agricultural Improvement Power delivers water by contract to Indian communities.
District), a political (the District), District (the political subdivision of the state of Arizona, generates generates and delivers delivers electricity electricity to a 2,900-square-2,900-square- The District has three subsidiaries: New West Energy mile service area Maricopa, Gila and Pinal area spanning Maricopa, Pinal counties. Corporation, Corporation, which supports the District's energy services There are also mining loads in in an adjacent 2,400-square-mile 2,400-square-mile activities; Papago Park Center Inc., which manages manages the mixed-area in Gila and Pinal counties. use commercial development Papago Park Center on land commercial development owned by the District adjacent to its administrative offices; and The District, a vertically vertically integrated organization, owns integrated organization, owns or SRP Captive Risk Solutions Ltd., Ltd., a domestic captive insurer that participates inin 11 major power numerous other power plants and numerous other property/boiler and machinery primarily accesses property/boiler primarily insurance machinery insurance generating generating facilities, including including thermal, nuclear, natural gas coverage under the Federal Terrorism Risk Insurance coverage Insurance Act of and renewable renewable energy energy sources. sources. The District builds and and 2002 for certified acts of terrorism. acquires needed, as well as makes short- and acquires resources as needed, long-term purchases purchases of wholesale power. Results Results of Operations Operations Without the effects effects of a new accounting standard and the the The Salt River Valley Water Users'Users' Association (the Association), change in fair value of fuel and purchased purchased power contracts, aa private corporation, corporation, isis the Phoenix area's area's largest raw SRP net revenues revenues for the fiscal year ended April 30, 2009, water water supplier, providing about 1 million acre-feet per year acre-feet per year would have been revenues
$172.3 million compared with net revenues been $172.3 for irrigation and municipal treatment. The Association of $166
$166 million the previous effects, however, of previous year. The effects, also manages manages an extensive extensive water delivery system, including including the previously mentioned accounting standard mentioned accounting standard and fair value value Theodore Roosevelt Dam, reservoirs, wells, canals and Theodore Roosevelt and accounting accounting resulted in in a net loss for FY09 of $247 million, million, Municipalities receiving SRP water include irrigation laterals. Municipalities include compared compared with the net revenues of $257.1$257.1 million for the prior Avondale, Glendale, Phoenix, Avondale, Glendale, Mesa, Mesa, Tempe, Chandler, fiscal year.
year. 16
-p.: ""1, :
Total Operating Operating Revenues Revenues ($Millions) 2,739 2,767 FY 05 06 07 07 08 09 09 Total operating operating revenues were were $2.8 billion, compared compared to $2.7 billion for *.. ; .. *.0._ .* ' . ' , ' ,'.' . ". Total
'Toiol reverues revenues showed showed 0a small smolhn~r~ose, increease, FY08. While there was a slight increase in in operating operating revenues, revenues, slowed slowed oltii'bul~d altributec 10.0 to a slight slight incre6seincreas~;inin custamer
,'.1' '.
ci:.nilo~~r customer contributed to a 4.3% drop in customer growth contributed in retail sales. Wholesale Wholesale number's ond'eleclric numbers and electric prlices
". , ej ..<'", ','
prices:- ~- revenues were nearly nearly 16% lower in in FY09 compared with the previous previous year, mostly due to substantially substantially lower electricity market prices duringduring the year. A price increase increase effective effective at the start of the fiscal year and an an increase inin the fuel and purchased purchased power adjustment mechanism mechanism (FPPAM) offset the impact of lower system system sales and reduced wholesale revenues. Total customers customers increased less than 11% increased by less % from the previous year, Capital Expenditures Capitol Expenditures ($Millions) with the the residential residential closs class increasing increasing only only 3,048 customers customers year-over-year year-over-year 1,076 1,042 compared to a 5,902 customer increase increase inin FY08 and and a 21,500 21,500 increase in FY07. Energy use per residential customer showed customer increase 697 } a 7.2% 7.2% decrease. decrease. 461 485 [7 *" Operating Operating expenses were $2.8 billion for FY09, compared compared withwith $2.4 billion for the previous year. This change was driven by higher higher FY 05 06 07 07 08 09 expenses expenses for fuel, purchased purchased power power and operating expenses. Fuel and purchased purchased power expenses were were up 31%31% mostly mostly due value due to fair value Coonstruction expensesfor Springerville adjustments adjustments on fuel and purchased purchased power contracts. Without these GedraotingSoatian Unit 4 caused aon ncrease in. c6pital spending over the past two years. adjustments, adjustments, fuel and purchased power expenses decreased 1.1 expenses decreased 1.1%, consistent with the 2.7% decrease decrease in in total energy Maintenance energy sales. Maintenance expenses expenses decreased 11%. Several large decreased 11%. overhauls that occurred in large overhauls in the the 17 17 SRP 2009 ANNUAL SRP.2009 ANNUAL RErORT, REPORT
, *L
prior year subsequently reduced maintenance expenses reduced maintenance expenses under SFAS No. 133, 133, '!Accounting "Accounting for Derivative Instruments Instruments this year. year. and Hedging Activities." Activities." For a detailed detailed explanation explanation of the effects of SFAS No. 133 on the District's financial financial results, see Note Note 4 Investment income showed a $99.7 million loss for FY09, Investment in the notes to the Combined Financial Statements. The Energy compared with a $62.7 million gain the year before. An Risk Management Program is is managed managed according to a policy unprecedented year in unprecedented in the financial financial markets markets drove the drove the approved approved by the District's Board of Directors (the (the Board), and decrease. In In addition, beginning beginning in the first quarter of FY09, overseen overseen by a Risk Oversight Oversight Committee composed composed of senior SRP adopted adopted a new accounting accounting standard which allows entities executives. executives. The policy covers operational risks covers market, credit and operational to report certain financial financial assets and liabilities liabilities at fair value value and includes portfoliO portfolio strategies, authorizations, authorizations, value-at-risk instead of cost, which was how SRP previously previously accounted limits, stop loss limits, notional notional and duration limits. The District for these items. The changes changes in in fair value are are recognized in in maintains an Energy Risk Management Management Department, separate separate earnings, and SRP's adoption adoption of the new standard standard resulted in in a from the supply and trading area, which regularlyregularly reports to the the loss of $92 million for the year. Without the effects of the new Risk Oversight Committee. In In addition, the District has established established accounting standard and the change in in fair value of fuel and a credit reserve reserve for its activity activity in wholesale wholesale markets. The District purchased power contracts, net revenues would have been believes that its' existing risk management structure is appropriate appropriate $172.3 million compared $172.3 compared with net net revenues of $166 $166 million last last and that any exposures exposures are adequately adequately managed. fiscal year.r. fi sca I yea Electric Pricing Pricing Energy Risk Management Management Program Program The District has a diversified customer base, with no single retail The District's District's mission to serve its retail customers is is the the customer customer providing providing more than 1.7% of operating operating revenues. As a cornerstone of its risk management approach. approach. The District summer-peaking utility, the District balances the summer-winter summer-peaking summer-winter builds or acquires acquires resources to serve retail customers - not the the load relationships relationships through seasonal priceprice differentials. differentials. In In addition, addition, wholesale market. The District has an Energy Risk Management Management the District prices on a time-of-day basis for large commercial Program to limit volatility inherent in retail business operations. Program operations. and industrial customers, many residential customers, and certain certain The program identifies, measures, reports and manages program identifies, manages small commercial users. exposure to market, credit and operationaloperational risks. To meet program goals, the program the District District uses various various physical and financial AA 3.9% system system average retail price increase effective at the the instruments, including forward contracts, futures, swaps and instruments, and beginning of the fiscal year involved involved a 2.1% increase related 2.1 % increase related to transactions are accounted options. Certain of these transactions accounted for aa fuel and purchased power adjustment adjustment and a 1.8% increase increase 18
Debt RatioRatio (Percent) 51.6% related to base prices. The new price plans adopted adopted at that timetime 50.1% incorporated design changes that better reflect the District's incorporated District's underlying seasonal costs as well as promote energyenergy efficiency efficiency and conservation.
,',{
In October, the Board approved an annualized In annualized 5.9% system FY FY OS 06 07 08 09 average increase under-collected fuel and increase to the FPPAM to address under-collected purchased power expenses, effective with the November 2008 billing purchased billing Thie debt ratio rose as, aresult of a $744
~. Smillion millicirir~~~~u~'bond revenue bond _s~I~:th'at sale ihat wasu~e;d.t9 was used to cycle. The increase increase was projected to recover the under-collection under-collection finance the District' s capital impr8v~m~rl('
. ,;firibncetheDis;ric;;;c6pitol improemen"nt ,-
on 18-month across cin 18-month period, period, through April 2010, generating about . Pro~rcim'and:~aYhJ~k$l OO:~'illi6niri'short, prograim and pay'bock $100,million in sho-rt
,- -.ter::n term loans from SRP s commercial papei lo6ns!;cimSfW; s commer'cidl papler -,
$203.6 million during during that time. '-.,." .", ,. I. '.' "
<program
"./
Capital Improvement Capitol Improvement Program "", FY09 capital capital spending spending was consistent consistent with management's management's expectations. The District's Capital Improvement Improvement Program Program is is driven driven by the need tota expand generation, transmission expand generation, transmission and distribution
'.\ Debt Debt Service Coverage Coverage RatioRatio systems to meet customer needs needs and maintain service reliability.
3109 3.09 2.82 Generation projects accounted accounted for half of the year's capital expenditures, and a majority of those expenses went toward continued construction of Unit 4 at Springerville continued construction Generating Springerville Generating Station. Expansion Expansion and improvements to the electrical electrical distribution system accounted system accounted for 22% of of capital expenses. expenses. The addition of new transmission new transmission facilities comprised comprised 10% of the year's capital
- FY 05 06 07 08 09 expenditures, including support expenditures, including support for a 230kV 230kV Southeast Valley Debt service coverage is decreasing due t6 transmission project.
increased pr:i~'cipal lncre'osed principal andi~terest requirements and interest requirements
* .. ' I . * * .* .
- from, frorn increased bond debt. debt.
SRP's 2009 Audited Audited Financial Financial Statements and Notes can be accessedaccessed at www.srpnet.com/annualreport. www.srpnet.com/annualreport. 19 19 SRP.2009 ANNUAL, REPORT
SRP BoardsBoards District/Division 5 District/DivisIon District/Division 2 District/Division District/Division 4
- Wayne A. Hart District/Division 3 Carl Cadl E.E. Weiler
- Wayne A. Hart Mario J. Herrera Lloyd E. Banning Director-at-large, seat 12 Dwayne E. Dobson William W. Arnett Arthur L. Freeman District/Division 8 Diredor-at-large, Director-at-large, seat 14 seat 14 Deborah S. S. Hendrickson Wendy L. L. Marshall Marshall The two Boards The lwo Boards work with management management to to establish establish policies to further the business affairs of SRP SRP.
The 10 SRP voting voting areas for for The Salt River Valley Water Users' Users' Association Association (the (the SRP Boards and Councils Councils are Association) Association) isis SRP's private private water corporation, corporation, which included in the Salt River included River administers the water rights of 5RP's water righls 375-square-mile water SRP's 375*square-mile Reservoir District Reservoir boundaries. District boundaries. service area, and operates and maintains the irrigation and drainage drainage system. The system. The 10 members of 10 members of the Association Association Board Board of Governors Governors serve serve staggered four-year terms and are elected from voting districts by the the landowners within the water service territory. landowners territory. The Salt River The Salt River Project Project Agricultural Agricultural Improvement Improvement and and Power District (the Power District (the District) District) is is SRP's public public power utility and a political political subdivision of Arizona. The 14 members members of the the District Boord Board of Directors Directors serve staggered four-year terms. Ten District Board Boord members are elected elected from voting divisions and four are elected elected at-large at* large by landowners within the the District's boundaries. District's boundaries. MostMost often, often, candidates candidates seek election election to both Boards. away June 2009
- Passed away 20 20
SRP Councils Councils The two Councils enact and amend bylaws relating to the governancegovernance 01of SRP and also serveserve as liaisons to District electors and Association Association shareholders. As with the SRP Boards, there isis one Councillor Council for the Association and one lor for the District. District. The 30 Association Council Council members elected to staggered members are elected staggered four-year four-year terms from 10 districts. The 30 District Council Council members are elected to staggered four-year terms from 10 divisions. Most often, often, candidates candidates seek election to both Councils. District/ Gerold Gerald E. Geiger E.Geiger Division 1 District/ District/ Appointed July 2009 Division 2 Melvin L. Strahl Melvin L. Strohl Jr. Appointed July 2009 William W. Sheely Appointed August August 2009 rmevln Kevin J.J.Jonnson Johnson ** Richard A.
** A. Boulais Boulais District/
Division 3 District/ Division 4 Michael G. Rakow Paul A. Von Holwegen Garvey M.Biggers Leslie C. Williams District/ District/ Division 5 District/ Division 6 District/ District/ Division 7 District/ District/ Division 8 Harmen Tjaarda Jr. Mark L.Farmer Mark A. Lewis Christopher J.J. Dobson Christopher Dobson ..... Mark C. C.Pedersen Pei District/ Distrlct/ Division 9
~District/ Dlstrict/
Division 10 10 DeWitt Mrk V.Pace
'e~t LChairman W.Curtis Dana Orland R.Hatch William P.Schrader Jr.
- Resigned
.. Resigned April April 2009 2009 -Appointed to
Appointed to Boords Boards August August 2009 2009 *-Appointed
....Appointed May May 2009 ***Appointed September
*****Appointed September 2008 21 SRP 2009 ANNUAL REPORT REPORT
U. Michael Rappoport D. Rappoporn David G. U. Areghini Areghini Jane D. Altano Jane U. Aliano Richard M. Richard M. Hayslip Hayslip B. Bonsall Mark B. Bonsall Barbaro M. Hottnagle Barbara Holfnag/e John F.F Sullivan John Officers Corporate Officers, Corporate Corporate Headquarters Headquarters John M. Williams Jr. Jr. Street address Street address President President SRP SRP 1521 North Project Dr. David Rousseau Rousseau Tempe, Arizona Tempe, Arizona Vice President
.Vice President Mailing address Lonon Terrill A. Lonon SRP Secretary PO.
P.O. Box 52025 52025 Aidan J. McSheffrey McSheffrey Phoenix, AZ 85072-2025 85072-2025 Treasurer Executive Management Executive Management Financial Inquiries Financial Inquiries Dean Yee, Manager, SRP Financial Services Services Richard H.H. Silverman Silverman (602) 236-5231 (602) General Manager Manager David G. Areghini Requests Requests for Annual Reports Reports Associate General Associate General Manager Manager For additional copies of this report, or SRP quarterly quarterly reports, call Construction & Power, Construction & Engineering Services Services (602) 236-2598. SRP at (602) Mark B.B. Bonsall Associate General Manager Manager Commercial & & Customer Services Services Changes to Mailing Mailing List List For corrections or other changes to the mailing list for this report, other changes Richard M. Hayslip Richard Hayslip (602) 236-2564. call SRP at (602) Associate General Manager Associate Manager Environmental, HR, HR, Land/PPC, Risk Management Management & & Telecom Telecom Bondholder Information Bondholder Information Hoaffnagle Barbara M. Hoffnagle For all bond information, information, call the SRP Treasury Department Treasury Department Associate General Associate General Manager Manager at (602) 01 (602) 236-2222. Information Technology Technology && Operations Operations Support Support Services Services D. Michael Michael Rappoport www.srpnet.com Associate General Associate General Manager Manager Public && Communications Communications Services John F.F. Sullivan Sullivan Associate General Manager Manager Group Water Group Jane Jane D. Alfano Alfano Corporate Counsel 22 22
Five-Year Five-Year Operational Operational and Statistical Statistical Review Review Financial Financial Data Data ($000) 2009 2008 2007 2006 2005 2005 Total operating revenues revenues ................... 2,767,024
;$i;{:i67;624 ., $2,739,123 $2,630,733 $2,521,970
$2,521,970 $2,251,723
$2,251,723 Retail Retail electric electric revenues revenues ........... ........ ******.,2,3l8:~Bi>**
2,318,582 .* 2,212,807 2,212,807 2,054,652 2,054,652 1,885,912 1,885,912 1,709,213 1,709,213 Water revenues Water revenues ................................. . . . \i4,10714,107 14,339 14,339 12,893 12,036 12,036 12,786 O ther revenues Other revenues ~FJr~j4 ,335 i'
. 4................................
34,335- i. 511,977 563,188 624,022 529,724 Total operating operating expenses ................ 2,772 8,075,. 2,778,075. 2,416,908 2,416,908 2,213,544 2,213,544 2,139,702 1,815,538 1,815,538 Total other income, net ................ (1103,497) (1.03,497) 58,104 90,224 158,966 31,902 Net costs ............................. Net financing costs. 132,474 1}2,474 123,216 123,216 139,623 139,623 125,834 105,637 105,637 Net revenues revenues for the year ..................... (247,022) (247,022) 257,1.03 257,103 367,790 367,790 415,400 362,450 362,450 Taxes and and tax equivalents equivalents ............ 92,840 93,376 97,607 100,953 105,475 105,475 Utility plant, gross ... .............. 11,783,596 11,783,596 10,866,410 9,912,865 9,384,134 9,384,134 9,043,377 9,043,377 Long-term debt ...............
.. ...... 3,831,657 3,831,657 . " 3,679,929 3,041,408 3,041,408 2,893,017 2,727,348 2,727,348 Electric contributions Electric revenue 'contributions ,.-
to support water operations operations........... 33,167 . 47,017 34,792 34,161 56,672
- ~ ,
Selected Data Data Debt service service coverage ratio .................
. , 33 2.82 3.09 2.42 2.39 2.39 Debt ratio (percent)..
(percent) . ......... ........ ...... . 51.6 48.9 45.7 47.9 50.1 50.1 electric sales (million lWh) Total electric kWh) ........ 33,064 33,998 33,872 32,658 32,577 Peak-SRP retail customers (kW) ........ 6,410,000 6,578,000 6,590,000 6,590,000 6,044,000 6,044,000 5,665,000 5,665,000 Water deliveries (acre-feet)* Water deliveries (acre-feet)- . .7 , i:(_ 794,235 854,093 854,093 870,165 *. 860,584 (acre-feet)* ............. Runoff (acre-feet)- . ............ .-..
- . 1,698,219 1,698,219 696,550 696,550 456,318 2,055,554 Employees at year end** end" ................... ,4 461 ..
- 4.,461 4,431 4,388 4,328 4,336 4,336 Customers at year end end. ........................ 9337 9~3;771 71 928,992 919,422 919,422 892,875 858,314 858,314
- Water data data is by by calendar year; all 0/1 other dotodata is by fiscal fiscal year yeor ending April April 30.
30 .
** Excludes non-regular non-regulor employees such as temporarytemporary employees, students and and apprentices.
apprentices. 23 23
-4 3 3
-3, 3 4 34 373 3'43/4/33 33-3/4~
~33f -33333 3, 3 3/4
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SALT RIVER PROJECT FINANCIAL STATEMENTS COMBINED FINANCIAL STATEMENTS AS 30, 2009 AND 2008
. OF APRIL 30,2009 TOGETHER WITH REPORT TOGETHER REPORT OF INDEPENDENT AUDITORS INDEPENDENT AUDITORS
SALT RIVER RIVER PROJECT COMBINED COMBINED BALANCE BALANCE SHEETS APRIL 30, 2009 2009 AND 2008 AND 2008 (Thousands) ASSETS 2009 2008 Plant Utility Plant Plant in Service - Electric Electric $$ 9,299,342 9,299,342 8,943,588
$ 8,943,588 Irrigation Irrigation 304,032 304,032 294,038 294,038 Common Common 505,524 505,524 488,692 488,692 Total plant in service service 10,108,898 10,108,898 9,726,318 9,726,318 Less - Accumulated depreciation on plant in service Accumulated depreciation service (4,988,868) (4,687,090) 5,120,030 5,120,030 5,039,228 5,039,228 Plant held for future useuse 3,883 3,726 3,726 Construction work in,progress Construction in.progress 1,559,300 1,559,300 1,041,462 1,041,462 Nuclear Nuclear fuel, net net 111,515 111,515 94,904 6,794,728 6,794,728 6,179,320 Other Property Investments Property and Investments Non-utility property and other investments Non-utility 206,825 194,900 Segregated Segregated funds, net of current portion 1,039,178 1,039,178 1,153,803 1,246,003 1,246,003 1,348,703 Current Assets Cash and cash equivalents equivalents 379,482 379,482 414,428 414,428 Temporary investments Temporary investments 145,664 106,556 106,556 segregated funds Current portion of segregated 211,498 211,498 232,303 232,303 Receivables, net of allowance allowance for doubtful accounts 183,680 241,626 241,626 Fuel stocks 44,622 44,622 37,829 37,829 Materials and supplies 133,868 133,868 124,160 124,160 Current derivative assets 60,193 101,795 101,795 Other current assets 19,163 19,163 13,732 13,732 1,178,170 1,178,170 1,272,429 1,272,429 Deferred Charges and Other Assets Regulatory assets 779,299 569,814 569,814 Non-current derivative assets 5,790 5,790 58,520 58,520 deferred charges and other assets Other deferred 69,313 86,759 86,759 854,402 715,093
$$ 10,073,303 10,073,303 $$ 9,515,545 The accompanying accompanying notes are an integral part of these combined combined financial statements.
1
SALT RIVER PROJECT. RIVER PROJECT. COMBINED BALANCE COMBINED BALANCE SHEETS APRIL 30, 2009 AND AND 2008 2008 (Thousands) CAPITALIZATION CAPITALIZATION AND AND LIABILITIES 2009 2008 Long-term Long-term Debt Debt $$ 3,831,657 3,831,657 $ 3,679,929 3,679,929 Accumulated Net Revenues Accumulated Revenues and Other Comprehensive Comprehensive Income*Income 3,591,813 3,591,813 3,838,835 3,838,835 Total Capitalization Capitalization 7,423,470 7,423,470 7,518,764 7,518,764 Current Liabilities Current Liabilities Current Current portion of long-term long-term debt debt 132,645 132,645 170,748 170,748 Commercial Commercial Paper Paper 375,000 375,000 Accounts payable Accounts payable 248,454 248,454 284,295 Accrued Accrued taxes and tax equivalents 62,686 72,600 72,600 Accrued interest Accrued interest 63,779 49,122 Customers' deposits
*Customers' 80,010 80,010 79,049 79,049 Current Current derivative liabilities derivative liabilities 162,286 162,286 5,460 5,460 Other current liabilities liabilities 285,998 285,998 302,722 302,722 1,410,858 1,410,858 963,996 963,996 Deferred Credits and Deferred Non-current Liabilities Other Non-current Liabilities Accrued post-retirement post-retirement liability 792,328 792,328 597,239 597,239 Asset retirement retirement obligations obligations 187,801 187,801 177,331 177,331 Non-current Non-current derivative liabilities 39,511 583 deferred credits and other non-current liabilities Other deferred liabilities 219,335 219,335 257,632 1,238,975 1,238,975 1,032,785 1,032,785 Commitments Commitments and Contingencies Contingencies (Notes 7, 9, 10, 13 13 and 14)
$ 10,073,303 $ 9,515,545 The accompanying accompanying notes notes are an integral integral part part of these combined financial statements.
2
SALT RIVER PROJECT STATEMENTS OF NET REVENUES COMBINED STATEMENTS COMBINED AND COMPREHENSIVE INCOME REVENUES AND FOR THE YEARS ENDED ENDED APRIL 30, 2009 AND 30,2009 AND 2008 (Thousands) 2009 2008 2008 Operating Revenues Operating Revenues electric Retail electric $ 2,318,582 2,318,582 $ 2,212,807 2,212,807 Water Water 14,107 14,107 14,339 14,339 Other 434,335 434,335 511,977 511,977 operating revenues Total operating revenues 2,767,024 2,767,024 2,739,123 2,739,123 Operating Expenses Operating Expenses Power purchased purchased 581,731 581,731 486,406 486,406 Fuel used in electric generation generation 948,335 677,871 677,871 expenses Other operating expenses 499,643 484,954 484,954 Maintenance Maintenance 270,678 304,824 Depreciation and amortization Depreciation amortization 384,848 369,477 Taxes equivalent Taxes and tax equivalent 92,840 92,840 93,376 93,376 Total operating expenses expenses 2,778,075 2,416,908 2,416,908 Net operating operating revenues (expenses) (11,051) 322,215 Other Income Other Income Investment income (loss), Investment net (loss), net (99,669) 62,657 62,657 Other income (deductions), net net (3,828) (4,553) Total other income, net net (103,497) 58,104 58,104 Net revenues (expenses) before financing costs (114,548) 380,319 Financing Costs Interest on bonds Interest bonds 160,747 160,747 123,455 123,455 Capitalized interest interest (44,643) (23,552) issuance expenses discount/premium and issuance Amortization of bond discount/premium expenses (6,174) (5,962) Interest on other obligations Interest obligations 22,544 29,275 Net financing financing costs 132,474 132,474 123,216 123,216 Net Revenues Revenues (Expenses) (247,022) 257,103 Other Comprehensive Income (Loss) Other Comprehensive (Loss) (25,164) Comprehensive Income Comprehensive Income (Loss) $ (247,022) $ 231,939 accompanying notes are an integral part of these The accompanying these combined combined financial statements. 33
SALT RIVER SALT RIVER PROJECT PROJECT COMBINED COMBINED STATEMENTS STATEMENTS OF CASH FLOWS CASH FLOWS FOR THE YEARS ENDED APRIL APRIL 30, 2009 AND AND 2008 (Thousands) 2009 2008 Cash Flows from Operating Activities Net Revenues Revenues $$ (247,022) $ 257,103 Adjustments to reconcile net net revenues revenues to net cash provided provided by operating operating activities: activities: Depreciation, Depreciation, amortization and accretion accretion 384,848 384,848 369,477 Amortization of net bond discount/premium and issuance Amortization issuance expenses expenses (6,174) (5,963) Change Change in fair value derivative instruments value of derivative instruments 327,769 327,769 (92,707) (92,707) Change Change in fair value value of investment investment securities securities 92,271 (Loss) gain on sale of capital assets (643) (301) Decrease (increase) in: Decrease Fuel stocks and materials and supplies supplies (16,501) (28,347) Receivables, including Receivables, including unbilled revenues, net net 57,946 (15,170) Other current current assets (47,256) (10,168) Deferred Deferred charges charges and other assetsassets (188,624) (10,046) Increase Increase (decrease) in: in: Accounts payable payable (99,726) 65,268 65,268 Accrued taxes and tax equivalents (9,914) (2,535) Accrued interest interest 14,657 14,657 1,476 1,476 Current liabilities liabilities 9,971 19,768 19,768 Deferred credits and other non-current Deferred non-current liabilities 121,471* 121,471 (13,180) provided by operating Net cash provided operating activities 393,073 393,073 534,675 534,675 Cash Flows from Investing Investing Activities Activities Additions to utility plant, netnet (955,457) (1,073,997) Proceeds Proceeds from disposition of assets assets 5,176 9,101 Purchases Purchases of investments (1,033,979) (1,344,636) Sales and maturities maturities of investments investments 999,617 999,617 1,210,608 1,210,608 Net Net change in short-term investments investments related to segregated segregated funds funds 62,768 62,768 (83,848) Net Net cash used used for investing activities activities (921,875) (1,282,772) Cash Flows Financing Activities Flows from Financing Activities Proceeds issuance of revenue Proceeds from issuance bonds revenue bonds 760,606 816,139 Retirement Retirement of commercial commercial paper paper (100,000) Repayment Repayment of long-term long-term debt, including including refundings (166,750) (148,764) Net cash provided provided by financing activities 493,856 493,856 667,375 Net Increase Increase (Decrease) in Cash and Cash Equivalents Equivalents (34,946) (80,722) Balance at Beginning of Year in Cash Cash and Cash Equivalents 414,428 495,150 Balance at End of Year in Cash Balance Cash and Cash Equivalents $$ 379,482 $ 414,428 Supplemental Information Supplemental Information Cash paid for interest (net of capitalized interest) $ 124,526 $ 127,702 127,702 The accompanying accompanying notes are an integralintegral part of these combined combined financial statements. 4
SALT RIVER PROJECT COMBINED FINANCIAL NOTES TO COMBINED FINANCIAL STATEMENTS STATEMENTS APRIL 30, 2009 ANDAND 2008 2008 (1) (1) BASIS BASIS OF PRESENTATION: PRESENTATION: The Company Company Agricultural Improvement The Salt River Project Agricultural Improvement and Power Power District (the District) is an agricultural improvement district organized improvement organized in .1937 under the laws of the State of Arizona. It operates the Salt 1937 under Salt River Project (the Project), a reclamation project, under contracts a federal reclamation contracts with the Salt River Valley Water Users' Association (the Association), by which it has assumed the obligations and assets Water Users' assets of the Association, including Association, including its obligations United States of America obligations to the United America for the care, operation and maintenance of the Project. The District owns and operates an electric system that generates, maintenance purchases, transmits and distributes electric power power and energy, and provides electric service to to residential, commercial, industrial industrial and agricultural power power users in a a 2,900 square mile service service territory Maricopa, Gila and Pinal Counties, plus mine loads in parts of Maricopa, adjacent 2,400 square mile area loads in an adjacent area in Gila and Pinal Counties. The Association, incorporated under Association, incorporated laws of the Territory of Arizona in under the laws operates an irrigation system as the agent of the District. The District and the Association are 1903, operates
- 1903, together referred to as SRP.
together SRP. Possession and Use of Utility Plant Plant The United States of America retains a paramountparamount right or claim in the Project that arises from the operation of certain construction and operation original construction certain of the Project's electric electric and water a federal water facilities as a reclamation project. Rights to the possession and use of, and to all revenues produced reclamation produced by, these these facilities evidenced by contractual facilities are evidenced arrangements with the United contractual arrangements America. United States of America. Basis of Accounting Accounting The accompanying accompanying combined financial statements are presented in conformity with accounting financial statements accounting generally accepted in the United principles generally United States of America (GAAP) and reflect the pricing policies of America (GAAP) the District's Board of Directors (Board). The District's electric operations District's electric operations apply Statement Statement of Financial Financial Accounting Standards (SFAS) Accounting Standards "Accountingfor the Effects of Certain (SFAS) No. 71, "Accounting Certain Types of Regulation," (SFAS (SFAS No. 71). By virtue of SRP operating operating a reclamation project under contract, with the federal government's a federal reclamation government's pre-emptive pre-emptive rights, asset ownership ow'nership and certain approval approval rights, SRP is considered for financial reporting purposes to follow accounting accounting standards standards as set forth by the Federal Federal Accounting-Standards Accounting Standards Advisory (FASAB). Entities Advisory Board (FASAB). accordance with the standards Entities reporting in accordance standards issued by the Financial Accounting Accounting Standards Board (FASB) Standards Board (FASB) prior to October 19, 1999 1999 (the date the American Institute of American Institute Accountants (AICPA) designated the FASAB as the accounting Certified Public Accountants standard setting body for accounting standard entities under permitted to continue to report under the federal government) are permitted accordance with those report in accordance those standards. Consequently, SRP's financial statements accordance with FASB standards. statements are reported in accordance The preparation of financial statements in compliancecompliance with GAAP requires requires management management to make make assumptions that affect the reported amounts in the financial statements estimates and assumptions statements and and disclosures of contingencies. Actual results could differ from the estimates. 5
Regulation and Pricing Policies Regulation Policies Under Under Arizona law, the District's publicly publicly elected elected Board has the authority to establish establish electric prices. The District is required to follow certain public notice and special special Board meeting meeting procedures before procedures before implementing implementing any changes in the standard electric price plans. (2). SIGNIFICANT ACCOUNTING POLICIES: SIGNIFICANT ACCOUNTING Regulatory Accounting Regulatory Accounting The District accounts for the financial effects of the regulated portion of its operations in accordance accordance with provisions of SFAS No. 71, which the provisions which requires cost-based, rate-regulated reflect the impacts of rate-regulated utilities to reflect of regulatory decisions in their financial statements. The District records regulatory regulatory assets, which represent records regulatory represent probable recovery of certain costs from customers through the pricing probable future recovery pricing process, and regulatory liabilities, represent probable future credits to customers through the ratemaking process. The liabilities, which represent The includes the following regulatory assets in the accompanying District includes accompanying Combined Balance Balance Sheets as of of 30:. April 30: 2009 2008 2008 Pension and other other postretirement postretirement benefits (Note 9) $ 609,390 609,390 $$ 416,627 416,627 Bond defeasance defeasance 78,280 82,459 82,459 (Note 12) Generating Station (Note Mohave Generating 52,004 59,804 Nuclear decommissioning decommissioning (Note 2) 2) 39,625 10,924 10,924 Total regulatory assets $ 779,299 569,814
$ 569,814 The pension and other postretirement regulatory asset is adjusted postretirement benefits regulatory changes in actuarial adjusted as changes actuarial.
gains and losses, prior service costs and transitiontransition assets or obligations obligations are recognized as components components of net periodic pension costs each year recovered through prices year and is recovered charged to customers. Bond prices charged Bond defeasance defeasance regulatory assets assets are recovered over the remaining original amortization period period of thethe reacquired reacquired debt ending in fiscal year 2031. The Mohave Generating Station regulatory Mohave Generating Station regulatory asset is being recovered ten-year period recovered over aa ten-year period ending in fiscal year 2016. The nuclear decommissioning regulatory nuclear decommissioning deferred over the life of Palo Verde Nuclear asset is being deferred Generating Station Nuclear Generating (PVNGS) and is being Station (PVNGS) recovered recovered through a a component component of the system benefitsbenefits charge. Based actions of the Board, Based on actions Board, the District believes the future collection deferred through collection of costs deferred regulatory regulatory assets is is probable. If If events were to occur making full recovery of these regulatory regulatory assets no no longer probable, the District would be required to write off the remaining balance longer balance of such assets as a a one-time charge to net revenues. Principles Principles of Combination Combination accompanying combined The accompanying statements reflect the combined accounts combined financial statements accounts of the Association Association and the District. The District's financial statements consolidated with its three wholly-owned statements are consolidated wholly-owned subsidiaries: SRP Captive Risk Solutions, Limited (CRS), taxable subsidiaries: (CRS), Papago Park Center, Inc. (PPe) (PPC) and NewNew West Energy Corporation (New (New West Energy). Energy). CRS is a domestic captive insurer incorporated primarily is a domestic captive insurer incorporated primarily property/boiler and machinery to access property/boiler machinery insurance coverage under insurance coverage under the Federal Terrorism Terrorism RiskRisk Insurance Act of 2002 for certified acts of terrorism. PPC is a a real estate management management company. New New West Energy Energy was usedused to market, at retail, energy available to the District that was surplus to the needs needs of its retail customers, and energy that might have been rendered rendered surplus in Arizona by retail competition competition in the supply of generation, but is now largely largely inactive. inactive. All material material inter-company inter-company transactions and balances have transactions have been eliminated. been eliminated. 6
Plant Utility Plant Utility plant is stated stated at the historical historical cost of construction, less any impairment losses. Capitalized Capitalized construction costs include labor, materials, services purchased construction purchased under contract, and allocationsallocations ofof indirect charges for engineering, supervision, transportationtransportation and administrative administrative expenses and and capitalized interest or an allowance capitalized allowance for funds used during construction (AFUDC).The (AFUDC). The cost of property that is replaced, removed or abandoned, together with removal costs, less salvage, is charged to abandoned, together to accumulated accumulated depreciation. depreciation. Depreciation expense is computed on the straight-line Depreciation expense straight-line basis over the estimated estimated useful lives of the various classes of plant assets. The following table reflects the District's average depreciation various depreciation rates on on average cost of depreciable the average depreciable assets, for the fiscal years endedended April 30: 2009 2008 Average electric electric depreciation depreciation rate 3.67% 3.66% 3.66% Average irrigation irrigation depreciation depreciation rate 2.02% 2.05% 2.05% depreciation rate Average common depreciation 6.54% 6.49% Allowance for Funds Allowance Funds Used During During Construction AFUDC is the estimated estimated cost of funds used used to finance finance plant additions additions and is recovered in prices through through depreciation depreciation expense over the useful life of the related related asset. AFUDC is capitalized duringduring certain plant plant construction and included included in capitalized interest in the Combined Combined Statements Statements of Net Revenue and and Comprehensive Comprehensive Income. Composite rates of 4.52% and 4.76% were used in fiscal years 2009 and 2008 Income. Composite 2008 to calculate interest interest on funds used to finance construction work in progress, resulting in $44.6 million finance construction million
$23.6 million of interest capitalized, respectively.
and $23.6 Nuclear Fuel Nuclear The District amortizes the cost of nuclear nuclear fuel using the units-of-production units-of-production method. The units-of-production method production method is an amortization amortization method method based on actual physical usage. The nuclear nuclear fuel amortization and accrued accrued expenses expenses for both the interim and permanentpermanent disposal of spentspent nuclear fuel are components of fuel expense. Accumulated amortization of nuclear fuel at April 30, 2009 and 2008 2008 was $447.0
$447.0 million and $425.7 and $425.7 million, respectively. (See Note (14) CONTINGENCIES, CONTINGENCIES, Spent Nuclear Fuel Nuclear for additional information).
Asset Retirement Retirement Obligations Obligations SRP accounts for its asset retirement obligations obligations in accordance accordance with SFAS No. No. 143, "Accounting "Accounting forfor Retirement Obligations," Asset Retirement Interpretation No. 47, "Accounting Obligations," (SFAS No. 143) and FASB Interpretation "Accounting forfor Conditional Conditional Asset Retirement Obligations Obligations - an interpretation interpretation of FASB Statement No. No. 143," (FIN 47). SFAS No. No. 143 requires the recognition and measurement measurement of liabilities for legal legal obligations associated associated with the retirement of tangible long-lived tangible long-lived assets. Under the standard, standard, these liabilities liabilities are recognized at at fair value value as incurred incurred and capitalized as part of the cost of the related tangible tangible long-lived long-lived assets. passage of time, is an operating expense and the capitalized Accretion of the liabilities, due to the passage capitalized cost cost is depreciated depreciated over the useful life of the long-lived asset. RetirementRetirement obligations associated associated with long-lived assets assets included within the scope scope of SFAS No. 143 are those for which aa legal obligation exists exists under enacted laws, statutes, and written written or oral contracts, including obligations obligations arising underu"nder the doctrine of promissory estoppel. 7 7
The District has identified retirement obligations for the PVNGS, Navajo Generating Generating Station (NGS),(NGS), Four Four Corners Generating Generating Station (Four Corners) and certain certain other assets. Amounts recorded under Amounts recorded under SFAS No. 143, are subject to various assumptionsassumptions and determinations, such as determining determining whether an an obligation obligation exists to remove assets, estimating the fair value of the costs of removal, estimating estimating when final removal will occur, and determining credit-adjusted, risk-free interest rates to be utilized on determining the credit-adjusted, discounting future liabilities. Changes discounting Changes that may arise over time with regard to these assumptions assumptions and determinations determinations will change amounts recorded in the future as expense for asset retirement amounts recorded retirement obligations. PVNGS received an updated PVNGS updated decommissioning decommissioning study during fiscal year 2008, which resulted in a decrease of $32.2 million to the District's decrease District's share of the PVNGS asset retirement obligation. A summary of the asset retirement obligation obligation activity of the District at April 30 is included included below (in (in thousands): 2009 2008 Beginning Beginning balance, May 11 $ 177,331 $ 195,005 Liabilities incurred during the year Liabilities 2,468 Changes in in estimate (415) (32,189) Accretion expense 10,885 10,885 12,047 12,047 Ending Ending balance, balance, April 30 $$ 187,801 $$ 177,331 177,331 Investments in Debt and Equity SecuritiesSecurities SRP accounts and reports for investments in debt and equity securities accordance with SFAS No. securities in accordance "Accountingfor Certain 115, "Accounting Certain Investments in Debt and Equity Securities," (SFAS and Equity securities (SFAS No. 115). Debt securities that SRP has the positive intent and ability to hold to -maturity maturity are classified as held-to-maturity securities and reported at amortized securities amortized cost. Debt and equity securities that are bought and held held purpose of selling them in the near term are classified as trading principally for the purpose trading securities and unrealized gains and losses included reported at fair value, with unrealized included in earnings. Debt and equity securities securities not classified as either held-to-maturity securities or trading securities either held-to-maturity securities are classified as available-for-available-for-sale securities reported at fair value, with unrealized securities and reported unrealized gains and losses excluded from earnings earnings and and accumulated other comprehensive income. SRP has adopted reported in accumulated adopted SFAS No. FairValue No. 159, "The Fair Option for Financial Financial Assets and Financial Liabilities - Including FinancialLiabilities Including an amendment to FASB Statement No. 115," 115," (SFAS No. 159) for all securities securities previously classified as available-for-sale. previously classified available-for-sale. (See Note (3) FAIR FAIR VALUE OF FINANCIAL INSTRUMENTS.) INSTRUMENTS.) Securities Securities Lending The District participates participates in aa securities securities lending lending program for certain investments held in equity securities. securities. Under program, the District receives Under the program, receives collateral having a market market value not less than 102% of the market value of the loaned securities. The collateral collateral received invested in a received is invested a collateral pool made up of fixed income securities and are classified income securities classified as trading securities accordance with SFAS No. securities in accordance No. 115. During fiscal year 2009, the District determined determined that the collateral collateral received received and corresponding corresponding obligation to return the collateral recorded in the prior year. The district revised the collateral had not been recorded previously issued financial statements issued financial statements to reflect these amounts, resulting in an increase to current current segregated funds by $133.5 portion of segregated corresponding increase in other current liabilities
$133.5 million, with aa corresponding liabilities accompanying Combined in the accompanying Combined Balance Sheets Sheets at April 3D,30, 2008.
88
Segregated Funds Segregated The District sets aside funds that are segregated due to management management intent and and to support support various purposes. These segregated funds also include amounts amounts that are legally restricted. The following amounts are included in in segregated funds in in the accompanying accompanying Combined Combined Balance Sheets at April 30 (in (in thousands): 2009 2008 2008 legally restricted Segregated funds --legally (see "Capital Construction Fund (see "Capital Improvement Improvement Program" Program" in in Note Note 13) $
$ 421,856 $ 412,782 Decommissioning Trust Nuclear Decommissioning Trust (see "Nuclear Decommissioning" in "Nuclear Decommissioning" in Note 2)
- 2) 152,111 194,510 Roosevelt Habitat Conservation Plan (see "Environmental" "Environmental" in 14) in Note 14) 9,545 9,545 -
NGS Settlement Trust NGS 1,818 - Debt Debt Reserve (see "Revenue Reserve Fund (see "Revenue Bonds" Bonds" inin Note 7)
- 7) 80,598 81,146 Collateral investment pool (see "Securities Lending" (see "Securities Lending" inin Note 2)2) 112,499 133,538 Total segregated funds -legally
- legally restricted 778,427 821,976 821,976 Segregated funds - other Benefits funds 372,455 464,011 Debt Service Fund Fund (see "Revenue Bonds" in "Revenue Bonds" in Note 7)
Note 7) 99,000 98,765 Other 794 1,354 Total segregated funds - other other 472,249 564,130 564,130 segregated funds, including current portion Total segregated $ 1,250,676 $
$ 1,386,106 Nuclear Decommissioning Nuclear Decommissioning In accordance with regulations of the Nuclear Regulatory Commission, Nuclear Regulatory Commission, the District District maintains a trust for the decommissioning decommissioning of PVNGS.PVNGS. The Nuclear Decommissioning Decommissioning Trust (NDT) (NOT) funds -are are invested debt invested in debt and equity securities. As of May 1, 1, 2008, the District elected elected to apply the fair value option to these securities which are now reported reported as trading securities. Prior to the election of the fair value option, these securities were classified as available-for-sale.
available-for-sale. The NDT NDT funds, stated at fair value, as of April 30, 2009 and 2008, were $152.1 $152.1 million and $194.5$194.5 million, respectively. The NDT NDT funds are classified as as segregated funds in in the accompanying Combined Combined Balance Sheets and and are exempt fromfrom federal and state income taxes. (See Note (3) OPTION for additional information (3) FAIR VALUE OPTION information about the NDT.) NDT.) In fiscal year 2008, the Board Board authorized the future recovery through prices of all costs associated with nuclear decommissioning. As a result, any difference between between current year costs and revenues associated with nuclear nuclear decommissioning decommissioning are deferred in accordance are deferred accordance with SFAS No. 71 and and have no no impact impact to the District's earnings. (See NOTE NOTE (2) (2) SIGNIFICANT SIGNIFICANT ACCOUNTING ACCOUNTING POLICIES, POLICIES, Regulatory information.) Accounting for additional information.) Cash Cash Equivalents Cash equivalents include money market market funds and and highly liquid short-term investments with original original maturities of three months months or less, excluding those short-term short-term investments investments included as part of the segregated funds and investments investments included in in non-utility non-utility property and other investments in in the accompanying accompanying Combined Combined Balance Sheets. (For (For further discussion instruments see Note discussion of financial instruments Note (5) (5) MEASUREMENTS.) FAIR VALUE MEASUREMENTS.) 9
Allowance Allowance for Doubtful Accounts Accounts The District has has provided for an allowance allowance for doubtful accounts of $9.3 million and $12.1 $12.1 million as of April 30, 2009 and 2008, respectively. Materials and Supplies, and Fuel Stocks Materials Materials Materials and supplies are stated at lower of market market or average cost. Fuel stocks are stated at lower of market market or weighted average cost. Bond Expense Expense Bond discount, premium premium and issuance expenses expenses are deferred deferred and amortized using the effective interest effective interest method method over the terms of the related bond issues. Voluntary Contributions Voluntary Contributions in Lieu lieu of Taxes In accordance accordance with legislation, legislation, the District makes voluntary contributions contributions each year to the State of Arizona, school districts, cities, counties, towns and other political subdivisions of the State of Arizona, Arizona, for which property taxes are levied and within whose boundaries the District District has property devoted devoted to furnishing electric service. service. As aa political subdivision of the State of Arizona, the District is exempt exempt from property property taxation. taxation. The amount amount paid is computed on the same basis as ad valorem valorem taxes paid by aa private utility corporation corporation with allowance allowance for certain water-related water-related deductions. deductions. Contributions based on on the costs of construction construction work in progress are capitalized, capitalized, and those based on plant-in-service plant-in-service are expensed. expensed. Revenue Revenue Recognition Recognition The District recognizes recognizes revenue when billed and accrues estimated revenue for electricity electricity delivered to customers customers that has has not yet been billed. The estimated estimated revenue revenue for electricity delivered but not yet yet billed is included in retail electric electric revenue and was $62.1$62.1 million and $64.0
$64.0 million at April 30, 2009 and
- 2008, 2008, respectively. Other Other operating operating revenue consists consists primarily primarily of revenue marketing and trading revenue from marketing electricity.
The electric industry engages engages in an activitycalled activity called "book-out" "book-out" under which some energy energy purchases are are netted netted against sales and power does not actually actually flow in settlement settlement of the contract. The District presents presents the impacts of these financially financially settled contracts contracts on aa net basis, which resulted in aa net net reduction reduction to revenue and purchase purchase power expense of $115.1 $115.1 million and $166.1
$166.1 million for fiscal years 2009 and 2008, respectively, but which did not impact net revenues revenues or cash flows.
Sales and Use Taxes The District is required by various government government authorities, including including states and municipalities, municipalities, to collect collect and remit taxes on certain retail sales. Such taxes are presented on aa net basis and excluded from revenues and expenses expenses in the combined combined financial statements. Taxes Income Taxes The District is exempt from federal and Arizona state income taxes. The Association is not exempt exempt from federal and Arizona state incomeincome taxes. The Association Association is not liable liable for income taxes on operations operations 10
relating to its acting acting as an agent for the District on the basis of a a settlement with the Commissioner of of Internal Revenue Revenue in 1949 which was approved by the Secretary Secretary of the Treasury. The Association is is liable for income taxes on activities acting as an agent activities where it is not acting agent of the District. The tax effect of of District's wholly-owned the District's subsidiaries' operations is immaterial to the combined financial wholly-owned taxable subsidiaries' statements. statements. Accounting Accounting for Energy Risk Management Activities Management Activities The District has an energy risk management management program to limit exposure exposure to risks inherent in. in normal energy business operations. The goal of the energy risk management management program is to measure and manage exposure to market market risks, credit risks and operational operational risks. Specific goals of the energyenergy risk risk management program include reducing the impact of market management market fluctuations fluctuations on energy commodity commodity prices associated with customer energy requirements, requirements, excess generation generation and fuel expenses, in addition addition to meeting customer pricing meeting pricing needs, and maximizing the value of physical generating generating assets. The District District employs established established policies and procedures procedures to meet the goals goals of the energy energy risk management management program using various physical and financial instruments, including including forward contracts, futures, swaps and options. Certain of these transactions transactions are accounted derivatives under SFAS No. accounted for as derivatives "Accounting for No. 133, "Accounting Derivative Instruments Derivative Instruments and Hedging Activities," Hedging Activities," as amended amended (SFAS No. 133). 133). Under SFAS No. 133,133, derivatives are recorded recorded in the balance sheet sheet as either an asset measured at their fair value. asset or liability measured The standard also requires changes changes in the fair value of the derivative derivative to be recognized each each period in current earnings earnings or other comprehensive comprehensive incomeincome depending depending on the purpose for using the derivative derivative and/or its qualification, qualification, designation designation and effectiveness as a a hedging transaction. Many of the District's District's contractual agreements agreements qualify qualify for the normal normal purchases purchases and normal normal sales exception exception allowed under SFAS No. 133 and are not recorded at market market value. This exception applies to physical physical sales andand purchases of power or fuel where it is probable that physical delivery delivery will occur; the pricing provisions are clearly clearly and closely related to the contracted contracted prices; and the SFAS No. No. 133 documentation requirements are met. (For further explanation explanation of the effects effects of SFAS No. 133 133 on SRP's financial results, see Note (4), DERIVATIVE INSTRUMENTS.) DERIVATIVE INSTRUMENTS.) Concentrations of Credit Risk Concentrations The use of contractual arrangements arrangements to managemanage the risks associated associated with changes in energy commodity prices creates creates credit risks resulting from the possibility of nonperformance by counterparties nonperformance counterparties pursuant pursuant to the terms of their contractual contractual obligations. In In addition, volatile energy prices can create significant significant credit exposure from energy market market receivables receivables and mark-to-market mark-to-market valuations. The District has a credit policy for wholesale continuously monitoring wholesale counterparties, continuously monitoring credit exposures, routinely routinely assessing the financial strength of its counterparties, counterparties, minimizing credit risk by dealing dealing primarily with creditworthy creditworthy counterparties, counterparties, entering into standardized standardized agreements which allow allow netting of exposures to and from aa single counterparty, and requiring letters of credit, parent parent guarantees guarantees or other collateral when it does does not consider the financial strength of aa counterparty counterparty sufficient. Recently Issued Issued Accounting Standards Accounting Standards Statements of Financial Accounting FASB has issued the following Statements Accounting Standards (SFAS),(SFAS), Staff Positions Staff Positions (FSP), Emerging Issues Task Force Opinions (EITF) (FSP), (EITF) and Interpretations Interpretations (FIN) (FIN) that may have an impact impact onon SRP: 11 11
September 2006, the FASB issued SFAS No. 157, In September In 157, "Fair Measurements," (SFAS No. 157).
"Fair Value Measurements," 157). SFAS No. 157 defines fair value, establishes establishes methods measuring fair value by applying methods for measuring applying one of three observable market techniques (market approach, approach, income approach or cost approach) income approach approach) and expands required disclosures about fair value measurements. SRP adopted required disclosures adopted the provisions provisions of this standard standard for financial assets and liabilities liabilities and nonfinancial nonfinancial assets and liabilities measured liabilities measured at fair value effective May effective May 1, 2008. (See Note (5) 1,2008. (5) FAIR VALUE MEASUREMENTS.)
MEASUREMENTS.) February 2007, the FASB issued SFAS No. 159 In February 159 which provides an option to report eligible financial assets and liabilities at fair value, with changes in fair value recognized recognized in earnings. Effective May earnings. Effective May 1, 1, 2008, SRP adopted the provisions of this standard for all securities securities previously previously classified as available-for-available-for-sale under SFAS No. 115. (See Note (3) INSTRUMENTS, Fair Value Option for (3) FAIR VALUE OF FINANCIAL INSTRUMENTS, for additional information regarding the adoption of SFAS No. 159.) additional information 159.) In April 2007, the FASB issued FSP No. FIN 39-1, 39-1, "An Amendment to FIN 39, 39, Offsetting of Amounts Contracts," (FSP FIN 39-1) which permits companies to offset fair value amounts Certain Contracts," Related to Certain recognized for the right to reclaim cash collateral collateral (a receivable) obligation to return cash receivable) or the obligation collateral (a payable) against fair value amounts collateral derivative instruments executed with amounts recognized for derivative the same counterparty under a a master netting arrangement. In netting arrangement. In addition, upon the adoption of FSP FIN FIN 39-1, were permitted to change companies were 39-1, companies accounting policy to offset or not offset fair value change their accounting value amounts amounts recognized instruments under master derivative instruments recognized for derivative netting agreements. SRP adopted FSP master netting FSP FIN 39-1 effective May 1, 1, 2008. The adoption had no effect on the combined financial statements. March 2008, the FASB issued SFAS No. 161, "Disclosures In March In "Disclosures about Derivative Instruments about Derivative Instruments and and Hedging an amendment of FASB Statement Activities - an Statement No. 133," (SFAS No. 161). SFAS No. 161 requires additional disclosures related to derivative additional disclosures derivative instruments, including how and why an entity uses instruments, including derivative instruments and related hedged derivative instruments, how derivative derivative hedged items are accounted accounted for and derivative instruments and related hedged items affect an entity's financial position, how derivative position, financial performance, and cash flows. SFAS No. 161 performance, 161 is effective for fiscal years and interim periods beginning beginning after after November November 15, 15, 2008, with early adoption permitted. SRP adopted the provisions adoption permitted. provisions of this standard effective February 1, 2009, which resulted in additional disclosures effective disclosures to the combined financial statements. SFAS No. 161 statements. disclosures only. (See Note (4) 161 affects disclosures (4) DERIVATIVE DERIVATIVE INSTRUMENTS.) INSTRUMENTS.) In December 2008, the FASB issued FSP No. In December "Disclosures by Public No. FAS 140-4 and FIN 46(R)-8, "Disclosures Public Entities Entities (Enterprises) about Transfers (Enterprises) about Transfers of Financial Financial Assets and Interests and Interests in Variable Interest Entities," (FSP FAS Variable Interest Entities," (FSP 46(R)-8). The pronouncement 140-4 and FIN 46(R)-8). pronouncement also amends FASB Interpretation No. 46 (revised FASB Interpretation (revised December 2003), "Consolidation "Consolidation of Variable Interest Entities," Variable Interest Entities," to provide additional disclosures about disclosures about involvement with variable interest entities and qualifying special purpose entities. FSP FAS 140-4 and special purpose and FIN 46(R)-8 were effective for SRP at April 30, 2009, and resulted in additional disclosures disclosures to the the combined combined financial statements. statements. (See Note (11) (11) VARIABLE VARIABLE INTEREST INTEREST ENTITIES.) ENTITIES.) February 2008, the FASB issued FSP No. FAS 157-2, "Effective Date In February Date of FASB Statement Statement No. 157," effective date of FAS No. 157 for all nonrecurring which delayed the effective measurements of nonrecurring fair value measurements liabilities for one year. Accordingly, nonfinancial assets and liabilities nonfinancial Accordingly, SRP has not adoptedadopted FAS No. 157 157 for itsits nonfinancial assets and liabilities, liabilities, except those items recognized items recognized or disclosed at fair value on a recurring basis. SRP will adopt FAS No. 157 157 for nonrecurring measurements of nonfinancial nonrecurring fair value measurements assets and liabilities at MayMay 1, evaluating the impact, if any, that the adoption 1, 2009, and is evaluating adoption of the the standard could have on the combined financial statements. statements. December 2008, the FASB issued FSP No. FAS 132(R)-1, In December 132(R)-i, "Employers Disclosures about Postretirement "Employers Disclosures Postretirement Assets," which amends Benefits Assets," amends SFAS No. 132(R)-1 132(R)-i to require disclosures about require more detailed disclosures about 12 12
employers' employers' plan assets, including employers' employers' investment strategies,strategies, major major categories categories of plan assets, concentrations concentrations of risk within plan assets, and valuation techniques used to measure the fair value of plan assets. The disclosures disclosures about plan assets required by this FSP shall be provided provided for fiscal years ending after after December December 15, 2009. 2009. SRP will adopt these provisions provisions at April 30, 2010, which will result in the inclusion inclusion of additional disclosures disclosures in the combined financial statements. In April 2009, the FASB issued FSP No. FAS 115-2 115-2 and FAS 124-2, 124-2, "Recognition "Recognition and Presentation Presentation of of Other-Than- Temporary Impairments," Other-Than-Temporary Impairments," (FSP (FSP FAS 115-2 and FAS 124-2) 124-2) which changes changes existing existing guidance guidance for determining whether impairment impairment is other than temporarytemporary for debt securities. Under Under FSP FAS 115-2 and FAS 124-2, an entity entity would write down to fair value through earnings, impaired debt debt securities that that it currently intends intends to sell or for which which it is more likely than not it will have before recovery. If an have to sell before an entity does not intend and will not be required to sell a debt security, the entity will separate entity separate the other-impairment into two components: than-temporary impairment than-temporary components: 1) 1) the amount due to credit loss would be be recognized in earnings, and 2) the remaining remaining portion would be recognized recognized in other comprehensive comprehensive income. FSP FAS 115-2 and FAS 124-2 also requires increased increased disclosures including including the amortized cost amortized cost basis, credit losses, a a potential potential increase in major security security categories categories and quarterly quarterly as well as annual disclosures. SRP will adopt FSP FAS 115-2 and FAS 124-2 effective disclosures. effective July 31, does not expect 31, 2009, and does expect provision to impact the combined the provision combined financial financial statements. In June 2009, the FASB issued SFAS No. 167, "Amendments "Amendments to FASB Interpretation 46(R)," (SFAS No. Interpretation No. 46(R)," No. Interpretation to require an enterprise 167). This statement amends the Interpretation 167). enterprise to perform an analysisanalysis to to determine whether the enterprise's determine enterprise's interests give give it aa controlling interest in aa variable interest controlling financial interest interest (VIE) and to assess whether entity (VIE) entity responsibility to ensure that aa VIE operates whether it has an implicit financial responsibility operates designated. The standard also as designated. also requires requires ongoing reassessments whether an enterprise reassessments of whether enterprise is thethe primary beneficiary of a a VIE. The standard will also require enhanced disclosures that will provide enhanced disclosures provide transparent information about an enterprise's more transparent involvement in a enterprise's involvement effective as a VIE. SFAS No. 167 is effective of the beginning beginning of the first annual reporting period period that begins after after November November 15, 15, 2009, 2009, for interim interim periods within that first annual reporting period, and for interim and annual annual reporting reporting periods periods prohibited. SRP will adopt SFAS No. 167 effective application is prohibited. thereafter. Earlier application effective May 1, 2010, and is evaluating the impact, if any, that the adoption evaluating adoption of this standard standard could could have on the combined financial combined financial statements. (3) (3) FAIR FAIR VALUE INSTRUMENTS: FINANCIAL INSTRUMENTS: VALUE OF FINANCIAL Fair Value Option government obligations, certificates SRP invests in U.S. government certificates of deposit and other marketablemarketable investments. Such investments Such classified as cash and cash equivalents, investments are classified equivalents, temporary temporary investments, other segregated funds in the accompanying investments, and segregated Combined Balance Sheets accompanying Combined depending on the Sheets depending purpose and duration of the investment. On May 1, 1, 2008, SRP adopted SFAS No. 159 159 which permits an entity to choose to measure measure many financial certain other items at fair value. SRP elected the fair value option financial instruments and certain option for all investment securities securities previously classified classified as available-for-sale available-for-sale underunder SFAS No. 115. Prior to the adoption of SFAS No. No. 159, these investment investment securities were classified as available-for-sale; election of available-for-sale; election the fair value option option for an available-for-sale available-for-sale security in conjunction adoption of SFAS No. 159 conjunction with the adoption 159 requires the securities to be reported reported as a a trading security under SFAS No. No. 115. Additionally, during 2009, the District elected the fair value option for investment fiscal year 2009, investment securities securities held in the NGS NGS Settlement Trust and the Roosevelt Habitat Conservation Conservation Plan Trust (RHCP) (RHCP) which were established in 13 13
fiscal year 2009. Management Management elected the fair value option for these investment investment securities at fair value value because management believes that fair value best represents the nature because management nature ofthe of the investments. While the investment investment securities securities held in these funds are reported as trading trading securities, the investments continue to be managed managed with aa long-term focus. Accordingly, all purchases and sales within within- these funds are presented separately separately in the accompanying accompanying Statement Statement of Cash Flows as investing cash flows, consistent with the nature purpose for which the securities are acquired. nature and purpose acquired. The following table provides regarding SRP's elections provides detail regarding elections by combined balance sheet line as of May May 1, 2008 (in thousands): 1,2008 Carrying Value Transition Gain(Loss) Transition Carrying Adjusted Carrying Financial Instruments of Financial Recorded Recorded in Accumulated Accumulated Value of Financial as of May May 1, 2008 Net Revenues Revenues Instruments as of May Instruments May 1, 2008 1,2008 Cash and cash equivalents $$ 404,091 $$ - $$ 404,091 Segregated Segregated funds, net of current current portion 827,993 11,616 839,609 Cumulative Cumulative effect of adoption of SFAS No. 159 159 $ 1,232,084 $ 11,616 11,616 $ 1,243,700 1,243,700 The adoption adoption of SFAS No. 159, for investments investments held in the NOT, NDT, had no impact on the earnings, cash cash flows, or financial condition of the District. For all periods presented, all gains and losses, whether whether realized unrealized, are recorded in the regulatory realized or unrealized, regulatory asset or liability as authorized by the Board. Fair Fair value adjustments, realized gains, gains, and other-than-temporary other-than-temporary losses are determined determined on aa weighted-weighted-average average cost basis. 14
Investments in Marketable Investments Marketable Debt and Equity Securities Securities summarizes SRP's investments in debt and equity securities presented The following table summarizes presented in thethe Combined Balance Sheets at April 30 (in thousands): accompanying Combined 2009 2008 Cash and cash equivalents Cash $ 21,652 21,652 $ 10,337 10,337 Money market funds Money 347,859 347,859 394,159 Available-for-sale Available-for-sale investments 9,932 9,932 Held-to-maturity investments Held-to-maturity investments 9,971 9,971 Total cash and cash cash equivalents equivalents 379,482 379,482 414,428 Non-utility Non-utility property property and other investments investments Money market funds Money 5,343 5,343 investments Trading investments 19,709 Held-to-maturity Held-to-maturity investments 103,535 119,590 119,590 Total non-utility non-utility property and other investments 128,587 119,590 119,590 Segregated funds, net of current portion Segregated Cash 798 1,638 1,638 Money market funds Money market 280,147 192,936 192,936 investments Trading investments 514,277 514,277 - Available-for-sale investments Available-for-sale 635,057 Held-to-maturity investments Held-to-maturity 243,956 324,172 segregated funds, net of current Total segregated current portion 1,039,178 1,039,178 1,153,803 1,153,803 Temporary investments Held-to-maturity investments Held-to-maturity 145,664 106,556 106,556 Total temporary investments 145,664 106,556 106,556 Current portion of segregated segregated funds market funds Money market 20,270 investments Trading investments 112,499 133,538 133,538 Held-to-maturity investments Held-to-maturity .78,729
.78,729 98,765 Total current portion portion of segregated segregated funds 211,498 232,303 Total cash, cash equivalents equivalents and investments investments $ 1,904,409 $ 2,026,680*
2,026,680 SRP's investments in debt securities measured and reported at amortized securities are measured amortized cost when there is maturity: SRP's amortized cost and fair value of held-positive intent and ability to hold the security to maturity. to-maturity securities were $581.9
$581.9 million and $587.7 respectively, at April 30, 2009 and $649.1 million, respectively,
$587.7 million, $649.1 million $651.5 million and $651.5 million, respectively, respectively, at April 30, 2008.
2008. At April 30, 2009, SRP's investments investments in debt debt securities have maturity dates ranging from May 22, 2009, to January January 10, 2013. 2013. investments are measured SRP's trading investments measured at fair value in accordance accordance with SFAS No. No. 115 which requires requires unrealized trading gains and losses be included that unrealized included in earnings. SRP recognized a a $92.3 million million unrealized loss in investment income (loss), unrealized (loss), net, in the accompanying accompanying Statements Statements of Net Revenues Revenues andand Comprehensive Income at April 30, 2009, and aa corresponding Other Comprehensive corresponding adjustment of $85.7 million million and and $6.6 $6.6 million to the fair value of investments included in segregated funds, net investments included net.of of current portion, portion, and in current portion of segregated accompanying Combined Balance segregated funds, respectively, in the accompanying Balance Sheets Sheets at at April 30, 2009. SRP's money market market funds, previously classified as available-for-sale available-for-sale securities, securities, are classified as trading investments beginning at May classified May 1, 2008. 15 15
At April 30, 2008, the amortized amortized cost and estimated fair value of SRP's available-for-sale available-for-sale securities, including money market funds, consists of the following (in (in thousands): Amortized Cost Gross Unrealized Unrealized Gross Unrealized Unrealized Value Fair Value Gains Gains Losses Equity securities securities $ 944,750 944,750 $$ 25,127 $ (12,979) $ 956,898 956,898 Debt securities 262,643 12,544 275,187 Total available-for-sale available-for-sale securities $$ 1,207,393 1,207,393 $$ 37,671 37,671 $$ (12,979) (12,979) $$ 1,232,085 1,232,085 There were no available-for-sale available-for-sale securities at April 30, 2009. At April 30, 2008, net unrealized unrealized gains (losses) on available-for-sale available-for-sale debt and marketable marketable equity securities, securities, excluding decommissioning fund excluding decommissioning assets, were $(25.2)
$(25.2) million for the fiscal year and are included included in accumulated accumulated other comprehensive comprehensive accompanying Combined Balance Sheets.
income in the accompanying Unrealized gains (losses) on decommissioning Unrealized decommissioning fund assets of $(4.0) $(4.0) million for the fiscal year ended April 30, 2008, are included in regulatory regulatory assets assets in the accompanying accompanying Combined Balance Sheets. The Combined Balance The proceeds from sale of available-for-sale proceeds available-for-sale securities $315.1 million, and the net realized gains were securities were $315.1 $39.1 $39.1 million, million, at April 30, 2008. At April 30, 2008, SRP's total securities with gross unrealized unrealized losses consisted of available-for-sale available-for-sale equity securities securities with a a fair value of $81.0 million and gross unrealized losses of $13.0 $13.0 million. TheThe securities securities were in this position for less than twelve months at the reporting date. SRP did not have any material unrealized unrealized losses at April 30, 2009, related to investments in securities. Prior to the adoption adoption of SFAS No. 159, management management evaluated both available-for-sale available-for-sale and held-to-maturity securities for other-than-temporary other-than-temporary impairment impairment on aa quarterly basis considering numerous numerous factors, and their relative significance varies case-by-case. relative significance case-by-case. Upon adoption of SFAS No. 159, SRP elected elected the fair value option on all securities, excluding excluding those classified as held-to-maturity held-to-maturity and continues to evaluate evaluate the held-to-maturity held-to-maturity securities for other-than-temporary other-than-temporary impairment. At April 30, 2009, SRP SRP did not hold any other-than-temporary other-than-temporary impaired securities. Factors considered considered when determining whether whether impairment impairment is other-than-temporary other-than-temporary include the length of time and extent extent to which the fairfair value has been less than cost; the financial condition and near-term near-term prospects prospects of the issuer; and SRP's SRP's intent and ability to hold the security in order to allow for an anticipated anticipated recovery in fair value. If, If, based upon an analysis analysis of each of the above factors, it is determined determined that the impairment impairment is other-than-other-than-temporary, the carrying value of the security is written down to fair value, and a a loss is recognized recognized through earnings; losses recognized recognized on decommissioning trust securities are recorded as a a regulatory asset in accordance accordance with SFAS No. 71. SRP recognized recognized a $20.9 million other-than-temporary a $20.9 other-than-temporary impairment il'l in fiscal year 2008 of which $10.4 million is included
$10.4 million included in other income in the accompanying accompanying Combined Combined Statements Comprehensive Income and $10.5 Statements of Net Revenues and Comprehensive $10.5 million is included in in regulatory assets assets in the accompanying accompanying Combined Balance Balance Sheets.
(4) (4) DERIVATIVE DERIVATIVE INSTRUMENTS: INSTRUMENTS: The District enters into contracts contracts for electricity, natural natural gas and other energy commoditiescommodities to meet meet the expected expected needs of its retail customers. The District sells excess capacity capacity during periods periods when it is is not needed to meet retail requirements. The District's energy risk management management program uses various various physical and financial contracts to economically hedge exposures exposures to fluctuating commodity prices. The District examines contracts examines contracts at inception inception to determine the appropriate determine appropriate accounting accounting treatment. If If aa contract does not meet the derivative derivative criteria, or if it qualifies qualifies for the SFAS No. 133 133 16 16
purchases and normal sales scope exception, the District accounts for the contract normal purchases contract using using recorded when physical delivery occurs). accounting (costs and revenues are recorded settlement accounting Contracts that qualify as a derivative but do not meet the SFAS No. 133 normal purchases and normal a derivative changes in fair value recognized in earnings. exception are recorded at fair value with changes sales scope exception derivatives are classified as part of operating cash flows in Changes in fair value related to the District's derivatives Statements of Cash Flows. the Combined Statements Interest Rate Derivatives Interest Derivatives connection with a In connection lease-purchase agreement a lease-purchase agreement related Certificates of Participation related to the issuance of Certificates Participation (COPs), the District entered (COPs), entered into a pay-fixed-receive-floating interest rate swap a six-year, $75 million pay-fixed-receive-floating swap transaction with Morgan Stanley Services. The remaining notional value of the swap is $25 Stanley Capital Services. $25 Securities Industry December 1, 2009. The floating rate on the swap is based on the Securities million expiring on December and Financial Markets Association Financial Markets Municipal Index of 0.63% at April 30, 2009, and the fixed-Association (SIFMA) Municipal receiver rate on the swap is 3.001%. Through the swap, the District was able to create synthetic receiver synthetic advantage of the relationship between variable rate debt and take advantage intermediate-term, tax-exempt between intermediate-term, tax-exempt SIFMA-based, fixed-receiver borrowing costs and SIFMA-based, borrowing fixed-receiver swap rates. In addition, the swap to variable rate also In addition, also enables the District to increase increase its short-term, variable rate debt portfolio. (See Note (7), LONG-TERM LONG-TERM COPs.) information regarding COPs.) DEBT, Finance Lease for further information Derivatives Commodity Derivatives Commodity The District derivatives instruments, including forward contracts, futures, swaps and District enters into derivatives and options intended commodity prices and vehicle intended to mitigate risk in connection with changes in utility commodity vehicle fuel prices on behalf of its electric customers. The District records its derivative instruments instruments at fair value on its combined combined balance sheets. Derivative Derivative Volumes Volumes The District has the following gross derivative volumes, by commodity commodity type, at April 30, 2009: Unit of Sales Purchases Commodity Commodity Measure Measure Volumes Volumes Natural gas options, swaps and forward arrangements arrangements MMBTU MMBTU 7,305,000 83,210,000 Electricity options, swaps and forward arrangements arrangements MWH MWH 4,226,890 2,065,475 Liquefied fuel swaps Gallon - 2,005,914 2,005,914 17
Presentation of Derivative Presentation Instruments in the Financial Derivative Instruments Financial Statements The following following table provides information about the gross fair values, netting, and collateral and provides information and margin deposits deposits for derivatives derivatives not designated designated as hedging instruments under under SFAS No. 133 in the No. 133 accompanying Combined accompanying Balance Sheets (in thousands): Combined Balance April 30, 2009 Non-Non- Non-Current Current current current Current Current current current Derivative Derivative Derivative Derivative Derivative Derivative Derivative Derivative long-term Long-term Total Assets Assets Assets Liabilities liabilities Liabilities liabilities Debt (Liabilities) (liabilities) Commodities Commodities $ 43,316 $ 10,661 10,661 $ (173,423) $ (44,948) $ - $ (164,394) Interest Interest rate swap - 566 - - 172 738 738 Netting Netting (11,137) (5,437) 11,137 5,437 - - Collateral Collateral and margin deposits deposits 28,014 - - - - 28,014 28,014 balance sheet Total balance $ 60,193 60,193 $ 5,790 $ (162,286) $ (39,511) $ 172 $ (135,642) April 30, 2008 Non-Non- Non-Current current Current current current Derivative Derivative Derivative Derivative Derivative Derivative Long-term long-term Assets Assets Liabilities liabilities Liabilities liabilities Debt Total Assets Assets Commodities Commodities $ 127,684 $ 63,011 $ (31,349) $ (5,529) $ - $ 153,817 Interest Interest rate swap - 455 - - 724 1,179 1,179 Netting Netting (25,889) (4,946) 25,889 4,946 - - Collateral Collateral and margin deposits - - - - - - balance sheet Total balance sheet $ 101,795 101,795 $ 58,520 $ (5,460) $ (583) $ 724 $ 154,996 154,996 The following table summarizes summarizes the District's unrealizedunrealized gains (losses) associated associated with derivatives derivatives not not designated deSignated as hedging instruments under hedging instruments under SFAS No. 133 in the accompanying accompanying Combined Combined Statements of of Net Revenues Comprehensive Income Revenues and Comprehensive Income (in thousands): April 30, 2009 2009 Fuel Used in Interest Interest onon Net Net Operating Operating Power Power Electric Other Unrealized Unrealized Revenues Revenues Purchased Generation Generation Obligations Obligations Gain (Loss) (loss) Commodities Commodities $ (31,403) $ (89,503) $ (206,186) $ - $ (327,092) Interest Interest rate swap (442) (442) Total $ (31,403) $ (89,503) $ (206,186) $ (442) $ (327,534) April 30, 2008 2008 Fuel Used Used in Interest Interest on Net Net Operating Power Electric Other Unrealized Unrealized Revenues Purchased Purchased Generation Generation Obligations Obligations Gain Gain (Loss) (loss) Commodities Commodities $ 8,500 $ 26,271 $ 56,284 $ - $ 91,055 Interest Interest rate swap swap - 1,652 1,652 1,652 Total $ 8,500 $ 26,271 $ 56,284 $ 1,652 $ 92,707 92,707 18 18
Credit Features Credit Related Contingent Features Certain Certain of the District's derivative derivative instruments contain contain provisions that require the District's debt to maintain an investment investment grade credit rating from each each of the major credit rating agencies. If the the District's debt were were to fall below investment grade, it would violate these provisions, and the counterparties to the derivative derivative instruments instruments could request immediate immediate payment or demanddemand immediate immediate and ongoing full overnight overnight collateralization derivative instruments in net liability positions. The collateralization on derivative The aggregate valu~ of all derivative aggregate fair value derivative instruments credit-risk-related contingent instruments with credit-risk-related contingent features that are in a liability position position on April 30, 2009, is $180.1$180.1 million for which the District has posted collateral collateral of $1.6
$1.6 million in the normal course of business. If the credit-risk-related credit-risk-related contingent features underlying these agreements were triggered on April 30, 2009, the District would be required agreements required to post an additional
$178.5 million of collateral to its counterparties. $178.5 counterparties. (5) (5) FAIR VALUE MEASUREMENTS: MEASUREMENTS: On May 1, 2008, SRP adopted SFAS No. 157 157 which defines defines fair value, establishes establishes methods methods for for measuring fair value by applying measuring applying one of three observable market techniques (market approach, income income approach or cost approach) and expands required required disclosures about fair value measurements. measurements. This standard defines defines fair value as the price price that would be received for an asset, or paid to transfer transfer a liability, in the most advantageous advantageous market market for the asset or liability in an arms-length arms-length transaction between willing market participants at the measurement between measurement date. In accordance In accordance with SFAS No. 157, 157, SRP has categorized categorized its financial instruments, based on the priority of of the inputs inputs to the valuation technique, into a a three-level three-level fair value hierarchy. The fair value hierarchy hierarchy givesthe gives the highest priority to quoted markets for identical quoted prices in active markets identical assets or liabilities (Levell) (Level 1) and the lowest priority to unobservable unobservable inputs (Level 3). The three levels of the fair value hierarchy hierarchy defined by SFAS No. 157 are as follows: Level 1 1 - Financial Financial assets assets and liabilities whose values values are based on unadjusted unadjusted quoted prices for for identical assets or liabilities in an active market. Level 22 - Financial assets and liabilities whose assets and whose values values are based based on quoted prices for similar assets or or liabilities in active active markets, quoted prices for identical or similar assets or liabilities in non-active non-active markets, pricing models whose inputs inputs are observable observable for substantially substantially the full term of the the asset or liabilities and pricing models whose inputs are derived principally liabilities principally from or corroborated corroborated by observable observable market data through correlation market correlation or other means. Level 33 - Financial Financial assets and liabilities liabilities whose values are basedbased on prices or valuation valuation techniques thatthat require inputs that are both unobservable and significant both unobservable significant to the overall fairvalue fair value measurement. These inputs reflect management's management's own assumptions assumptions about the assumptions assumptions a a market market participant participant would use use in pricing pricing the asset or liability. 19
The following table table sets forth, by level within the fair value hierarchy, SRP's financial assets and liabilities that were accounted accounted for at fair value on aa recurring basis as of April 30, 2009 (in thousands): Level 1 Level 2 Level 3 Netting and Total Netting and Levell Level 2 Level 3 Total Collateral Assets Cash and cash equivalents: equivalents: Money market market funds $ $ 347,859 $ $ - $ 347,859 347,859 Total cash and cash equivalents 347,859 347,859 347,859 Non-utility property and other other investments: investments: Money market funds 5,343 5,343 Mutual funds 19,709 19,709 - 19,709 Total non-utility non-utility property and other investment. other investment! 19,709 19,709 5,343 25,052 Segregated funds, net of current Segregated current portion: Money market market funds - 280,147 280,147 Mutual funds 204,640 204,640 - 204,640 Commingled Commingled funds - 156,043 156,043 156,043 Common Common stocks 153,594 153,594 - 153,594 153,594 Total segregated segregated funds, net of current portion 358,234 358,234 280,147 156,043 794,424 794,424 Current portion of segregated segregated funds: Money market market fund - 20,271 - 20,271 Collateral Collateral pool investments - 112,499 112,499 112,499 segregated funds Total current portion of segregated - 20,271 112,499 132,770 132,770 Derivative instruments: Derivative Commodities Commodities 949 10,674 10,674 42,354 11,440 11,440 65,417 Interest Interest rate swap - 566 - - 566 566 derivative instruments Total derivative instruments 949 11,240 42,354 11,440 11,440 65,983 Total assets $ 378,892 378,892 $ 664,860 $ 310,896 310,896 $ 11,440 11,440 $1,382,662
$1,382,662 Liabilities Derivative instruments:
Commodities Commodities $ (33,307) $(169,710)
$ (169,710) $$ (15,354) $ 16,574 16,574 $$ (218,371)
Interest Interest rate swap 172 - 172 172 derivative instruments, Total derivative instruments* (33,307) (33,307) (169,538) (15,354) 16,574 16,574 (201,625) Total liabilities $ (33,307) $ (169,538) $ (15,354) $ 16,574 16,574 $$ (201,625) Based on the guidance provided in SFAS No. 157, asset and liabilities are categorized based on the the lowest level level of input that is significant to the valuation. valuation. The following following is aa description of the valuation valuation methodologies used by SRP at April 30, 2009. methodologies Securities The fair values of shares in mutual funds and common stocks are based on inputs inputs that are quoted quoted prices in active markets for'identical assets and, therefore, have been categorized categorized in Levell Level 1 in the fair fair value value hierarchy. Equities are priced using exchanges exchanges such as American American Stock Exchange Exchange (AM (AMEX), New EX), New York Stock Exchange Exchange (NYSE), (NYSE), and NASDAQ. 20 20
The fair value of shares in money marketmarket funds are priced based on inputs inputs obtained from Bloomberg, a pricing service, whose prices prices are obtained obtained from direct feeds from from exchanges, exchanges, that are either directly directly or or indirectly observable, indirectly observable, and, therefore have been categorized categorized in Level 22 in the fair value hierarchy. hierarchy. The fair value of commingled commingled funds are based on net asset values values per fund share share (the unit of account), derived from the quoted prices in active markets of the underlying derived underlying fixed income and equity securities. However, because the shares of these commingled funds are not publicly However, publicly quoted, quoted, not traded in an an active market market and are subject to certain restrictions regarding their purchase certain restrictions purchase and sale, the commingled commingled funds are categorized categorized in Level 3. 3~ Derivative Instruments Derivative Instruments The fair value of gas swaps and power swaps that are priced based on inputs using quoted quoted prices of similar exchange traded traded items have been categorized categorized in Levell Level 1 in the fair value hierarchy. These These include include gas swaps traded on the New New York Mercantile Mercantile Exchange (NYMEX) (NYMEX) and power swaps swaps traded on traded Intercontinental Exchange. the Intercontinental Exchange. The fair value of gas swaps, power power swaps, gas options, power options and power deals that are priced based based on inputs obtained obtained through pricing agencies and developed developed pricing models, using similar similar observable items in active observable active and inactive markets, are classified as Level 2 2 in the valuation hierarchy. hierarchy. The fair value of derivatives derivatives assets and liabilities liabilities which are valued using pricing pricing models with significant significant unobservable market data unobservable data traded in less active active or underdeveloped underdeveloped markets are classified classified as Level 3 3 in the valuation valuation hierarchy. Level 33 items include include gas swaps, power power swaps, gas options, power options and and power deals. These inputs reflect management's management's own assumptions about the assumptions assumptions a a market market participant would use in pricing the asset or liability (examples include long-dated participant long-dated or complex derivatives). All of the assumptions assumptions above include adjustments counterparty credit risk, using credit default adjustments for counterparty default swap swap data, bond yields, when available, or external credit ratings. Collateral and Margin Deposits Margin and collateral deposits include Margin include cash deposited deposited with counterparties counterparties and brokers. brokers. as credit credit support under energy energy contracts. The amount of margin and collateral collateral deposits generally generally varies varies based changes in the fair value of the positions. on changes positions. In In accordance accordance with FSP FIN 39-1, the District presents aa portion of its margin and cash collateral collateral deposits net with its derivative derivative position. position on the Combined Combined Balance Sheets. Amounts recognized Balance recognized as margin and collateral collateral provided to others are included included in derivative assets in the accompanying Combined Balance Sheets and totaled $28.0 million at April 30, derivative 2009. 21 21
Level 3 Fair Value Changes in level Changes Value Measurements Measurements The table below includes the reconciliation reconciliation of changes to the balance sheet amounts amounts for the year year ended April 30, 2009, (in thousands) for financial instruments instruments classified classified within Level level 3 of the valuation hierarchy; determination is hierarchy; this determination is based based upon unobservable unobservable inputs to the overall fair value measurement: measurement: Beginning balance at May 1, 2008 May 1, $ 424,257 424,257 Net realized and unrealized unrealized (loss) included inin earnings (65,471) (65,471) Net realized and unrealized unrealized (loss) recorded as regulatory assets (17,713) (17,713) Net purchases purchases and settlements (38,946) Net transfers in/out of Level 3 (6,585) Balance at April 30, 2009 $$ 295,542 Net unrealized unrealized loss included included in in earnings related to instruments held at April 30, 2009 $$ (2,993) Net unrealized unrealized loss recorded recorded in regulatory assets related to instruments in regulatory instruments held at April 30, 2009 $ (12,843) SFAS No. 107, "Disclosures "Disclosures aboutabout Fair Fair Value of Financial Financial Instruments," Instruments/' (SFAS No. No. 107) requires disclosure disclosure of the estimated fair value of certain methods and significant certain financial instruments and the methods significant assumptions assumptions used to estimate their fair values. Many Many but not all of the financial instruments are recorded recorded at fair value on the accompanying accompanying Combined Balance Balance Sheets. Financial instruments held held by by SRP are discussed discussed below. Additionally, certain financialfinancial instruments and all nonfinancial instruments are excluded excluded from the scope of SFAS No. 107. Financial Financial Instruments Instruments forfor Which FairFair Value Approximates Carrying Carrying Value - Certain instruments Certain financial instruments that are not carried at fair value on the accompanying accompanying Combined Balance Balance Sheets are carried carried at amounts amounts approximate fair value due that approximate short-term nature and generally negligible due to their short-term negligible credit risk. The The instruments include instruments include receivables, accounts accounts payable, payable, customers' customers' deposits and other current liabilities. liabilities. FinancialInstruments Financial Instrumentsfor Which Fair Value Does Not Approximate Fair Value Approximate Carrying Carrying Value - The District presents long-term debt at carrying value on the accompanying long-term accompanying Combined Balance Sheets. The collective collective fair fair value of the District's revenue bonds and the Desert Basin Lease-Purchase lease-Purchase Agreement, Agreement, including the current portion, was estimated estimated by using pricing scales from independent independent sources. (See Note (7) lONG- LONG-TERM DEBT for further discussion of these items.) As of April 30, 2009 and 2008, the carrying amounts, including accrued including accrued interest, were $3.9 $3.9 billion and $3.8 billion, billion, respectively, and the estimated fair values were $4.1 billion and $4.0 billion, billion, respectively. 22 22
(6) (6) ACCUMULATED ACCUMULATED NET REVENUES REVENUES ANDAND OTHER COMPREHENSIVE COMPREHENSIVE INCOME: The following table summarizes revenues and other comprehensive summarizes accumulated net revenues comprehensive income income (in(in thousands): Accumulated Accumulated NetNet Revenues and Other Other Other Accumulated Accumulated Net Net Comprehensive Comprehensive Comprehensive Comprehensive Revenues Revenues Income (Loss) Income Income Balance, April 30, 2007 $ 3,570,116 $ 36,780 36,780 $ 3,606,896 3,606,896 Net Revenues Revenues 257,103 257,103 Unrealized gain (loss) on available-for-sale Unrealized available-for-sale securities securities - (25,164) (25,164) Balance, April 30, 2008 3,827,219 11,616 3,838,835 3,838,835 Cumulative effect cha~ge in accounting effect of change accounting SFAS No. 159 principle - SFAS 11,616 (11,616) Balance, May 1, 2008, adjusted May 1, 3,838,835 3,838,835 3,838,835 Net Revenues Revenues (Expenses) (Expenses) (247,022) (247,022) Balance, April 30, 2009 $ 3,591,813 $ $ 3,591,813 3,591,813 23 23
(7) LONG-TERM LONG*TERM DEBT: Long-term debt consists of the following at April 30 (in thousands): Interest Rate Interest Rate 2009 2008 Revenue bonds .- Series D (matured 1/1/2009) 1992 Series 6.00% $$ $$ 19,275 Series A (mature 2009 -2010) 1993 Series -2010) 5.75% 5.75% 4,000 9,995 (mature 2009 Series C (mature 1993 Series 2009 -2011)
-2011) 5.05-- 6.50%
5.05 58,845 99,685 1994 1994 Series A (matured 1/1/2009) 5.15% 38,493 1997 -2020) 1997 Series A (mature 2009 -2020) 5.00 - 5.125% 5.00- 43,990 43,990 50,570 2001 Series A (mature 2009 -2011)
-2011) 4.125 - 5.00% 54,080 54,080 67,860 2002 Series A (mature 2010 -2031)
-2031) 4.125 - 5.25% 432,560 432,560 432,560 2002 Series B (mature 2016 -2032)
-2032) 4.00- 5.00%
4.00-5.00% 570,000 570,000 570,000 2002 Series C (mature 2010 -2015)
-2015) 5.00% 202,385 202,385 2002 Series D (matured 1/1/2009) 5.00% 26,855 2004 Series A (mature 2009 -2024)
-2024) 4.00- 5.00%
4.00- 116,360 116,360 117,510 117,510
-2035) 2005 Series A (mature 2027 -2035) 4.75-- 5.00%
4.75 327,090 327,090 327,090 2006 Series A (mature 2033 -2037)
-2037) 5.00% 296,000 296,000 2008 Series A (mature 2016 -2038)
-2038) 5.00% 816,650 816,650 816,650 2009 Series A (mature 2011-2039) 2011 -2039) 2.75-- 5.00%
2.75 744,180 Total revenue revenue bonds 3,666,140 3,666,140 3 074,928 3074,928 Unamortized bond (discount) premium Unamortized premium 65,749 65,749 51,108 Total revenue revenue bonds outstanding 3,731,889 3,731,889 3,126,036 3,126,036 Finance lease Finance lease 2.80-5.25% 232,585 250,365 Commercial paper Commercial paper 475,000 Total long-term long-term debt debt 3,964,474 3,964,474 3,851,401 Unamortized Unamortized interest swap interest rate swap (172) (724) Less: Current Current portion of long-term (132,645) (170,748) Total long-term long-term debt, net of current $ 3,831,657 3,831,657 $ 3,679,929 3,679,929 The annual maturities of long-term debt unamortized bond debt (excluding unamortized bond discount/premium) as of April 30, 2009, due 30,2009, years ending April 30, are as follows (in thousands): due in fiscal years Revenue Bonds Finance Lease Lease 2010 $ 115,855 $ 16,790 16,790 2011 127,230 19,950 19,950 2012 122,180 17,455 17,455 2013 97,245 22,995 22,995 2014 86,620 17,500 17,500 Thereafter 3,117,010 3,117,010 137,895 Total $ 3,666,140 3,666,140 $ 232,585 Revenue Bonds Revenue Bonds Revenue bonds are are secured by a pledge pledge of, revenues of the electric of, and aa lien on, the revenues electric system, after system, after deducting operating expenses, as defined deducting defined in the bond resolution. resolution. Under Under the terms of the amended and restated bond resolution, effective in January 2003, as amended, the District January 2003, District makes makes debt service debt service deposits to a deposits a non-trusteed non-trusteed segregated segregated funds in the accompanying segregated fund. Included in segregated accompanying 24 24
Combined Balance Sheets are $179.6 Balance Sheets $179.6 million and $181.3 million of debt service
$181.3 million service related funds as of April 30, 2009 and 2008, respectively.
The debt service coverage ratio is defined in the Bond Resolution. Resolution. For the years ended April 30, 2009 2009 and 2008, the debt service coverage ratio was 2.33 and 2.82, respectively. Interest and the amortization of the bond discount, premium and issue expense Interest expense on the various issues issues results in an effective rate of 5.02% over the remaining term of the bonds. In March 2008, the District issued $816.7 millionmillion Electric System Revenue proceeds of Revenue Bonds, the net proceeds additional capital improvements to the Electric System pursuant to the were used to finance additional which were District's Capital Improvement Improvement Program. In January 2009, the District issued an additional $744.2 In January $744.2 million Electric System Revenue Bonds. A portion of the net proceeds was used to retire $100.0 million
$100.0 million Series B commercial of Series commercial paper paper and balance is being improvements to the Electric being used to finance capital improvements Electric System pursuant to the District's Capital Improvement.
Capital Improvement. The District has authorization additional Electric System authorization to issue additional Revenue Bonds System Revenue Bonds totaling $2.0 billion billion principal amount and Electric System Refunding Revenue Bonds totaling $5.9 principal $5.9 billion principal amount. Finance Lease Lease In December entered into a lease-purchase December 2003, the District entered lease-purchase agreement Lease-Purchase agreement (Desert Basin lease-Purchase (OBIT) to finance the acquisition of the Desert Basin Independent Trust (DBIT) Agreement) with Desert Basin Independent Basin Generating Station Generating central Arizona. located in central Station (Desert Basin) located Arizona. In aa concurrent $282.7 concurrent transaction, $282.7 million in fixed-rate COPs were issued pursuant to a a Trust Indenture, between Wilmington Indenture, between Wilmington Trust Company, as trustee, and DBIT, OBIT, to fund the acquisition of Desert Basin and other electric system assets of the District. Investors in the COPs obtained an interest in the lease payments payments made by the lease-Purchase Agreement. Due to the nature of the Desert OBIT under the Desert Basin Lease-Purchase District to DBIT Desert Lease-Purchase Agreement, Basin lease-Purchase Agreement, the District has recorded a lease-finance OBIT with the lease-finance liability to DBIT the same terms as the COPs. (8) COMMERCIAL COMMERCIAL PAPER AND CREDIT AGREEMENTS authorized by the Board The District is authorized Board to issue up to $475.0 million in commercial paper. The District commercial paper.* District has $275.0 Commercial Paper programs B and $100.0 million Series C Commercial
$275.0 million Series Band programs outstanding at April 30, 2009. The District retired $100.0 million Commercial Paper during fiscal year 2009. At million of its Series B Commercial At April 30, 2009, the Series B issue had an average weightedweighted interest rate to the District of 0.57% and the the Series C issue had an average weighted interest rate to the District of 0.49%. The commercial paper commercial paper matures matures not more than 270 days days from the date of issuance issuance and is an unsecured unsecured obligation of the District.
The District has aa $475.0 million revolving line-of-credit agreement that supports the $375.0 line-of-credit agreement $375.0 million of commercial paper. The revolving credit agreement outstanding commercial agreement expires December 7, 2009. At April 30, December 7,2009. classified commercial paper as long-term debt as it had the ability to refinance 2008, the District classified refinance thethe commercial commercial paper paper on aa long-term long-term basis based on its revolving line of credit. At December December 8, 2008, the District reclassified commercial commercial paper short-term, due to the pending expiration of the revolving line paper as short-term, line of credit, and it is classified in current liabilities liabilities in the accompanying accompanying Combined Balance Balance Sheets at April 30, 2009. 30,2009. 25 25
The revolving credit agreement conditions precedent agreement contains various conditions precedent to borrowings borrowings that include, but but compliance with the covenants set forth in the agreement, the continued are not limited to, compliance continued accuracy existence of default representations and warranties, no existence of representations maintenance of certain default and maintenance investment certain investment grade ratings on the District's revenue bonds. The agreement grade agreement has various covenants, with which which management believes the District was in compliance at April 30, 2009. management 2009. The District has never borrowed never borrowed under the agreement a,nd management does not expect to do so in the future. Alternative sources of and management of commercial paper program include existing funds on hand or the issuance of funds to support the commercial of alternative debt, such as revenue bonds. (9) EMPLOYEE BENEFIT PLANS EMPLOYEE PLANS AND PROGRAMS: INCENTIVE PROGRAMS: AND INCENTIVE Defined Benefit Pension Pension Plan and Other Postretirement Postretirement Benefits Retirement Plan (the Plan) covers substantially all employees. Employees' Retirement SRP's Employees' employees. The Plan is funded funded contributions and the income entirely from SRP contributions earned on invested income earned invested Plan assets. The District made a contribution of $50.0 million in each of the fiscal years 2009 and 2008. contribution non-contributory defined benefit medical plan for retired employees and their eligible SRP provides aa non-contributory eligible dependents (contributory for employees dependents non-contributory defined employees hired January 1, 2000 or later) and a non-contributory benefit life insurance plan for retired employees. Employees are eligible for coverage benefit coverage if they retire at at age 65 or older with at least five years of vested service under the Plan (ten years for those hired hired January January 1, 2000 or later), minimum of ten years of vested attainment of age 55 with aa minimum later), or any time after attainment vested service under the Plan (20 years for those hired January January 1, 1, 2000 or later). later). The funding policy is is discretionary and is based on actuarial determinations. discretionary determinations. adopted the recognition and disclosure provisions of SFAS No. 158, "Employers' Accounting for SRP adopted Defined Benefit Pension Other Postretirement Pension and Other Postretirement Plans," effective April 30, 2008, and Plans," (SFAS No. 158) effective and the measurement measurement date provisions of SFAS No. 158 as of April 30, 2009. The recognition recognition and disclosure disclosure provisions employers to recognize provisions require employers recognize the overfunded underfunded positions of defined overfunded or underfunded benefit defined benefit pension postretirement plans in their balance pension and other postretirement balance sheets. Under Under SFAS No. 158, 158, any actuarial actuarial obligations that were not recognized transition assets or obligations gains and losses, prior service costs and transition recognized under under accounting standards must be recorded on the balance previous accounting previous balance sheet with an offset to accumulated accumulated comprehensive income until the amounts other comprehensive amounts are amortized component of net periodic amortized as aa component benefit periodic benefit costs. SFAS No. 158 158 does not change how net periodic pension and postretirement postretirement costs are accounted for and reported in the income income statement. authorized the District to collect future amounts In fiscal year 2008, the Board authorized In associated with the amounts associated pension postretirement plan liabilities. As aa result, the pension and other postretirement District established established aa regulatory regulatory asset portion of the total amounts otherwise chargeable for the portion chargeable to accumulated accumulated other comprehensive comprehensive income that are expected to be recovered income through prices in future periods. The changes in actuarial recovered through obligations pertaining to the regulatory transition assets or obligations gains and losses, prior service costs and transition asset are recognized as an adjustment to the regulatory asset or liability accounts as these amounts are are recognized as components components of net periodic pension costs each year. The District's estimated amortization amounts for fiscal year 2009 are $3.9 million for transition amortization transition obligation, $3.9$3.9 million for prior service cost and $3.0 million for net actuarial actuarial loss. Effective April 30, 2009, SFAS No. 158 requires SRP to measure plan assets and benefit obligations at 158 requires at fiscal year year end. SRP previously performed this measurement at measurement January January 31 of each year. In accordance accordance with this standard, eliminated the use of the three-month lag. As a result of implementing standard, SRP eliminated implementing the the 26 26
measurement date measurement provisions of SFAS date provisions SFAS No. No. 158 and as 158 and as authorized authorized by the Board, by the District recorded Board, the District recorded $16.9 million $16.9 million intointo the pension pension and and post-retirement regulatory asset post-retirement regulatory asset on the accompanying Combined the accompanying Combined Balance Sheets for Balance Sheets for the additional three the additional months of pension three months pension and other other postretirement benefits cost postretirement benefits cost atat April 30, April 30, 2009. 2009. TheThe provisions provisions of of SFAS SFAS No. No. 158 158 do not permit do not retrospective application. permit retrospective application. following tables outline The following changes in benefit outline changes obligations, plan benefit obligations, funded status of the assets, the funded plan assets, the plans plans and amounts and included in the combined financial statements amounts included statements (in (in thousands): Pension Benefits Benefits Postretirement Postretirement Benefits April 30 April January January 31 April 30 30 January January 3131 2009 2009 2008 2008 2009 2009 2008 2008 Change in Change in benefit benefit obligation obligation Benefit obligation Benefit obligation at at beginning beginning of year year $ 1,166,141 1,166,141 $$ 1,130,845 1,l30,845 $ 533,342 533,342 $ 513,503 5l3,503 cost Service cost 42,171 42,171 33,638 33,638 12,244 12,244 11,342 11,342 Interest cost 88,832 66,625 35,305 35,305 30,263 Actuarial gain Actuarial (84,012) (24,467) (113,228) (1l3,228) (1,159) Benefits paid Benefits (55,460) (40,500) (17,384) (17,384) (20,607) Benefit obligation at end end of year $ 1,157,672 1,157,672 $ 1,166,141 1,166,141 $ 450,279 450,279 $$ 533,342 Change in in plan assets Fairvalue Fair assets at beginning of year plan assets value of plan year $ 1,082,180 1,082,180 $ 1,062,644 $ - $$ - return on Actual return on plan assets (279,979) 10,036 10,036 - - Employer Employer contributions contributions 50,000 50,000 50,000 50,000 21,539 20,607 20,607 Benefits paid Benefits (55,460) (40,500) (21,539) (20,607) value of plan Fair value plan assets atat end of of year 796,741 796,741 1,082,180 Funded status at end of Funded of year year $ (360,931) $ (83,961) $ (450,279) (533,342)
$ (533,342)
Combined Balance Amounts recognized in Combined Balance Sheets: Other current Other current liabilities $$ - $ $ (18,882) $ 20,064) Accrued post~retirement post-retirement liability (360,931) (360,931) (83,961) (431,397) (5l3,278) (513,278) Net asset (liability) recognized $ (360,931) $ (83,961) $ (450,279) $ (533,342) Amounts recognized as a regulatory asset: Transition obligation obligation $$ - $ - $ 11,698 11,698 $ 15,594 Prior service cost Prior 11,055 13,949 5,064 6,025 Net actuarial loss 510,984 510,984 208,205 53,722 172,854 172,854 Measurement Measurement date transition adjustment 5,417 - 11,450 11,450 - Net regulatory asset $ 527,456 527,456 $ 222,154 222,154 $ 81,934 $ 194,473 194,473 The following table represents the amortization amortization amounts expected expected to be recognized or paid during the fiscal year ending April 30, 2010 (in thousands): Pension Benefits Postretirement Benefits Postretirement Net transition obligation $$ $$ 3,117 Prior service cost $$ 2,315 $$ 769 Net actuarial $ 4,938 $$ 672 27 27
The following table outlines the projected benefit obligation and accumulated accumulated benefit obligation in excess excess of Plan assets (in thousands): April 30 30 January 31 January 31 2009 2009 2008 2008 Projected benefit obligation 1,157,672
$ 1,157,672 $ 1,166,141 1,166,141 Accumulated Accumulated benefit benefit obligation obligation $ 1,009,364 1,009,364 $ 1,005,783 1,005,783 Fair value of Plan assets $ 796,741 796,741 $ 1,082,180 1,082,180 SRP internally internally funds its other postretirement postretirement benefits obligation.
obligation. At April 30, 2009 and 2008, $352.9 million and $445.5 million of segregated segregated funds, respectively, were designated for this purpose.purpose. The weighted assumptions used to calculate weighted average assumptions calculate actuarial actuarial present present values of benefit benefit obligations atat April 30 were as follows: Pension Benefits Benefits Postretirement Benefits Postretirement Benefits 2009 2008 2009 2008 Discount rate 7.00% 6.25% 7.00% 6.25% Rate of compensation compensation increase increase 4.00% 4.00% N/A N/A N/A Weighted Weighted average assumptions used to calculate average assumptions calculate net periodic periodic benefit costs were as follows: Pension Benefits Postretirement Benefits Postretirement Benefits April 30 January January 31 April 30 January 3131 2009 2008 2008 2009 2008 Discount rate 6.25% 6.00% 6.25% 6.00% Expected return on Plan assets 8.25% 8.25% N/A N/A Rate of compensation compensation increase increase 4.00% 4.00% N/A N/A For employees employees who retire at age 65 or younger, for measurement measurement purposes, aa 8.5% annual increase increase attainment of age 65 and an 8.5% annual increase on and after attainment before attainment attainment of age 65 in per per capita costs of health care benefits were assumed assumed during 2008;2008; these rates were assumed to decreasedecrease uniformly until equaling 5% in all future years. The components components of net periodicperiodic benefit benefit costs for the yearsyears ended April 30, are as follows (in thousands): Pension Benefits Pension Benefits Postretirement Postretirement Benefits Benefits 2009 2008 2009 2008 2008* Service cost $$ 33,737 $ 33,638 $ 9,796 $ 11,342 11,342 Interest cost 71,065 66,625 28,244 28,244 30,262 Expected return on Plan assets Expected (91,359) (82,262) (82,262) - - Amortization Amortization of transition obligation obligation - - 3,117 3,117 Recognized net actuarial loss Recognized 5,909 11,124 3,874 10,328 10,328 Amortization Amortization of prior service service cost 2,315 2,365 769 769 Net periodic periodic benefit cost $$ 21,667 $$ 31,490 $$ 45,800 $$ 55,818 28 28
Assumed health health care cost trend rates have a a significant effect on the amounts reported for health health care one-percentage-point change in the assumed plans. A one-percentage-point assumed health care cost trend rates would have have thethe effect (in thousands): following effect One One One Percentage Percentage Percentage Percentage Point Point Point Increase Increase Decrease Decrease Effect on total service cost and interest interest cost components components $ 5,700 $ (5,000) Effect on postretirement postretirement benefit obligation $ 55,500 55,500 $ (48,200) Plan Assets investment policy for Plan assets and has delegated established an investment The Board has established delegated oversight of such assets to aa compensation assets compensation committee committee (the(the Committee). The investment investment policy sets forth the objective of providing for future pension benefits by targeting returns consistent with aa stated tolerance tolerance of risk. characteristics of the Plan sponsors, actuarial factors, investment policy is based on analysis of the characteristics The investment requirements. The primary investment current Plan condition, liquidity needs, and legal requirements. investment strategies strategies are allocation targets and ranges, and external management diversification of assets, stated asset allocation diversification management of Plan Plan determines the overall target asset allocation assets. The Committee determines defines the allocation ratio for the Plan and defines the target appropriate for the needs of the Plan and the risk tolerance target asset allocation ratio deemed most appropriate tolerance of the District. Volatile Volatile market market conditions conditions have affected established to fund its future long-affected the value of SRP's trust established long-term pension benefits. The market value of the investments investments (reflecting investment investment returns, contributions and benefits payments) within the plan trust declined declined 25.7% during fiscal year 2009. This This reduction in the value of plan assets resulted in a decrease decrease in the pension plan fundingfunding status and will also result in increased increased future expense increased future contributions. Changes in the plan's expense and increased plan's funded status affect the assets and liabilities recorded on the balance sheet in accordance accordance with SFASSFAS No. 158. Due to the District's regulatory treatment, the recognition of funded status is offset by by regulatory recovered through prices. The Pension Protection regulatory assets or liabilities and is recovered Protection Act of 2006 establishes new minimum funding standards standards and restricts plans underfunded underfunded by more more than 20% from from adopting amendments increase plan amendments that increase liabilities unless they are funded immediately. In December December 2008, the Worker, Retiree, and Employer Recovery (WRERA) was enacted. Among other provisions, Recovery Act (WRERA) provisions, the WRERA provides temporary temporary funding relief to defined benefit benefit plans in light of the current economic crisis. It is expected WRERA will have aa favorable impact on the level of minimum required expected that WRERA contributions for years after 2009. weighted-average asset allocations The Plan's weighted-average allocations are as follows: Target Target April 30 January 3131 Allocations Allocations 2009 2008 Equity securities 65.0% 53.6% 60.0% Debt securities securities 25.0% 34.4% 27.6% Real estate 10.0% 12.0% 12.4% Total 100.0% 100.0% 100.0% The investment investment policy, as authorized Board, allows management authorized by the Board, management to reallocate reallocate Plan assets at any tolerance range up to plus or minus 5% time within aa tolerance 5% from the target target asset allocation which allows for allocation for flexibility in managing managing the assets based on prevailing market assets based market conditions and does not require require automatic rebalancing if the actual allocation strays from the target allocation. rebalancing allocation. 29 29
Given Given the dislocations dislocations in the markets, the Plan's weighted-average weighted-average asset allocations allocations have deviated from the target target allocations. Typically, Plan rebalancing rebalancing is usedused to control the risk of being over-allocated over-allocated to 'overheated' segments 'overheated' segments of of the the market. market. The recent market The recent market downturn downturn has been negative for most all asset classes and was driven by aa flight to liquidity. Management Management has adopted a methodical approach allocation back in line with the target which includes ongoing analysis of credit spreads to to bring the allocation determine the availability of cash with which to rebalance. rebalance. While there is is no set timeframe timeframe to complete this, management management continues to monitor the allocations allocations on aa recurring basis. Long Term Rate of ReturnReturn The expected expected return on Plan assets is based on a a review of the Plan asset allocations allocations and consultations with a a third-party investment consultant and the Plan actuary, considering market market and economic economic historical market indicators, historical market returns, correlations correlations and volatility, and recent professional professional or academic research. research. Employer Contributions Employer Contributions The District expects expects to contribute contribute $37.0 million to the Plan over the next valuation period. Benefits Payments SRP expects to pay benefits benefits in the amounts amounts as follows (in thousands): Pension Pension Benefits Benefits Postretirement Benefits Postretirement Before Subsidy* Before Subsidy" Net Net 2010 $ 50,936 50,936 $$ 19,103 $$ 18,337 18,337 2011 55,456 55,456 21,264 21,264 20,388 20,388 2012 59,824 59,824 23,463 23,463 22,470 22,470 2013 65,318 65,318 25,456 25,456 24,312 2014 71,323 71,323 27,572 27,572 26,287 26,287 2015 through 2019 $$ 452,234 $$ 167,872 167,872 $$ 159,349 159,349
- Estimated future benefit
'"Estimated future payments, including benefit payments, including prescription prescription drug benefits, prior drug benefits, prior to to federal drug subsidy federal drug receipts subsidy receipts expected as expected as aa Medicare Prescription result of the Medicare Improvement and Modernization Prescription Drug, Improvement Modernization Act of 2003. Contribution Plan Defined .Contribution Plan SRP's Employees' Employees' 401(k) Plan (the (the 401(k) Plan) covers substantially all employees. employees. The 401(k) Plan Plan receives employee pre-tax and post-tax contributions receives contributions and partialpartial employer matchingmatching contributions. Employees who have Employees have one year of service in which they have worked at least 1,000 hours and who are also contributing to the 401(k) Plan are eligible to receive partial employer matching contributions of employer matching of $0.85 on every dollar contributed contributed up to the first six-percent six-percent of their base pay that they contribute to the 401(k) Plan. Employer matching contributions contributions to the 401(k) Plan were $13.8 million and $12.9 were $13.8 $12.9 million during fiscal years 2009 and 2008, respectively. respectively. Employee Incentive Compensation Employee Compensation ProgramProgram SRP has an incentive compensation program covering substantially all regular employees. The incentive compensation The incentive compensation incentive compensation amount is based on achievement pre-established targets. These targets achievement of pre-established were not met in fiscal year year 2009. An accrual of $16.6 $16.6 million for fiscal year ended April 30, 2008 is 30 30
included in other current liabilities in the accompanying accompanying Combined Balance Sheets. This liability is stated receivables from participants stated net of receivables participants in jointly-owned jointly-owned electric plants of $1.6 $1.6 million at April 30, 2008, and was paid in fiscal year 2009. (10) INTERESTS IN INTERESTS IN JOINTl JOINTLY-OWNED ELECTRIC UTILITY V-OWNED ElECTRIC UTILITY PLANTS: PLANTS: The District has entered into various agreements with other electric utilities various agreements utilities for the joint ownership of electric electric generating generating and transmission transmission facilities. EachEach participating participating owner in these facilities must provide provide for the cost of its ownership ownership share. The District's share share of expenses expenses of the jointly-owned plants is is operating expenses included in operating expenses in the accompanying accompanying Combined Statements Statements of Net Revenues. Revenues. The following table reflects the District's ownership ownership interest in jointly-owned jointly-owned electric electric utility plants as of of April 30, 2009 (in thousands): Construction Construction Ownership Ownership Plant in in Accumulated Accumulated Work Generating Generating Station Share Service Depreciation In Progress In Four Corners Four Corners (NM) (Units 44 & 5) (NM) (Units 5) 10.00% $$ 111,099 111,099 $ (97,509) $ 4,131 4,131 Mohave (NV) Mohave (Units 11 & (NV) (Units & 2)
- 2) 20.00%
20.00% 133,498 133,498 (129,618) (129,618) - Navajo (AZ) Navajo (AZ) (Units 1, 1, 22 & 3)
- 3) 21.70% 358,393 (318,269) 9,984 Hayden (CO) (Unit 2) 2) 50.00% 118,018 118,018 (103,234) 2,698 Craig (CO)
(CO) (Units 11 &
&2) 2) 29.00% 270,522 (198,479) 3,937 PVNGS (AZ) (Units 1, 1, 22 & 3)
- 3) 17.49% 1,276,909 1,276,909 (969,272) 32,473 2,268,439
$ 2,268,439 $$ (1,816,381)
(1,816,381) $$ 53,223 53,223 The Mohave Generating Generating Station (Mohave) ceased operations on December 31, 2005. To date, efforts to reopen or sell the plant as aa coal-fired generation source have been unsuccessful unsuccessful and the Participants are are decommissioning decommissioning the plant. (See Note (12), (12), REGULATORY MAnERS, MATTERS, MohaveMohave Generating Generating Station, for a discussion discussion of matters matters pertaining to Mohave.) There remains remains approximately approximately $3.9 million in net plant value value at Mohave Mohave for the switchyard switchyard and transmission transmission line still used to route power to other inter-tied inter-tied systems. (11) VARIABLE INTEREST ENTITIES: FIN No. 46R, "Consolidation "Consolidationof Variable Variable Interest Entities, an Interest Entities, an Interpretation Interpretation of Account ResearchResearch Bulletin Bulletin No. 51," (FIN (FIN No. 46R) provides provides guidance on the identification identification and consolidation consolidation of entities for which which control is control is achieved through means other than voting rights. In October In October 2007, the District enteredentered into aa 30-year gas purchase agreement (Gas Purchase Agreement) with Salt Verde Financial Corporation (SVFC), an Arizona nonprofit corporation Financial Corporation corporation formed for the primary purpose of supplying supplying natural natural gas to the District. Under Under the agreement, the District is committed committed to purchase 294,550,000 294,550,000 MMBtusMMBtus (million of British thermalthermal units) of natural gas, which is expected to is expected approximately 20% of its projected supply approximately projected natural gas requirements needed needed to serve retail customers customers over the 30-year period. The District receives receives a discount off market prices and is obligated to pay only for gas delivered. Payments Payments to SVFC under the Gas Purchase Agreements Agreements were $36.4 million in fiscal year year 2009. To fulfill its obligation, SVFC entered entered into a 30-year 30-year prepaid gas agreement agreement with Citigroup Citigroup Energy Inc. SVFC financed financed the purchase by the issuance of $1.2
$1.2 billion of special obligation gas revenue revenue bonds (Bonds).
(Bonds). The BondsBonds do not constitute a a debt, liability or obligation of the District. The District, under aa services agreement agreement with SVFC, provides accounting accounting and treasury services and and performs administrative administrative functions for the daily operations operations of SVFC. Under the service agreement, the 31 31
amount paid by SVFC to the District was not material to the operations the District in fiscal years years 2009 2009 and 2008. The District has evaluated evaluated the prepaid prepaid gas transaction No. 46R and has determined transaction under FIN No.46R determined that the District has variable interests in SVFC. However, while the District retains rights to any residual assets variable interests in SVFC, SVFC, the District is not deemed deemed SVFC's primary beneficiary for purposes of FIN No. 46R. This This conclusion conclusion is based on the structure structure of the transaction, which results in the majority of the risk being being absorbed absorbed by parties other than the District. Accordingly, the District accounts accounts for the transaction under under the equity method. Other than the District's commitment to purchase purchase gas supplied supplied under the Gas Gas Purchase Purchase Agreement and to provide services under under the service agreement, its maximum exposure exposure under this transaction is $100,000. under (12) REGULATORY MATTERS: REGULATORY MATTERS: The Electric Electric Utility Industry historically operated The District historically operated in aa highly regulated environment environment in which it hadhad an obligation obligation to deliver deliver electric service to customers customers within its service area. In In 1998, the Arizona Competition Act Arizona Electric Power Competition (the Act) authorized authorized competition in the retail sales of electric generation, recovery of stranded costs, and competition competition in billing, metering metering and meter reading. While retail competition competition was available available to all customers by 2001, there were only a a few customers customers who who chosean alternative chose,an alternative energy provider. Those customers customers have since returned to their incumbent incumbent utilities. At At this time, there isis no active retail comp'etition competition within the District's service territory territory or, to the knowledge knowledge of the District, within the State of Arizona. However, during the past three years, two retail energy service service providers, one meter meter reading service provider, and one meter meter service provider provider have applied applied to the Arizona Arizona Corporation Corporation Commission Commission for authorization to sell energy in Arizona. Arizona. New West Energy intervened intervened in the the sole application for which aa procedural procedural order has been issued, asking that the application application be dismissed dismissed until the Arizona Corporation Corporation Commission has held aa general rulemaking procedure procedure for retail competition. competition. In September 2008, the ACC suspended consideration consideration of that application application pending completion completion of public workshops on the policy issues underlying underlying retail competition and receipt of ACC Staff's report and recommendations. recommendations. The report to the ACC is is due by the end of 2009. The ACC has not yet addressed the the other applications. applications. In In 1996, the Federal Energy Regulatory Regulatory Commission Commission (FERC), (FERC), which regulates the wholesale wholesale electric electric utility industry under the authority authority of various statutes, issued Orders Orders 888 and 889 requiring transmitting transmitting "public "public utilities" (as defined defined in the Federal Federal Power Act), to provideprovide nondiscriminatory transmission services nondiscriminatory transmission services to entities seeking seeking to effect effect wholesale power transactions, and to grant equal access to information information concerning the pricing concerning availability of transmission services. The District is pricing and availability is not aa public utility utility under under the the Federal Federal Power Act but historically historically has complied with these requirements requirements voluntarily. The Energy Policy Act Act of 2005 (Energy Policy Act) expanded expanded FERC jurisdiction jurisdiction by granting discretionary authority to regulate granting FERC discretionary regulate non-rate terms and conditions, and to aa lesser extent, rates, under the non-rate under which unregulated unregulated transmitting utilities (including the District) provide wholesale wholesale transmission services. The Energy Energy Policy Act explicitly explicitly prohibits requiring unregulated prohibits FERC from requiring transmitting utilities to take actions that would violate aa private unregulated transmitting activity bond rule. In its Order 890, issued in February 2007, FERC declined declined to generically implement its discretionary generically implement authority authority over unregulated unregulated transmitting utilities (including the District). FERC determineddetermined the authority would be used on aa case-by-case case-by-case basis. The District does not expect expect Order Order 890 to result in significant significant adverse impacts impacts on its operations. 32 32
The Changing Regulatory Regulatory Environment Environment The District has fully opened opened its service area area to competition in generation generation and billing, metering and meter reading. The District's District's electric distribution distribution area remains regulated by its Board, Board, and the District will not not provide distribution distribution services in the distribution distribution areas of other utilities. The District's price plans have been unbundled unbundled since 1999. In May 2002, the District implemented implemented aa Fuel & & Power Adjustment Mechanism Purchased Power (FPPAM) to allow for semi-annual Mechanism (FPPAM) semi-annual rate adjustments adjustments to recover recover increases in actual actual fuel costs. The District has had several increasesincreases in the price of fuel 'and and purchased power since the FPPAM was implemented. implemented. In In June 2004, the District introduced introduced aa Transmission Transmission Cost Cost Adjustment Adjustment Factor (TCAF) to recover recover costs the District would incur if the District were required required to participate in regional transmission organizations. To date, no costs have be,en been incurred or recovered recovered through the TCAF. On October 1, 1, 2007, the District Board Board approved a a 4.7% system average average increase for fuel and purchased purchased power under the FPPAM beginning November November 1, 1, 2007. The increase increase was needed addres~ an under-needed to address recovery of retail fuel and purchased power expenses. The increase increase isis expected expected to generate annual approximately $103.7 revenues of approximately $103.7 million. million. On March March 17, 2008, the District Board approvedapproved a a 3.9% system average price increase effective May May 1, 2008. The increase increase was comprised of 2.1 percent related to aa fuel and purchased purchased power power adjustment and and 1.8 percent percent related to changes changes in base prices. The increase increase is generate $91.1 is expected to generate $91.1 million annually. The new price plans incorporate design changes that better better reflect the District's underlying underlying seasonal costs and promote energy efficiency efficiency and conservation. conservation. On October 6, 2008, the District Board Board approved an annualized annualized 5.9% system average increase for the fuel average increase and purchased power adjustment mechanism under-collected fuel and purchased mechanism to address under-collected purchased power power expenses, effective effective with the November 2008 billing cycle. To lessen lessen impact impact on customer bills, the increase increase was designed designed to recover under-collection over an 18-month period. The increase recover the under-collection increase isis expected to to generate approximately generate approximately $203.6 million over the 18-month 18-month period. period. Through. Through aa surcharge surcharge to the District's transmission transmission and distribution distribution customers, the District recovers the costs of programs programs benefiting benefiting the general general public, such as discounted discounted rates for the elderly impoverished, elderly or impoverished, efficiency efficiency programs, demand-side demand-side management measures, renewable renewable energy programs, economic economic development, research research and development development and nuclearnuclear decommissioning, decommissioning, including the cost of spent fuel storage. The Board approved approved additional additional funding for renewable energy programs, energy efficiency efficiency and and energy energy conservation conservation effective beginning November effective beginning November 1, 1, 2005. These surcharges surcharges continue continue to be separately identified and included in the District's price plans for the regulated regulated portion portion of its operati.ons. operations. Generating Station Mohave Generating In 1999, the District and the other Participants In Mohave entered into aa settlement Participants in Mohave settlement with the Sierra Club, the Grand Canyon Trust, and the National National Parks Conservation installation of Conservation Association, that required the installation of certain certain pollution abatement equipment by the end of 2005 for the plant to continue operating as a a coal-fired electric generating generating facility. (See Note (14),(14), CONTINGENCIES, Air Quality, for additional additional information on on air quality issues.) In In addition, the initial term of the agreement agreement with Peabody WesternWestern Coal Company Company (Peabody) to supply coal to Mohave Mohave expired at the end of 2005 and the Navajo Navajo Nation and the Hopi Tribe Hopi Tribe demanded demanded that the pumping of water from the Navajo Navajo Aquifer for the slurry pipeline pipeline serving Mohave Mohave cease. The Mohave Participants refused to commit to install pollution abatement equipment without Mohave Participants without 33 33
reasonable assurance that water would be available reasonable available to enable the delivery delivery of coal to the plant. Consequently, the plant suspended Consequently, operations at the end of 2005. suspended operations 2005. decommission the plant. The District has included funding in The Participants have begun to decommission in its Capital Improvement Program Improvement to cover the costs of alternate alternate resources and has already replaced a a portion of the energy it would have have received had Mohave operations. The District is considering several Mohave continued operations. options for replacing the balance balance of its energy supply from Mohave Mohave including self-build options and purchases from others. (See Note purchases CONTINGENCIES, Coal Supply Litigation, for aa discussion Note (14), CONTINGENCIES, discussion of otherother related issues.) In fiscal year 2003, the Board authorized the recovery In balance of the District's investment in Mohave recovery of the balance Mohave in its revenue requirements prior to the closure revenue requirements closure of the plant. During During fiscal year 2003, the District District determined that its investment determined investment in Mohave impaired and a Mohave was impaired a write-down write-down of the plant's carrying value of $66.2 million was recorded in fiscal year 2003, and an additional additional $5.2 million and $6.6 million of impairment was recorded in fiscal years 2005 and 2004, respectively. In impairment In accordance accordance with accounting enterprises (SFAS No. 71), a rate-regulated enterprises standards for rate-regulated a regulatory asset was established established for $78.0 million, based on the District's expectation un-recovered book value at the end of 2005 would be expectation that any un-recovered be recovered in recovered in future prices. SIGNIFICANT ACCOUNTING prices. (See Note (2), SIGNIFICANT ACCOUNTING POLICIES, Regulatory Accounting for information related to Mohave additional information Mohave regulatory assets.) (13) COMMITMENTS: COMMITMENTS: Improvement Program Capital Improvement Program Improvement Program The Improvement represents the District's six-year plan for major Program represents major construction projects and expenditures for existing capital expenditures existing generation, distribution and irrigation generation, transmission, distribution irrigation assets. For the 2010-2015 time period, estimates capital expenditures period, the District estimates approximately $5.6 expenditures of approximately $5.6 billion. billion. MajorMajor construction projects include support construction support for the Coronado Emission Controls project, funding for future Coronado Emission generation resources, completion generation completion of Unit 4 at Springerville Generating Station, funding for new Springerville Generating new distribution distribution business distribution and transmission projects. business and other key generation, distribution Firm Purchase Commitments The District had various firm non-cancelable commitments at April 3D, purchase commitments non-cancelable purchase 30, 2009, which which are not not recognized accompanying Combined Balance Sheets. The following table presents recognized in the accompanying information presents information pertaining commitments with remaining purchase commitments pertaining to firm purchase greater than one year (in millions): remaining terms greater Total Payments Purchase Commitments 2009 2008 2010 2011 2012 2013 2014 Thereafter Thereafter Purchase Purchase power contracts $$ 237.5 $ 211.8 $ 112.3 112.3 106.7
$ 106.7 $ 47.6 $ 26.3 $ 26.5 $ 615.9 615.9 Coal fuel supply contracts contracts 487.5 390.9 226.2 247.3 189.0 189.0 167.3 117.0 117.0 211.2 Total $ 725.0 $$ 602.7 $$ 338.5 $ 354.0 $$ 236.6 $$ 193.6 $ 143.5 $$ 827.1 827.1 The District previously entered into three contracts, collectively, with the United States Bureau of of Reclamation (United States), the Western Area Reclamation Power Administration Area Power Administration (WAPA) and the Central Arizona Arizona Water Conservation District (CAWCD) for the long-term purchase, purchase, through September 2011, of power and energy associated with the United States' entitlement to NGS. The amount amount of energyenergy available to the the District varies annually annually and is is expected decline over the life of the contracts. The District pays a fixed expected to decline fixed amount under the contracts, pays the cost of NGS generation generation and other related costs, and supplies energy 34 34
at cost to CAWCDCAWCD for Central Arizona Project facilities. Of the total obligation, $25.2 Central Arizona $25.2 million annually through fiscal year 2011 and $10.5 $10.5 million in fiscal year 2012 unconditionally payable regardless 2012 are unconditionally regardless of the the availability availability of power. The District entered into two other long-term power power purchase purchase agreements agreements to obtain a a portion portion of its projected projected load requirements requirements through 2011 and has an agreement agreement in place for the extension extension of one of the agreements agreements throughthrough May 2016, with the possibility of aa further extension to 2021 2021
/
if certain conditions conditions are met. In In conjunction with an impairment analysis performed on generation-related analysis performed generation-related operations, in AugustAugust 1998, the District has recorded provisions of $163.7 $163.7 million for losses on these these contracts. The provisions provisions being amortized over are being over the life of the contracts, commencing January January 1, 1999. 1999. Amortization Amortization of $13.3
$13.3 million has been reflected as aa reduction in purchased million purchased power power expense expense in fiscal years 2009 and 2008. The The remaining liability at April 30, 2009 of $26.5 million is included in deferred credits and other non-current non-current liabilities in the Combined Combined Balance Sheets.
Beginning on September 1, 2006, the District District has purchased purchased 100 MW of capacity from Springerville Springerville Generating pursuant to a Generating Station Unit 3, pursuant a 30-year power purchase agreement. The District entered into a a 20-year power agreement with Transcanada, power purchase agreement Transcanada, Coolidge Coolidge Power Power LLC, for for the development, development, construction, and operation simple cycle combustion turbine electric peaking operation of aa simple peaking plant plant approximately 551 MW. The agreement, with aa nominal capacity rating of approximately agreement, effective May 8, 2008, 2008, is for the the purchase of all electrical capacity, energy and ancillary services available from Coolidge Generating Generating Station, which is is located in Pinal County. The natural gas-fired gas-fired resource is expected operation commercial operation expected to begin commercial in May 2011. The District has an option for a 10-year extension of the agreement. Anticipated minimum a 10-year minimum payment obligations are not included included in the table table above. Other Purchase Power Agreements Agreements entered into an additional The District entered additional 20-year contract contract with WAPA, executed SeptemberSeptember 28, 2007, to purchase NGS surplus power with deliveries to begin June 1, 1, 2012. This purchase is is for 300 MW during the super-peak hours of the day, June eight super-peak June through August, and the term runs through September September 30, 2031. deliveries are contingent on NGS generation Energy deliveries generation and payments are made only for actual energy delivered. delivered. There is no minimum payment payment obligation obligation for this contract. The District has entered into a a 20-year power purchase agreement with Snowflake purchase agreement Mountain Power, Snowflake White Mountain LLC, which is a resource utilizing biomass products to produce power. The agreement a renewable energy resource agreement purchase aa minimum of 78,840 MWh requires the District to purchase MWh during fiscal years 2008 through 2023 2023 and to purchase the full energy approximately 20 MW, during energy output, approximately during fiscal years 2024 through 2028. The DistrictDistrict is obligated is obligated to pay only if if the facility produces power under produces power under this agreement. The facility began commercial June 2008. Payments production in June power production Payments under this contract totaled $5.3 $5.3 million in fiscal year 2009. The District has entered entered into a a 20-year purchase power agreement 20-year purchase agreement with Dry Lake Wind, LLC, LLC, which is a renewable energy resourceresource utilizing wind to produce power. The facility is is expected to begin commercial operation by December 31, 2009. The agreement operation agreement requires the District to purchase the full output of the wind farm, approximately approximately 63 MW, during the fiscal years MW, during years 2010 through 2030. The District is obligated to is obligated pay only for actual energy delivered. There is is no minimum payment obligation for this contract. The District has entered entered into a a 30-year 30-year purchase power power agreement Hudson Ranch Power I,I, LLC, which agreement with Hudson is developing a a renewable geothermal heat to produce power. The facility is renewable energy resource utilizing geothermal is expected to begin commercial operation by July, 2011. The agreement requires the District to purchase purchase approximately 50 MW, during the fiscal years 2012 through 2042. The the full output of the facility, approximately The 35 35
District is obligated obligated to pay only for actual energy delivered. delivered. There is is no minimum payment payment obligation for this contract. The District has entered into a a 20-year purchase purchase power agreement with Lightning Dock Geothermal Geothermal HI-01, HI-Ol, LLC, which is developing a a renewable energy resource geothermal heat to produce resource utilizing geothermal produce power. The The is expected facility is operation by August, 2010. The agreement expected to begin commercial operation agreement requires the District to purchase the full output of the facility, approximately purchase approximately 10 to 15 MW, during during the fiscal years 2011 through 2031. The District is is obligated to pay only for actual energy delivered. There is no minimum payment payment obligation for this contract. Springerville Generating Springerville Generating Station In 2001 the District entered In entered into an agreement agreement with UniSourceUniSource Energy Development Development Company (UniSource) for the joint development (UniSource) development of two additional coal-fired generating units (Units 3 and 4), additional coal-fired approximately 400 MW each in size, to be located approximately located at the existing Springerville Springerville (Arizona) Generating Generating Station. Under an amendment amendment to the agreement, agreement, dated October 20, 2003, the District entered into a purchase agreement 30-year power purchase agreement (the PPA) to purchase purchase 100 MW of capacity from Unit 3, 3, which was developed by Tri-State Generation developed Generation and Transmission Transmission Association, Inc. Unit 33 was placed placed in service in September 2006, beginning September beginning the 30-year 30-year term of the PPA. In In addition, the District received the right to construct the fourth unit (Unit 4) at any time during during the term of the PPA. The District has begun construction of Unit 4 and expects it to be in service by the end of calendar year 2009. As of April 30, construction 2009, the District has recognized $846.8 $846.8 million of construction construction costs which are included included in construction work in progress construction progress in the Combined Balance Sheets. The Springerville Springerville 4 Project is Project is anticipated to cost approximately anticipated approximately $1.0 $1.0 billion. UniSource's affiliate, Tucson Electric Power Company (TEP), operates Units 1, 1, 22 and 3 and will operate Unit 4 upon completion. completion. (See Note (14) CONTINGENCIES, Air Quality, for a discussion of a CONTINGENCIES, a challenge to the Unit 4 air permit by the Sierra Sierra Club.) (14) CONTINGENCIES: CONTINGENCIES: Nuclear Insurance Nuclear Insurance Under existing law, public liability claims arising from a Under a single nuclear incident incident are limited to $12.5
$12.5 billion.
Participants insure for this potential PVNGS Participants potential liability through commercial insurance through commercial insurance carriers to the maximum amount available maximum available ($300.0 million) million) with the balance covered by an industry-Wide industry-wide retrospective retrospective assessment program as required by the Price-Anderson Price-Anderson Act. If If losses at any nuclear power plant exceed exceed commercial insurance, available commercial insurance, the District could be assessed retrospective premium adjustments. The assessed retrospective The maximum assessment maximum assessment per reactor reactor per nuclear incident incident under the retrospective program is is $117.5
$117.5 million including a a 5% surcharge; applicable in certain circumstances, circumstances, but not more than $17.5 $17.5 million per reactor reactor may be charged in any one anyone year for each incident.
Based on the District's ownership ownership share of PVNGS, the maximum maximum potential assessment assessment would be $61.7 $61.7 million, including the 5% surcharge, but would be limited to $9.2 million per incident million, any one year. incident in anyone PVNGS participants also maintain "all risk" (including nuclear nuclear hazards) insurance insurance for property property damage damage to, and decontamination decontamination of, property at PVNGS PVNGS in the aggregate amount of $2.75 amount $2.75 billion, billion, aa substantial portion of which must first be applied to stabilizationstabilization and decontamination. decontamination. The District has also secured insurance against portions of any increased cost of generation or purchased power and business insurance interruption resulting from aa sudden and unforeseen accidental interruption accidental outage of any of the three units. The The property damage, decontamination, property replacement power decontamination, and replacement power coverages coverages are provided by Nuclear Electric Insurance Limited Insurance (NEIL). The District is subject Limited (NEIL). subject to retrospective retrospective assessments assessments under all NEIL policies if 36 36
NEIL's losses in any policy year exceed accumulated funds. The maximum amount of retrospective exceed accumulated retrospective assessments the District could incur incur under the current current NEIL policies totals approximatelyapproximately $12.6 $12.6 million. The insurance million. coverage discussed insurance coverage discussed in this and the previous paragraph is subject to certain policy previous paragraph conditions and exclusions. Nuclear Fuel Spent Nuclear Under the Nuclear Under Nuclear Waste Policy Act of 1982, 1982, the District pays $0.001 per kWh on its share of net energy generation Department of Energy (DOE). The DOE was responsible for the selection generation at PVNGS to the U.S. Department selection development of a and development a repository for permanent storage and disposal disposal of spent nuclear nuclear fuel not later than December 31, 1998. However, the DOE delayed December submitting an application delayed submitting application to construct a permanent construct a permanent repository at Yucca Mountain repository Nevada until June 2008 and the use of Yucca Mountain as a storage site Mountain Nevada significant delays in the DOE's schedule, it cannot be determined uncertain. Because of the significant remains uncertain. determined when accept waste from PVNGS or from the other owners of spent nuclear fuel. It is the DOE will accept is unlikely, due to PVNGS' position PVNGS' position in DOE's queue for receiving receiving spent fuel, that Arizona Public Public Service Company Company (APS), the the operating initiate shipments to DOE during the licensed PVNGS, will be able to initiate operating agent of PVNGS, licensed life of PVNGS. constructed an on-site dry cask storage facility to receive Accordingly, APS has constructed receive and store PVNGS spent fuel. The facility stored its first cask in March 2003. Fifty-eight casks are now stored stored on site. The District's share of on-site interim storage at PVNGS is is estimated to be $57.5$57.5 million for costs to store spent nuclear fuel from inception of the plant through fiscal year-end 2009, and $1.3 $1.3 million per year year going forward. These costs have been included in the District's District's regulated operations price plans for transmission distribution At April 30, 2009 and 2008, the District's accrued and distribution; accrued spent fuel storagestorage cost was $24.5 $24.5
$25.0 million, respectively, and included in deferred million and $25.0 non-current liabilities deferred credits and other non-current liabilities on the accompanying accompanying Combined Balance Balance Sheets.
Coal Supply Litigation Litigation Navajo Nation Peabody (US Dist. Court, D.C. District - RICO Case) - In Nation v. Peabody In 1999, the Navajo Navajo Nation filed a lawsuit in the United States District Court in Washington D.C. (the "U.S. (the "U.S. District Court in which the Hopi Court") Jl
)
Tribe later was joined as aa plaintiff. The lawsuit arises negotiations culminating arises out of negotiations culminating in 1987 with amendments amendments to the coal leases leases and related agreements. The Navajo Nation and the Hopi Tribe allege that that Mohave), Southern California supplier for NGS and Mohave), Peabody (the coal supplier Edison Company (operating agent for California Edison Mohave), the District (operating agent for NGS) and certain individual defendants, had improperly induced the Department approve the coal royalty rate proposed by the Navajo Interior to not approve Department of the Interior Navajo Nation in racketeering statutes. They further alleged that the Department's violation of the federal racketeering Department's failure to approve the rate caused the tribes to negotiate and settle upon approve upon aa substantially substantially lower royalty rate. The suit suit alleges $600.0 million in damages. The plaintiffs also seek treble alleges $600.0 treble damages damages against the defendants, amounts awarded measured by amounts measured racketeering statutes. In awarded under the racketeering In addition, addition, the plaintiffs plaintiffs claim punitive damages of not less than $1.0 damages $1.0 billion. InIn 2001, the claims of both the Navajo Nation and the Hopi Tribe Tribe respect to the District, but the dismissal is were dismissed in their entirety with respect were is appealable. 2005, the U.S. District Court granted In 2005, In motion to stay the litigation until further order of granted a motion the court while ofthe while the parties were in mediation with respect to this litigation litigation and related business issues. Although the litigation had been stayed for several years, the lawsuit has been restored to the Court's active docket. Nation v. United States (Court of Federal Claims) - In Navajo Nation Navajo In an earlier case filed by the Navajo Navajo Nation against the United States and based on allegations similar to those raised in the RICO RICO Case, Case, the U. U. S. S. Court Appeals for the Federal Circuit held that the Navajo of Appeals money-mandating claim Navajo Nation had aa cognizable money-mandating claim against the United States for breach of trust and that the United States had breached breached its duties to the 37 37
Navajo Nation. On April 2, 2, 2009, after several appeals, the U.S. Supreme Supreme Court determined determined that the Navajo Navajo Nation's claim for compensation compensation failed and this mattermatter should be regarded as closed. Peabody Legal Fees Peabody Legal Fees Cases Cases - Peabody Peabody claims it is entitled entitled to reimbursement reimbursement under both the NGS Coal Supply Agreement and the Mohave Supply Agreement Mohave Coal Supply Agreement associated with the defense Agreement for its costs associated defense of the challenges challenges by the Navajo Nation Nation and Hopi Tribe to these coal leases (see above matters). Peabody Peabody has filed two separate separate lawsuits in the Superior Superior Court of Arizona Arizona against the NGS and Mohave Participants, respectively, seeking recovery recovery of these fees. In the NGS legal fees case, the Maricopa In Maricopa County Superior Court dismissed Peabody's claims for legal fees against against the NGSNGS Participants. Participants. The Arizona Arizona Court of Appeals affirmed the dismissal and a a petition for review review to the Arizona Supreme Court Court was denied. Thus the decision is final. decision is As for the Mohave Mohave legal fees case, the Mohave Participants Participants and Peabody Peabody had executed executed aa settlement settlement agreement pursuant to which which Peabody Peabody granted granted the Mohave Participants aa waiver waiver for fees incurred incurred prior to January However, the lawsuit January 2006. However, lawsuit for fees arising after DecemberDecember 2005 remained remained until December 17, 2007, when the court ruled among other matters December matters that the Mohave Participants were not Mohave Participants not responsible for Peabody's responsible Peabody's legal fees incurred in the RICO RICO Case. Case. The District has agreed to dismiss without counterclaims relating to Peabody's without prejudice its counterclaims Peabody's alleged agency until the RICO Case Case has been completed. Peabody v. the District Peabody District(the St. Louis Case) - In In October Peabody also filed suit in St. Louis, Missouri October 2004, Peabody against the District and the other owners of NGS. NGS. Peabody asserted asserted claims against the District District and claims against Participants for reimbursement against all NGS Participants reimbursement of any damages damages relating to liability associated with the RICO Case; alleged breach Case; breach of the NGS Coal Supply Agreement; Agreement; and breach of indemnity obligations owed to Peabody as the alleged alleged agent agent of the NGS Participants. Participants. Peabody Peabody seeks $500.0
$500.0 million in damages damages for the contract claim and unspecified breach of contract unspecified compensatory compensatory damages, prejudgment attorneys' fees prejudgment interest, attorneys' and costs on the other claims. While this case was still in in its discovery phase, the parties entered into a tolling agreement agreement whereby the suit was dismissed. The claims of tortious interference interference against District against the District and the claim for breach of indemnity obligations owed to Peabody Peabody werewere dismissed with prejudice. All other other claims were dismissed dismissed without prejudice pending the completion of the RICO Case.
Case. In 2008, the Office of Surface Mining (/lOSM") In ("OSM") issued the final Environmental Impact Statement Environmental Impact Statement ("EIS") (/lEIS") regarding the permit application of Peabody for the Black Mesa permit revision application Mesa Complex, and approved approved the the revised permit. Under the permit revision, the Black Mesa Mine (which formerly formerly served the Mohave Mohave Generating Generating Station) was added to the Kayenta Kayenta Mine (which serves NGS) under one permit. Among Among other other things, combining the two permits may give Peabody access to shallower, high quality coal for NGS, which could reduce future costs to the NGS Participants Participants and provide an additional source of coal. administrative appeals process, Under the administrative process, numerous numerous appeals appeals of the permit decision decision were were filed, with appellants appellants requesting an administrative administrative hearing. The District intervened intervened in those appeals appeals in support of of OSM OSM and aa hearing hearing is scheduled scheduled in early 2010. The District cannot predict the outcome outcome of this matter. Except as indicated, indicated, the District is is unable predict the likely outcome unable to prediCt outcome of the coal supply litigation matters at this time but does not believe that the final resolution of these matters matters will have material adverse adverse effects effects on its operations operations or financial condition. Environmental SRP is subject to numerous legislative, legislative, administrative administrative and regulatory regulatory requirements relative to air air quality, water quality, hazardous hazardous waste disposal and other environmental environmental matters. SRP conducts 38 38
environmental reviews of its properties ongoing environmental compliance and to identify those properties properties for compliance properties it remediation. Such requirements have believes may require remediation. have resulted, and will continue to result, in in increased operation of existing properties. At April 30, 2009, and 2008, the associated with the operation increased costs associated District accrued $89.1 million and $87.9 million, million, respectively, environmental issues, on aa non-respectively, for environmental non-discounted discounted basis, and is included included in deferred credits credits and other non-current liabilities on the the accompanying accompanying Combined Balance Sheets. In September Environmental Protection Agency (EPA) notified the District that it might be September 2003, the U.S. Environmental be liable under thethe Comprehensive Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) as Environmental Response, as th nd an owner and operator operator of a a facility (the 161 6 th St. facility) within the Motorola 52 5 2 nd Street Superfund Superfund Site Operable Unit 3. The District may be liable for past costs incurred Operable incurred and for future work to be conducted within the Superfund Superfund Site. The District's investigation and evaluation indicate indicate minimal contamination contamination on the site. The District is unable unable at this time to predict the outcome of this matter, but believes that it has adequate reserves for this potential liability. adequate reserves On April 29, 2009, the Roosevelt Roosevelt Irrigation District (RID) Notices of Claim to the District and submitted Notices (RID) submitted and others damages and response others for damages response costs of not less than $40,000,000 for the release release or threatened th release of hazardous substances from District facilities, including hazardous substances including the 16 1 6 th St. facility. RID's claim relates to its ownership ownership and operation located within the West Van Buren WQARF operation of wells located WQARF Site. The District is is unable at this time to predict the outcome of this matter but does does not believe that the final resolution of this matters will havehave aa material adverse effecteffect on its operations or financial financial condition. continuing its national enforcement The EPA is continuing enforcement initiative under under the New Source Review (NSR) (NSR) provisions provisions of the Clean Air Act (CAA). (CAA). This initiative is focusedfocused on determining whether companies had had failed to disclose major repairs or alterations to facilities that, in the opinion disclose opinion of the EPA, would have required required the installation installation of new pollution control equipment equipment under under the CAA. As part of this initiative,initiative, the District District was contacted contacted by the EPA and, in March March 2004, the District began negotiationsnegotiations with the EPA regarding regarding possible additional control technology to reduce emissions levels from CGS. On possible additional control technology to reduce emissions levels from CGS. On August August 11, 2008, the District executed an agreement agreement (called aa consent decree) with the EPA that will result in a a significant significant reduction in emissions from CGS. Under the agreement with the EPA, the District will install new state-of-the-art state-of-the-art emission emission control technology approximately $400 million to further reduce emissions of sulfur dioxide technology at a cost of approximately dioxide (S02), (SO2), nitrogen oxide (NOx) and particulate matters matters (PM). These costs have already been included in the the Improvement Program. District's Improvement Program. In In addition, the District paid a $950,000
$950,000 penalty and will spend $4 supplemental environmental million on supplemental environmental projects.
Several Several species listed Endangered Species lis'ted under the Endangered Species Act (ESA) (ESA) have been discovered discovered in and. and, around around Roosevelt and Horseshoe Horseshoe Dams. The District entered into formal negotiations negotiations for an Incidental Incidental Take Take (ITP) with the United States Permit (ITP) States Fish and Wildlife Service (USFWS), (USFWS), and developed a developed a HabitatHabitat Conservation Plan (HCP), Conservation (HCP), which allows full operation of Roosevelt Roosevelt Dam and Reservoir, provided the established habitats for the species in other areas or through other measures. District established measures. The DistrictDistrict negotiations with the USFWS to obtain aa permit for operation engaged in similar negotiations operation of the Horseshoe and Bartlett Dams on the Verde River. The USFWS issued aa permit for operation of Roosevelt Roosevelt Dam in 2003 2003 and aa separate permit for operationsoperations on the Verde River in May 2008. Pursuant to the ITP with the the USFWS, in May 2008 the District established established a a Trust Fund to pay mitigation expenses expenses related to the the HCP. The Trust was funded with $13.2 $13.2 million, and is expected to pay mitigation expenses expenses into .perpetuity. Additional funding in the amount ,perpetuity. amount of approximately approximately $2.3$2.3 million is expected in early Fall 2009, most of which is expected to come from the City of Phoenix due to the City's interest in the the water water supply from Horseshoe Horseshoe Dam. 39 39
Air Quality Electric utilities are subject to federal, federal, state and local environmental environmental regulations which which continually change due to legislative, regulatory and judicial judicial actions. Consequently, there is no assurance that facilities owned owned by the District will remain subject subject to the regulations currently in effect, will always always be in compliance compliance with future regulations, or will always be able to obtain all required operating operating permits. The The need to comply comply with environmental regulations could could result in additional additional capital expenditures expenditures to comply, reduced operating operating levels, or the completecomplete shutdown of individual electric generating generating units not in compliance. compliance. In In particular, the full significance significance to the District of air quality standards and emission emission reduction initiatives initiatives in terms of cost and operational operational problems is difficult problems is difficult to predict, but costly equipment equipment may have to be added to units now in operation and that permit fees may increase significantly resulting in potentially material costs to the Dis.trict. District. As aa result of legislative and regulatory regulatory initiatives, the District is planning reductions in emissions of mercury and other pollutants at its coal-fired power plants including including plants located located on the Navajo Navajo Reservation. The EPA issued regulations for the control of mercury mercury emissions emissions from coal-fired generating . stations in 2005. Arizona opted into the federal federal mercury program in 2006 and imposed additional mercury emissions limitations which would require the District to install additional additional controls at CGS and Springerville Springerville Unit 4 to achieve 90% mercury mercury removal. In In addition, the District has been participating with the EPA in the development development of a rule to regulate mercury mercury emissions on the Navajo Navajo Reservation, Reservation, where the District owns an interest in two generating generating stations, NGS. NGS and Four Corners. However,However, on February February 7, 2008, the U.S. Court of Appeals, D.C. Circuit, vacated vacated the EPA rules in response response to a a suit by 11 11 states that that had challenged the rules as not protective protective enough of public health and contrary contrary to the CAA. The EPA will issue new rules but, SRP and other utilities negotiated negotiated Consent Orders with the Arizona Department of of Environmental Quality (ADEQ), pursuant pursuant to which which SRP will implement a a control strategy designed designed to achieve achieve aa 70 percent reduction mercury emissions at CGS on a reduction of mercury a facility-wide annual average basis by January 1, 2012. It is January is likely that additional controls will be required at all coal-fired plants in which the the District has an interest. The District is is evaluating compliance compliance options and cannot yet estimate the the associated associated costs. In June 2005, the EPA also issued final amendments In amendments to its July 1999 regional haze rule. These amendments apply apply to the provisions of the regional haze rule that require emissions controls controls known as Best Available Available Retrofit Technology (BART) for coal-fired Technology (BART) coal-fired power power plants and other other industrial facilities that emit air pollutants pollutants that' reduce visibility. The amendments include final guidelines that'reduce guidelines for states to use in determining determining which facilities must install controls and the types of controls controls that facilities must use. States and tribes were complete BART determinations required to complete determinations for eligible facilities by the end of 2007, although Arizona did did not meet that deadline and it is is uncertain whether whether it will do so by the end of 2009. BART controls must be be installed installed five years after after the EPA has approved approved a a state's BART determination. determination. The District has financial interests interests in several coal-fired power plants that are subject to the BART requirements. The EPA is reviewing the District's analysis of BART for NGS and APS's analysis analysis of BART for Four Corners and is expected expected to makemake its positions positions known later in 2009. The District believes that BART for NGS NGS requires the installation on all three units of low-nitrogen low-nitrogen burners and separated separated over-fired over-fired air, and has begun installation. installation. The Improvement Improvement Program includes includes $90 million for that installation but the EPA may also require installation of selective catalytic reduction (SCR) as well as controls for sulfuric acid mist mist emissions and fine particulate particulate matter, which would ceist cost about $1 billion. billion. There is no money in the the Improvement Program Improvement Program for SCR or for sulfuric acid mist controls. believes that BART for Four corners requires the installation APS believes installation of low-NOx 10w-NOx burners with separated separated over-fire air for Units 4 and 5 5 (in (in which the District owns a a ten percent interest). percent interest). The Improvement Improvement Program Program 40
includes $1.6
$1.6 million for SRP's share of the estimated estimated costs, but the EPA may also require SCR, which could cost an additional additional $48 million (District share). There is is no money in in the Improvement Improvement Program for SCR.
On May 5, 2009, the National Parks Conservation Conservation Association, Sierra Club, Grand Grand Canyon Canyon Trust, San Juan Juan Citizens Alliance, To Nozhoni Ani, and Dine Din6 CARE petitioned the National Park Service (NPS) to certify to the impairment in Grand Canyon EPA that visibility impairment National Park isis "reasonably Canyon National "reasonably attributable" attributable" to oxides of nitrogen and particulate matter emissions from NGS. The Petition asks the NPS to supplement nitrogen supplement a a similar similar certification it made in 1986 that ultimately ultimately led to the installation of sulfur dioxide scrubbers scrubbers at NGS. The The Petitioners allege that although the installation Petitioners installation of the scrubbers scrubbers improved improved visibility at the Grand Canyon, they did not adequately adequately reduce NGS's impactimpact on such visibility. The District is evaluating evaluating options for responding responding to both the Petition and the EPA's potential BART BART determination for NGS. The District is is unable to predict predict the likely outcomes outcomes of these matters or the BART BART determination determination for Four Corners at this time. The District recognizes recognizes the growing importance of the issues concerning climate growing importance climate change (global warming) and the implications they could could have have on its operations, so it is closely closely monitoring climate change and other developments at the federal, state and regional other developments regional levels. Congress Congress is considering considering a bill containing several several significant provisions which would: would: .(1)(1) require require utilities to meetmeet 20% of their demand through renewable energy electricity demand efficiency by 2020; (2) energy sources and energy efficiency (2) establish a new cap-and cap-and trade trade program to reduce reduce carbon emissions emissions from major sources sources by over 80% by 2050; (3) (3) mandate new energy mandate energy efficiency efficiency codes for buildings and appliances; appliances; and (4) make investments in new new energy technologies, technologies, resources and energy efficiency. efficiency. It is unknown when Congress will complete complete its consideration of the climate change and energy issues or what the final provisions of any bill that is is enacted into law will be. Efforts to cap or tax emissions emissions of carbon carbon dioxide from fossil fuel power plants will substantially increase increase the cost of, and add to the difficulty of siting, constructing, and operating electric generating generating units. As a result of legislative and regulatory regulatory initiatives, initiatives, the District is planning emission reductions reductions at its coal-coal-fired power plants. In In particular, under the terms of aa consent agreement agreement with the EPA, EPA, the District has agreed to install additional pollution control equipment equipment at CGS. (See further discussion discussion of the settlement in this Note at Environmental.) Environmental.) The full significance of air quality quality standards standards and emission emission reduction initiatives to the District in terms of costs and operational problems is difficult to predict, but but it appears that costly equipment may have to be added to existing units units and that permit fees may significantly resulting in potentially increase significantly material cost to the District as well as reduced potentially material reduced generation. generation. The District is assessing the risk of policy initiatives on its generation generation assets and is is developing developing contingency plans to comply with future laws and regulations restricting greenhouse contingency greenhouse gas emissions. There There is no way to predict the impact of such initiatives on the District at this time. The California California Legislature Legislature has enacted enacted laws that could impact the District. Under one such law, the the Utilities Commission (CPUC) and the California California Public Utilities California Energy Energy Commission Commission (CEq (CEC) have have implemented a implemented a regulation that, among other things, prohibits procurementprocurement of electricity from aa coal-fired power plant for five years or longer longer and restrict restrict investments in coal-fired plants. The Los Angeles Department of Water Department Water and Power (LADWP), (LADWP), one of the participants participants in NGS, and SCE, SCE, aa participant participant in Four Corners Units 4 and 5, are subject to the regulations and may be precluded precluded from approving certain certain expenditures at the plants, including capital improvements. The regulations expenditures regulations except expenditures for for "routine maintenance"; "routine maintenance"; however, however, nono definition definition isis provided. provided. The California Air Resource Board (CARB) The California (CARB) is is also developing developing a program program to reduce California emission of greenhouse greenhouse gasses, including including an economy economy wide cap-and-trade cap-and-trade program program for greenhouse gases. A A preliminary preliminary recommendation recommendation from CARB CARB 41 41
requirement for California utilities to divest or mitigate portions included a requirement portions of existing investments in coal-based generation. The regulations could impact the District's District's ability to sell excess generation generation intointo California. If the implementing implementing regulations prohibit or penalize the sale of energy energy generated by aa coal- coal-District could lose California as aa market for its wholesale generation; fired plan, the District generation; however, the District has other options options for marketing wholesale generation. The District is monitoring marketing its wholesale monitoring and participating participating in the development development of these regulations to determine determine the full extent of their impact impact on the District and the plants in which it has an interest. Based on available information, the District District cannot estimate estimate or predict the impact of the California laws on it at this time. California Energy Market California Market Issues Numerous FERC proceedings Numerous proceedings are addressing addressing various aspects of the California energy market market crisis of 2000 through 2001. Several of these proceedings proceedings involve potential refunds. Because Because the District bought bought from and sold power to the California tothe California energy market, the District has has been drawn drawn into many of the proceedings. proceedings . However, the District was aa net buyer in the California . However, California market during the time periods being scrutinized, entitled to refunds if any are ordered. and believes it is entitled ordered. The District has received approximately approximately $29.6$29.6 million in refunds as of April 30, 2009, and expects an additional additional $1.5 million in fiscal year 2010. Indian Matters Indian Matters From time to time, SRP is involved litigation and disputes with various Indian tribes on issues concerning involved in litigation concerning regulatory jurisdiction, regulatory payments, taxes and water rights, among others (see Coal jurisdiction, royalty payments, Coal Supply Litigation Litigation Resolution of these matters may result in increased Quality above). Resolution and Air Quality increased operating expenses. Water Rights Rights adjudication proceeding parties to a state water rights adjudication The District and the Association are parties proceeding initiated 1976 initiated in 1976 entire Gila River System (the Gila River encompasses the entire which encompasses River Adjudication). Adjudication). This proceeding pending proceeding is pending in the Superior Superior Court for the State of Arizona, Arizona, Maricopa Maricopa County, and will eventually eventually result in the the determination of all conflicting rights determination to water water from the Gila River and its tributaries, includingthe including the Salt and Verde Rivers. The District and the AssociationAssociation are unableunable to predict the ultimate outcome of this proceeding. proceeding. United States, on behalf of the Gila River Indian Community The United Community (GRI (GRI Community), filed a a lawsuit 1982 in lawsuit in 1982 the Federal District Court, District of Arizona, to protect the water right claims of the GRI Community. The The Association was among the many many defendants defendants named in this lawsuit. The lawsuit claimed that the defendants' use of surface water defendants' groundwater violates water and groundwater GRI Community's rights to water violates the GRI water in certain specified areas, and requested aa decree specifying the GRI Community's specified injunctive relief to stop the Community's rights, injunctive the alleged illegal use of water by the defendants, and damages alleged increased costs to the GRI Community damages for increased Community from, among other deepen its wells. This lawsuit has been dismissed other things, having to deepen dismissed under the terms of of the Arizona Water Rights Settlement Arizona Water which resolves the claims of the GRI Community but also many Settlement Act, which many of of the claims in the Gila River River Adjudication. Adjudication. In 1978, aa water rights adjudication initiated in the Apache County Superior adjudication was initiated Superior Court with regard to the the little Colorado River System. The Little Colorado District has filed its claim to water rights in this proceeding, which groundwater being used in the operation includes aa claim for groundwater operation of CGS. The District is unable unable to predict the the ultimate outcome of this proceeding, but believes an adequate adequate water supplysupply for CGS will remain available. The cities of Prescott and Prescott Valley, together with the Town of Chino Valley, have and Prescott have plans to to withdraw groundwater withdraw groundwater from the Big Chino Groundwater Groundwater Sub-Basin and transport the water water to their their 42
service areas for municipal respective service municipal and industrial uses. The District District opposes these plans becausebecause it believes that such pumping would deplete the base flow of the Verde Verde River, which is captured captured and stored stored by two reservoirs on the Verde River for delivery delivery to Association shareholders. shareholders. The DistrictDistrict cannot cannot predict the outcomes of this matter at this time. However, However, the District does not believe believe thethe dispute dispute will have aa significant financial impact on the District or the Association. Association. Other Utigation Other Utigation In the normal course of business, SRP is In is exposed to various litigations or is is aa defendant defendant in various litigation litigation matters. In management's management's opinion, the ultimate resolution of these matters will not have a material a adverse adverse effect on SRP's financial financial position or results of operations. Self-Insurance Self-Insurance The District maintains various self-insurance self-insurance retentions retentions for certain certain casualty and property exposures. In In
- addition, addition, the District has insurance insurance coverage for amounts in excess of its self-insurance self-insurance retention levels.
The District provides provides reserves based based on management's management's best estimate of claims, including incurred incurred but not not reported claims. InIn management's management's opinion, the reserves reserves established for these claims are adequate adequate and any changes changes will not have have a a material material adverse adverse effect effect on the District's financial position or results of of operations. operations. The District records the reserves in deferred deferred credits and other non-current non-current liabilities liabilities in the the accompanying Combined Balance accompanying Combined Balance Sheets. 43
pPMCEVVATERHOUSECoPERS PricewaterhouseCoopers I.lP PricewaterhouseCoopers LIP 350 350 South South Grand Avenue Grand Avenue Los Angeles Los Angele5 CACA 90071-3405 90071-3405 Telephone. Telephone 213213 3% 356 600() 6(000 racsimile Facsimile 213213 356 6363 3% 6363 Independent Auditors Report of Independent To the Board of Directors Directors of thie the Salt River Project, Agricultural Agricultural Improvemnent Improverilellt and Power District and the Board of Governors Governors of the Salt River Valley Water Users' Association Water Users' Inour In our opinion, opinion, the accompanying accompanying combined combined balance balance sheets and the related combined statements statements of net revenues and comprehensive-income, reyeimes comprehensive* income, and cash cash flows present present fairly, in all material respects~ respects, the position Mthe financial positio,n of the Salt River Project Project Agricultural Improvement Improvement and Power District and anditsits subsidiaries subsidiahes and the Salt River Valley Villey Water Users' Users' Association (collectively, (collectively, "SRP")
"SRP")at at April 30, 2009 and 2008, 2008, and the results of their operations and their cash flows for the years then ended in conformity accounting principles with accounting principles generally generally accepted in the United States of America. These financial financial statements are the responsibility of SPRl 's management.
responsibility ofSRP's management, Our responsibility islo isto express an opinion on, on these financial statements based on our audits. We conducted conducted our audits of these statements statements in accordance withauditing,standards accordance with auditingstandards generally acceptedaccepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance obtain reasonable assurance about whether the the financial statements are free ofnmaterial misstatement. statements i\re frecofmaterialmi*sstatemcnt. An audit includes examining, on a test basis, supporting the amounts evidence suppotiing anmounts and disclosures disclosures in the financial statements, stalem.ents, assessing the accounting accounting principles used and significantestimatcsll1ade significant estimates made by mamigemet1t,and management,.:and evaluating the overall financial statement presentation. We believe believe that6i.lr that Our audits provide provide a reasonable basis, for our opinion. reasoriable basis opinion. As discussed discussed in Notes 3, 5 and and.99 to the combined financial statements, changed the maJiner statements, SRP changed manner in which it accollnts accounts for fair value measurements, measurements, forfor-certain instruments, and for defined benefit certain financial instruments, benefit postretirernent postretirement plans plans in fiscal 2009. 6~~J&It ~ D F~~r~jus LL June 30, 30, 2009
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SCPPA President's Letter .................................... 4 Executive Director's Letter Executive ............................ Letter ............................ 5 SCPPA's SCPPA's Year in Review ............................ Review .............................. 6 Operations and Projects Operations Palo Verde Verde Project ...............................
............................... 8 San Juan Unit 3 Project ..........................
Project .......................... 10 Mead-Phoenix/Mead-Adelanto Mead-Phoenix/Mead-Adelanto Transmission ......................... Transm ission Projects ......................... 12 Hoover Uprating Project ......................... Hoover ......................... 14 Southern Transmission System Project .............. Southern .............. 16 Magnolia Power Project Magnolia ......................... Project ......................... 18 Pinedale Natural Gas ReseNes Pinedale Natural Reserves Project ............. ............. 20 20 Barnett Natural Gas Reserves Barnett Natural ReseNes Project .............. Project .............. 22 22 Ormat Ormat Geothermal ....................... Geothermal Project ....................... 24 24 Prepaid Natural Gas Project Prepaid Project, NO.1 ................ No. 1 ................ 26 26 Financing Activities ................................. Financing ................................. 28 28 Legislative .................................. Legislative Report .................................. 30 30 M unic ip a litie s ...................................... Municipalities ...................................... 34 34 Selected Financial Data and Statistics ................ ................ 36 36 Combined Summary Summary of Financial Conditions Conditions ........... ........... 37 37 Accounting and Investment Accounting Investment Group ................... Group ................... 37 37 Statistics of SCPPA Members ......................... Members ......................... 38 1
outhern California Public Power Authority (SCPPA), with headquarters outhern Pasadena California, Isis a joint headquarters in Pasadena joint powers agency agency comprising eleven municipal utilities and irrigation district. SCPPA's members and one irrigation municipal utilities of Anaheim, Azusa, Banning, Burbank, Cerritos, Colton, Glendale, Los consist of the municipal Los Angeles, Pasadena, Riverside, Vernon, and the Imperial Irrigation District. Together they deliver electricity Imperial Irrigation electricity to over six million people In California basin, spanning an area of 7,000 square miles, in the southern California miles. Formed in in 1980, SCPPA SCPPA was created created for the purpose of providing joint construction and operation Joint financing, construction operation of transmission generation projects. Today, SCPPA transmission and generation SCPPA fulfills a broadbroad range of services for its members members by effective forums of collaboration providing effective committees such as Customer collaboration though committees Customer Service, Finance, Public Public . Benefit programs, Resource Planning, Risk Management Management, Transmission and Distribution, Distribution, Engineering and and Operations, Natural Gas, and Renewable Renewable Energy Resources. MISSION MISSION provides financing SCPPA provides financing and oversight for large and oversight large joint joint projects projects inin the industry and electric utility industry electric and through efforts, facilitates, coordinated efforts, through coordinated facilitates, implements, and implements, and communicates communicates informationinformation relative issues and relative to issues projects projects of mutual interest interest to its members as as determined determined by the Board Board of Directors. Directors. In order to support its primary purpose, SCPPA In SCPPA isis also involved in in legislative legislative advocacy, contracting for support support services, Information Information sharing, training regulatory monitoring training and regulatory monitoring on behalf of its (",embers. members. accomplish its mission, SCPPA is: To accomplish is:
** Not-for-profit (public Not-for-profit (public agency)
-* locally (locally elected Governed locally elected officials)
** Customer owned (no stockholders stockholders seeking high profits)
** integrated (focuses on and remains responsible for power Vertically integrated supply, transmission, distribution, and customer service) service)
** Meeting local mandates of obligation to serve Meeting local serve by planning to meet meet long-term needs of customers through ownership of generation ownership transmission and long-and-short generation and/or transmission long-and-short term contracts contracts for power supplies or transmission*
transmission* diversity of power supplies, Including
*" Providing diversity Including renewable renewable resources (solar, wind, and 'electric resources (solar, electric generation from geothermal, and landfill gas) ** Optimizing Optimizing its energy energy resources, and and Providing aggressive, local *" Providing management programs.
demand-side management local demand-side The Authority currently currently has interests interests InIn five generation projects, three transmission projects, and three natural generation projects, natural generating power in gas projects in operation, generating in California; and generating generating and bringing and bringing power from Arizona, Nevada, New New Mexico, Texas, Utah, and Wyo'ming. Wyoming. One of the generation generation projectsprojects is is a combined cycle cycle natural generating plant with a nominally rated net base capacity of 242 megawatts, and is natural gas-fired generating Is wholly owned by the Authority. Its most recent acquisition isis a prepaid contract for a thirty year supply of natual gas at a fixed discount. natual VISION VISION provide cost-effective joint action SCPPA will provide action services that thatsupplement supplement member programs programsand and activities, activities, and thatsecure that long-termphysical secure long-term supplies at physical supplies atpredictable pricing levels for usage predictable pricing usage in power power generation generationto assure assure continued continued member success. success. projects have been financed SCPPA's projects financed through the Issuance tax-exempt bonds, backed by the combined Issuance of tax-exempt combined credit of the SCPPA members participating in each project. As of June 30, 2008, SCPPA had issued $11.0 members participating $11.0 billion in bonds, notes, and refunding refunding bonds, of which $2.3 billion was outstanding. It It is Is backed backed by one of the highest credit ratings, and is is rated AA- by Moody's and Standard and Poor's. 22
David Wright Wright Marcie Edwards Marcie President President Vice President President Bill Carnahan Carnahan Leilani Johnson Kowal Executive Director Executive Secretary Mario Ignacio Mario Ignacio Assistant Secretary Secretary I 1 From left to right: Bill Carnahan, Executive Executive Director; David Walden, Energy Systems Systems Manager; Geri Mitchell, Manager; Mitchell, Office Manager; Craig Craig Koehler, Finance and Accounting Koehler. Finance Accounting Manager; Salpl Manager; Salpi Bouboushian, Administrative Administrative Analyst; Phyllis Brown, Government Government Affairs Manager; Steve Homer, Project Administrator; Manager; and Richard Helgeson, General Counsel. 3
Cnce nce again, the SCPPA SCPPA Member utilities did did O4, again, the their part in the Governor's in adding Member utilities renewable resources adding renewable in their total power mix in order to support percent by 2020 RPS goals. Governor's 33 percent support Many Many of the SCPPA MemberMember utilities are well on their way to meeting meeting this goal, and in in some cases have have exceeded it. exceeded it. Riverside for example, will have gone gone from zero to 50 percent percent in in just over a decade, and will probably probably have one of the highest renewable renewable energy portfolios in in the state, with the exception exception of that had those that had legacy legacy hydro. hydro. Los Los Angeles Department of Water and Power has committed an investment Department investment of $5 billion dollars to dollars to renewables over the renewables over next five the next five years. years. SCPPA's Members are SCPPA's Members committed are committed to sustainable, renewable resources, and are continuing to find new ways to sustainable, renewable resources, and are continuing to find new ways to to resources to ensure that supplies remain abundant for years to maximize their resources to come. All this, as the state's investor owned utilities are finding itit difficult to meet meet their RPS goals inin the timeframe established. established, , Members in Today, SCPPA serves its Members in many ways and has evolved from its historical role of providing financing financing for generation and transmission projects. As a Joint Action Agency, SCPPA also provides effective collaboration and as a effective forums of collaboration contracting for services and acquisition of fuel for power conduit for joint contracting renewable energy generation and renewable power generation energy supplies. In In addition generating electricity addition to generating in California, SCPPA also brings electricity electricity in electricity to Southern California from Arizona, Nevada, Southern California New Mexico, Texas, Utah, and Wyoming Wyoming on a combined electricity and services combined basis and currently delivers electricity services to over six six million people people inin the communities communities we serve. year. SCPPA had a number of achievements During the year, achievements in in assisting its members in in key areas, including financing, project development, and legislative advocacy. This again isislargely attributable member's effective attributable to the member's effective use of joint action. Over the years, SCPPA's members have added locally-owned generation, with the addition of the Magnolia Power added locally-owned Power Project Project that operates under one of the most stringent environmental operates environmental standards in in the nation. SCPPA also continues its commitmentcommitment in in renewable energy with its latest renewable energy latest request consideration for additional request for proposals and consideration renewable resource additional renewable resource supplies. continues as a strong advocate SCPPA continues advocate on the regulatory involvement at both state and federal levels, to regulatory fronts, with its involvement to protect protect represented customers adequate resources, reliability, and environmental customers by assuring adequate stewardship to the communities environmental stewardship we proudly serve. Recently, several Member utilities, including Riverside, Burbank, Pasadena, and Los Angeles several SCPPA Member Department Department of Water and Power. California Air Resources Board Power, testified at the State of California meeting in Board meeting connection with the in connection the Assembly Bill 32 Scoping Plan. Although SCPPA is generally supportive of the Scoping Plan, concerns is generally concerns remain in in connection with its cap and trade provisions and wealth transfers, and we would like to also include include some regulatory safeguards as itit is is developed... further developed Energy Energy Efficiency renewable measures are the cornerstones Efficiency and renewable compliance for the electriCity cornerstones of AB 32 compliance electricity sector, and public public power power agencies have have been some of the most aggressive aggressive in in renewable energy and energy energy efficiency efficiency programs. Energy efficiency demand reduction programs efficiency and demand programs are vital partsparts of public power's resource strategy. Over the last ten years power's resource members have spent over $350 million on energy SCPPA members energy efficiency and demand management programs. Utility demand reduction management Utility customers benefit from rebates and incentives customers benefit incentives for energy efficiency high-efficiency lighting, appliances, efficiency measures such as high-efficiency air conditioners, and motors. Other Other programs include tree planting planting for shading purposes, energy managementmanagement systems to passively passively turn off lighting and air conditioning when not in in use, and LED lighted traffic signals. In In addition to monetary incentives, member utilities conduct education communication programs designed to educate customers education and communication customers about the benefits benefits of energy energy efficiency. SCPPA member member utilities have established lO-year energy efficiency targets which, in 10-year energy aggregate, amount to an average reduction of 1% 1% per year. SCPPA members continue to deliver reliable service, at competitive competitive and stable rates. Through proactive advocacy impacting energy legislation and regulation in collectively meeting our commitments in California and at the Federal level, and collectively for green power and renewable energy resources, SCPPA members are working working together successfully meet the together to successfully the challenges challenges in in California's energy industry. By making investments today, we can assure that we are in California's electric energy in a position to reliably and responsibly serve the energy J;;4.~ye energy demands demands of of our au' customers cu~ome~;n in the the future. tutu,e David H. Wright H. Wright President 44
D am proud proud to report that that itit has has been been another another monumental year for for SCPPA SCPPA in terms of of its achievements and assisting its I am to report members in aa number number of key areas, including monumental year including financing, project in terms development, and legislative project development. its achievements legislative advocacy. and assisting its On the financing front. front, SCPPA successfully completed the Natural successfully completed Natural GasGas Prepayment Prepayment No. 1 resulted in a contracted transaction that resulted thirty-year supply of natural gas benefiting contracted thirty-year benefiting its its Participants (Anaheim, Burbank, Colton, Glendale, and Pasadena). This was one of the most Participants economically economically beneficial and most complex natural gas prepayment transactions transactions completed completed to date, date. Over the thirty-year term, approximately approximately 134 billion cubic feet will be delivered and is is expected produce approximately expected to produce approximately $120 million million in savings for SCPPA. In addition, SCPPA SCPPA also completed the first phase of the natural gas reserves acquisition by financing the the Wyoming Natural Gas Pinedale and Texas Texas Barnett Projects. The year was also marked marked by unprecedented unprecedented events and and changes changes in the the financial industry brought brought about subprime mortgage about by the subprime mortgage crisis and relatedrelated credit issues. Nationally, outstanding mortgage debt exceeded exceeded $14 $14 trillion with aa large proportion of the mortgage large proportion mortgage backed securities held by Financial Institutions Federal Agencies. As mortgages Institutions and Federal mortgages started to go bad, industry industry write downs approached $600 billion that led to frozen markets on aa global downs approached scale, and dramatic reduction in liquidity and downgrades downgrades to the bond insurers. insurers,
,...'Executive,'
Despite Federal/Treasury actions, problems still persist within the financial Despite strong Federal/Treasury markets. Many financial institutions on SCPPA's underwriter team team are no longer Irecf -r in business SCPPA's outstanding merged with other banks. All of this has affected several business or have merged bond issues. Through the SCPPA Finance several of Committee e er outstanding Committee along with its financial advisor, along advisor, SCPPA has been been able to successfully successfully navigate its way through the crisis and and has already taken remedial action across of projects, similar to other major public across aa number public power issuers across the country. The The A-Committee continues to closely monitor Finance Committee monitor the markets and SCPPA's other projects as the future isis unknown and stabilitystability isis not not likely to return return until 2009. m SCPPA supports the members members in meeting challenges facing the electric meeting the challenges electric industry acquiring additional reliable industry by acquiring reliable energy sources. To assist the members, SCPPA issued new Request Request for Proposals (RFP) for Renewable Proposals (RFP) Projects to solicit competitive Renewable Energy Projects proposals for additional competitive proposals megawatts of renewable megawatts renewable energy, through facility facility ownership or power purchase agreements with an early purchase agreements early buyout buyout option, in one or more renewable renewable energy facilities. In response to the RFP, SCPPA is In response is pursuing several renewable renewable energy projects, including wind, solar thermal, including thermal. biomass, ethanol power, geothermal, which are in the early power, and geothermal. early stages of development. At fiscal year-end, several projects were also under way, involving a mix of Power several wind projects Power Purchase Purchase Agreements and ownershipownership options, and are expected to be in production in late late 2008 through through 2010. continues to be a strong front, SCPPA continues On the legislative front. active voice at both the state strong and active state and federal levels. These These efforts advocating SCPPA's include advocating commitment to local control and issues vital to Publicly-Owned SCPPA's commitment Publicly-Owned Utilities; updating legislators on SCPPA's mission to assist members members in optimizing energy efficiency opportunities as well as building and acquiring efficiency opportunities acquiring new generation, with the emphasis generation, emphasis on renewable renewable energy energy sources; and efforts to implement the California Global Warming Global Warming Solutions Act, Assembly Bill 32. Solutions Act. Today, SCPPA consists of its twelve members (Anaheim, (Anaheim, Azusa, Banning, Burbank, Cerritos, Colton, Glendale, the Imperial District, Los Angeles, Pasadena, Riverside, and Vernon) delivering Irrigation District. electriCity and delivering electricity providing services to over and providing six over six million people. I am honored to be associated associated with SCPPA for most of its existence, and to have served Executive Director served as Executive for almost a decade. I have witnessed witnessed SCPPA's phenomenal growth growth and success in providingproviding the members with the ability to maintain a a balanced balanced portfolio sustainable and reliable energy sources portfolio of sustainable sources that meets local demand for energy local demand energy during this committed to continuing to proactively time. SCPPA isis committed members in aggressively proactively assist its members aggressively meeting new challenges within new challenges within California's electricity industry. The outstanding leadership California's electriCity leadership of its members will continue to provide new and exciting exciting solutions industry challenges to come. to the industry Bill D. Carnahan Executive Director 5
r I. he year was singularly shaped by the dramatic dramatic events events that took T place in the financial markets. What began as Isolated place mortgage crisis. This had related mortgage related had a domino problems quickly quickly grew into Into a domino effect, which led to the downgrade Isolated subprime full blown downgrade on the subprlme financial the bond insurers, contraction of the financial markets globally, uncertainty in the viability of the auction rate and variable in variable rate debt markets, and resulted In consumer confidence. The availability complete loss of consumer in a complete availability of liquidity and credit facilities was also severely curtailed and the price severely curtailed price for obtaining obtaining these facilities dramatically Increased. facilities has dramatically Increased. We all witnessed U.S. history being rewritten, as the events that followed In in the the markets unfolded. financial markets unfolded. In In response, SCPPA proactivelyproactively took remedial action across across a number number of Its its projects, similar to other major power Issuers across the country. With the Federal bailout In public power in markets have not realized a return to normalcy place, the markets normalcy or stabilization. However, SCPPA's Financing Financing Team continues to closely monitor the markets to protect protect SCPPA's project project debt portfolio. Amidst all of the financial market turmoil, SCPPA SCPPA has continued to assist Its members in the areas of traditional its members acquire additional renewable commitment to acquire financing, and its commitment renewable energy sourcessources on their behalf. Following Following a period of negotiations negotiations that culminated approximately a year and six months, SCPPA executed culminated after approximately executed one one of the most complex natural transactions to date. The project resulted prepayment transactions natural gas prepayment resulted in in aa contracted contracted approximately 134 billion cubic feet totaling $504.4 million. It thirty-year supply of natural gas of approximately thirty-year It is Is expected produce approximately to produce approximately $120$120 million in savings for SCPPA's Members Members over the life of the bonds. In addition, In taxable rate money Issue of $141.1 SCPPA also issued aa new taxable $141.1 million. purpose was to pay-off an outstanding million. The purpose outstanding and expiring short-term short-term bridge loan in connection with the natural gas reserves in connection reseNes that were acquiredacquired earlier provide for five years of capital drilling needs in 2005 and 2007, and to provide in needs for both the Natural Gas Pinedale and and Barnett Projects. At fiscal year-end, financing was also underway for an upgrade Southern Transmission System; and an upgrade to the Southern financing facility, utilizing Bond Anticipation Notes, for the purchase of turbines and other costs In interim financing in connection with Anaheim's Canyon Anaheim's Canyon Power Project. The STS Upgrade Upgrade and Canyon Power Project financing financing schedules targeting have schedules December 2008 closing. targeting a December increased pressure to meet the renewable In response to the increased In renewable energy energy mandate, SCPPA's PartiCipantsParticipants have have portfolios to acquire additional renewable been positioning their portfolios energy sources renewable energy sources as well. To assist the the Members, SCPPA issued an open- ended Request Request for Proposals (RFP)(RFP) for Renewable Renewable EnergyEnergy Projects to solicit solicit renewable energy, through facility ownership competitive proposals for renewable competitive ownership or power purchase agreements with purchase agreements 66
an early buyout option, in one or more renewable energy energy facilities. SCPPA received 60 replies offering 9 GW SCPPA received potential renewable energy of potential energy in response to the RFP and is in response several renewable is pursuing several energy projects, renewable energy including including wind, solar, solar, biomass, and geothermal. At fiscal year-end, several several wind projects proJects were also under way, Involving a mix of Power Purchase Agreements and ownership options, which are expected Purchase Agreements expected to be inIn production in production through 2010. in late 2008 through is also targeting 201 D. SCPPA is potential portfolio targeting a potential approximately 33 GW of portfolio of approximately renewable energy by 2020. renewable As a Joint Action Agency, SCPPASCPPA strives to develop develop new ways to add value to its Members Members so they remain remain well-positioned challenges within our Industry. well-positioned to meet the challenges member utilities continue industry. Collectively, SCPPA's member continue to to leverage their talents, resources, and financial strengths to bring sustainable and reliable energy leverage energy sources to their customers.
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~(Operatlon and MaIntenaince plus Nuclear Fuel)
Calendar Year Cenftsper kWh, 994.1 .93 1999 12 A '2001 :7'1.27.~ S2002' :1.28 2003, w s1.32~'~ 2005 16 j2006' ZW
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-The steam generators generators in Unit 1 successfully replaced were successfully during the fall of 2005. Unit 2's 2's generators were steam generators were replaced in 2003, and Unit 3's replaced 3's generators were steam generators were replaced in October replaced October 2007. 2007, 2 007 -2008 U OPERATIONS' Capacity Generation UtillzationL' (Milllons of MWHs) %
.,Unit 2 9.1 7870/
Unit 3 T 81 Aggregate 28.2 7812% 9 9
Five SCPPA participants own ive SepPA 41 .8% of Unit 33 at the San Juan 41.8% Generating Station, a coal-fired Generating coal-fired New Mexico. A series of plant in New Agreements for Interim Invoicing Agreements Interim fuel has led to high capacity factors and lower per unitunit fuel costs. The underground underground mine is is performing performing well, and the plantplant is in the midst of a major is enviornmental upgrade enviornmental upgrade project. Unit 3's major work was performed in January performed January 2008. 10 10
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Percentage of SCPRA member 41 .- par icipa ion, in'Mead-P' o nix ProjOT.- The two 500-kV transmission transmission V, lines, which connect Phoenix to Las Vegas, and Las Vegas to Southern California, California, 148% completed their tenth year 13,8% of dependable dependable operation for Pcýbýna Gfýdalo Bwbmk - Rl-ý- the nine SCPPA members B-inql Zft-participate in the proj who participate projects.,
The Hoover Uprating Project Project contlues to provide six SCPPA contiues members with low-cost, renewable energy (hydro). A SCPPA representative representative isis implementation active in the implementation of the Lower Colorado River Conservation Multi-Species Conservation Program. 14
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Construction Construction was completed o6 Magnolia Power Project, aa the Magnolia megawatt natural gas-fired, 240 megawatt combined cycle plant, located located on the site of an existing plant in the City of Burbank. The plant plant commercial operation reached commercial reached September, 2005, and is in September, is the first first project to be wholly-owned wholly-owned and operated by SCPPA members. operated The participants participants are Anaheim, Burbank, Cerritos, Colton, Glendale, and Pasadena. 18
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SCPPA Members SCPPA Members Los Angeles, Anaheim, Burbank, Colton, Glendale, and Pasadena joined Pasadena joined together together with the Turlock Irrigation District to purchase Irrigation purchase shares shares of existing natural gas wells in the Pinedale area of Los Angeles and Turlock hold their interests their interests Wyoming. This purchase, along Wyoming. along individually.Anaheim, individually. Anaheim, Burbank, Burbank, Colton, Colton, Glendale, and Pasadena Glendale, Pasadenahave ownership ownership with similar future purchases, SCPPA. Los Angeles serves as Project through SCPPA. through Project Manager for the overall project, Manager and SCPPA project. and SCPPA will provide provide aa secure source of provides provides services services for Los Angeles and Turlock under agency agreements. under agreements. gas gas for the participants, and hedge against against volatile prices in in the market. 21
In 2006, SCPPA members In nafura purchased a share of natural purchased Shale gas leases in the Barnett Shale Texas area of Texas. area Turlock holds holds its interest individually. its interest individual/y. Anaheim, Anaheim, Burbank, Colton and Burbank, Colton, and Pasadena Pasadenahave ownershIp ownership through through SCPPA. SCPPA. SCPPA SCPPA receives receives net revenues through a joint revenues through jOint operating operating Barett agreement agreement with Devon Energy Production Energy Production Company, L.P. Company, LP. S.at I 4G0 "Reaeava rojed
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SCPPA Members Members Anaheim, Banning, Glendale, and Pasadena receive Pasadena receive up to 16 MWs of geothermal geothermal energy from from plants in Heber, Heber California, on aa long-term purchase contract long-term purchase contract with Ormat. 25
n October In October 2007, SCPPA executed a natural executed natural gas prepayment transaction that prepayment transaction resulted resulted in aa contracted contracted thirty-year supply of natural thirty-year natural gas. Participants are Anaheim, The Participants Burbank, Colton, Glendale, and Pasadena. The total quantity gas to be delivered of gas delivered over the over the term of the Prepaid Gas Purchase and Sale Agreement isis Sale Agreement approximately cubic approximately 134 billion cubic feet. The transaction isis expected feet. expected produce approximately to produce $120 approximately $120 million in savings for SCPPA. 26
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October 2007, SCPPA successfully n October successfully executed executed aa natural natural gas
- prepayment prepayment transaction with Goldman Goldman SachsSachs Group, Inc. Inc. that resulted in a contracted thirty-year supply of natural gas to be resulted In a contracted thirty-year supply of natural gas be delivered delivered by J. Aron & & Company, as the gas supplier. The Participants (Anaheim, Burbank, Colton, Glendale, and Pasadena) for Gas Prepayment Project #1, Prepayment #1, were successfully able to secure were successfully secure a thirty-year supply of natural natural gas supply supply at a substantial discount discount of $0.91 per MMBtu through SCPPA. The total quantity of gas to be delivered delivered over the term of the Prepaid Gas Purchase and Sale Agreement Agreement Is Is approximately approximately 134 billionbillion cubic feet. The $504.4
$504.4 million transaction transaction was sold InIn part as $302.9 million fixed-rate fixed-rate (Series A) bonds, and $201.5 $201.5 million million LIBOR LlBOR notes, to reduce the overall borrowing cost and to maintain a conservative conservative structure with minimal risk to SCPPA. The transaction, which Isis expected expected to produceproduce approximately $120 approximately $120 million in savings for SCPPA.
SCPPA, was one of the most economically economically beneficial and most most complex natural gas prepayment prepayment transactions transactions completed completed to date. In connection In connection with the completion completion of the first phase of the naturalnatural gas reserves acquisition, on February February 6, 2008, SCPPA Issued $141.1
$141.1 million Natural Natural Gas Project Project A Revenue Bonds, 2008 Series A. A, related to the Natural Natural Gas Projects. This fixed rate taxable bond transaction transaction was IssuedIssued to pay-off the outstanding outstanding $76 million of the the Revenue Bonds, Draw Down Series 2005A (the short-term bridge loan) and to expiring Natural Gas Project Revenue provide for five years of capital drilling needs for both the Natural Gas Pinedale Pinedale and Barnett Barnett Projects. Financing Financing for the SCPPA Natural Natural Gas Projects was executed executed as three separate transactions for each of the Project A Participants ($80.8 Participants ($80.8 million million Anaheim, $43.7 million Burbank, and $16.6 $16.6 million Colton) with final maturity maturity Inin 2032.
The financial market instability that was caused by subprime mortgage mortgage problems and related credit issues was the major driver for the majority majority of the financing activity for this year. One of these financings included included a refunding for the Southern Transmission Project. On June June 4, 2008, SCPPA issued issued $48,025,000 of Southern Transmission Revenue Bonds, 2008 Subordinate Transmission Revenue Subordinate Refunding Series A. Due to the marked change change In in the the performance of Auction-Rate performance Auction-Rate Securities (ARS) (ARS) versus Variable Variable Rate Demand Obligations ("VRDOs") in Obligations ("VRDOs") in the the current market, market. which was driven by the credit crisis and subprime problems, SCPPA Issued these fixed rate and subprlme rate bonds to refund $50,050,000 b'onds $50,050,000 of the Southern Transmission Transmission System ProjectProject Revenue Bonds, 2003 Subordinate Subordinate Refunding Series A Bonds ("STS 2003 ARS") ("STS 2003 ARS") and and to pay the related costs of issuance Issuance for the 2008 Series A Bonds. In In refinancing the 2003 Series Series A Bonds, SCPPA successfully converted converted the STS 2003 ARS Bonds to completed the first step in fixed rate debt and completed In Its strategy to exit the uncertainty uncertainty of the ARS market. In In addition to the STS Project Refunding, SCPPA amended its STS 2004 floating-to-floating SCPPA amended Fixed-Spread Basis Swap to floating-to-floatlng Fixed-Spread create a Constant Maturity Maturity Swap, in In which itit pays the swap counterparty counterparty BMA Index but will receive receive 58.99% of the lO-Year 10-Year LlBOR LIBOR plus 66.4% 66,4% basis points, Instead of 65% of 1-Month 1-Month LlBOR LIBOR plus 66.4% basis points. pOints. The The amended swap terms for STS 2006 Swap became became effective effective August 1. 1, 2007. The notional notional amount amount of the the Swap Swap Agreement Agreement remains at $100 $100 million. The swap expires on July 1, 1. 2023. Based Based upon historical data, the the expected gross savings to SCPPA from the amended amended swap are are estimated at $24.28 million, or $17.40 $17.40 million inin present value value savings. In addition to the STS Project. In Project, SCPPA also took a proactive stance stance to address address a number number of other ProjectProject Bonds that were affected affected by the subprime subprime mortgage mortgage problems. This included the Magnolia Magnolia 2007 variable rate rate bonds, where where terms were successfully negotiated negotiated with KBC Bank to amend amend the Standby Bond Purchase Purchase Agreement Agreement (SBPA). The amendment, which became effective on April 15, 2008, temporarily became e,ffective temporarily converts the the KBC line of credit to a letter of credit for a period of 1 year, year, preventing preventing the Immediate Immediate and automatic automatic termination of the SBPA ifif the bond insurer (MBIA) (MBIA) default default occurs within the next year. In next year. In response response to thethe subprime mortgage crisis, this actionaction lowers SCPPA's interest cost. cost, and provides SCPPASCPPA time to devise a permanent solution ifif the current market permanent market conditions persist. 28 28
SCPPA issued Palo Verde 2008 Series Series Subordinate Subordinate Bonds in in the aggregate principal amount of $99,830,000, consisting of $49,915,000 principal amount amount of 2008 Series A and and $49,915,000
$49,915,000 of 2008 Series Series B ("2008
("2008 Series A A and B Bonds") Bonds") In In August 2008. The bonds were issued to provide funds, together with certain provide funds, certain other available available outstanding Palo Verde 1996 Subordinate moneys, to refund all of SCPPA's outstanding Refunding' Series B & Subordinate Refunding & C Bonds ("Refunded ("Refunded Bonds"), which consisted of variable variable rate bonds insured insured by a bond insurer. This refunding was necessary to remove the current bond insurer, given the continued deterioration necessary deterioration inin the performance performance of insured VRDOs, and to replace them with VRDOs that are supported certain bond insured certain supported by bank issued Letter of Credit which are expected to perform better in the current market. No Senior Palo Verde Bonds are currently are expected currently outstanding, and the 2008 Series A and B Bonds are the only bonds outstanding relating relating to SCPPA's Interest Interest in Palo Verde., October 2008, the Authority issued the Mead-Adelanto In October , In Mead-Phoenix 2008 Series A and B Revenue Mead-Adelanto and Mead-Phoenix Revenue Bonds inin the aggregate aggregate principal $145,730,000, consisting of $104,815,000 principal amount of $145,730,000, principal amount of
$104,815,000 principal Mead-Adelanto 2008 Series Mead-Adelanto Series A; $7,085,000 principal amount of Mead-Adelanto
$7,085,000 principal Mead-Adelanto 2008 Series B; $31,325,000 Mead-Phoenix 2008 Series A; and $2,505,000 principal principal amount of Mead-Phoenix principal principal amount amount of Mead-Phoenix Mead-Phoenix 2008
("2008 Series A and B Bonds"). The bonds were issued to provide Series B ("2008 provide funds, together together with other available available funds, to refund the Mead-Adelanto Revenue Bonds, 2004 Series A and the Mead-Phoenix Mead-Adelanto Project Revenue Project Mead-Phoenix Project consisted of Insured Revenue Bonds, 2004 Series A, which consisted Insured auction auction rate bonds. terminated on May 7, 2008 interest rate swap with Citigroup was also terminated The STS 2003 interest 2008 and SCPPA paid the the
$1,287,000. The STS 2006 valueof $1,287,000.
swap termination value'of 2006 Constant Maturity Morgan was suspended Maturity Swap with JP Morgan suspended May 7, 2008 and SCPPA received effective May for 5 years effective received a swap value of $3,745,000. The excess swap.value excess net proceeds
$2,458,000 will be used to pay debt service costs on other bonds.
of $2,458,000 SCPPA's Finance SCPPA's continues to address a number Finance Committee continues number of Project related bonds that have been affected affected by the subprime sub prime mortgage problems that have Increased pressure on the variable rate led to Increased debt market. At fiscal year - end, other SCPPA VRDOs were also being considered for refinancing. debt Other, Related Financing Transactions Refunding and Related Other. Refunding Transactions At fiscal year- end, financing to complete an upgrade to the Southern System. and an interim Southern Transmission System, interim financing facility for Anaheim's Canyon Power project are underway. SCPPA also continues to aggressively financing aggressively renewable energy projects, and several pursue renewable several new financings are anticipated In are being anticipated In the near future.
CPPA launched launched an ambitious policy agenda agenda during the final year of the California Legislature's California State Legislature's S . -,2007-08 and acquire Legislative Session. This Included: 2007-08 Legislative Issues vital to Publicly-Owned Publicly-Owned Utilities acquire new generation, with highest Included: a) advocating advocating SCPPA's commitment (POUs); b) updating Utilities (POUs); commitment to local control and legislators and staff on SCPPA's mission to build updating legislators highest priority given to renewables; renewables; and c) briefing delegationdelegation staff and build staff on SCPPA's efforts to Implement Implement the California GlobalGlobal Warming Solutions Act, commonly referred to as Assembly Bill 32 (AB 32). Public power's cornerstone cornerstone isis the authority of SCPPA cities' cities' local officials officials to make and set electricity electricity policy for their communities. Senate Senate Bill 980 (SB 980) would have moved responsibility responsibility for evaluating local distribution distribution systems systems of certain POUs, the majority being SCPPA members, from local government government officials to the California California Energy Commission (CEC). SCPPA, SCPPA along with the California California Municipal Utility Association Association (CMUA), worked worked to oppose SB 980. Despite Despite nearly-unanimous Republican nearly-unanimous Republican opposition opposition and opposition opposition from like-minded Democrats, SB 980 passed In In the final days of Session. However, itit was the Governor's Governor's pen that delivered delivered the final decision, as he vetoed vetoed the bill on September September 28, 2008. Three bills addressing addressing "feed-in" tariffs, relating to the sale of excess electricity generated electriCity generated by solar customers customers to aa POU, also raised local local control control concerns concerns for SCPPA members. Assembly Bill 1920, authored authored by Assemblymember Assemblymember Huffman (0- (D- San Luis Obispo), and Senate Senate Bill 1714, Introduced by Senator Negrete McLeod Senator Negrete initially (D-Colton) initially McLeod (D-Colton) presented barriers to local control. SCPPA and CMUA successfully worked worked with the bills' bills' sponsors to add language providing providing latitude to Local Governing Governing Boards similar to that containedcontained in Assembly Bill 1807 by Assemblymember Fuentes (0- (D- LA). Ultimately, none of the "feed-In" "feed-in" tariff bills reached reached the Governor's Governor's desk. Following California's 2000-01 electricity crisis, legislators 2000-01 electriCity embarked on a policy of strongly encouraging legislators embarked encouraging development development of renewablerenewable resources to generate generate electricity. As building and acquiring new generation generation are are core to SCPPA's primary primary mission, SCPPA members immediately immediately committed to Investing investing InIn significant levels of renewable renewable resources. Some Some SCPPA SCPPA members members have have adopted adopted goals at 33% and higher. higher, calling for electricity generated generated from renewable renewable resources resources inin their portfolios; portfolios; other SCPPA membersmembers Intend to follow suit. Recently, the CEC acknowledged acknowledged for aa secondsecond time In in an Independent Independent draft report that California's POUs are Investing investing in renewables more aggressively In Investor-Owned Utility (IOU) aggressively than their Investor-Owned (IOU) counterparts. SCPPA's SCPPA's perspective perspective on a spate of bills seeking seeking to establish a 33% renewable mandate was determined determined by whether the bills would compromise local control. During the 2007-08 2007-08 Legislative Session, AssemblyAssembly Bill 94, sponsored sponsored by Assemblymember Assemblymember Levine Levine (D-LA), (D-LA), would have have required IOUs to Increase Increase the amount amount of electricity electricity generated generated from renewable resources from 20% by 2010 to 33% by 2020. Senate Senate Bill 411 by Senator Simitian (D-Monterey) would have have required required a retail seller seller to increase increase renewable procurement so at least renewable procurement 33% of retail salessales are procured renewables by 2020. Two additional bills carried by Assemblymember procured from renewables Levine would have set the renewables renewables goal at 33% by 2020. Assembly Bill 1400 would have authorized authorized the the CEC to adopt regulations regulations to enforce enforce POUs' electricity electriCity generated generated from renewablerenewable resources at 33% 'by by 2020 and to verify compliance. Assembly Assembly Bill 1489 was similar to Assembly Assembly Bill 1400, In in that ItIt required thethe CEC to design Implement a system to verify compliance design and Implement compliance with aa 33% requirement requirement by POUs. With limited limited time to respond, SCPPA pressed to prevent prevent any shift of local local control of renewable programs renewable programs to the CEC. On August 31, 31, 2008, Assembly Bills 1400 1400 and 1489, along with Assembly Assembly Bill 94 and Senate Bill 411, 411, died died as the 2007-08 Legislative Legislative Session ended. Ultimately, progress was stalled by lack lack of consensus on building building additional transmission Infrastructure necessary to meet California's renewables transmission Infrastructure electricity needs renewables electricity needs - not by legislative differences of opinion over increasingincreasing the renewables renewables goal. 30 30
Assembly Bill 32, California's climate climate change change bill, set an unprecedented unprecedented standard for reducing greenhouse greenhouse gas emissions to 1990 levels levels by 20202020 using technologically technologically feasible and cost-effective cost-effective measures. LegislationLegislation advanced advanced to help address carbon capture capture and sequestration sequestration development development was of importance importance to six SCPPA cities partidipatingparticipating in in the Intermountain Intermountain Power Project. Assembly Bill 114, authored by Assemblymember Assemblymember Blakeslee Blakeslee (R-San (R-San Luis Obispo), would have required required the CEC to recommend recommend that capture capture technologies that decrease decrease carbon carbon dioxide emission be dioxide emission be added added to to thermal thermal powerpower plants. plants. Assembly Assembly Bill 705, also authored by Assemblymember Blakeslee, would have Bill 705, also authored by Assemblymember Blakeslee, would have required the California Environmental Protection Agency to take steps to *i/, enter intothe required a "Memorandum of Understanding" California Environmental Protectionwith the U.toS.take Agency Department steps to enter into a "Memorandum of Understanding" with the U. S. Department of Environmental Environmental Protection Agency on developing developing standards and and regulations related to carbon sequestration. Unfortunately, both bills bills failed; however, related Congressional action may follow. related Congressional Also linked to reducing greenhouse greenhouse gas emissions was Senate Bill 1762 1762 (SB(SB 1762), authored authored by the termed-out termed-out Senate President Senate President Pro Tempore, Perata (D-East Bay). SB 1762 would have created created the "Climate ChangeChange Research Research and Workforce Workforce Development Institute" (Institute) at the University Development Institute" University of California. California. The work of the the identifying and supporting Institute would have included Identifying supporting research, education, and workforce training to reduce or mitigate greenhouse gas emissions. SB 1762 would have required mitigate greenhouse required POUs PO Us to fund the Institute Institute at $7M annually. annually, garnered garnered from d fee on electricity electricity service. seNice. The fact that the bill failed to include include any representation representation of POUs PO Us on the Leadership Leadership Council, which was charged charged with providing providing advice advice and counsel to the University of California. California, was of particular concern to SCPPA members. Governor Governor Schwarzenegger Schwarzenegger vetoed vetoed the bill on September September 30. 30, 2008. Nationally, "metal theft" received almost daily news coverage, as the price of copper, Nationally. copper, brass brass and other metals skyrocketed. skyrocketed. The issue emerged emerged as another legislative priority priority as SCPPA membermember utilities, large and small, have been the victims of metal theft. Replacement Replacement of metal parts and equipment. equipment, necessary necessary repairs damaged equipment, to damaged equipment. and the cost of accompanying accompanying outages, placed hundreds hundreds of thousands thousands in in additional additional cost on electriCity electricity customers. Assembly Assemblymember Berryhill Assembly Bill 844, by Assemblymember Berryhill (R-Modesto), Assembly Bill 2724, by Assemblymember Assemblymember Benoit (R-Riverside), and. Benoit (R-Riverside), Senate Bill 691, andSenate 691, by Senator Calderon (D-LA), (D-LA), would increase increase fines for metal theft, strengthen strengthen document retention, along with other similar policy requirements requirements for junk dealers and recyclers. With the Governor's personal Involvement Involvement and aa spirit of bipartisan bipartisan cooperation, both Assembly Bill 844 and Senate Senate Bill 691 were approved by the legislature. Governor Schwarzenegger Schwarzenegger signed the bills into law on September September 30, 2008. SCPPA members' Including personal members' efforts, Including contacts contacts with legislators legislators and written written communications communications to the Governor Governor as well as key policy committees, were were vital to obtaining his signature. Both bills, generally took effect Immediately; Immediately; however, certain implementation implementation provisions were delayed delayed until December 1, 1, 2008. In addition, California's electric In electric utilities utilities joined joined together to support legislation preventable legislation intended to avoid preventable electricity electricity outages. Each year Californians Californians experience experience outages caused caused by electrically conductive conductive (metallic) materials used in in certain balloons. balloons, These These metallic balloons balloons conduct conduct electricity and cause serious and costly outages. For one SCPPA member, the cost to ratepayers ratepayers was approximately $400,000 annually. Metallic Metallic balloons were the third leading leading cause of outages outages for another another utility, while other SCPPA members members have have experienced back-to-back outages, outages experienced back-to-back outages lasting several hours, includingincluding one that affected affected the city's water supply. SCPPA members members actively supported supported Senate Bill 1499. Thanks to the tireless efforts of the author, Senator Scott (D-Burbank, Glendale, and Pasadena) Pasadena) and his staff, as well as CMUA and SCPPA members, the bill survived survived the legislative legislative process process and reached reached the Governor's desk. Unfortunately, the Governor Governor vetoed the the bill on September September 28, 2008. 31
Legislative Report (continued) (continued) The 2007-08 Legislative Legislative Session presented presented numerous opportunities opportunities for SCPPA to present present a purposeful and and continuing support for and protection focused message: continuing protection of local control, demonstrating SCPPA's continued continued commitment to investing commitment investing Inin renewables renewables and supporting legislation providing realistic and practical providing both ,realistic responses to global warming, responses warming. In Washington DC, the second session of the 110th In Washington 110th Congress Congress was characterized characterized by sharp, partisan disagreements over energy disagreements energy policy Including: climate climate change; change; energy tax incentives; incentives; and the role, role of oil, 011, gas, and renewable renewable resources resources in in the U.S energy portfolio. A large part of Congress' U,S energy inability to resolve Congress' Inability resolve these issues was due, In In part, election-year politics. A significant part part, to election-year part of the stalemate, however, however, was consensus among Members the lack of consensus Members of Congress Congress and the Bush Administration on a vision for the the nation's energy energy future. Just as it seemed that Congress would adjourn without enacting any significant energy energy measures, the the Senate added aa $17 package of energy tax incentives
$17 billion package incentives to the $700 billion "Emergency "Emergency Economic Stabilization Act of 2008" a bill to Stabilization to, rescue the financial markets. With the addition financial markets, addition of the tax "sweeteners,"
House leadership found enough House leadership enough votes to pass the measure and send It to the President President for signature. On behalf of SCPPA Morgan Meguire SCPPA, Morgan Meguire workedwS'rked with a large and diverse coalition of businesses, energy, environmental, and manufacturing environmental, manufacturing interests interests to advocate many many of the incentives included in the final bill. incentives included Several of the incentives can assist SCPPA member member utilities to acquire renewable resources, promote acquire additional renewable promote energy efficiency energy efficiency and green buildings, and encourage use. Included in electric vehicle use, encourage electric in the tax package package were:
- A one-year extension of the existing Clean Renewable one-year extension Renewable EnergyEnergy Bonds (CREB)(CREB) program, and authorization
'authorization for $800 million in in new CREB authority, divided 1/3 to state/local/tribal governments, state/local/tribal 1/3 1/3 to public power utilities, and 1/3 1/3 to rural electric cooperatives, Also Included In electric cooperatives. in the New New CREBs program technical fixes advocated program were technical advocated by SCPPA American Public Power Association SCPPA, the American Association (APPA), and the Large Public Power (APPA), Power Council, that specify specify that bond authority for public power systems will be allocated "pro rata,"
systems rata," based on the size/cost of projects,projects. The changes changes ensure ensure that more expensive projects will get aa share of the bond volume cap, which did not occur under the expensive proJects the "smallest to largest" "smallest to largest" methodology methodology used used in the first In the two rounds first two rounds ofof CREB CREB allocations;
** A one-year Production Tax Credit (PTC) one-year extension of the Production (PTC) for wind and refined coal and a two-year extension for other qualifying qualifying renewable facilities, such as biomass, geothermal, small irrigation, irrigation, marine renewables renewables (e.g.
(e.g, wave and tide power), and landfill gas. gas, The PTC provides ,9-cent per provides aa 11.9-cent (kWh) (indexed for inflation) kilowatt-hour (kWh) kilowatt-hour inflation) tax credit benefit developers for the first ten benefit to private developers years of a renewable energy facility's operation. operation, The PTC can benefit benefit SCPPA members that negotiate aa "share the savings" purchase negotiate agreements with a private developer; purchase power agreements 32
Legislative Report (continued)
*" An eight-year eight-year extension extension of the 30% Investment Investment Tax Credit (ITC) (ITC) for solar and and fuel cell technology, and a and a 10% Investment Investment Tax Credit for combinedcombined heat heat and powerpower systems and geothermalgeothermal heat heat pumps. Again, the reductionreduction in the cost of these Investments Investments does not flow directly consumer-owned directly to consumer-owned utilities, but SCPPA utilities may be able to benefit benefit through through purchase purchase power agreements agreements with with individual developers;
** A five-year extension extension of the energy efficiency deductions deductions for commercial commercial buildings buildings that achieve achieve 50% energy energy savings savings targets;
*" An eight-year eight-year extension extension of the residential solar credit, was expanded to also to residential residential wind wind equipment;
*" A Plug-in Plug-in Hybrid Electric Drive Vehicle CPHEV) (PHEV) tax credit for passengerpassenger vehicles and light light trucks ranging from $2,500-$7,500
$2,500-$7,500 (based on the weight of the vehicle); vehicle); andand
*" Creation of a a new $800 million "tax credit" conservation bond program program to assist state and local governments in reducing greenhouse governments greenhouse gases. The new bonds can be used for reducing energy consumption in government government buildings, Implementing Implementing green communitycommunity programs, developing certain developing certain renewable expenditures for research into carbon capture renewable resources, expenditures capture and sequestration sequestration technologies.
effort to pass the tax incentives The effort incentives package ran into numerous numerous hurdleshurdles in the House House and Senate. Initially, the bill stalled stalled due due to disagreement disagreement over whether whether and how to offset the cost of the Incentives Incentives through cuts in other other federal federal spending spending or new sources sources of revenue. revenue, Extending and expanding incentives without corresponding expanding incentives corresponding cuts in spending or tax Increases Increases In in other areas areas was seen as a a departure departure from the "PayGo" rules that the Democratic leadership leadership has instituted Instituted when they regained the majority 2004. House majority In 2004, House Democrats, particularly particularly the group of moderate moderate "Blue "Blue Dog Dog Democrats," dug-In dug-in and insisted on offsets, while, In in the closely divided Senate, Republicans insisted on no Republicans insisted no offsets at all.all. The battle became became more protracted protracted when the White House weighed in opposing several versions of the bill, in part, part, because inclusion of offsets, because of the inclusion offsets. Ultimately, aa compromise compromise was reached reached thatthat provided provided offsets for part of the tax package, but not for all of It, It. Another Another issue, which threatened threatened to scuttle scuffle the CREBs CREBs extension, was the "Davis-Bacon" prevailing wage "Davis-Bacon" prevailing wage Davis-Bacon Act, which was initially provision. The Davis-Bacon initially designed designed to outlaw wage exploitation exploitation Inin public construction construction contracts by preventing contracts preventing the undercutting undercutting of local pay standards standards is is a big issue for the labor community; and in In the House, Ways and Means Means Committee, Chairman Chairman Charlie Charlie Rangel CD-NY)(D-NY) and and Speaker Speaker Nancy Pelosi CD-CA) (D-CA) insisted the Davis-Bacon Davis-Bacon standardstandard apply to projects financed with the CREBs, CREBs. The Bush Administration Administration and many Republicans Republicans argued argued that the outdated law law forced project developers developers to pay more than is necessary and the White House threatened threatened to veto the Incentives Incentives bill Ifif the Davis-Bacon Davis-Bacon provision provision was Included. Included, In the the waning days of the session, House leaders "threw up their hands" and stripped the CREBs provisions entirely from their version of the tax package. package, This action, Ifif it had been been the last last word, would have left consumer-owned owned utilities with no direct direct tax incentives Inin the final bill, bill. As political differences between political differences between Democrats Democrats and Republican Republican seemedseemed to widen, and and the legislative calendar wound wound down, an unlikely "silver "silver bullet" appeared. In late September, September, when when the House failed to pass the the Treasury-designed Treasury-designed financial rescue package, the market plunged. plunged, To resurrect the financial bill, the Senate Senate modifications and added made several modifications added the $17 $17 billion Senate version of the energy tax extenders extenders package, which included included the SCPPA-supported SCPPA-supported CREBs language, without without any Davis-Bacon requirements, requirements. EWinning Winning passage of federal federal tax incentives incentives for consumer-owned consumer-owned electric utilities is always utilities Is always challenging, given the the status of the federal deficit deficit and the intricacies Intricacies of federal tax policy. SCPPA policy, SCPPA won an important important victory with passage of the tax incentives incentives package. package, Preserving and expanding expanding those benefits will require a diligent, diligent on going effort. 33 33
- D. EARHART JAMES D.
w' 7-MARCIE L. MARCIE L. EDWARDS EDWARDS JOSEPH F. Hsu JAMES RONALD RONALD E. DAVIS DAVIS ART ART GALLUCI JEANNETTE JEANNETTE OLKOLKO GENERAL MANAGER GENERAL MANAGER DIRECTOR Of UI1LTES DIRECTOR OF UnlmES ELECTRIC ElfCTRIC UTILIY UTiUTY DIRECTOR DIRECTOR GENERAL GENERAl MANAGER MANAGER CITY MANAGER CrIYMANAGER UTILITY UnLrIY DIECTOR DIRECTOR Anaheim Public Public Utilities Ufflitles Dept. Dept. of Azusa Light City of Ught && Water Water City City of of Banning Banning Burbank Water and Power Power City City of of Cerritos Cerritos City of Colton City of Colton ANAHEIM CITY OF ANAHEIM Since Since 1894, Anaheim Anaheim Public Utilities' vision Utilities' vision BURBANK Burbank Water CITY OF BURBANK CiTY Water and and Power (BWP) (BWP) began for serving customers customers has extended extended well beyond a responsi- serving both water water and electric customers customers in in 1913 1913 and,and provide reliable, cost-effective bility to provide cost-effective electricity and water. water. installing on-site power generation installing generation in the 1940s. BWP is in the is com-Whether we are planning planning a new substation; substation; building a mitted to providing providing reliable electric services reliable electric services and safe safe water renewable energy resource: renewable resource; replacing overhead overhead electrical supply to its customers customers whilewhile keeping keeping rates stable and underground transmission, distribution and serv-facilities with underground competitive. BWP's power power supply portfolio portfOliO isis well diversified, ice ice cables; cables; or offering offering newnew efficiency efficiency incentives, we seek coming from a variety variety of resources includingincluding hydro, natural long-term solutions to issues that will strengthen long-term strengthen Anaheim's Anaheim's nuclear facilites and renewable gas, coal, nuclear renewable projects. Today, neighborhoods, neighborhoods, schools schools and businesses businesses far into the future. BWP is reducing Burbank's carbon footprint is working toward reducing footprint The business decisions we make are about providing providing multiplemultiple and being an integral part of creating creating a more sustainable sustainable benefits that are benefits are in interests of our entire community. in the best interests community and life style. City of Burbank community Burbank was the first city in in We find that outreach outreach is contagious philosophy as well, is a contagious well. the nation to adopt adopt a 33% of of Renewable Portfolio Standard Renewable Portfolio Standard The more people we involve in in the process, the greater our by 2020. BWP will continue continue modernizingmodernizing its Electric Electric capability for turning obstacles obstacles into opportunities. We reach Distribution System to maintain a strong track record of out businesses to produce o'ut to businesses partnerships that create produce partnerships create reliable services. BWP isis the operating operating agent for the the energy savings, reduce demand demand and save money. We team Magnolia Power Project (MPP) Magnolia (MPP) and has a 90 MW MW share of the the up with other City departments departments to increase efficiency efficiency and jointly owned Magnolia Magnolia Power Plant. MPP MPP isis a combined combined improve operations. Our residential electric improve electric rates averageaverage generating unit with 310 MW peaking capacity and is cycle generating is more than 25 percent less than in surrounding cities while our in surrounding owned and financed through Southern Southern California California Public Public Electric System revenue Electric revenue bond rating was raised to AA-. Power Authority (SCPPA) on behalf of its six municipal Power Authority municipal utility members. members. CITY OF AZUSAAzUSA The City's electric utility was established In In 1898 after the City purchased 1898 purchased a private power power company. CITY OF CERRITOS The first new member to join Southern Southern The foresight and planning of those early pioneers pioneers continues California California Public Power Authority in in over 20 years, the City of to be the cornerstone of Azusa Light & & Water today. ItIt isisthe the electricity demands of a select group Cerritos isis serving the electricity group mission of Azusa Light & & Water to provide reliable and cost in the business community. Currently, all of the power in effective effective electric and water utilities to the citizens and busi- requirements requirements come from Cerritos' Cerritos' participation in in the the nesses within its service area. Azusa Light & nesses & Water continues Magnolia Power Project. With the goal of providing a stable stable to be proactive in in promoting energy and water conservation conservation and affordable supply of electricity, Cerritos intends on programs to its customers, and to its future customers by developing a portfoliO developing portfolio of power that includes renewable renewable continual funding of a resource conservation conservation education resources to be delivered (green) resources delivered as as competitively competitively and and program with the local school district. economically economically as as possible. possible. BANNING The City of Banning Electric Utility provides CITY OF BANNING CITY OF OF COLTON The only municipally owned electric utility utility electric service to more than 12,200 12,200 electric and 10.500 10,500 in San Bernardino County, Colton Electric Utility has been in water metered metered accounts accounts covering an area of 22 square providing service to the City City ofof Colton Colton for for over over 100 100 years. years. TheThe miles. The Public Utility was established miles. established in in 1922 and has an Board of Trustees of the City City of Colton passed an ordinance ordinance resource base including portions of coal, energy resource nuclear, coal, nuClear, in 1895 with the in the intent to acquire, construct.construct, own, operate, hydro, and hydro, and geothermal geothermal generating generating plants. plants, which provide provide maintain an electric system to supply light. and maintain light, power, power, and and majority of electricity the majority required to meet electricity required meet the City's summer summer heat to the heat the city. By 1897, 1897, 1,140 1,140 domestic lights, lights, 3030 incandes-incandes-peak demand of 48 MW. The Utility has numerous Public Public cent street lights, and 11 arc lights had been been installed. Benefit programs promoting energy conservation and Today, we serve a population of over 50,000 50,000 and cover aa renewable resources.resources. In In addition, the City supports clean approximately 18 service area of approximately 18 square square miles. miles. Our Our employees employees energy and isis committed to increasing its renewable energy renewable proud to continue the tradition of are proud of providing reliable service service resource mix to meet meet andand exceedexceed its RPS goal goal of 33% by through efficient and and economical economical operations operations and and aa strong strong 2020. The Utility 2020. Utility isis dedicated dedicated to continue continue providing quality quality relationship customers. relationship with our customers. service to its customers in in aa safe and reliable manner, manner, at reasonable rates. rates. 34 34
D CITY CITY OF GLENDALE Incorporatedin 1906, Glendale GLENDALE Incorporated-in Glendale purchased purchased CITY OF PASADENA PASADENA PWP has been providing providing electricity since electricity since its electric electric utility in in 1909, obtaining power power from outside outside 1906 1906 and began delivering water to customers customers in 1912. The The suppliers. InIn 1937, itit began receiving power power from the Hoover city built built its first electric electric generating steam plant in 1907 and Dam and inaugurated inaugurated the first unit of its own steam gener- took over over operation operation of its municipal municipal street lighting from from ating plant units with 258 MW of gas-fired steam and com- Edison Electric. In In 1909, Pasadena Pasadena began the extensionextension of its its generating capacity. Glendale bustion generating Glendale Water & & Power operations to commercial commercial and residential customers that (GWP) has a diversified portfolio that also includes includes coal, resulted in the replacement replacement of all Edison Electric service in Electric seNice in nuclear, and hydro generating nuclear. generating resources, as well as a com- the city by 1920. While a a lot has changed over over the years, prehensive renewables prehensive renewables resource program in resource program in landfill landfill gas, PWP's strong strong connection connection to its customer/owner customer/owner base base wind, and geothermal geothermal projects. Today, GWP provides provides reli-reli- remains constant. Today, PWP provides remciins provides electric seNice service to services to over able electric seNices over 84,000 residential, commercial more than 62,000 metered metered accounts over aa 23 square-mile square-mile and industrial customers customers within a 33 square mile area. GWP seNice area at competitive service competitive rates. PWP's success success isis a result a result continues to invest in infrastructure to in improving the system infrastructure of its commitment commitment to remain aa valued community community asset, ensure its long-term reliability. an exceptional exceptional employer, and a partner partner in Pasadena's prosperous prosperous future. IMPERIAL IRRIGAnON IMPERIAL IRRIGATION DISTRICT Irrigation District DISTRICT The Imperial Irrigation District (liD) was established (liD) established in in 1911 and entered entered the power business CITY OF RIVERSIDE RIVERSIDE Riverside Riverside Public Utilities Utilities began serving seNing in 1936. Proudly in serving Imperial Proudly seNing Imperial and Coachella Coachella valleys and and both electric and water customers customers in 1883. 1883. Today they serve seNe a portion of San Diego County, liD's 6,471-square6,471-square mile service seNice 106,000 106,000 metered electric customers and and 63,500 water area isis one of the fastest growing growing regions in in California. liD lID customers, representing representing a service population of nearly seNice area population controls over 1,100 MW of energy energy derived from a diverse diverse 297,000, 297,000. The utility is is committed to the highest quality water resource portfolio that includes includes native generation, SCPPA and electric services seNices at the lowest possible rates to benefit benefit partnerships, and long- and short-term power purchases. A A the community. To maintain their commitment, Riverside has valuable valuable public resource, liD lID isis regarded regarded as an affordable affordable positioned itself in the electricelectric market market by utilizing short, reliable seNice and reliable service provider serving seNing over 140,000 customers. mid, and long-term contractscontracts from power suppliers, and by building 6 power generation sources within its own power power generation Los ANGELES DEPARTMENT DEPARTMENT OF WATER WATER AND POWER Providing AND POWER Providing grid. Within Within two years, Riverside Riverside will have a total of 9 internal service seNice for more more than a century, the Los Angeles generation units totaling 275 MW of power. Riverside's Riverside's Department of Water Water and Power Power began delivering delivering water to recent contract contract for the Renaissance Renaissance Geothermal Geothermal Project in in the city inin 1902, and with the water came power. In In 1916, Utah will enable Riverside to receive 33% of its energy energy fromfrom LADWP first delivered delivered electicity purchased from electicity to the city purchased from renewable resources by 2012. renewable the Pasadena Municipal MuniCipal Plant. A year later. later, LADWP began generating its own hydroelectric generating hydroelectric power power at the San OF VERNON CITY OF Department began seNing VERNON Vernon's Utilities Department serving Francisquito Power Plant No. NO.1. 1. After purchasing remaining purchasing the remaining industrial customers in 1933, with completion completion of its diesel distribution system of Southern California California Edison within the the generating plant. In In addition addition to its own power from diesel city limits in in 1922, 1922, LADWP became the sole water and and units and gas turbines, Vernon also receives power power from from electricity provider for the City of Los Angeles. ItIt is is now thethe Palo Verde, Hoover, Hoover, and various suppliers. Vernon Vernon recently largest municipally owned electric electric utility in in the nation, serving seNing completed (October 2005) the construction of its Malburg Malburg population of 4.0 million residents over a population over a 465 square mile mile Generating Station,. aa gas-fired Generating gas-fired combined combined cycle power area. LADWP remainsremains on firm financial financial footing and serves seNes as plant with a net generating generating capacity capacity of 134 MW. The The a valuable asset to the City of Los Angeles. Malburg Generating Malburg Generating Station resides within the city limits. Vernon Vernon isis part the California California Independent Independent System Operator (CAISO) Control Area and is (CAISO) is aa Participating Participating Transmission Transmission Owner.' Owner.
Participant Ownership Participant Ownership Interests Interests The The Authority's participants may elect Authority's participants elect to participate in the projects. to participate June 30, 2008, the As of June members have the members have the following following participation participation percentages in the Authority's operating percentages operating projects: GENERATION GENERATION TRANSMISSION TRANSMISSION NATURAL GAS NATURAL GAS Ormat Southern Ormat Geo-Geo- Trans-Trans-Palo Hoover Hoover San Magnolia thermal mission Magnolia thermal mission Mead- Mead-Mead- Mead-Verde Uprating Verde Uprating Juan Power Energy System Phoenix Adelanto Pinedale Barnett Power Energy Barnett Participants Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project City of Los Angeles Angeles 67.0% - - 59.5% 24.8% 35.7% City of Anaheim Anahei m 42.6% 38.0% 60.0% 17.6% 17.6% 24.2% 13.5% 35.7% 45.4% City of Riverside Riverside 5.4% 31.9% - - 10.2% 10.2% 4.0% 13.5% 13.5% Imperial Irrigation District District 6.5% 51.0% City of Vernon 4.9% City of Azusa Azusa 1.0% 4.2% 14.7% 14.7% 1.0% 2.2% City of Banning 1.0% 2.1% 2.1% 9.8% 10.0% 1.0% 1.3% City of Colton 1.0% 3.2% 14.7% 4.2% 1.0% 2.6% 7.1% 7.1% 9.1% 9.1% City of Burbank 4.4% 16.0% 31.0% - 4.5% 4.5% 15.4% 11.5% 11.5% 14.3% 27.3% 27.3% City of Glendale Glendale 4.4% 9.8% 16.5% 15.0% 2.3% 14.8% 11.1% 11.1% 28.6% City of Cerritos 4.2% City of Pasadena 4.4% - - 6.1% 6.1% 15.0% 5.9% 13.8% 8.6% 14.3% 18.2% 18.2% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
==========
Authority has entered into power sales, natural gas sales, and transmission service The Authority agreements with service agreements the above project participants. Under above project Under the terms of the contracts, the participants participants are entitled entitled to power
- output, output, natural gas, or transmission service, as applicable. The partiCipants participants are obligated to make payments proportionate share of operating and maintenance on a "take or pay" basis for their proportionate maintenance expenses and debt service. The contracts contracts cannot be terminated or amended In In any manner manner that will Impair or adversely affect bondholders as long as any bonds issued by the specific project remain outstanding.
the rights of the bondholders The contracts expire as follows: Palo Verde Project 2030 San Juan Project 2030 Southern Transmission System Project Southern 2027 Magnolia Power Project Project 2036 2036 Hoover Uprating Project 2018 2018 Natural Gas Project - Pinedale Pinedale 2030 Mead-Phoenix Project 2030 Natural Gas Project - Barnett Natural 2030 Project Mead-Adelanto Project 2030 Ormat Project Ormat Geothermal Project 2031 The Authority also established "take and pay" contracts for the participants of the prepaid natural gas The project where the payments payments received from the sale of gas will be be sufficient to pay debt service. service. Project Project interest under the gas supply contracts are as Participant interest as follows: Anaheim - 16.5%; Burbank - 33.0%; 33.0%; 11.0%; Glendale Colton - 11.0%; 23.0%; and Pasadena - 16.5%. The natural gas contracts Glendale - 23.0%; contracts expire expire inin 2028. 36 36
Summary Summary of Financial Financial Condition and Changes in Net Net Assets COMBINED ALL PROJECTS COMBINED ($ In Thousands) Thousands) JUNE 2008 2008 2007 2007 2006 2006 Assets utility plant Net utility $ 1,009,331 $ 1,006,994 1,006,994 $ 995,599 995,599 Investments Investments 558,619 558,619 556,518 556,518 558,497 558,497 Cash and and cash equivalents 230,000 230,000 149,740 80,778 80,778 Other 592,450 592,450 103,290 103,290 112,223 112,223 Total assets $ 2,390,400 2,390,400 $ 1,816,542 1,816,542 $ 1,747,097 1,747,097 Liabilities and Net Liabilities Net Assets (Deficit) Noncurrent liabilities Noncurrent liabilities $ 2,310,261 $ 1,842,488 1,842,488 $ 1,806,660 1,806,660 Current liabilities liabilities 220,748 220,748 191,137 186,969 186,969 liabilities Total liabilities 2,531,009 2,531,009 2,033,625 2,033,625 11,993,629
,993,629 Net Assets (Deficit)
Invested in incapital assets, net of related debt debt (1,236,053) (1,236,053) (742,312) (742,312) (715,204) (715,204) Restricted net assets 996,901 429,686 429,686 361,732 361,732 Unrestricted net assets 98,543 95,543 106,940 106,940 Total net deficit deficit (140,609) (140,609) (217,083) (217,083) (246,532) (246,532) Total liabilities and net assets (deficit) (deficit) $ 2,390,400 2,390,400 $ 1,816,542 1,816,542 $ 1,747,097 Expenses and Changes in Revenues, Expenses in Net Assets (Deficit) revenues Operating revenues $$ 468,809 $ 390,005 $ 330,987 expenses Operating expenses (319,193) (319,193) (291,202) (291,202) (248,507) (248,507) Operating incomeincome 149,616 149,616 98,803 82,480 Investment income Investment income 32,956 33,622 18,932 18,932 Debt expense (108,062) (113,028) (113,028) (106,198) Change in innet deficit deficit 74,510 74,510 19,397 19,397 (4,786) (4,786) Net Deficit - beginning of year (217,083) (217,083) (246,532) (233,031) Net Contributions (Withdrawals) By Participants Participants 1,964 1,964 10.052 10052 (8.715) (8715) Net Deficit - end of year $$ (140.609) (140,609)
~
(217.083) (217,083) ~$ (246,532) From left to right: From right: Yolanda Pontig, Pantig, Assistant Manager SCPPA Assistant Manager, SCPPA Accounting, Nina Accounting; Nina Sanchez Assistant Manager;Joan Investment Manager; Joan flagon, IIagan, Manager;Adrian Chung, Investment Manager; Chung, Utility Accountant; Therese Savery, Accountant; Manager Savery, Manager, SCPPA Accounting and Investments and Margarita Margarita Estrella, Estrella, Lead UtilityUtility Accountant 37 37
CITY OF ANAHEIM ANAHEIM CITY OF AZUSA AZUSA CITY CITY OF BANNING BANNING Customers Customers - Retail ..................
.................. 111,784 Customers Served ... ................... . ... 15,650 Customers - Retail Retail. ..................
...... . ....... 12,200 Generated and Purchased Power Generated Power Generated and and Purchased Purchased Power Generated Generated and and Purchased Purchased un Megawatt-Hours)
(in Megawall-Hours) (inMegawatt-Hours) (in Megawall-Hours) (inMegawatt-Hours) (in Megawatt-Hours) Self-Generated. Self-Generated ................. . ... 301,021 Self-Generated Self-Generated......................... 0
..0 ...... ;;..................
Self-Generated ...... . . . . .. . ........ 0 Purchased. .. Purchased .................... . .... 2,978,800 Purchased ..................... ... 281,870 281,870 ..................... 161,790 Purchased .....................
. ............... 3,279,821 Total ........................
Total. .. Sales Total Total...........................
......................... 161,790 Total Revenues Revenues (000s)(000s) ..............
.. $379,542
. .... $379,542 Retail .........................
..... . .... 264,957 264,957 (000s) ...............
Total Revenues (ODDs) ............... $25,573' $25,573* Operating Costs Operating (000s).......... Ccsts (OOOs). $333,512
. .... $333,512 Total Revenues (000s)
(ODDs) ................. $36,196 $36,196 Costs (ODDs) Operating Ccsts (000s)...............
............... $26,979' $26,979*
Costs (000s) Operating Ccsts (000s)...............
.... .. $35,237
$35,237 lUnaudned "Unaudited I
i-- CITY OF BURBANK CITY OF CERRITOS CERRITOS CITY OF COLTON Customers Customers - Retail. Retail ................... 51,151
.51,151 Customers Customers - Retail Retail ..................... 218
. ... 218 Customers Customers - Retail ..... ...................
. 18,688
..... 18,688 Power Power Generated Generated and and Purchased Purchased Power Generated and Purchased Power Generated and Purchased Power Generated Purchased un Megawall-Hours)
(in Megawatt-Hours) un Megawatt-Hours) (in Megawatt-Hours) un Megawatt-Hours) (in Megawatt-Hours) Self-Generated ................... Self-Generated ................... 22,800 22,800 Self-Generated ...................
....... . * ....... 76,867 Self-Generated .... ................... 52,917
. . . . . . . . . .... 52,917 Purchased ....................
Purchased. Total ........................ Total. . . .. Revenues (000s) Total Revenues (ODDs) ................ $161 1,332,800
. ........... 1,332,800 1,355,600 1,355,600
$161,990"
,990' I
I I Purchased ...................... Total Revenues (000s) Total .......................... (000s) ... 10,262
... 10,262
. ...... 87,129
.......................$7,431'
$7,431 Purchased ........
Purchased ..................... . ...... 345,006 Total .......................... Total. . Total Revenues (ODDs) (000s) ................ 397,923
. .397,923
. $58,232*
$58,232' Operating Ccsts Operating Costs (ODDs).
(000s)................ $153,438' $153,438* Operating Costs Operating (000s) ................. Ccsts (ODDs) $7,463*
* .......$7,463' Operating Operating Costs (000s)............... . $61 Ccsts (OOOs). $61,094*
,094'
'unaudiue
'Unaudited and arK! emcludes wholesale transactions.
excludeswholesaletransactiollS Ununditd
*Unaudited Unaundited
'Unaudited I
CITY CITY OF GLENDALE IMPERIAL IMPERIAL IRRIGATION IRRIGATION DISTRICT LOS ANGELES ANGELES DEPARTMENT DEPARTMENT 84,118 Customers Customers Served ..................
.................. OF WATER AND AND POWER Customers - Retail Retail....................
. . . .. . . ....... 84,118 140,321 Power Generated and Purchased Purchased Power Generated and Purchased Customers Customers Served ................. 1,446,401 Served .................
un (inMegawatt-Hours) Megawatt-Hours) un Megawatt-Hours) (in Megawatt -Hours) Power Power Generated 'and and Purchased Self-Generated................... Self-Generated .. . ...... 209,744 Self-Generated ... .................. . .. 992,757 992,757 un Megawatt-Hours) (in Megawatt-Hours) Purchased .................... 1,381,231 Purchased .. .................... 2,725,698
.2,725,698 Self-Generated ...............
Self-Generated..... . ... 15,519,953 Total Total.........................
. 1,590,975
. . 1,590,975 ........................
Total .......... . 3,718,455
.3,718,455 Purchased ...................
Purchased .................. 12,807,911 TotalRevenues (ODDs) Total (000s) .............. ..... $220,637
$220,637 Total Revenues (000s) ..............
Revenues (ODDs) ....... $419,007 Total ....................... Total. ... . ..... 28,327,864 28,327,864 Costs (ODDs) Operating Ccsts (000s)..............
.............. $187,505 $187,505 Operating Operating Costs Ccsts (000s)
(00 Os) ............... $420,653
... $420,653 Total Revenues (000s).............
Revenues (ODDs). . . . . .. . .... $2,781,324
$2,781,324 Operating Ccsts (000s)
Operating Costs ............ $2,457,597 (ODDs) ............ $2,457,597
+------.----------------.--------~.-----+--------------~-----------------
*1----
CITY OF PASADENA PASADENA CITY CITY OF RIVERSIDE CITY OF VERNON VERNON Customers Served ... ................... . ..... 62,885 Customers Customers Served ................... ....... 106,015 106,015 Customers Customers Served Served ....................
......... . 1,911
.... 1,911 Power Generated and Purchased Purchased Power Generated and Purchased Power Generated Power Generated and Purchased Power (inMegawatt-Hours) un Megawatt-Hours) un Megawatt-Hours)
(in Megawatt-Hours) On Megawatt-Hours) On Megawatt-Hours) Self-Generated.................... Self-Generated ...... . .. 86,898 Self-Generated .................. Self-Generated. 336,000
. .......... 336,000 Self-Generated ..................
Self-Generated. .... . .....904,839 Purchased ................... Purchased. ... . .... 1,526,635 1,526,635 Purchased ..... Purchased .................... .... 2,395,200 Purchased ..................... Purchased. .. . .. 345,684 345,684 Total ........................ Total...... .. ..... 1,613,533 1,613,533 Total........................ Total. * .... 2,731,200 Total ....................... Total............ 1,250,523
.. .1,250,523 Total Total Revenues (OOOs) (000s) ..............
.............. $202,682 $202,682 Total Revenues (ODDs)(000s) ...............
...... . . $303,500
$303,500 Total Revenues Revenues (ODDs)
(000s) ...............
. $138,057
. ..$138,057 Costs (ODDs)....
Operating Ccsts (000s) .............. $162,719
. ...... $162,719 Operating Operating Costs Ccsts (000s) . . . . . . . .... $281,000 (ODDs)............... $281 ,000 Operating Operating Costs Ccsts (000s) ............. $123,561 (ODDs) .............
38 38
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SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC PUBLIC POWER POWER AUTHORITY AUTHORITY INDEPENDENT AUDITOR'S REPORT AND INDEPENDENT AUDITOR'S REPORT AND COMBINED FINANCIAL STATEMENTS COMBINED FINANCIAL STATEMENTS JUNE 30, 2008 AND 2007
TABLE OF CONTENTS CONTENTS Pages INDEPENDENT AUDITOR'S REPORT 1 MANAGEMENT'S DISCUSSION MANAGEMENT'S DISCUSSION AND ANALYSIS ANALYSIS 2-24 FINANCIAL STATEMENTS STATEMENTS Statements Combined Financial Statements 25-51 Notes to Combined Financial Financial Statements 52-82 SUPPLEMENTAL INFORMATION SUPPLEMENTAL INFORMA nON Schedule of Receipts and Disbursements Supplemental Schedule Disbursements in Funds Required by the Indenture for the Year Ended June 30, 2008 Bond Indenture Palo Verde Project 83 83 Hoover Uprating Uprating Project 84 San Juan Project 85 85 Magnolia Power Project Magnolia 86 86 Southern Transmission System Project 87 87 Mead-Phoenix Mead-Phoenix Project 88 88 Mead-Adelanto Mead-Adelanto Project 89 89 Multiple Multiple Project Fund 90 Natural Gas Barnett Project 91 Natural Gas Pinedale Project 92 Prepaid Natural Natural Gas Project No. 1I 93
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I , - I . . C~EI'W!D PAC; IC XCCOUL'rANTS i ,~Ng ]J!TANT75 ______ C_Efm,rIED p; !F)I !C f\CCOU!',TAr.rrs ! l3U5iNc'.;S CON CON5U!:rANiS INDEPENDENT AUDITOR'S INDEPENDENT AUDITOR'S REPORT REPORT To thethe Board Board of of Directors Directors and and Participants Participants of of Southern California Southern California Public Public Power Power Authority Authority We have have audited audited the the accompanying accompanying combined combined and individual individual project's project's statements statements of net assets (deficit) of (deficit) of Southern Califomia Public Southern California Public Power Power Authority Authority (the Authority) as as of JuneJune 30, 2008 and and 2007 and the combined and individual project's tile related combined statements of revenues, project's statements expenses and revenues, expenses and changes in net assets (deficit) changes (deficit) and and cash flows for the years then ended. These These financial financial statements are the responsibility of the Authority's Authority'S management. management. Our responsibility responsibility is to to express an opinion on these financial financial statements statements based on our audits. We conducted our audits We accordance with auditing standards generally audits in accordance accepted in the United generally accepted States of States of America. America. Those Those standards standards require require that we we plan and perform perform the audits to obtain reasonable assurance about whether the financial reasonable financial statements statements are free of o(material material misstatement. An An audit includes audit includes examining, examining, on a test test basis, basis, evidence evidence supporting supporting the amounts and disclosures disclosures in the the financial statements. An financial An audit also includes includes assessing accounting principles assessing the accounting used and principles used and significant estimates significant estimates made made by management, as well as evaluating evaluating the overall overall financial statement statement presentation. We believe believe that our audits provide provide aa reasonable basis for our opinion. reasonable basis opinion, the combined and individual In our opinion, individual project's statements referred to above project's financial statements present fairly, in all material present material respects, the financial financial position of Southern California Public Power Southern California Power Authority and each Authority each of the Authority's Authority's projects: projects: Palo Verde Verde Project, Hoover Uprating Uprating Project, San Juan Project, Magnolia Power Project, Ormat Geothermal Geothermal Energy Project, Southern Transmission Transmission System Project, Mead-Phoenix Project, Mead-Adelanto Mead-Adelanto Project, Natural Natural Gas Pinedale Pinedale Project, Natural Gas Barnett Project, Natural Project, Prepaid Natural Natural Gas Project Project No. 1, I, Multiple Multiple Project Fund, and Projects' Stabilization Fund as of June 30, 2008 Projects' 2008 and 2007 and the results of the Project's Project's operations and cash flows for the years then ended operations ended in conformity conformity with accounting principles generally accepted in the United generally United States of America. The management's The management's discussion and analysis preceding the combined combined financial statements statements is not a required part of the basic financial statements statements but is supplementary information information requiredrequired by thethe Governmental Accounting Standards Standards Board, Board. We have applied certain limited procedures, procedures, which consisted principally of inquiries of management management regarding the methods of measurement measurement and presentation of the required supplementary information. However, we did not audit the presentation information and express no opinion on it. The additional supplemental information, as listed in the table of contents, following the combined combined financial statements and and notes to' to'combined statements is also combined financial statements also not a required part of the the basic financial statements but is supplementary supplementary information provided provided for purposes of additional analysis. We did not audit or perform any other procedures analysis, procedures on this information and express no no opinion on it. 1A/0S , k, L L Portland, Oregon Oregon October 21, 21, 2008 I
SOUTHERN SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY MANAGEMENT'S DISCUSSION MANAGEMENT'S DISCUSSION AND AND ANALYSIS ANALYSIS The following discussion and analysis of the financial performance performance of Southern California Public Power Power Authority "Authority" or "SCPP Authority (the "Authority" A"), provides an overview of the Authority's financial activities for the fiscal "SCPPA"), conjunction with the Authority's 30, 2008 and 2007. Please read this discussion and analysis in conjunction years ended June 30,2008 Statements, which begin on page 25. Combined Financial Statements, 25. Description and other details pertaining to the Authority are included in the Notes to Combined Financial Financial Statements. Statements. The Authority is a joint powers authority whose primary purpose purpose has been to provide joint financing and and oversight for large joint projects agencies that consist of eleven municipal electric projects for its member agencies electric utilities and one one combined basis, these entities provide irrigation district in California. On a combined electricity to more than 2 million provide electricity customers. A Board of Directors (the "Board") retail electric customers. governs the Authority, which consists of one "Board") governs representative from each member agency. representative The Authority Authority has interests in the following projects: PALO VERDE VERDE PROJECT On August 1981, the Authority purchased August 14, 1981, 5.91% interest in the Palo Verde purchased a 5.91% Verde Nuclear Generating Generating Station ("PVNGS"), a 3,810 megawatt nuclear-fueled generating station near Phoenix, Arizona, a 5.56% nuclear-fueled generating 5.56% ownership interest in the Arizona Nuclear Power Project High Voltage Switchyard, and a 6.55% 6.55% share of the right to use Arizona Nuclear certain portions of the Arizona Transmission System (collectively, the "Palo Verde Nuclear Power Project Valley Transmission Project"). Units 1, 1, 2 and 3 of the Palo Verde Project began commercial commercial operations 1986, September operations in January 1986, September 1986, and January 1988, respectively. HOOVER UPRA UPRATING PROJECT TING PROJECT As of March 1, 1986, the Authority and six participants 1, 1986, participants entered agreement pursuant to which each entered into an agreement each participant participant assigned its entitlement to capacity associated firm energy to the Authority in return for the capacity and associated agreement to make advance Authority's agreement payments to the United States advance payments States Bureau of Reclamation ("USBR") on Reclamation ("USBR") behalf of such participants. The Authority 18.68% interest in the contingent Authority has an 18.68% contingent capacity Hoover capacity of the Hoover Uprating Project ("HU"). SAN JUAN PROJECT Effective July 1,1, 1993, 1993, the Authority purchased 41.80% interest in Unit 3 and related common facilities of the purchased a 41.80% San Juan Generating Station ("SJGS") from Century Power Corporation. Unit 3, a 497-megawatt unit, is one unit coal-fired power generating station in New Mexico. of the four-unit coal-fired MAGNOLIA POWER MAGNOLIA POWER PROJECT Energy Commission for construction received approval from the California Energy In March 2003, the Authority received construction of the Magnolia Power Project. The Project consists of a combined cycle cycle natural generating plant with a gas-fired generating natural gas-fired nominally rated net base capacity of242 megawatts and was built on a site in the City of Burbank, California. The of 242 megawatts plant is the first that is wholly owned owned by the Authority and entitlements 100% of the capacity and energy of the entitlements to 100% Project have been sold to six of its members. The City of Burbank, a Project participant, managed its constructionconstruction Commercial operations began September 22,2005. and also serves as the operating agent for the Project. Commercial 22, 2005. 2
CALIFORNIA PUBLIC SOUTHERN CALIFORNIA SOUTHERN POWER AUTHORITY PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION MANAGEMENT'S DISCUSSION AND AND ANALYSIS ANALYSIS ORMAT GEOTHERMAL ORMAT GEOTHERMAL ENERGY ENERGY PROJECT The The Authority entered into long-term Authority entered Power Purchase long-tenn Power Agreements in December Purchase Agreements December 2005 with with divisions of Ormat Onnat Technologies, Inc. for up to 20 megawatts Technologies, ("MW") of megawatts ("MW") electric generation. The of electric The Project started delivery delivery of of approximately 5 MW approximately January 2006 from geothermal MW in January energy facilities geothennal energy located in Heber, California. In May facilities located May agreements were amended 2008, the agreements 2008, wells as the source of substitute new wells amended to substitute of the generation, and to increase generation, and increase the capacity to capacity Scheduling Coordinator Anaheim acts as the Scheduling to 14MW. The City of Anaheim behalf of the Coordinator on behalf the Project Project Participants. Participants. SOUTHERN TRANSMISSION SOUTHERN TRANSMISSION SYSTEM SYSTEM PROJECT On May 1, 1983, the Authority 1, 1983, Intennountain Power Agency ("IPA") Authority entered into an agreement with the Intermountain ("IP A") to defray all the costs costs of acquisition construction of the Southern acquisition and construction Transmission System Project ("STS"), which Southern Transmission transmission of energy provides for the transmission provides energy from the Intermountain Generating Station in Utah Intennountain Generating Southern California. Utah to Southern commenced commercial STS commenced operations in July 1986. commercial operations Department of Water and Power 1986. The Department Power of the City of Los Angeles ("LADWP"), a member of Angeles ("LADWP"), of the Authority, serves as project manager manager and operating operating agent agent of the Intennountain Power Project ("IPP"). Intermountain MEAD-PHOENIX AND MEAD-PHOENIX MEAD-ADELANTO PROJECTS AND MEAD-ADELANTO As of August 4, 1992, Authority entered 1992, the Authority entered into an agreement Mead-Phoenix Project interest in the Mead-Phoenix agreement to acquire an interest extending between the Westwing transmission line extending ("Mead-Phoenix"), a transmission ("Mead-Phoenix"), substation in Arizona Westwing substation Arizona and the Marketplace substation in Nevada. The agreement provides the Authority Marketplace 18.31 % interest Authority with an 18.31% interest in the Westwing-Mead project component, a 17.76% Westwing-Mead 17.76% interest in the Mead Substation project component and a 22.41% 22.41 % project component. Mead-Marketplace project interest in the Mead-Marketplace acquire a 67.92% interest agreement to acquire As of August 4, 1992, the Authority also entered into an agreement interest in the Mead-("Mead-Adelanto"), a transmission line extending between the Adelanto Adelanto Project ("Mead-Adelanto"), Adelanto substation substation in Southern Marketplace substation in Nevada. Funding California and the Marketplace projects was provided by a transfer of Funding for these projects of funds from the Multiple Project Fund and commercial commercial operations commenced in April 1996. LADWP operations commenced LADWP serves as operations manager of Mead-Adelanto. the operations Mead-Adelanto. NATURAL GAS PINEDALE PROJECT NATURAL PROJECT On July 1,1,2005, LADWP and Turlock Irrigation District ("TID"), acquired 42.5% of 2005, the Authority, together with LADWP of an undivided working interest in three natural gas leases located in the Pinedale Anticline region of the State of of purchase includes 38 operating Authority's individual share in these interests equals 14.9%. The purchase Wyoming. The Authority'S oil and gas wells and associated lateral pipelines, equipment, permits, easements used in pennits, rights of way, and easements in production. The natural gas field production is expected to increase for several more years as additional capital capital is invested on drilling new wells and then decline over a life expectancy greater than.30 years. NATURAL GAS BARNETT PROJECT NATURAL PROJECT formation in Texas was acquired from Collins and Young Natural gas resources in the Barnett shale geological fonnation Holding, L.L.P ("C&Y") for a total of $84 $84 million with an effective production date of April 1, 1, 2006. The December 7, 2006 when the participants, together completed on December acquisition settled on October 26, 2006 and was completed exercised their option to purchase additional resources from C&Y. Two of the original participants, with TID, exercised LADWP and the City of Glendale, made the decision not to participate participate but have agreed to pay their respective 13, 2006. The Gas Sales Agreements share of the development costs incurred through October 13,2006. revised Agreements have been revised accordingly to adjust the entitlement shares and product cost shares for the remaining participants. 3
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC PUBLIC POWER AUTHORITY AUTHORITY MANAGEMENT'S MANAGEMENT'S DISCUSSION DISCUSSION AND AND ANALYSIS ANALYSIS PREPAID PREP AID NATURAL NATURAL GAS PROJECT NO. GAS PROJECT NO.11 On October 11, 2007, October 11, 2007, the Authority made a one-time prepayment of $481 one-time prepayment $481 million to acquire the right to receive approximately approximately 135 billion cubiccubic feet of natural natural gas from 1.J. Aron & Company Company to be delivered delivered over a 30-year term, beginning beginning July 1, 1, 2008, 2008, which is the commercial commercial operation operation date of this project. On October October 3, 3, 2007, prior to the acquisition of the prepaid prepaid gas supply, the Authority entered into five separate Prepaid Natural Natural Gas Sales Agreements Agreements (the Gas Sales Agreements) Agreements) with J. 1. Aron and simultaneously, simultaneously, five Prepaid Natural Gas Supply Agreements Agreements (the Gas Supply Contracts) in which the Authority sold its interest in the natural gas, on a "take-and- "take-and-pay" basis, to the cities of Anaheim, Burbank, Colton, Glendale, and Pasadena Pasadena (the Project No. 1 Participants). Participants). Through Through thethe Gas Gas Supply Contracts, SCPPA has provided for the sale to the Project Participants, Participants, on a pay-as-you-pay-as-you-go basis, of all of the natural gas to be delivered to SCPPA pursuant pursuant to the Gas Sales Agreements. The Natural Gas contracts coiltracts expire in 2038. Under the Gas Supply Contracts, Contracts, the approximate approximate average Daily Quantity of gas to be purchased by each each Project Project Participant Participant is as follows: AVERAGE DAILY AVERAGE PERCENTAGE PERCENTAGE BY BY PROJECT PARTICIPANT PROJECT PARTICIPANT OUANTITY (1) QUANTITY P ARTICIP ANT PARTICIPANT City of Anaheim 2,000 16.5% 16.5% City of Burbank 4,000 33.0% City of Colton 1,375 11.0% 11.0% City of Glendale 2,750 23.0% 23.0% City of Pasadena 2,000 16.5% 16.5% TOTAL TOTAL 12,125 100% 100% (1) (1) The average Daily Quantity is in MmBtu's MmBtu's and is calculated calculated over the term of the applicable Supply Contract. Gas Supply MULTIPLE PROJECT FUND FUND During fiscal year 1990, the Authority Authority issued Multiple Project Revenue Revenue Bonds for net proceeds of approximately approximately $600 $600 million to provide funds to finance costs of construction construction and acquisition of ownership interests or capacity rights in one or more, then unspecified, projects for the generation generation or transmission transmission of electric energy. Certain of Certain of these funds were used to finance the Authority's interests interests in Mead-Phoenix Mead-Phoenix and Mead-Adelanto. PROJECTS' STABILIZATION ST ABILIZA TION FUND FUND In fiscal In fiscal year year 1997, 1997, the Authority authorized the Authority authorized the creation creation of a Projects' Projects' Stabilization Stabilization Fund. Deposits may be made into the fund from budget under-runs, after authorization authorization of individual participants, participants, and by direct contributions contributions from the from the participants. participants. Participants have have discretion over the use of their deposits. This fund is not a project-related project-related fund; therefore, fund; therefore, it is not it is not governed governed by any project Trust. The members participate project Indenture of Trust. participate in the Projects' Projects' Stabilization Fund by making deposits deposits to the fund at their discretion. 4
CALIFORNIA PUBLIC SOUTHERN CALIFORNIA SOUTHERN PUBLIC POWERPOWER AUTHORITY AUTHORITY MANAGEMENT'S DISCUSSION MANAGEMENT'S DISCUSSION AND AND ANALYSIS ANALYSIS PARTICIPANT OWNERSHIP PARTICIPANT OWNERSHIP INTERESTS The The Authority's participants may Authority's participants may elect to participate in the to participate the projects. AsAs ofof June June 30, 2008, the members 30, 2008, members have the the following participation percentages in the Authority's participation percentages operating projects: Authority's operating projects: GENERAT GENERATIONION TRANSMISSION TRANSMISSION NATURAL NATURAL GAS GAS Ormat Ormat Southern Southern Geo-Gco- Trans-Trans-Palo Palo Hoover Hoover San San Magnolia Magnolia thermal mission mission Mead-Mead- Mead-Verde Uprating Uprating Juan Juan Power Power Energy Energy System Phoenix Adelanto System Phoenix Adelanto Pinedalc Barnett Pinedale Barnett Participants Participants Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project City of Los Angeles Angeles 67.0% - - 59.5% 59.5% 24.8% 24.8% 35.7% 35.7% City of Anaheim City Anaheim 42.6% 42.6% 38.0% 38.0% 60.0% 17.6% 17.6% 24.2% 24.2% 13.5% 13.5% 35.7% 35.7% 45.4% 45.4% City of Riverside City 5.4% 5.4% 31.9% 31.9% - - 10.2% 10.2% 4.0% 4.0% 13.5% 13.5% Imperial Imperial Irrigation Irrigation District District 6.5% 6.5% 51.0% 51.0% City of Vernon City Vernon 4.9% City City of Azusa 1.0% 1.0% 4.2% 4.2% 14.7% 14.7% -' 1.0% 1.0% 2.2% 2.2% City of Banning City Banning 1.0% 1.0% 2.1% 2.1% 9.8% 9.8% 10.0% 10.0% 1.0% 1.0% 1.3% 1.3% City of Colton City 1.0% 1.0% 3.2% 3.2% 14.7% 14.7% 4.2% 4.2% 1.0% 1.0% 2.6% 7.1% 7.1% 9.1% 9.1% City of Burbank City Burbank 4.4% 16.0% 16.0% 31.0% 31.0% 4.5% 4.5% 15.4% 15.4% 11.5% 11.5% 14.3% 14.3% 27.3% 27.3% City of Glendale City 4.4% 9.8% 9.8% 16.5% 16.5% 15.0% 15.0% 2.3% 2.3% 14.8% 14.8% 11.1% 11.1% 28.6% 28.6% City of Cerritos City 4.2% 4.2% City of Pasadena City Pasadena 4.4% - - 6.1% 6.1% 15.0% 15.0% 5.9% 5.9% 13.8% 13.8% 8.6% 14.3% 14.3% 18.2% 18.2% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% The Authority Authority has entered into power sales, naturalnatural gas sales, and transmission transmission service agreements with the above service agreements project participants. Under project participants are entitled to power Under the terms of the contracts, the participants power output, natural gas, or transmission service, as applicable. The participants are obligated payments on a "take or pay" basis for obligated to make payments for their proportionate proportionate share share of operating maintenance expenses and debt service. The contracts cannot be operating and maintenance terminated or amended in any manner that will impair or adversely bondholders as long as adversely affect the rights of the bondholders any bonds issued by the specific project remain outstanding. The contracts expire as follows: Palo Verde Project 2030 Southern Transmission Transmission System Project 2027 Hoover Uprating Project Project 2018 2018 Mead-Phoenix Project Mead-Phoenix Project 2030 Mead-Adelanto Mead-Adelanto Project 2030 Project San Juan Project 2030 Magnolia Magnolia Power ProjectProject 2036 Natural Gas Pinedale Project Project 2030 2030 Project Natural Gas Barnett Project 2030 Ormat Ormat Geothermal Energy Project Project 2031 5
SOUTHERN CALIFORNIA PUBLIC POWER SOUTHERN POWER AUTHORITY MANAGEMENT'S MANAGEMENT'S DISCUSSION DISCUSSION AND ANALYSIS ANALYSIS ACCOUNTING POLICIES CRITICAL ACCOUNTING CRITICAL Net assets - The Authority's billing amounts to the participants are determined by its Board of Directors and are approval by the participants. Billings to participants are designed to recover "costs" subject to review and approval "costs" as power sales, natural gas sales, and transmission defined by the power service agreements. The billings are structured transmission service structured to provide for debt service requirements, operating systematically provide systematically accordance with these operating funds, and reserves in accordance accumulated difference between billings and the Authority's expenses calculated agreements. The accumulated calculated in accordance accordance generally accepted accounting principles are presented with generally presented as net assets (deficit). It is intended that this difference repayment of principal recovered in the future through billings for repayment difference will be recovered principal on the related bonds. Investment policy and controls - The Authority's investment Investment investment function operates within a legal framework established established by Sections 6509.5 and 53600 53600 et. seq. of the California Government Code, Indentures of Trust, instruments instruments governing governing financial arrangements entered into by the Authority to finance and operate Projects, and arrangements entered Investment Policy. The Indentures the Authority's Investment Indentures of Trust authorize establishment of specific Project funds authorize the establishment specify how monies are to be applied, and name third party Trustees. and accounts, specify available for investment include proceeds Funds available proceeds from bonds and notes sales, payments payments from the participants, previous investments, earnings, exchanges of securities and interest from swap agreements. Funds maturities of previous are managed and invested invested separately designated funds or separately and principal and earnings are credited and allocated to designated accounts as outlined in each Project's Indenture of Trust, Fiscal Agency Agreement, or in the Projects' Agency Agreement, Stabilization established by a Board Resolution. Stabilization Fund which was established investment program, ranked in accordance fundamental criteria in the investment The three fundamental importance, are: safety accordance of importance, of safety of exception to the preceding criteria is made for the Palo Verde Nuclear principal, liquidity, and return. An exception Nuclear Decommissioning Trust Funds, as liquidity will not be a factor until 2023. Decommissioning investment criteria 2023. The investment criteria for the Decommissioning importance, are as follows: safety, return, and liquidity. Decommissioning Trust Funds, in order of importance, management program Debt management program - The Authority's obtain the lowest prudent rates of interest on Authority's financing goal is to obtain on continue to utilize cost-effective manner. In addition, the Authority will continue debt issues and to issue debt in the most cost-effective debt management strategies that reduce the overall cost of borrowing for its members. In general, management strategies general, the Authority issues new money debt and refunding debt on either a negotiated or competitivecompetitive basis as determined by the Board. minimum net present value savings A minimum savings of 5%, as a percent of the refunded par amount, is the general target when determining the potential to refund existing Authority debt. The Authority determining Authority may also use interest rate swapsswaps or products to help meet important financial objectives. other derivative products Jointly owned utility plant - The Authority owns interests generating stations, transmission interests in several generating transmission systems, participating member has an undivided interest in a utility arrangements, a participating and gas reserve leases. Under these arrangements, operation and is entitled to its proportionate share of the costs of construction and operation plant and is responsible for its proportionate proportionate share of the energy produced. All utility plant of the Authority, with proportionate .with the exception exception of the Magnolia Power Project, is jointly owned. The related cost and accumulated depreciation depreciation for these projects has been been reflected project's financial statements in utility plant. Additionally, the Authority's reflected in each project's share of expenses for Authority's share included in the statements of revenues, expenses, and changes in net assets (deficit) as part of each project is included of operations operations and maintenance maintenance expenses. 6
CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN CALIFORNIA SOUTHERN AUTHORITY MANAGEMENT'S MANAGEMENT'S DISCUSSION DISCUSSION AND AND ANALYSIS ANALYSIS USING FINANCIAL REPORT USING THIS FINANCIAL annual financial report consists of a series of financial statements and reflects the self-supporting This annual self-supporting activities of activities of the Authority primarily through the sale of energy, natural gas, and transmission Authority that are funded primarily transmission services to member agencies member agencies under project project specific specific "take or pay" contracts agency to pay its contracts that require each member agency proportionate share of operating and maintenance proportionate expenses and debt service with respect to such projects. The maintenance expenses participants of the prepaid natural gas project where established "take and pay" contracts for the participants Authority also established sufficient to pay debt service. the payments received from the sale of gas will be sufficient Statements, using an accrual statements - The Combined Financial Statements, Combined financial statements Combined accrual basis of accounting, provide an indication of the Authority's financial health. The Combined Statements of Net Assets (Deficit) provide (Deficit) indication about which assets can be utilized for include all of the Authority's assets and liabilities, as well as an indication for general restricted as a result of bond covenants and other commitments. general purposes and which assets are restricted commitments. The Combined Revenues, Expenses and Changes in Net Assets (Deficit) report all of the revenues and Combined Statements of Revenues, expenses during the time periods indicated. The Combined Statements of Cash Flows report the cash provided expenses provided and used by operating activities, as well as other cash sources such as investment income, cash payments payments for bond principal payments, and capital additions and betterments. principal 7
SOUTHERN SOUTHERN CALIFORNIACALIFORNIA PUBLIC PUBLIC POWER POWER AUTHORITY MANAGEMENT'S DISCUSSION MANAGEMENT'S DISCUSSION AND ANALYSIS AND ANALYSIS Combined Summary Summary of FinancialFinancial Condition and Changes Changes in Net Assets (Deficit) (In Thousands) JUNE30, JUNE 30, 2008 2007 2006 2006 Assets Net utility plant $$ 1,009,331 $$ 1,006,994 1,006,994 $ 995,599 Investments Investments 558,619 558,619 556,518 556,518 558,497 equivalents Cash and cash equivalents 230,000 230,000 149,740 149,740 80,778 80,778 Prepaid and other 592,450 592,450 103,290 103,290 112,223 112,223 Total assets assets $$ 2,390,400 $ 1,816,542 $ 1,747,097 1,747,097 liabilities Liabilities and Net Assets (Deficit) Noncurrent liabilities Noncurrent $$ 2,310,261 $ 1,842,488 1,842,488 $ 1,806,660 1,806,660 Current liabilities Current liabilities . 220,748 191,137 191,137 186,969 Total liabilities 2,531,009 2,531,009 2,033,625 1,993,629 1,993,629 Net Assets (Deficit) cap it'al assets, net of related debt Invested in capital (1,236,053) (1,236,053) (742,312) (715,204) Restricted net assets assets 996,901 429,686 429,686 361,732 Unrestricted net assets 98,543 98,543 95,543 106,940 Total net deficit (140,609) (140,609) (217,083) (246,532) Total liabilities and net assets (deficit) (deficit) $S 2,390,400 2,390,400 $ 1,816,542 1,816,542 $$ 1,747,097 1,747,097 Expenses and Changes Revenues, Expenses Revenues, Changes in Net Assets (Deficit) for the year endedended June 30 30 Operating Op erating revenues $S 468,809 468,809 $ 390,005 $$ 330,987 Operating expenses Operating expenses (319,193) (319,193) (291,202) (248,507) (248,507) Operating Operating income 149,616 149,616 98,803 82,480 82,480 Investment income 32,956 32,956 33,622 18,932 18,932 Debt expense expense (108,062) (108,062) (113,028) (113,028) (106,198) (106,198) Change in net assets 74,510 74,510 19,397 19,397 (4,786) Net Deficit, Deficit, beginning of year year (217,083) (217,083) (246,532) (233,031 (233,031)) Net Contributions/(Withdrawals) Contributions/(Withdrawals) By Participants 1,964 1,964 10,052 10,052 (8,715) (8,715) Net Deficit, end of yearyear $ (140,609) (140,609) $$ (217,083) $$ (246,532) (246,532) 88
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER POWER AUTHORITY MANAGEMENT'S MANAGEMENT'S DISCUSSION DISCUSSION AND AND ANALYSIS ANALYSIS Combined Combined Financial Statements (Continued) Financial Statements Deficit-- Net Deficit During fiscal year 2008 the Authority's net deficit decreased by $76 million mainly due to the increase in assets of of $573 increase in liabilities of $497 million. $573 million and the increase increase in the Authority's assets is due to the following: The increase
- Utility Utility Plant Plant - increased increased by $2 million.
increase is primarily due to $10 This increase $10 million of ongoing ongoing capital expenditures and $14 capital expenditures $14 million replenishment of fuel inventory in the Palo Verde Project; $37 million of environmental replenishment environmental upgrades in "the the San Juan Project; $3 $3 million of capital improvements in the Magnolia Power Project; and $11 $11 million ofof additional drilling of wells in the Natural Gas Barnett Project; offset by $73 Barnett Project; scheduled
$73 million of scheduled depreciation in all projects. *" Investments - increased Investments increased by $2 million.
This increase is due to $60$60 million net bond proceeds from the issuance issuance of the Natural Gas Project A, 2008 Revenue Revenue Bonds; $14 proceeds from the issuance of the Gas Project Revenue
$14 million net bond proceeds Bonds, Project No. I1 Series 2007 A&B Bonds; Bonds; and $8 million reinvestment of interest earnings earnings in the Decommissioning Decommissioning Fund. These increases were offset by a decrease of $56 million net reallocation reallocation of of investments from long term to short term in the Palo Verde, Hoover, San Juan, STS, Mead Adelanto, Multiple Project and Projects Stabilization Fund ("PSF"); the application Multiple $15 million of prior year's application of $15 year's overbillings to operating operating and maintenance prepayment of nuclear fuel in the Palo Verde maintenance expenses and the prepayment Project; and $9 environmental upgrades in the San Juan Project.
$9 million of environmental
" Cash and
- Cash and cash equivalents equivalents - increased increased by $80
$80 million.
This increase reallocation of investments from long-term to short-term increase is due to $56 million net reallocation short~term in Palo Verde, Hoover, San Juan, STS, Mead Mead Adelanto, Multiple Project and PSF Projects; Projects; accumulated accumulated collections of $9 million in over billings in the STS, Magnolia, and San Juan Projects; collections Projects; $14
$14 million in contributions in the PSF and the Natural participants' contributions participants' Natural Gas Barnett Project; $1 million reinvestment Project; and $1 reinvestment ofof interest earnings in Multiple Project. " *" Prepaid and other assets - increased Prepaid increased by $489 million.
prepayment for a 30-year supply of natural gas on behalf of the increase is due to the $481 million prepayment This increase project participants of the newly acquired project Project No. 1; acquired Prepaid Natural Gas Project I; $20
$20 million of unamortized unamortized costs of the new Prepaid Natural Gas Project No. 1; $12 million increase in accounts receivable I; and $12 receivable due to under billings in Palo Verde, Mead Adelanto, and STS. The increases increases were mainly offset by a $24 $24 deferred debit in the San Juan Project as the provision for the environmental upgrade million decrease in deferred project was satisfied.
9
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY MANAGEMENT'S DISCUSSION MANAGEMENT'S DISCUSSION AND AND ANALYSIS Combined Financial Statements Combined Statements (Continued) increase in the Authority's liabilities of $497 million is primarily due to the following: The increase
- The $510 million issuance of Gas Project Revenue Revenue Bonds, Project No.1, 2007 Series A & B; issuance No. 1, 2007 issuance of of
$141 million Natural Gas Project A, 2008 Revenue the $141 Revenue Bonds; and a $6 $6 million increase in accounts payable due to over billings in the STS Project. The increases payable increases were offset offset by the payoff payoff of $76
$76 million ofof bridge loans in the Natural Gas Projects; the $28 bridge $28 million decrease decrease in advances advances mainly used to meet the obligation of the San Juan environmental upgrades; and $56 million of principal maturities and related amortizations for all projects.
During fiscal year 2007, the Natural Gas Barnett Project was acquired, the Magnolia Power Project A Revenue During Revenue Bonds, 2006-1 and 2007-1 were issued and a portion of the 2003-1 Magnolia Bonds, Magnolia Bonds Bonds was refunded (See(See Note Note 6). As a result of these events, long-term investments investments decreased $2 million; cash decreased by $2 cash and cash equivalents increased cash equivalents increased by $69 million; and liabilities increased by $40 million. In addition, utility plant increased by $11 $11 million because of the net effect of acquisitions; capital expenditures because expenditures in Palo Verde, San Juan, Magnolia and Natural Gas Projects; and the accumulated Projects; decreased by $9 depreciation in all projects. Other assets decreased accumulated depreciation $9 million because because of lower lower maintenance costs in the Palo Verde maintenance Verde Project and the reduction of drilling activity in the Natural Gas Pinedale which resulted in a decrease Project which Project decrease in accounts receivable. receivable. Operating Income-- OperatingIncome operating income by $51 The net increase in operating $51 million is due to the following:
*" Operating Revenues Operating Revenues - increased increased by $79 million.
The increase is primarily $28 million for the steam generator primarily due to the additional billings of $28 generator replacement program and the replenishment program inventory in the Palo Verde Project; replenishment of fuel inventory Project; $19 increase in fuel
$19 million increase maintenance costs in the Magnolia Power Project; $19 contribution and operation and maintenance $19 million for the maintenance costs in the San Juan Project; environmental upgrades and major maintenance environmental $13 million for the Project; and $13 newly acquired Natural Gas Barnett Project.
*" Operating Expenses Operating Expenses -- increased increased by $28 million.
The increase is mainly due to the $18 $18 million increase in fuel costs contributed by the participants participants and and higher maintenance cost of the plant in the Magnolia Power Power Project; $6 million increase Project; $6 increase in maintenance maintenance expense due to replacement generator in the Palo Verde replacement of the steam generator Verde Project; Project; and $7$7 million for the addition of the Barnett Natural Gas Reserves Project. The offset of $3 million was primarily primarily due to the overbilled operating accrual of overbilled operating expenses from the operating operating manager manager of the STS Project. During fiscal year 2007, net operating During increased by $16 operating income increased $16 million million primarily primarily due to increased increased participant participant billings offset by increased expenses for the Magnolia Power Project being billings being in commercial commercial operations for the entire fiscal year; costs of the San Juan environmental year; the future costs environmental upgrade offset higher cost of coal in the offset by the higher San Juan Project; and the operations and maintenance acquired Ormat Geothermal maintenance costs for the newly acquired Geothermal and the Natural Natural Gas Barnett Barnett Projects. 10
SOUTHERN CALIFORNIA PUBLIC POWER SOUTHERN AUTHORITY POWER AUTHORITY MANAGEMENT'S MANAGEMENT'S DISCUSSIONDISCUSSION AND AND ANALYSIS ANALYSIS Investment Income - During fiscal year 2007, 2007, investment income increased increased by $15
$15 million mainly due to the increase increase in market values of the investments.
Debt Expenses Debt Expenses-- Debt expense decreased decreased by $5$5 million largely due to the net gain of $2 million from swap related related transactions transactions and a $3
$3 million decrease in arbitrage arbitrage and other debt related obligations in the STS Project.
Supplementary Supplementary Information: Information: Palo Verde Verde Power Power Project Project Subordinate Subordinate Refunding Refunding Bonds As of June 30, 2008, SCPPA has outstanding $101,820,000 $101,820,000 of subordinate subordinate bonds relating relating to the Palo Verde Project, consisting consisting of $12,250,000 aggregate principal
$12,250,000 aggregate principal amount of the 1996 Subordinate Refunding Series B Subordinate Refunding
("1996 Series B Bonds") Bonds") and $89,570,000 aggregate principal amount of the 1996
$89,570,000 aggregate Subordinate Refunding Series 1996 Subordinate Series C ("1996 Series C Bonds").
Bonds"): The 1996 Series Band B and C Bonds ("Refunded ("Refunded Bonds") were issued to refund certaincertain Senior Bonds and consist of insured variable rate bonds. The Palo Verde 2008 Series Subordinate Subordinate Bonds ("2008 Series A and B Bonds") in the aggregate principal amount of $99,830,000, consisting of $49,915,000 principal amount of 2008 Series A Bonds and $49,915,000 $49,915,000 of 2008 Series Series B Bonds, are being issued issued to provide provide funds, together with certain other available moneys, to refund all of of SCPPA's outstanding 1996 Series B and C Bonds. Series Band No Senior Palo Verde Bonds are currently outstanding. Upon issuance of the 2008 Series A and B Bonds on August 28, 2008, the 2008 Series A and B Bonds will be the only bonds outstanding 28,2008, outstanding relating relating to SCPPA's interest interest in Palo Verde. Verde. These bonds are These bonds are subject to optional optional redemption but but will mature on July July 1, 1, 2017. 2017. The Refunded Refunded Bonds were redeemed redeemed on September 3, 2008 (See September 3,2008 11). (See Note II). Long-term Long-term debt - The Authority has financed the acquisition acquisition of most of its Projects through the issuance of of revenue bonds. The exception exception is the Natural Gas Projects wherein wherein some of the natural gas participants participants used cash cash for their percentage percentage of the acquisition. Capital additions to all of these Projects are financed through revenues revenues received from the Participants. (See(See Note 6) During Fiscal Year 2008, the Authority issued bonds as follows:
** $504,445,000
$504,445,000 Gas Project Revenue Bonds No. 1) in October Bonds (Project No.1) October 2007
- $302,995,000
$302,995,000 Series 2007A (Fixed Rate Bonds),
- $201,450,000 Series 2007B (LIBOR
$201,450,000 Series (LIB OR Index Rate Bonds);
" $141,060,000 Natural
* $141,060,000 Natural Gas Gas Project AA Revenue Revenue Bonds (Taxable) in February Bonds (Taxable) 2008 February 2008
- $80,795,000 Series
$80,795,000 Series 2008 2008 (City of Anaheim, California),
- $43,700,000 Series 2008 (City of Burbank, California),
$43,700,000
- $16,565,000 Series
$16,565,000 Series 2008 2008 (City (City of Colton, California) of Colton, California);; and and
** $48,025,000 Transmission Project Revenue Bonds, 2008 Subordinate Subordinate Refunding Refunding Series A, Southern Transmission Transmission Project in June 2008.
11 11
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLICPUBLIC POWER POWER AUTHORITY MANAGEMENT'S DISCUSSION MANAGEMENT'S DISCUSSION AND AND ANALYSIS ANALYSIS graphs for each of the The following graphs the Authority's Projects provide an indication Authority's Projects principal and interest indication of the principal interest payments the bonds that are due payments on the due each year following June 30, 2008 until the each year the bonds mature. Interest Interest is reflected reflected on an an accrual accrual basis. PALO VERDE PALO VERDE PROJECT Debt Debt Service Service Requirements Fiscal Year Ending June Fiscal Year 30, 2008 ($ in thousands) June 30,2008 14,000 14,000 12,000 . 12,000, 10,000 10,000 8,000 8,000 6,000 6,000 4,000 4,000 2,000 2009 2010 2011 2012 2012 2013 2014 2015 2016 2017 2017 I(!J 0 Principal Interest I M Interest iii .*Interest payments on the remaining bonds are payable Wednesday of each month. Principal maturity payable on the first Wednesday 4, 2008. The bonds mature in the fiscal year ended June 30, 2017. of$11.9 million was paid on June 4,2008. of$I1.9 12 12
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY MANAGEMENT'S DISCUSSION AND MANAGEMENT'S DISCUSSION ANALYSIS AND ANALYSIS HOOVER UPRA UPRATING TING PROJECT Debt Service Service Requirements Fiscal Year Ending June 30, 2008 ($ in thousands) 2,500 2,500 2,000 2,000 1,500 1,000 500 2009 2009 2010 2010 2011 2012 2013 2014 2015 2016 2017 2018 2018 0 Principal IG3 [] Interest Principal II Interest I Interest payments on the bonds are payable semi-annually on October 1 and April I1 of each year. Principal payable semi-annually maturities of $1.4
$1.4 million were were paid on October 1, 2007. The bonds mature in the fiscal year ended June June 30, 2018.
13
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLICPUBLIC POWER AUTHORITYAUTHORITY MANAGEMENT'S MANAGEMENT'S DISCUSSION DISCUSSION AND AND ANALYSIS ANALYSIS SAN JUAN PROJECT SAN Debt Service Requirements Fiscal Year Ending June 30, 2008 ($ in thousands) 30,2008 30,000 30,000 25,000 25,000 20,000 20,000 15,000 15,000 10,000 10,000 5,000 2009 2010 2011 2012 2012 2013 2014 2015 2016 2017 2017 2018 2019 2020 113 Principal 10 Interest I M Interest Principal II Interest Interest payments on the bonds are payable semi-annually semi-annually on July 1 and January 1 of each year.year, Principal of $10 million were paid on January maturities of$10 1, 2008. The bonds mature in the fiscal year ended June 30, 2020. January 1,2008. 14
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER POWER AUTHORITY AUTHORITY MANAGEMENT'S MANAGEMENT'S DISCUSSIONDISCUSSION AND AND ANALYSIS ANALYSIS MAGNOLIA MAGNOLIA POWER POWER PROJECT Debt Service Service Requirements Ending June 30, Fiscal Year Ending 2008 ($ in thousands) 30,2008 thousands) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 p,'p "o, ,P e eV p 1m0DPrincipal IIMInterest Interest I semi-annually on July 11 and January Interest payments on the bonds are payable semi-annually January 11 of each year. Principal 1, 2007. The bonds mature in the fiscal year ended June 30, 2037. maturities of $7.4 million were paid on July 1,2007. 15 15
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN CALIFORNIA AUTHORITY MANAGEMENT'S DISCUSSION MANAGEMENT'S DISCUSSION AND AND ANALYSIS ANALYSIS SOUTHERN TRANSMISSION SOUTHERN TRANSMISSION SYSTEM PROJECT SYSTEM PROJECT Debt Service Service Requirements Requirements Fiscal Year Year Ending June June 30, 2008 ($ in thousands) 100,000 100,000 90,000 90,000 80,000 80,000 70,000 70,000 60,000 60,000 50,000 50,000 40,000 30,000 30,000 20,000 10,000 2009 2009 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2016 2017 2017 2018 2018 2019 2020 2021 2022 2023 2024 2024 I~1E Principal I!Ilnterest N InterestII Fixed semi-annually on July I1 and January 1 of each year. Variable interest is paid Fixed interest on the bonds is paid semi-annually paid Principal maturities of $30.9 million were paid on July 1, 2007. The monthly. Principal The bonds mature in the fiscal year year ended ended June 30, 2024. 16
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN CALIFORNIA AUTHORITY MANAGEMENT'S DISCUSSION MANAGEMENT'S DISCUSSION AND AND ANALYSIS ANALYSIS MEAD-PHOENIX MEAD-PHOENIX PROJECT PROJECT Debt Service Requirements Fiscal Year Ending Ending June 30, 2008 ($ in thousands) 30,2008 thousands) 7,000 7,000 6,000 5,000 5,000 4,000 3,000 2,000 1,000 1,000 2009 2009 2010 2011 2012 2013 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2020 2021 El Principal IM 1l!1l Interest I Iillnterest Fixed interest on the bonds is paid semi-annually on July 1 and January 1 of each year. Variable interest is paid
$3.3 million were paid weekly. Principal maturities of $3.3 weekly, paid on July 1, 1, 2007. The bonds mature in the fiscal year ended June 30, 2021.
2021. 17
CALIFORNIA PUBLIC SOUTHERN CALIFORNIA SOUTHERN PUBLIC POWER AUTHORITY AUTHORITY DISCUSSION AND MANAGEMENT'S DISCUSSION MANAGEMENT'S ANALYSIS AND ANALYSIS MEAD-ADELANTO PROJECT MEAD-ADELANTO Debt Service Service Requirements Requirements Fiscal Year Ending Ending June June 30, 30, 2008 ($ in thousands) 25,000 25,000 20,000 15,000 15,000 10,000 10,000 5,000 2009 2009 2010 2010 2011 2012 2012 2013 2014 2015 2016 2016 2017 2017 2018 2018 2019 2020 ,2021
.2021 IEl Principal III 1l1!il U Interest I Fixed interest on the bonds is paid semi-annually on July 1 and January I1 of each year. Variable interest is paid Wednesdays, and Thursdays of every week. Principal Tuesdays, Wednesdays, Principal maturities of $11.1
$11.1 million were paid on July 1, 2021.
2007. The bonds mature in the fiscal year ended June 30, 2021. 18 18
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY MANAGEMENT'S DISCUSSION MANAGEMENT'S DISCUSSION AND ANALYSIS AND ANALYSIS NATURAL NA TURAL GAS PINEDALE PINEDALE PROJECT Debt Service Service Requirements 30, 2008 ($ in thousands) Fiscal Year Ending June 30,2008 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 II!]0 Principal Interest I ii Interest Principal II Interest payments payments on the bonds are payable payable semi-annually semi-annually on July 1 and January 1 of each year. Principal maturity maturity of $1.3
$1.3 million was paid on July 1, 1, 2007 and $26,900,000
$26,900,000 par value value of bonds were refunded on February 6, 2008. The bonds mature in the fiscal year ended June 30,2033.
6,2008. 30, 2033. 19 19
CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN CALIFORNIA SOUTHERN AUTHORITY DISCUSSION AND MANAGEMENT'S DISCUSSION MANAGEMENT'S AND ANALYSIS ANALYSIS NATURAL GAS BARNETT NATURAL BARNETT PROJECT Debt Service Service Requirements 30, 2008 ($ in thousands) Fiscal Year Ending June 30,2008 thousands) 9,000 8,000 7,000 7,000 6,000 5,000 4,000 3,000 3,000 2,000 1,000 1,000 IElEl Principal Ml Interest I l!Ilnterest semi-annually on July 1I and January 1 of each year. Principal payments on the bonds are payable semi-annually Interest payments
$500,000 was paid on July 1, maturity of $500,000 $50,300,000 par value of bonds were refunded 1, 2007 and $50,300,000 refunded on February February 6, mature in the fiscal year ended June 30, 2033.
2008. The bonds mature 20 20
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY MANAGEMENT'S DISCUSSION MANAGEMENT'S DISCUSSION AND ANALYSIS AND ANALYSIS NATURAL GAS PROJECT No. PREPAID NATURAL No.11 Debt Service Service Requirements Requirements Fiscal Year Ending June June 30, 2008 ($ in thousands) 60,000 50,000 40,000 30,000 20,000 10,000 lIWB Principal !lI!Ilnterest Interest I Interest Interest payments payments on the Series 2007 A bonds are payable payable semi-annually on NovemberNovember I and May 1I of each year. Interest Interest payments on the Series Series 2007 B B bonds are payable each August 1, November 1, February 1, 1, and May May 1. There There were were no principal principal maturities for the year ended ended June June 30, 2008 The bonds mature mature in the fiscal year ended June 30, 2039. 21
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC PUBLIC POWER AUTHORITY MANAGEMENT'S DISCUSSION MANAGEMENT'S DISCUSSION AND ANALYSIS AND ANALYSIS MULTIPLE PROJECT FUND FUND Debt Service Service Requirements Requirements Fiscal Year Ending June 30, 30, 2008 ($ in thousands) thousands) 16,000 16,000 14,000 14,000 12,000 12,000 10,000 10,000 8,000 6,000 4,000 2,000 2009 2010 2011 2012 2013 2014 2014 II!)MJPrincipal Interest I M Interest Principal III Interest payments semi-annually on July I1 and January I1 of each year. There were no payments on the bonds are payable semi-annually maturities for the year ended principal maturities 30, 2008. The bonds mature in the fiscal year ended ended June 30,2008. ended June 30, 2014. 22 22
SOUTHERN CALIFORNIA PUBLIC POWER SOUTHERN POWER AUTHORITY MANAGEMENT'S MANAGEMENT'S DISCUSSION DISCUSSION AND AND ANALYSIS ANALYSIS Financial Outlook - The Authority's credit strength is based on: Financial
- The collective collective credit strengths of each project participant;
- The absence of concentration risk as evidenced evidenced by the lack of substantial substantial reliance by one participant on the resources financed;
- The low cost power the Projects provide the participants; participants; and,
- Strong Strong legal provisions.
Except Except for the Prepaid Natural Gas Project No. No.1, Authority has take-or-pay 1, the Authority take-or-pay power sales, natural gas sales and transmission service contracts contracts which unconditionally Participants to pay for the cost of operating and unconditionally require the Participants maintaining service, whether or not the Projects are operating or operable. Although maintaining the Projects, including debt service, been court-tested, a municipal utility's authority to enter into such contracts is rooted in the contracts have not been the contracts State's constitutional Participants of the Prepaid Natural Gas Project constitutional provisions for municipal electric utilities. The Participants Project No. No.1, obligated only to purchase and pay for gas delivered by SCPPA at market-based prices 1, however, are obligated prices in accordance with the prepaid gas sale agreements. accordance collaborative efforts of its members, the Authority has developed Through the collaborative comprehensive and dynamic developed a comprehensive dynamic strategic provides a common vision for its members and a platform for joint action. SCPP strategic plan that provides SCPPAA continues continues legislative and regulatory affairs at both the state and federal levels to protect its involvement in legislative represented protect represented assuring resource customers, by assuring environmental stewardship. Backed resource adequacy, excellent reliability, and environmental Backed by one of the strongest financial ratings in the utility industry, SCPPA maintains maintains its traditional traditional role of providing financing for its members' financing generation and transmission projects. In addition to the conventional areas members' natural gas, generation of power, investments are also being made to provide provide customers with more renewable renewable generation generation and energy energy will continue to play an important role for the future. Investment by SCPP Renewable energy efficiency. Renewable SCPPA A members efficiency programs, members in renewable and energy efficiency programs, have totaled nearly $775 million to date. Renewable Projects - SCPPA members Renewable members are committed renewable energy resources in the future. committed to the use of renewable High Winds Energy Center - Energy from the High Winds Energy Center in Solano Solano County, California, is now a part of the participating participating members' resource portfolios. SCPPA members, including members' resource including the cities of Anaheim, Azusa, Colton, Glendale, and Pasadena, contracted Energy (a division of Pacificorp contracted with PPM Energy Pacificorp Holdings) for 30 megawatts (MW) of the 150 MW wind facility. PPM also provided a firming service, which guaranteed SCPPA megawatts SCPPA predetermined rates, regardless members firm delivery of energy, at predetermined regardless of the wind conditions at the site. Although the purchase contracts under the project were between the individual members and PPM, SCPPA played a key individual members key bringing this project to a reality through the issuance of the Renewable RFP and coordinating contract role in bringing contract negotiations. Ameresco Chiquita Energy LLC - SCPP Ameresco Chiquita SCPPA A has entered into a Power Power Purchase Agreement with Ameresco Chiquita Chiquita Energy LLC for 100% 100% of the electric generation landfill gas to energy facility to be located at the generation from a landfill landfill site in Valencia, California (Ameresco Landfill Gas to Energy Project). The SCPPA participants in this include the cities of Burbank and Pasadena. This project will initially be for 8 megawatts project include project megawatts with an option to increase the output by an additional 8 megawatts in the future when additional gas becomes available. 23 23
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN CALIFORNIA AUTHORITY MANAGEMENT'S MANAGEMENT'S DISCUSSION DISCUSSION AND AND ANALYSIS Renewable Renewable Projects (Continued) Milford Wind Corridor Phase I Project - The Milford Wind Corridor Phase I Project Milford Project is a 200 MW wind power project planned to be located project located in Beaver Millard Counties, Utah. The wind power will be delivered Beaver and Millard SCPPA delivered to SCPP A switching station located in Delta, Utah. The tenns Intennountain Power Project's switching through the Intermountain terms of the project is 20 20 commercial operation date of mid 2009. An early buyout option is included in the years with an expected commercial th agreement agreement after the 10 contract year. There is an anticipated present value cost savings of approximately 1 0 th contract approximately $42 compared to a straight purchase million as compared commercial operation date. purchase of the facility on the commercial Similar to other SCPPA projects, the Milford Wind Corridor Phase I project project will be paid for entirely by the participants (LADWP, Burbank, and Pasadena). The project will have no fiscal impact on non-participating participants non-participating decrease in administrative and general expenses. This project exception of a small decrease members, with the exception project is under participant agreements have been finalized. construction and the participant Pebble Springs Wind Project - The Pebble Springs Wind Project, a 98.7 MW wind project, is planned planned to be . located in Gilliam County, Oregon. The wind power scheduled to be delivered to SCPPA through the project power is scheduled project substation by December 31, 2008. SCPPA, along with LADWP, Burbank, and Glendale, will be responsible for 31,2008. transporting and scheduling the energy from the project transporting substation to the Project Participants project substation Participants at the Nevada Nevada Oregon Border (NOB) through Oregon through either an agency agreement with LADWP or other means. The terms tenns of the contract year. The right of first offer would give SCPPA project is 18 years with a right of first offer after the 10th contract project opportunity to purchase the project prior to it being offered for sale to another party. This project is under the opportunity under construction agreements have been finalized. construction and the participant agreements Summary The management of the Authority is responsible for preparing the infonnation management discussion and information in this management analysis, combined financial statements combined financial statements. The financial statements statements and notes to combined statements were prepared according to accounting were principles generally accepted in the United States of America, and they accounting principles fairly portray Authority'S financial position and operating results. The notes to the financial statements are an portray the Authority's integral part of the basic financial statements additional financial information. statements and provide additional infonnation. 24 24
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN CALIFORNIA AUTHORITY COMBINED STATEMENTS COMBINED STATEMENTS OF NET ASSETS ASSETS (DEFICIT) (AMOUNTS (AMOUNTS IN THOUSANDS) IN THOUSANDS) JUNE 30, 30, 2008 2008 2007 ASSETS ASSETS Noncurrent assets Noncurrent assets Net utility plant $ $ 1,009, 331 1,009,331 $ 1,006,994 1,006,994 Investments Investments - restricted 493,557 493, 557 476,977 Investments Investments - unrestricted 65, 65,062062 79,541 Advance Advance to IP IPAA - restricted 11, 550 11,550 11,550 11,550 Advances capacity and energy, Advances for capacity energy, net -- restricted restricted 12, 381 12,381 13,638 13,638 Deferred Deferred debits - 24,515 24,515 Unamortized debt Unamortized debt expenses expenses 19, 940 19,940 14,801 Prep aid and other Prep other assets 482, 482,291291 87 Total noncurrent assetsassets 2,094, 2,094,112112 1,628,103 1,628,103 assets Current assets Cash and cash equivalents Cash restricted equivalents - restricted 185, 185,709709 116,782 116,782 Cash Cash and cash equivalents unrestricted equivalents - unrestricted 44, 291 44,291 32,958 32,958 receivable Interest receivable 6, 541 6,541 6,292 6,292 Accounts receivable Accounts receivable 7.20, 168 0,168 8,308 Materials Materials and supplies 20, 416 20,416 19,963 19,963 Prep aid and and other other assets 19, 163 19,163 4,136 4,136 Total current assets 296, 288 296,288 188,439 188,439 Total assets $ 2,390, 2,390,400400 $ 1,816,542 1,816,542 LIABILITIES Noncurrent liabilities Noncurrent Long-term Long-term debtdebt $ 2,231, 2,231,746746 $ 1,721,735 1,721,735 Notes payable 48, 219 48,219 54,106 54,106 Advances Advances from participants participants 30, 296 30,296 66,647 66,647 noncurrent liabilities Total noncurrent liabilities 2,310, 2,310,261261 1,842,488- ' 1,842,488 liabilities Current liabilities Debt due within one year 84, 835 84,835 78,015 78,015 Notes payable due withinwithin oneone year 6, 176 6,176 5,988 5,988 Advances Advances from participants participants duedue within within one year 41, 41,675675 33,027 33,027 Accrued interest Accrued interest 33, 587 33,587 24,228 24,228 Accounts Accounts payable and accruals and accruals 47, 47,284284 41,185 Accrued property tax Accrued property 7, 191 7,191 8,694 liabilities Total current liabilities 220, 220,748748 191,137 191,137 liabilities Total liabilities 2,531, 2,531,009009 2,033,625 2,033,625 ASSETS (DEFICIT) NET ASSETS capital assets, net Invested in capital Invested related debt and net of related and advances participants advances from participants (1,236, (1,236,053053)) (742,312) (742,312) Restricted net assets Restricted (deficit) assets (deficit) 996, 901 996,901 429,686 429,686 Unrestricted net assets (deficit) Unrestricted (deficit) 98, 543 98,543 95,543 95,543 Total net assets (deficit) (deficit) (140, 609) (140,609) (217,083) (217,083) Total liabilties liabilties and net assets (deficit) (deficit) $ 2,390, 2,390,400400 $$ 1,816,542 1,816,542 See accompanying accompanying notes, notes. 25 25 See accompanying notes. 25
SOUTHERN CALIFORNIA PUBLIC POWER SOUTHERN POWER AUTHORITY STATEMENTS OF REVENUES, COMBINED STATEMENTS COMBINED AND CHANGES EXPENSES AND REVENUES, EXPENSES CHANGES IN NET ASSETS ASSETS (DEFICIT) (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) YEAR ENDED JUNE 30, 2008 2007 2007 Operating revenues revenues electric energy Sales of electric energy $ 332,646 $ 263,888 Sales of transmission services 109,384 109,384 112,964 112,964 natural gas Sales of natural gas 26,779 13,153 13,153 Total operating operating revenues 468,809 468,809 390,005 Operating expenses Operations Operations and maintenance maintenance 230,013 203,135 Depreciation, Depreciation, depletion and amortization 69,341 67,586 67,586 Amortization of nuclear fuel Amortization ofnucJear 8,059 8,059 8,702 8,702 Decommissioning Decommissioning 11,780 11,780 11,779 11,779 Total operating exp expenses enses 319,193 291,202 (loss) Operating income (loss) Operating 149,616 149,616 98,803 operating revenues (expenses) Non operating (expenses) Investment income 32,956 32,956 33,622 33,622 Debt expense expense (108,062) (108,062) (113,028) (113,028) Net non operating (expenses) operating revenues (expenses) (75,106) (75,106) (79,406) (79,406) (deficit) Change in net assets (deficit) 74,510 74,510 19,397 19,397 (deficit) - beginning of year Net assets (deficit) (217,083) (217,083) (246,532) (246,532) Net contributions by participants participants 1,964 1,964 10,052 10,052 Net assets (deficit) (deficit) - end of year $ (140,609) (140,609) $$ (217,083) (217,083) 26 26 See accompanying Se accompanyingnotes. acomanyig notes. ntes
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY POWER AUTHORITY STATEMENTS OF CASH FLOWS (AMOUNTS COMBINED STATEMENTS (AMOUNTS IN THOUSANDS) THOUSANDS) See accompanying notes. accompanyingnotes. 27 See accompanying notes. 27
YEAR YEAR ENDED JUNE 30, 2008 2007 activities Cash flows from operating aetivities Receipts participants Reeeipts from partieipants $ 393,905 $ 347,735 347,735 Receipts from sale of oil and gas Reeeipts 19,399 19,399 18,335 18,335 managers Payments to operating managers (189,572) (189,572) (179,832) (179,832) Other Other disbursements receipts disbursements and receipts 7,657 7,657 7,803 Net cash flows from operating activities 231,389 194,041 Cash flows from noncapital financing activities act ivit ies (withdrawals) by participants, net Advances (withdrawals) Advances 4,756 4,756 25,321 Cash flows from capital financing activities plant, net Additions to plant, net (94,212) (94,212) (100,105) (100,105) Prepaid natural gas gas (480,648) (480,648) Debt interest payments interest payments (111,042) (111,042) (91,880) (91,880) Proceeds from sale sale of of bonds 707,134 707,134 306,792 defeasance of revenue Payment for defeasance revenue bonds (125,950) (125,950) (219,059) (219,059) Transfer escrow Transfer of funds from escrow 10,039 10,039 6,535 Principal payments on debt (79,615) (79,615) (75,677) Payment for bond issue costs costs (8,092) (8,092) (2,125) (2,125) financing activities capital and related financing Net cash used for capital (182,386) (182,386) (175,519) (175,519) investing activities Cash flows from investing activities investments Interest received on investments 22,783 22,783 21,862 21,862 Purchases of investments Purchases investments (373,958) (373,958) (224,572) (224,572) Proceeds from sale/maturity of investments investments 377,676 377,676 227,829 227,829 investing activities provided by (used for) investing Net cash provided activities 26,501 25,119 25,119 Net increase (decrease) in cash and cash increase (decrease) cash equivalents equivalents 80,260 80,260 68,962 Cash and cash equivalents, equivalents, beginning beginning of year 149,740 149,740 80,778 equivalents, end of Cash and cash equivalents, of year $ 230,000 $$ 149,740 149,740 Reconciliation of operating Reconciliation operating income (loss) to net provided by operating activities cash provided Operating income (loss) income (loss) $ 149,616 $$ 98,803 reconcile operating income (loss) Adjustments to reconcile (loss) to net cash cash provided provided by operating by operating activities Depreciation Depreciation 69,341 67,586 67,586 Decommissioning Decommissioning 11,780 11,780 11,779 11,779 Advances for capacity and Advances and energy 2,629 2;629 2,583 2,583 Amortization of nuclear Amortization nuclear fuel 8,059 8,059 8,702 8,702 Changes in assets and liabilities liabilities Accounts receivable Accounts receivable (13,316) (13,316) 5,069 Accounts payable and accruals Accounts payable accruals 9,654 9,654 845 845 Other Other (6,374) (6,374) (1,326) (1,326) operating activities provided by operating Net cash provided activities $ 231,389 $$ 194,041, 194,041, Cash Cash and cash equivalents equivalents as stated in the Combined Statements of Net Assets Statements (Deficit) Assets (Deficit) Cash and cash equivalents equivalents - restricted $ 185,709 185,709 $$ 116,782 116,782 Cash and cash equivalents unrestricted equivalents - unrestricted 44,291 44,291 32,958 32,958
$$ 230,000 230,000 $$ 149,740 149,740 28 28 notes.
accompanying notes. See accompanying
SOUTHERN SOUTHERN CALIFORNIA CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY COMBINING COMBINING STATEMENTS STATEMENTS OF NET ASSETS ASSETS (DEFICIT) JUNE 30, 2008 2008 (AMOUNTS (AMOUNTS IN THOUSANDS) THOUSANDS) GENERATION GENERATION Ormai Onnat Hoover Magnolia Geothermal Geothennal Palo Verde Uprating Uprating San Juan Power Power Energy ASSETS Noncurrent Noncurrent assets Net utility plant plant $ 122,974 122,974 $$- $ 77,463 $ 280,668 $$ Investments Investments - restricted restricted 163,930 163,930 1,068 1,068 21,322 21,322 48,176 Investments Investments - unrestricted unrestricted 64,502 560 560 Advance Advance to IPA - restricted Advances for capacity capacity and energy, energy, net - restricted 12,381 12,381 Deferred Deferred debit Unamortized Unamortized debt expenses expenses 494 176 1,181 3,264 3,264 Prep Prep aid and other assets - - 64 - Total noncurrent assets assets 351,900 14,185 14,185 100,030 100,030 332,108 332,108 Current assets Cash and cash equivalents - restricted 15,519 2,450 16,860 16,860 25,389 - Cash and cash equivalents - unrestricted 7,806 172 7,017 8,771 1,684 1,684 Interest receivable Interest receivable 1,676 88 14 721 3 Accounts Accounts receivable receivable 3,824 34 900 5,024 - Due from other other project - restricted M at erials and sup Materials p lies supplies 7,392 7,392 - 3,880 9,144 9,144 Prepaid and other assets 149 1,257 362 831 - Total current assets 36,366 3,921 29,033 49,880 1,687 1,687 Total assets $388,266
$ 388,266 $ 18,106 18,106 129,063
$ 129,063 $ 381,988 381,988 $ 1,687 1,687 LIABILITIES LIABILITIES Noncurrent Noncurrent liabilities Long-term Long-tenn debtdebt $ 78,175 $ 14,890 14,890 150,942
$ 150,942 $$ 344,981 344,981 $$ -
Notes payable payable 46,768 - - 1,451 Advances Advances from participants participants - - - 34 34 Total noncurrent liabilities 124,943 14,890 14,890 150,942 150,942 346,466 346,466 Current liabilities Debt due within one year 12,250 1,425 10,550 10,550 7,930 payable due within Notes payable within one year 4,998 - - 1,178 Advances from participants Advances participants due within one year - - - 22,090 22,090 Accrued interest Accrued interest 420 206 4,133 9,003 - Accounts Accounts payable payable and accruals accruals 11,654 65 7,504 4,752 4,752 1,684 1,684 Accrued Accrued property property tax 1,602 1,602 - 233 - - Due to other other projects projects Total current liabilities 30,924 1,696 22,420 22,420 44,953 1,684 1,684 Total liabilities 155,867 16,586 16,586 173,362 173,362 391,419 391,419 1,684 1,684 NET NET ASSETS (DEFICIT) (DEFICIT) Invested in capital assets, net of related debt andand advances participants advances from participants 33,043 - (82,848) (65,227) - Restricted net assets (deficit) (deficit) 128,847 810 34,062 36,812 36,812 - Unrestricted net assets (deficit) (deficit) 70,509 710 4,487 18,984 18,984 3 Total net assets (deficit) (deficit) 232,399 1,520 (44,299) (9,431) (9,431) 3 Total liabilties and net assets (deficit) Totalliabilties (deficit) $$ 388,266 $ 18,106 18,106 $ 129,063 129,063 $$381,988 381,988 $ 1,687 1,687 29 accompanyingnotes. See accompanying
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLICPUBLIC POWER AUTHORITY AUTHORITY COMBINING STATEMENTS OF NET ASSETS COMBINING STATEMENTS ASSETS (DEFICIT) JUNE JUNE 30, 2007 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) GENERATION GENERATION Ormat Onnat Hoover M agnolia Magnolia Geothermal Geothennal Palo Verde Verde Uprating Uprating San Juan Power Energy ASSETS ASSETS Noncurrent assets Noncurrent Net utility utility plant plant $ 118,778 118,778 $S $ 54,434 $ 288,640 $ Investments - restricted Investments 166,233 166,233 2,255 2,255 38,089 45,363 Investments Investments - unrestricted unrestricted 78,263 78,263 1,278 1,278 Advance to IP IPA A - restricted restricted Advances for capacity and energy, energy, net - restricted 13,638 - - Deferred Deferred debit - - 22,615 1,900 1,900 Unamortized debt expenses 624 218 1,404 3,580 3,580 Prepaid and other assetsassets - - 87 87 - Total noncurrent Total assets noncurrent assets 363,898 17,389 116,629 116,629 339,483 Current Current assets assets equivalents - restricted Cash and cash equivalents 6,697 620 9,180 9,180 24,497 24,497 Cash and cash equivalents equivalents - unrestricted 7,784 106 106 3,924 3,924 3,452 3,452 1,597 1,597 receivable Interest receivable 1,701 31 91 368 368 9 Accounts receivable receivable 686 673 2,839 2,839 Due from other project - restricted Materials and supplies supplies 6,537 - 3,519 3,519 9,907 9,907 Prepaid and other assetsassets 176 1,411 1,411 349 1,648 - Total current current assets assets 23,581 23,581 2,168 2,168 17,736 42,711 1,606 1,606 Total assets assets $ 387,479 19,557- .
$ 19,557 $ 134,365 $$382,194 382,194 $ 1,606 1,606 LIABILITIES Noncurrent Noncurrent liabilities liabilities Long-term debt Long-term debt $ 88,373 15,879
$ 15,879 $$161,540 161,540 $353,150
$353,150 $ -
Notes payable payable 51,372 - - 2,734 2,734 Advances from participants participants - - 32,000 32,000 5,304 5,304 Total noncurrent noncurrent liabilities 139,745 139,745 15,879 193,540 193,540 361,188 Current Current liabilities liabilities Debt due within one year 11,895 11,895 1,370 1,370 10,050 7,450 7,450 Notes payable payable due within one year 4,756 4,756 - - 1,232 1,232 Advances from participants participants due within one year - - 14,218 14,218 Accrued interest mterest 316 316 220 4,384 3,837 3,837 Accounts payable payable and accruals 18,175 18,175 120 3,553 3,553 2,020 2,020 1,604 1,604 Accrued property tax 1,800 1,800 - 200 200 - Due to other projects Total current current liabilities 36,942 1,710 1,710 18,187 28,757 1,604 1,604 Total liabilities 176,687 17,589 211,727 389,945 1,604 1,604 (DEFICIT) NET ASSETS (DEFICIT) Invested in cap capital ital assets, assets, net of related debt and and advances from participants participants 19,135 - (115,751) (115,751) (62,980) (62,980) - Restricted net assets (deficit) (deficit) 112,415 699 33,590 42,805 - Unrestricted Unrestricted net assets (deficit) 79,242 1,269 1,269 4,799 12,424 2 Total net assets (deficit) 210,792 1,968 1,968 (77,362) (7,751) (7,751) 2 Total liabilties and net assets (deficit) Totalliabilties $ 387,479 19,557
$ 19,557 $ 134,365 382,194
$ 382,194 $ 1,606 1,606 30 30 See accompanying accompanyingnotes.notes.
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY COMBINING STATEMENTS COMBINING STATEMENTS OF NET ASSETS ASSETS (DEFICIT) JUNE 30, 2008 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) TRANSM ISSION TRANSMISSION Southern Southern Transmission Transmission Mead- M ead-Mead-System Phoenix Adelanto ASSETS Noncurrent assets assets Net utility plant plant $ 265,434 265,434 $S 36,936 36,936 S$ 117,532 117,532 Investments Investments - restricted restricted 41,319 41,319 7,593 25,406 25,406 Investments Investments - unrestricted unrestricted Advance Advance to IPA - restricted 11,550 11,550 Advances Advances for capacity and energy, energy, net - restricted Deferred Deferred debit Unamortized debt expenses Unamortized expenses 5,256 619 619 2,045 Prepaid and other assets Total noncurrent assets assets 323,559 45,148 144,983 144,983 Current assets Cash and cash equivalents equivalents - restricted 43,387 43,387 5,779 5,779 12,238 12,238 Cash and cash equivalents equivalents - unrestricted 4,396 4,396 815 815 527 527 Interest Interest receivable receivable 38 266 266 844 844 Accounts Accounts receivable receivable 5,518 5,518 685 Due from other other project - restricted 5,807 15,968 15,968 Materials and supplies Materials supplies Prepaid Prep aid and other assets Total current assets 53,339 12,667 30,262 Total assets assets $ 376,898 $ 57,815 $ 175,245 LIABILITIES Noncurrent liabilities Long-term Long-term debt $ 714,407 $$ 57,497 $ 183,222 183,222 Notes payable Advances Advances from participants Total noncurrent liabilities liabilities 714,407 57,497 183,222 183,222 Current liabilities Debt due within one year 31,075 31,075 3,425 3,425 11,400 Notes payable due within one year Advances from participants Advances participants due within one year Accrued Accrued interest interest 7,169 7,169 1,015 1,015 2,894 2,894 Accounts Accounts payable payable and accruals accruals 13,811 13,811 1,405 1,405 2,330 2,330 Accrued property Accrued property tax Due to other other projects Total current liabilities 52,055 52,055 5,845 5,845 16,624 Total liabilities 766,462 766,462 63,342 199,846 199,846 NET ASSETS (DEFICIT) (DEFICIT) Invested in capital assets, net of related debt and and advances from participants advances participants (474,791) (474,791) (23,367) (23,367) (75,045) (75;045) Restricted net assets (deficit) (deficit) 89,125 89,125 17,618 49,237 Unrestricted net assets (deficit) Unrestricted (deficit) (3,898) 222 222 1,207 Total Total net assets (deficit) (389,564) (389,564) (5,527) (5,527) (24,601) (24,601) Total liabilties and net assets (deficit) Totalliabilties (deficit) S$ 376,898 376,898 $ 57,815 $ 175,245 See accompanying accompanying notes. notes. 31 31 See accompanying notes. 31
CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN CALIFORNIA SOUTHERN AUTHORITY STATEMENTS OF NET ASSETS COMBINING STATEMENTS COMBINING ASSETS (DEFICIT) JUNE 30, 2007 2007 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) TRANSMISSION TRANSM ISSION Southern Transmission Mead-Mead- M ead-Mead-System Phoenix Phoenix Adelanto Adelanto ASSETS ASSETS Noncurrent assets Noncurrent Net utility plant $ 284,142 284,142 $ 37,409 37,409 $$ 122,032 122,032 Investments - restricted 58,681 7,399 22,628 unrestricted Investments - unrestricted Advance to IPA IP A - restricted 11,550 11,550 Advances for capacity and energy, energy, net - restricted restricted Deferred debit debit Unamortized debt expenses Unamortized 5,937 705 2,333 Prepaid and other assets assets noncurrent assets Total noncurrent 360,310 360,310 45,513 146,993 Current Current assets assets equivalents - restricted Cash and cash equivalents restricted 24,622 5,936 15,683 Cash and cash equivalents equivalents - unrestricted unrestricted 4,055 380 380 650 650 receivable Interest receivable 20 20 275 836 836 Accounts receivable 1,373 Due from other project - restricted restricted 5,396 14,840 14,840 Materials and supplies Prepaid and other assets assets Total current current assets assets 30,070 11,987 11,987 32,009 32,009 Total assets assets $ 390,380 390,380 $ 57,500 $ 179,002 LIABILITIES LIABILITIES Noncurrent Noncurrent liabilities Long-term debt $$ 735,641 $ 60,340 60,340 $$ 192,959 192,959 Notes payable participants Advances from participants Total noncurrent noncurrent liabilities 735,641 60,340 192,959 192,959 Current Current liabilities liabilities Debt due within one year . 30,950 30,950 3,350 3,350 11,150 11,150 Notes payable due within one year Advances from participants participants due within one year interest Accrued interest 9,537 1,001 2,884 2,884 Accounts payable and accrualsaccruals 6,616 6,616 874 874 2,221 Accrued property tax Due to other projects Total current current liabilities 47,103 47,\03 5,225 16,255 16,255 Total liabilities 782,744 782,744 65,565 65,565 209,214 209,214 NET ASSETS (DEFICIT) (DEFICIT) assets, net of related debt arid Invested in capital assets, arid advances from participants participants (476,512) (476,512) (25,576) (79,744) (79,744) Restricted net assets (deficit) (deficit) 85,335 18,003 51,102 51,\02 Unrestricted net assets (deficit) assets (deficit) (1,187) (1,187) (492) (1,570) (1,570) Total net assets (deficit) (deficit) (392,364) (392,364) (8,065) (8,065) (30,212) Total liabilties and net assets Totalliabilties (deficit) assets (deficit) $ 390,380 390,380 $$ 57,500 $ 179,002 179,002 32 accompanying notes. See accompanying notes. 32 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN AUTHORITY COMBINING COMBINING STATEMENTS STATEMENTS OF NET ASSETS ASSETS (DEFICIT) JUNE 30, 2008 (AMOUNTS (AMOUNTS IN THOUSANDS) THOUSANDS) NATURAL NATURAL GAS Prepaid Pinedale Barnett Natural Gas ASSETS ASSETS Noncurrent assets assets Net utility plant $ 45,216 45,216 $ 63,108 63,108 $ Investments Investments - restricted 15,126 15,126 45,013 45,013 10,887 10,887 Investments Investments - unrestricted Advance Advance to IPAIP A - restricted Advances Advances for capacity energy, net - restricted cap acity and energy, restricted Deferred Deferred debit Unamortized Unamortized debtdebt expenses expenses 1,273 1,273 1,299 4,333 Prepaid and other Prepaid assets other assets - - 482,227 Total Total noncurrent assets 61,615 109,420 497,447 497,447 Current assets Cash and cash equivalents equivalents - restricted 16,307 16,307 7,367 7,367 20 20 Cash and cash equivalents equivalents - unrestricted unrestricted 12,129 12,129 709 265 Interest receivable receivable 40 102 102 44 Accounts Accounts receivable 831 3,352 3,352 Due from other project - restricted Materials Materials and supplies Prep aid and other assets other assets 552 - 16,012 16,012 Total assets Total current assets 29,859 29,859 11,530 16,341 Total Total assets $ 91,474 91,474. $ 120,950 $ 513,788 LIABILITIES Noncurrent liabilities Long-term Long-term debt debt $ 40,038 $ 94,242 $$ 509,525 Notes payable Advances Advances from participants participants 19,096 19,096 11,166 - Total noncurrent liabilities 59,134 105,408 509,525 Current liabilities Debt due within one year 2,015 2,015 4,765 Notes payable due within one year Advances participants due within one year Advances from participants 19,149 19,149 436 - Accrued interest Accrued interest 831 1,959 4,263 Accounts Accounts payable payable and accruals accruals 2,543 2,543 1,536 1,536 - Accrued Accrued property property tax 5,356 - Due to other other projects Total liabilities Total current liabilities 29,894 29,894 8,696 4,263 Total Total liabilities 89,028 114,104 513,788 NET ASSETS (DEFICIT) (DEFICIT) Invested in capital assets, net of related debt and Invested and advances participants advances from participants (14,500) (14,500) (45,765) (45,765) (487,553) Restricted net assets (deficit) (deficit) 11,879 50,085 487,288 487,288 Unrestrict~ Unrestricted net assets (deficit) (deficit) 5,067 2,526 2,526 265 Total Total net assets (deficit) (deficit) 2,446 6,846 6,846 - Total liabilties and net assets (deficit) Totalliabilties (deficit) $ 91,474 91,474 $ 120,950 $ 513,788 accompanying notes. See accompanying notes. 33
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN CALIFORNIA AUTHORITY COMBINING STATEMENTS COMBINING STATEMENTS OF NET ASSETS ASSETS (DEFICIT) JUNE 30, 2007 (AMOUNTS (AMOUNTS IN THOUSANDS)THOUSANDS) NATURAL NATURAL GAS Pinedale Barnett Barnett ASSETS ASSETS Noncurrent Noncurrent assets assets Net utility plant $$ 46,475 46,475 $$ 55,084 55,084 Investments Investments - restricted restricted 64 64 Investments Investments - unrestricted unrestricted Advance to IP IPA A - restricted Advances for capacity and energy,energy, net - restricted Deferred debit Deferred debit Unarnortized debt expenses Unamortized Prepaid and other assets Total noncurrent noncurrent assets 46,539 55,084 55,084 Current Current assets assets Cash and cash equivalents - restricted restricted 18,255 18,255 1,401 Cash and cash equivalents - unrestricted unrestricted 10,835 10,835 175 Interest Interest receivable 8 Accounts receivable receivable 1,680 1,680 1,057 Due from other project - restricted Materials and supplies Prep aid and other assets assets 552 552 Total'current Total 'current assets 31,330 31,330 2,633 Total assets assets $ 77,869 77,869 $ 57,717 57,717 LIABILITIES LIABILITIES Noncurrent liabilities Noncurrent Long-term debt $ 26,900 $ 44,400 Notes payable participants Advances from participants 19,326 19,326 10,017 10,017 Total noncurrent liabilities 46,226 46,226 54,417 54,417 Current Current liabilities Debt due within one year 1,300 1,300 500 500 Notes payable payable due within one year Advances Advances from participants participants due within one year 18,672 18,672 137 137 Accrued interest interest 139 139 216 216 Accounts payable payable and accruals accruals 4,747 4,747 1,255 Accrued property tax 6,694 Due to other projects projects Total current current liabilities 31,552 2,108 Total liabilities 77,778 56,525 NET ASSETS ASSETS (DEFICIT) Invested Invested in cap capital ital assets, assets, net of related debt and advances from participants participants (1,051) (1,051) 167 Restricted (deficit) Restricted net assets (deficit) 63 63 1,048 Unrestricted Unrestricted net assets (deficit) (deficit) 1,079 1,079 (23) Total net assets (deficit) (deficit) 91 1,192 Total liabilties and net assets (deficit) Totalliabilties (deficit) $$ 77,869 $$ 57,717 57,717 34 34 See accompanying accompanyingnotes.notes. 34 See accompanying notes.
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY COMBINING COMBINING STATEMENTSSTATEMENTS OF NET ASSETS ASSETS (DEFICIT) JUNE 30, 20082008 (AMOUNTS (AMOUNTS IN THOUSANDS)THOUSANDS) MISCELLANEOUS MISCELLANEOUS Multiple Projects' Projects' Project Project Stabilization Stabilization Total Fund Fund Fund Total Eliminations Combined ASSETS Noncurrent Noncurrent assets Net utility plant plant $$62 $ - $1,009,331
$1,009,331 $ $1,009,331
$1,009,331 Investments Investments - restricted 63,252 63,252 50,465 493,557 493,557 493,557 Investments Investments - unrestricted - 65,062 65,062 65,062 Advance Advance to IPA - restricted 11,550 11,550 11,550 11,550 Advances for capacity Advances energy, net - restricted cap acity and energy, 12,381 12,381 Deferred Deferred debit Unamortized debt expenses Unamortized expenses 19,940 19,940 19,940 Prepaid Prep aid and other assets other assets - 482,291 482,291 Total noncurrent assets assets 63,252 50,465 2,094,112 - 2,094,112 2,094,112 Current assets Cash and cash equivalents equivalents - restricted 4,448 35,945 35,945 185,709 - 185,709 185,709 equivalents - unrestricted Cash and cash equivalents unrestricted - - 44,291 44,291 - 44,291 44,291 Interest Interest receivable receivable 2,325 460 6,541 6,541 - 6,541 Accounts Accounts receivable receivable - - 20,168 - 20,168 20,168 project - restricted Due from other project restricted - 21,775 21,775 (21,775)
(21,775) - Materials Materials and supplies - 20,416 20,416 20,416 20,416 Prepaid and other Prepaid assets other assets - - 19,163 19,163 19,163 Total current assets assets 6,773 6,773 36,405 318,063 318,063 (21,775) 296,288 Total assets $ 70,025 $ 86,870 $2,412,175
$2,412,175 $ (21,775)
(21,775) $2,390,400
$2,390,400 LIABILITIES Noncurrent liabilities Noncurrent Long-term Long-term debt $ 43,827 $ - $2,231,746
$2,231,746 $ $2,231,746
$2,231,746 Notes payable - 48,219 48,219 48,219 48,219 Advances participants Advances from participants - 30,296 30,296 30,296 Total noncurrent liabilities 43,827 2,310,261 2,310,261 2,310,261 Current liabilities Debt due within one year - 84,835 84,835 84,835 Notes payable due within one year 6,176 6,176 Advances from participants due within one year Advances - 41,675 41,675 Accrued interest Accrued interest 1,694 1,694 33,587 33,587 33,587 Accounts payable and accruals - 47,284 47,284 47,284 Accrued property tax - 7,191 7,191 7,191 Due to other projects projects 21,775 21,775 21,775 (21,775) -
current liabilities Total current liabilities 23,469 23,469 242,523-242,523' (21,775) 220,748 Total liabilities liabilities 67,296 67,296 2,552,784 2,552,784 (21,775) 2,531,009 2,531,009 NET ASSETS (DEFICIT) Invested cap ital assets, net of related debt and Invested in capital and advances from participants participants - (1,236,053) (l,236,053) (1,236,053) (l,236,053) Restricted net assets (deficit) Restricted (deficit) 4,268 86,870 996,901 996,901 996,901 Unrestricted net assets (deficit) Unrestricted (deficit) (1,539) (1,539) - 98,543 98,543 Total net assets (deficit) (deficit) 2,729 86,870 (140,609). , (140,609) (140,609) (140,609) Total liabilties and net assets (deficit) Totalliabilties $ 70,025 70,025 $ 86,870 $2,412,175
$2,412,175 $ (21,775) $2,390,400
$2,390,400 See accompanying accompanyingnotes. notes, 35
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF NET ASSETS COMBINING STATEMENTS ASSETS (DEFICIT) JUNE 30, 2007 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) MISCELLANEOUS MISCELLANEOUS Multiple Projects' Projects' Project Project Stabilization Stabilization Total Fund Fund Total Eliminations Combined ASSETS Noncurrent assets Noncurrent Net utility plant plant $ - $$ - $1,006,994
$1,006,994 $ $1,006,994
$1,006,994 Investments - restricted 66,296 69,969 476,977 476,977 476,977 Investments - unrestricted - - 79,541 79,541 Advance to IPAIP A - restricted restricted 11,550 11,550 11,550 capacity and energy, Advances for capacity energy, net - restricted restricted 13,638 13,638 13,638 Deferred debit 24,515 24,515 24,515 Unamortized debt expenses Unamortized 14,801 14,801 Prepaid and other other assets assets 87 87 87 87 Total noncurrent assets 66,296 66,296 69,969 1,628,103 1,628,103 1,628,103 1,628,103 Current assets Current assets cash equivalents Cash and cash equivalents - restricted restricted 8 9,883 116,782 116,782 116,782 116,782 Cash and cash equivalents equivalents - unrestricted unrestricted - - 32,958 32,958 32,958 Interest receivable receivable 2,163 790 6,292 6,292 6,292 Accounts receivable - - 8,308 8,308 8,308 Due from other project project - restricted restricted - - 20,236 (20,236) -
Materials and supplies - - 19,963 19,963 19,963 Prepaid and other other assets assets - - 4,136 4,136 4,136 Total current current assets assets 2,171 2,171 10,673 208,675 (20,236) 188,439 188,439 Total assets assets $ 68,467 68,467 $ 80,642 $1,836,778
$1,836,778 $$ (20,236) $1,816,542
$1,816,542 LIABILITIES LIABILITIES Noncurrent Noncurrent liabilities Long-term debt $ 42,553 $ - $1,721,735
$1,721,735 $ $1,721,735
$1,721,735 Notes payable - 54,106 54,106 Advances from participants participants - - 66,647 66,647 Total noncurrent noncurrent liabilities 42,553 42,553 - 1,842,488 1,842,488 1,842,488 1,842,488 Current Current liabilities Debt due within one year - - 78,015 78,015 78,015 payable due within one year Notes payable - 5,988 5,988 5,988 participants due within one year Advances from participants - - 33,027 - 33,027 Accrued interest interest 1,694 1,694 - 24,228 24,228 accruals Accounts payable and accruals - - 41,185 41,185 Accrued property tax - - 8,694 8,694 8,694 8,694 Due to other projects 20,236 - 20,236 20,236 (20,236) -
Total current current liabilities 21,930 - 211,373 (20,236) 191,137 191,137 Total liabilities 64,483 - 2,053,861 (20,236) (20,236) 2,033,625 NET ASSETS ASSETS (DEFICIT) Invested in capital assets, net of related related debt and advances advances from participants participants - - (742,312) (742,312) - (742,312) Restricted net assets (deficit) (deficit) 3,984 80,642 80,642 429,686 - 429,686 429,686 Unrestricted net assets (deficit) Unrestricted (deficit) - - 95,543 95,543 - 95,543 Total net assets (deficit) 3,984 80,642 80,642 (217,083) (217,083) - (217,083) (217,083) Total (deficit) liabilties and net assets (deficit) Totalliabilties $$ 68,467 $ 80,642 80,642 $1,836,778
$1,836,778 $ (20,236)
(20,236) $1,816,542
$1,816,542 36 36 See accompanying accompanying notes. notes.
36 See accompanying notes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN AUTHORITY COMBINING STATEMENTS OF REVENUES, COMBINING STATEMENTS REVENUES, EXPENSES EXPENSES AND AND CHANGES CHANGES IN NET ASSETS ASSETS (DEFICIT) FOR THE YEAR ENDED ENDED JUNE 30, 2008 THOUSANDS) (AMOUNTS IN THOUSANDS) (AMOUNTS GENERATION GENERATION Hoover Magnolia Ormat Onnat Palo Verde Uprating UErating San Juan Power Geothermal Geothennal Operating revenues revenues Sales Sales of electric energy S
$ 94,732 $ 2,352 S
$ 102,735 $ 128,433 128,433 $ 4,394 Sales oftransmission Sales of services transmission services Sales of natural gas Total operating revenues revenues 94,732 2,352 2,352 102,735 102,735 128,433 128,433 4,394 Operating expenses expenses Operations maintenance Operations and maintenance 41,303 2,887 2,887 49,518 49,518 105,218 105,218 4,431 Depreciation, depletion Depreciation, depletion and and amortization amortization 18,793 10,782 10,782 11,264 11,264 Amortization of nuclear fuel Amortization fuel 8,059 - -
Decommissioning Decorrnrus s ion ing 8,667 8,667 - 3,113 - - Total operating expenses expenses 76,822 2,887 2,887 63,413 116,482 116,482 4,431 Operating income (loss) income (loss) 17,910 (535) (535) 39,322 11,951 (37) (37) operating revenues (expenses) Non operating Investment income 10,264 186 2,433 3,287 38 38 Debt expense expense (6,567) (6,567) (99) (99) (8,692) (8,692) (16,918) (16,918) - Net non operating operating revenues revenues (expenses) 3,697 3,697 87 (6,259) (6,259) (13,631) (13,631) 38 38 Change in net assets (deficit) (deficit) 21,607 (448) 33,063 (1,680) (1,680) I (deficit)-- beginning Net assets (deficit) beginning of year 210,792 1,968 1,968 (77,362) (77,362) (7,751) (7,751) 2 Net assets (deficit) - end of year $ 232,399 $ 1,520 $ (44,299) {44,2992 $$ 431 2 (9,431) {9, $ 3 See accompanying accompanyingnotes. notes. 37 37 See accompanyin~z notes. 37
SOUTHERN CALIFORNIA PUBLIC POWER SOUTHERN POWER AUTHORITY COMBINING COMBINING STATEMENTS STATEMENTS OF REVENUES, EXPENSES AND REVENUES, EXPENSES AND CHANGES CHANGES IN (DEFICIT) ASSETS (DEFICIT) NET ASSETS FOR THE YEAR ENDED ENDED JUNE 30, 2007 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) GENERATION GENERATION Hoover Magnolia Ormat Onnat Palo Verde Upmting UEratin/ii San Juan Power Geothermal Geothennal Operating revenues revenues Sales of electric energy Sales energy $ 66,398 $ 2,345 $ 82,857 $ 108,473 108,473 $ 3,815 3,815 Sales Sales of transmission services Sales of natural gas Sales Total operating revenues revenues 66,398 2,345 82,857 108,473 108,473 3,815 3,815 Operating expenses expenses Operations maintenance Operations and maintenance 34,557 34,557 2,838 2,838 48,502 87,190 3,935 3,935 Depreciation, depletion Depreciation, depletion and and amortization amortization 18,453 10,573 10,573 11,162 11,162 - Amortization of nuclear fuel Amortization fuel 8,702 - - Decommissioning Decorrnnis s ion ing 8,666 - 3,113 - - Total operating expenses expenses 70,378 2,838 2,838 62,188 98,352 98,352 3,935 3,935 Operating income (loss) income (loss) (3,980) (493) (493) 20,669 10,121 10,121 (120) (120) Non operating operating revenues (expenses) Investment income 11,513 211 2,808 3,170 115 115 expense Debt expense (6,955) (6,955) (145) (145) (9,132) (9,132) (16,601) (16,601) - Net non operating operating revenues revenues (expenses) 4,558 66 (6,324) (13,431) (13,431) 115 115 Change in net assets (deficit) Change (deficit) 578 578 (427) 14,345 (3,310) (5) (5) Net assets (deficit) - beginning beginning of year 210,214 2,395 (91,707) (91,707) (4,441) (4,441) 77 Net assets (deficit) - end of year year $ 210,792 $ 1,968 $ (77,362)
~77,3622 $ (7,751)
~7,7512 $ 2 38 See accompanying accompanying notes.
notes. 38 See accompanyingnotes.
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN CALIFORNIA AUTHORITY COMBINING STATEMENTS OF REVENUES, COMBINING STATEMENTS REVENUES, EXPENSES AND CHANGES EXPENSES AND CHANGES IN NET ASSETS (DEFICIT) NET ASSETS FOR THE YEAR YEAR ENDEDENDED JUNE 30, 2008 2008 THOUSANDS) (AMOUNTS IN THOUSANDS) (AMOUNTS TRANSMISSION TRANSMISSION Southern Transmission Transmission Mead-Mead- Mead-Mead-System S:l:::stern Phoenix Adelanto Adelanto Operating revenues Operating Sales of electric energy energy $ $ $ 7974 7,8 21,757 Sales of transmission services 79,746 7,881 21,757 Sales Sales of natural gas gas 79,746 7,881 21,757 Total operating Total operating revenues revenues 79,746 7,881 21,757 Operating expenses Operating expenses Operations and maintenance Operations maintenance 14,065 1,012 1,012 1,574 1,574 Depreciation, depletion Depreciation, depletion and amortization amortization 18,708 18,708 1,403 4,500 4,500 Amortization Amortization of nuclear nuclear fuel fuiel Decommissioning Decommissioning Total Total operating expenses operating expenses 32,773 32,773 2,415 6,074 Operating income Operating income (loss) 46,973 46,973 5,466 15,683 15,683 Non operating operating revenues (expenses) (expenses) Investment Investment income 3,850 985 1,981 1,981 Debt expense expense (48,023) (3,913) (12,053) Net non operating revenues (expenses) (expenses) (44,173) (2,928) (10,072) Change in net Change net assets (deficit) 2,800 2,538 5,611 5,611 Net assets (deficit) (deficit) - beginning of year year (392,364) (392,364) (8,65 (8,065) (30,212) (30,212) Net assets assets (deficit) - end of year $S 238,564) {389,564} $ 527 {5,527} $ (461 {24,60l} accompanying notes. See accompanying notes. 39 39
SOUTHERN SOUTHERN CALIFORNIA CALIFORNIA PUBLIC POWER POWER AUTHORITY AUTHORITY COMBINING STATEMENTS OF REVENUES, COMBINING STATEMENTS REVENUES, EXPENSES EXPENSES AND AND CHANGES CHANGES IN (DEFICIT) ASSETS (DEFICIT) NET ASSETS FOR THE YEAR ENDED ENDED JUNE 30, 2007 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) TRANSMISSION TRANSMISSION Southern Southern Transmission Mead-Mead- Mead-Mead-System S;tstem Phoenix Phoenix Adelanto Adelanto Operating revenues Sales of electric energy energy $ S $ $ Sales of transmission services services 84,569 84,569 7,248 7,248 21,147 Sales of natural gas Total operating revenues operating revenues 84,569 7,248 7,248 21,147 Operating expenses expenses Operations Operations and maintenance 17,238 17,238 1,094 1,094 1,625 1,625 Depreciation, depletion depletion and and amortization amortization 18,757 18,757 1,403 1,403 4,500 Amortization Amortization ofof nuclear nuclear fuel Decommissioning Deconunissioning Totaloperating expenses Total operating expenses 35,995 2,497 2,497" 6,125 Operating income (loss) 48,574 4,751 15,022 15,022 Non operating revenues (expenses) Non (expenses) Investment Investment income 4,369 757 2,140 Debt expense expense {54,39~ (54,396) ( {4,022} (12,376) {12,376} Net non operating revenues (expenses) (expenses) (50,027) {50,027} (3,265) {3,265} (10,236) {1O,23~ Change in net assets (deficit) (1,453) (1,453) 1,486 1,486 4,786 Net assets (deficit) (deficit) - beginning of year year {390,911) (390,911) {9,55Q (9,551) P4,998} (34,998) Net assets (deficit) (deficit) - end of year $ (392,364) P92,364} $ 8,65) {8,065) $ (30,212) PO,212} 40 accompanying notes. See accompanying notes.
SOUTHERN SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY COMBINING STATEMENTS OF REVENUES, COMBINING STATEMENTS REVENUES, EXPENSES EXPENSES AND CHANGES IN AND CHANGES NET ASSETS ASSETS (DEFICIT) THE YEAR FOR THE YEAR ENDEDENDED JUNE 30, 2008 30,2008 THOUSANDS) (AMOUNTS IN THOUSANDS) (AMOUNTS NATURAL NATURAL GAS GAS Pinedale Pinedale Barnett Barnett Operating revenues Sales of electric energy energy $ - $$ Sales of transmission services services Sales of natural gas 8,933 8,933 17,846 revenues Total operating revenues 8,933 8,933 17,846 Operatingexpens Operating .expenseses maintenance Operations and maintenance 3,334 3,334 6,671 Depreciation, depletion and Depreciation, and amortization amortization 1,611 1,611 2,280 Amortization of nuclear fuel Decommissioning Decorrrniss ioning Total operating expenses expenses 4,945 8,951 Operating income (loss) income (loss) 3,988 8,895 operating revenues (expenses) Non operating (expenses) Investment income 262 459 expense Debt expense (1,895) (1,895) (3,700) operating revenues (expenses) Net non operating (expenses) (1,633) (1,633) - (3,241) (3,241) Change in net assets (deficit) 2,355 2,355 5,654 5,654 Net assets assets (deficit) ofycar (deficit) - beginning of year 91 1,192 1,192 Net assets assets (deficit) (deficit) - end of year $ 2,446 $ 6,846 6,846 See accompanying accompanyingnotes. notes. 41 See accompanying no/es. 41
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN CALIFORNIA AUTHORITY COMBINING STATEMENTS OF REVENUES, COMBINING STATEMENTS EXPENSES AND REVENUES, EXPENSES CHANGES IN AND CHANGES ASSETS (DEFICIT) NET ASSETS FOR THE YEAR ENDED ENDED JUNE 30, 2007 30,2007 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) NATURAL GAS GAS Pinedale Barnett Operating revenues Operating revenues Sales of electric electric energy energy $$ - $$ Sales oftransmission services services Sales of natural natural gas 8,402 4,751 Total operating operating revenues 8,402 4,751 Operating expenses Operating expenses Operations maintenance Operations and maintenance 4,621 1,535 1,535 Depreciation, depletion and Depreciation, amortization amortization 2,237 501 Amortization of nuclear fuel ofnuc1ear Decommissioning Decorrnniss ioning Total operating operating expenses 6,858 2,036 2,036 Operating Operating income (loss) (loss) 1,544 1,544 2,715 2,715 Non operating revenues (expenses) revenues (expenses) Investment income Investment 180 31 Debt expense expense (1,748) {1,748} (1,554) {1,554} Net non operating revenues (expenses) revenues (expenses) (1,568) {1,568} (1,523) {1,523} Change Change in net assets (deficit) (deficit) (24) 1,192 Net assets (deficit) - beginning beginning of year 115 - Net assets (deficit) - end of year end of $S 91 $ 1,192 42 accompanying notes. See accompanying notes. 42 See accompanying notes.
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS COMBINING STATEMENTS OF REVENUES, EXPENSES AND REVENUES, EXPENSES CHANGES IN AND CHANGES NET ASSETS ASSETS (DEFICIT) FOR THE YEAR ENDED ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) MISCELLANEOUS Projects' Projects' Multiple Stabilization Stabilization Total Project Fund Project Fund Combined Combined Operating Operating revenues revenues Sales of electric energy electric energy $ $ $S 332,646 332,646 services of transmission services Sales oftransrnission 109,384 109,384 Sales of natural natural gas 26,779 Total operating operating revenues revenues 468,809 Operating Operating expenses expenses Operations and maintenance Operations maintenance 230,013 230,013 Depreciation, depletion and Depreciation, and amortization amortization 69,341 Amortization of nuclear fuel 8,059 Decommissioning Decommis s ioning 11,780 11,780 Total operating expenses 319,193 Operating income (loss) Operating (loss) 149,616 149,616 Non operating revenues (expenses) (expenses) Investment income Investment 4,947 4,264 32,956 32,956 expense Debt expense (6,202) - (108,062) (108,062) Net non operating revenues (expenses) revenues (expenses) (1,255) (1,255) 4,264 (75,106) Change in net assets (deficit) Change (deficit) (1,255) (1,255) 4,264 74,510 74,510 Net assets (deficit) - beginning beginning of year 3,984 3,984 80,642 (217,083) (217,083) contributions by participants Net contributions - 1,964 1,964 (deficit) - end Net assets (deficit) end of of year $ 2,729 $S 86,870 86,870 $ (140,609)
~140,6092 See accompanying accompanying notes. notes. 43 4
Seacmanyngnoes
SOUTHERN SOUTHERN CALIFORNIA CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF REVENUES, COMBINING STATEMENTS REVENUES, EXPENSES EXPENSES AND AND CHANGES CHANGES IN IN NET ASSETS ASSETS (DEFICIT) FOR THE YEAR ENDED ENDED JUNE 30, 2007 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) MISCELLANEOUS MISCELLANEOUS Projects' Projects' Multiple Multiple Stabilization Stabilization Total Project Fund Fund Combined Operating Operating revenues Sales of electric energy $ $ - $$ 263,888 Sales of transmission services - - 112,964 112,964 Sales of natural gas - 13,153 Total operating revenues - 390,005 Operating expenses Operating expenses . maintenance Operations and maintenance S- 203,135 Depreciation, depletion Depreciation, depletion and and amortization amortization S- 67,586 Amortization of nuclear fuel Amortization 8,702 Decormmissioning Decorrnnissioning 11,779 Total operating expenses expenses S- 291,202 Operating Operating income (loss) income (loss) - - 98,803 Non operating operating revenues (expenses) revenues (expenses) Investment income 4,331 4,331 3,997 33,622 expense Debt expense (6,099) {6,0992 - (113,028) {113,0282 Net non operating revenues (expenses) non operating (expenses) {1, 7682 (1,768) 3,997 (79,406) {79,40~ Change Change in net assets (deficit) (1,768) (1,768) 3,997 19,397 Net assets assets (deficit) (deficit) - beginning of year 5,752 66,593 66,593 (246,532) (246,532) Net contributions contributions by participants - 10,052 10,052 10,052 10,052 Net assets (deficit) (deficit) - end of year S
$ 3,984 $ 80,642 $ (217,083)2 (217,083 44 See accompanying notes.
accompanyingnotes.
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY COMBINING STATEMENTS OF CASH FLOWS COMBINING FOR THE YEAR ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) GENERATION GENERATION Ormat Onnat Hoover Magnolia Magnolia Geothermal Geothermal PPalo alo Verde Verde Uprating San Juan Sanjuan Power Power Energy Energy Cash flows from operating activities operating activities Receipts from participants Receipts participants $ 78,712 $ 2,262 2,262 $ 95,856 $ 74,935 S 4,148 4,148 Receipts from sale sale of oil and gas ofoiland P ayments to operating Payments operating managers (40,913) (40,913) (260) (260) (49,626) (46,672) (46,672) (4,104) (4,104) Otherdisbursements Other disbursements and receipts 7,634 4 - 16 16 Net cas cashh flows flo ws from fro m operating 0 perating activities activities 45,433 2,006 2,006 46,230 28,279 44 44 Cash flows from noncapitalfmancing activities noncapitalfmancing activities Advances (withdrawals) byparticipants, net (withdrawals) byparticipants, net Cash Cas h flows flo ws frofromm capitalfmancing activities capita I fmaneing activities Additions Additio os to plant, netnet ~972) (41,972) (4 (35,909) (2,810) (2,810) repaid P repa id natural natural gasgas Debt interest interes t payments payments (4,292) (4,292) (852) (852) (8,769) (8,769) (21,948) (2 ~948) Proceeds from sale ofbonds Proceeds Payment P ayrnent for fordefeasance defeasance 0ofrevenue frevenue bonds Transferoffunds from escrow Transferoffunds escrow 10,1\9 10,119 rincipalpayments on P rincipalpayments on debt (11,895) (11,895) (1,370) (1,370) (10,050) (10,050) (7,450) Payment forbond issue costs (360) P60) Net cas cashh us ed foforr capitaland related capital and related financing fmaneing activities activities (58,159) (58,159) (2,222) (2,222) (54,728) (22,449) (22,449) Cash flows from investing investing activities activities Interestt received Interes received on investments 0 n inves tments 1,822
~822 140 140 1,930
~930 3,009 43 43 Purchases oofinvestments finvestments (37,102)
(37,102) (1,618) (~618) (26,171) (5 ~185) 1,t85) Proceeds from sale/maturityofinvestments sale/maturityofinvestments 56,850 3,590 3,590 43,512 48,557 Net cash provided provided by(used for) inves ting activities investing activities 21,570 2~570 2,112 2,112 19,271 19,271 381 43 43 increase (decrease) Net increase (decrease) in in cash and cash equivalents 8,844 8,844 1,896
~896 10,773 10,773 6,211 87 Cashhand Cas and cash cas h equivalents, beginning o0 fyear equiva lents. beginning fyear 14,481 14,481 726 13,104 13,104 27,949 1,597
~597 Cashh and cas Cas cashh equivalents,end equiva tents. end 0o fyear fyear $ 23,325 S 2,622 2,622 S 23,877 $ 34,160 34,160 S 1,684
~684 Reconciliation Reconciliation o0 foperating income (loss) (loss)to net to net cashh provided cas pro vided by byoperating 0 perating activities activities Operating Operating income (loss) (loss) $ 17,910 17,910 S (535)
(535) S 39,322 $ 11,951 1~951 S (37) (37) Adjustments to reconcile operating income (loss)to netcash provided incorne(loss)to netcashprovided byoperating activities byoperating activities Depreciation Depreciation 18,793 18,793 10,782 10,782 11,264 1~264 - Decommissioning Decommissioning 8,667 8,667 3,113 3,113 Advances forcapacityand energy Advances forcapacityand 2,629 2,629 Amortization Arno rtizatio no ofnuclear fuelI fnuc lear fue 8,059 8,059 Changes in in assets and liabilities liabilities Accounts receivable Accounts (3,141) (34) (34) (748) (748) (2,409) (2,409) Accounts Accounts payable and accruals (4,426) (56) (56) 3,519 2,732 2,732 81 Other Other (429) 22 (9,758) (9,758) 4,741 Net cash provided byoperating activities provided byoperatmg activities S 45,433 $ 2,006 2,006 S 46,230 $ 28,279 $ 44 44 Cash and cash equivalents equivalents as stated in in the Combined Combined Statements Statements of ofNet Net Assets (Deficit) Assets (DefICit) Cash and cash equivalents equivalents - restricted restricted $ 15,519 15,519 $ 2,450 2,450 S 16,860 16,860 S 25,389 . S Cash and cash equivalents equivalents - unrestricted unrestricted 7,806 172 172 7,017 8,771 1,684
~684 S 23,325 $ 2,622 2,622 $ 23,877 $ 34,160 34,160 $ 1,684
~684 See accompanying accompanying notes. notes. 45
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY COMBINING COMBINING STATEMENTS STATEMENTS OF CASH CASH FLOWS FOR THE YEAR YEAR ENDEDENDED JUNE JUNE 30, 30,2007 2007 (AMOUNTS IN (AMOUNTS IN THOUSANDS) THOUSANDS) GENERATION GENERATION Ormat Onnat Hoover Magno lia Magnolia Geo thermal Geothennal P ala Verde Palo Verde Uprating Uprating San Juan Sanjuan o wer PPower Energy Energy Cash flows from operating activities activities Receipts Receipts from participants $ 71,033 $ 2,354 S 84,144 84,144 S 58,352 $ 3,015 3,015 Receipts from sale ofo iland Receipts itand gas gas Payments to operating managers Payments (33,658) (33,658) (257) (257) (48,344) (47,967) (47,967) (3,875) Other disbursements Other dis burs emeots and receiptsreceipts 7,633 - - (7) (7) Net cash flows from operating activities operating activities 45,008 45,008 2,097 2,097 35,800 10,385 (867) noncapitalfinancing activities Cash flows from noncapitalfmancing Advances (withdrawals) byparticipants, Advances (withdrawals) by participants ,net net - (10,538) (10,538) - capital ftnancing activities Cash flows from capitalfmancing activities Additions Additions to plant, plant, net net (22,058) (22,058) (18,432) (18,432) (2,232) Debt interest payments (4,650) (906) (906) (9,247) (9,247) (16,026) (16,026) Proceeds from sale ofbonds 261,892 P ayment fo Payment fordefeasance 0 frevenue bonds rdefeas ance ofrevenue (219,059) Trans fero ffiunds from escrow Transferoffunds escrow P rincipal payments ondebt Principalpayments on debt (11,545) (11,545) (1,315) (1,315) (9,570) (9,570) (4,917) (4,917) P ayment forbond Payment for bond is issue sue costs cos ts - _(2,125) (2,125) cashh used Net cas us ed foforcapitaland r capital and re related lated financing activities fmancing activities (38,253) (38,253) (2,221) (37,249) 17,533 17,533 activities Cash flows from investing activities Interest received received on invesinvestments tments 2,098 2,098 145 145 2,392 2,996 2,996 113 113 Purchases ofinvestments of investments (2,177) (2,177) (1,326) (1,326) (19,482) (19,482) (80,695) (80,695) Proceeds frqrn sale/maturityofinvestments from sale/maturityofinvestments 2,205 2,205 1,237 20,449 20,449 62,14 62,114 1,740 Net cash provided provided by(used for) investing activities inves ting aCtivities 2,126 56 56 3,359 (15,585) (15,585) 1,853 1,853 increase (decrease) in Net increase in cash and cash cash equivalents 8,881 (68) (68) 1,910 1,910 1,795 1,795 986 986 cashh equivalents, Cashh and cas Cas beginning 0o fyear equiva lents, beginning fyear 5,600 794 11,194 11,194 26,154 26,154 611 equivalents, end 0o fyear Cash and cash equivalents, fyear $ 14,481 14,481 $ 726 S 13,104 S 27,949 $ 1,597 o foperating income Reconciliation ofoperating
.Reconciliation income (loss)to net net cash provided byoperating activities provided byoperating activities Operating income (loss) (1oss) $ (3,980) S (493) S 20,669 20,669 $ 10,121 10,121 $ (120)
(120) Adjustments to reconcile operating operating income inco me (1oss)to net cas h provided (10 s s) to netcash pro vided byoperating activities byoperating activities Depreciation Depreciation 18,453 18,453 10,573 10,573 11,162 11,162 - Decommiss Decommiss ianingioning 8,666 3,113 3,113 Advances Advances for capacityand energy forcapacityand energy 2,583 2,583 Amortization Amo rtizatio no ofnuclearfuet fnuclear fuel 8,702 8,702 Changes in in assets and liabilities liabilities Accounts receivable Accounts receivable 6,247 145 145 46 - Accounts Accounts payable payable and accruals 6,878 7 162 162 (9,573) (740) (740) Other Other 42 42 I1,38 1,138 (1,371) (1,371) (7) (7) Net cash provided byoperating activities provided byoperating activities $ 45,008 45,008 S 2,097 2,097 S 35,800 35,800 S 10,385 10,385 S (867) (867) Cash and cash equivalents equivalents as stated in the Combined Combined Statements ofNet Statements of NetAs Assets (Deficit) sets (Deficit) Cash and cash equivalents - restricted restricted $ 6,697 S 620 620 $ 9,180 S 24,497 24,497 S - Cash and cash equivalents - unrestricted unrestricted 7,784 106 3,924 3,452 1,597 1,597
$ 14,481 14,481 $ 726 S 13,104 S 27,949 27,949 S 1,597 1,597 46 46 See accompanying accompanyingnotes. notes, 46 See accompanying notes.
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER POWER AUTHORITY AUTHORITY COMBINING STATEMENTS COMBINING STATEMENTS OF CASH CASH FLOWS FLOWS FOR THE YEAR FOR YEAR ENDED ENDED JUNE JUNE 30, 2008 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) TRANSMISSION TRANSMISSION Southern Southern Transmission T ransm ission Mead- Mead-System Phoenix Phoenix Adelanto Adelanto Cash flo,,", Cash operating activities from operating flows from activities Receipts from participants Receipts participants $$ 87,917 87,917 $$ 8,452 8,452 $$ 20,827 20,827 Receipts from sale of oil and Receipts and gas Payments to operating managers Payments managers (18,173) (18,173) (896) (896) . (1,675) (1,675) Other disbursements disbursements and and receipts receipts cash flows Net cash operating activities flo,,", from operating 69,744 69,744 7,556 7,556 19,152 19,152 Cash flows Cash flo,,", from noncapital noncapital financing activities Advances (withdrawals) Advances (withdrawals) by participants, net net Cash Cash flo,,", financing activities capital financing flows from capital activities Additions to plant, net to plant, net (930) (930) Prepaid nat ural gas P repaid natural gas Debt interest interest payments payments (40,508) (40,508) (3,496) (3,496) (10,756) (10,756) Proceeds from sale of of bonds bonds 50,047 50,047 Payment for defeasance revenue bonds defcasance of revenue bonds (50,050) (50,050) Transfer of funds from escrow escrow (80) (80) Principal payments payments on on debt (30,950) (30,950) (3,350) (3,350) (11,150) (11,150) Payment for bond issue issue costs costs (290) (290) related financing activities capital and related Net cash used for capital (71,831) (71,831) (7,776) (7,776) (21,906) (21,906) flows from investing activities Cash flo,,", activities Interest received on investments investments 3,422 3,422 640 640 1,854 1,854 Purchases of investments investments (34,182) (34,182) (5,017) (5,017) (8,948) (8,948) Proceeds from sale/maturity of investments investments 51,953 51,953 4,875 4,875 6,280 6,280 provided by (used for) investing activities Net cash provided 21,193 498 498 (814) (814) Net increase increase (decrease) equivalents (decrease) in cash and cash equivalents 19,106 19,106 278 (3,568) (3,568) Cash and cash equivalents, beginning of year Cash 28,677 28,677 6,316 6,316 16,333 Cash and cash equivalents, end of year $ 47,783 $S 6,594 6,594 $$ 12,765 12,765 Reconciliation of operating Reconciliation income (loss) to net cash provided by operating operating income operating activities Operating income (loss) $$ 46,973 $$ 5,466 5,466 $$ 15,683 15,683 Adjustments to reconcile operating income (loss) to net cash provided provided by operating operat ing activit ies activities Depreciation Depreciation 18,708 18,708 1,403 1,403 4,500 4,500 Decommissioning Decommissioning Advances for capacity and energy Advances Amortization of nuclear fuel Amortization Changes in assets and liabilities liabilities Accounts Accounts receivable receivable (4,145) (4,145) - (685) (685) Accounts payable and accruals Accounts 8,179 389 (354) (354) Other Other 29 29 298 298 88 Net cash provided by operating activities $$ 69,744 69,744 $$ 7,556 7,556 $$ 19,152 19,152 Cash Cash and cash equivalents as stated in the the Combined Statements of Net Assets (Deficit) Statements (Deficit) and cash Cash and cash equivalents equivalents - restricted $$ 43,387 43,387 $$ 5,779 5,779 $$ 12,238 12,238 and cash Cash and cash equivalents unrestricted equivalents - unrestricted 4,396 4,396 815 815 527 527
$$ 47,783 47,783 $$ 6,594 6,594 $$ 12,765 12,765 See accompanying accompanyiniznotes. notes. 47 47 See accompanying notes. 47
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY POWER AUTHORITY COMBINING STATEMENTS COMBINING STATEMENTS OF CASH CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2007 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) TRANSMISSION TRANSMISSION Southern Southern Transmission Transmission Mead- Mead-System Phoenix Phoenix Adelanto Adelanto Cash Cash flows from operating operat ing activities act ivit ies Receipts from participants Receipts participants $ 87,781 $ 7,209 $ 21,118 21,118 Receipts from sale ofoil Receipts of oil and gasgas Paymcnts to operating Payments operating managcrs managers (17,521) (17,521) (1,261) ) (1,261 (1,485) (1,485) Other disbursements and receipts receipts 167 - cash flows from operating Net cash operating activities activities 70,260 6,115 6,115 19,633 19,633 Cash flows from noncapital noncapital financing activities Advances Advances (withdrawals) by participants, net Cash flows from capital activities capital financing activitics Additions to plant, net S- (156) (156) Debt interest payments payments ((40,876) 40,876) (3,350) (3,350) (10,457) (10,457) Proceeds from sale of bonds Payment Payment for defeasance defeasance of revenue bonds Transfer of funds from escrow escrow 6,535 6,535 Principal payments payments on debt (34,230) (34,230) (3,250) (3,250) (10,850) (10,850) Payment for bond issue costs Net cash used for capital and related financing activities activities (68,571) (68,571) (6,756) (6,756) (21,307) (21,307) Cash investing activities Cash flows from investing Interest received Interest investments received on investments 3,818 755 2,076 2,076 Purchases Purchases of investments investments. (33,367) (33,367) (1,876) (1,876) (4,066) Proceeds investments Proceeds from sale/maturity of investments 39,931 5,904 15,454 15,454 Net cash provided provided by (used (used for) investing activities activities 10,382 10,382 4,783 4,783 13,464 13,464 Net increase increase (decrease) (decrease) in cash and cash equivalents equivalents 12,071 12,071 4,142 4,142 11,790 11,790 Cash beginning of year equivalents, beginning Cash and cash equivalents, 16,606 16,606 2,174 2,174 4,543 Cash Cash and cash equivalents, equivalents, end of yearyear $ 28,677 28,677 $ 6,316 $ 16,333 16,333 Reconciliation of operating Reconciliation operating income (loss)(loss) to net cash cash provided provided by operating operating activities Operating income incomc (loss) $ 48,574 48,574 $ 4,751 4,751 $ 15,022 15,022 reconcile operating Adjustments to reconcile Adjustments operating income income (loss) (loss) to net cash provided provided by operating activities Depreciation Depreciation 18,757 18,757 1,403 1,403 4,500 Decommissioning Decommissioning Advances Advances for capacity capacity and energy Amortization Amortization of nuclear fuel Changes in assets and liabilit liabilities ies Accounts receivable Account s receivable (283) (283) Accounts Accounts payable and accruals accruals 3,212 3,212 (41) (41) 103 Other Other 22 8 Net cash cash provided provided by operating operating activities activities $ 70,260 $ 6,115 $ 19,633 19,633 equivalents as statcd Cash and cash equivalents stated in the Combined Statements of NetNct Assets (Deficit) Assets (Deficit) equivalents - restricted Cash and cash equivalcnts $ 24,622 $ 5,936 $ 15,683 15,683 equivalents - unrcstricted Cash and cash equivalents unrestricted 4,055 380 650 650
$ 28,677 $ 6,316 $ 16,333 16,333 48 See accompanying accompanyingnotes.notes.
48 See accompanying notes.
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY COMBINING STATEMENTS COMBINING STATEMENTS OF CASH FLOWS FLOWS FOR THE YEAR ENDED ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) NATURAL NATURAL GAS Prepaid Pinedale Barnett Natural Natural Gas Cash flows from operating activities activities Receipts from participants participants $ 11,765 11,765 $ 9,031 $ Receipts Receipts from sale of oil and and gas 11,060 11,060 8,339 8,339 Payments operating managers Payments to operating (18,714) (18,714) (8,539) (8,539) receipts Other disbursements and receipts 3 Net cash flows from operating activities 4,114 8,831 Cash flows from noncapital financing financing activities Advances (withdrawtls) (withdrawals) by participants, net net 885 1,907 Cash flows from capital capital financing financing activities activities Additions to plant, plant, net net (2,146) (2,146) (10,445) (10,445) Prepaid natural gasgas (480,648) (480,648) Debt interest interest payments payments (1,035) (1,035) (1,786) (1,786) (14,212) (14,212) Proceeds from salesale of bonds 42,053 42,053 105,207 509,827 Payment for defeasance of revenuerevenue bonds (25,600) (50,300) (50,300) - Transfer Transfer of funds from escrow escrow Principal payments on debt (2,600) (800) (800) Payment for bond issue costs costs (1,440) (1,440) (1,470) (I,470) (4,532) (4,532) Net cash used for capital capital and related related financing activities 9,232 40,406 10,435 Cash flows from investing activities Interest received on investments investments 181 369 736 736 Purchases Purchases of investments investments (15,116) (15,116) (46,298) (46,298) (25,098) (25,098) Proceeds from sale/maturity sale/maturity of investments investments 50 1,285 1,285 14,212 14,212 Net cash provided by (used for) investing investing activities (14,885) (14,885) (44,644) (44,644) (10,150) (10,150) (decrease) in cash and Net increase (decrease) and cash equivalents equivalents (654) (654) 6,500 6,500 285 285 Cash and cash cash equivalents, beginning beginning of year year 29,090 29,090 1,576 1,576 - Cash and cash cash equivalents, equivalents, endend of year $ 28,436 28,436 $ 8,076 $ 285 285 Reconciliation of operating income (loss) to net cash providedby Reconciliation provided by operating activities activities Operating Operating income (loss) (loss) $ 3,988 $ 8,895 $ Adjustments Adjustments to reconcile reconcile operating income (loss)(loss) to net cash provided provided by operating activities Depreciation Depreciation 1,611 1,611 2,280 2,280 Decommissioning Decommissioning Advances for capacity capacity and energy Amortization of nuclear fuel Amortization Changes Changes in assets and liabilities receivable Accounts receivable 141 141 (2,295) Accounts payable and accruals accruals (776) (776) 366 Other (850) (415) Net Net cash provided by operating activities activities $ 4,114 4,114 $ 8,831 $ Cash and cash cash equivalents equivalents as stated in the Combined Statements of Net Assets (Deficit) Statements (Deficit) Cash and cash equivalents - restricted $ 16,307 16,307 $ 7,367 7,367 $ 20 20 Cash and cash equivalents unrestricted equivalents - unrestricted 12,129 12,129 709 265 265
$ 28,436 $ 8,076 $ 285 285 See accompanying accompanyingnotes. notes. 49
SOUTHERN CALIFORNIA PUBLIC POWER SOUTHERN POWER AUTHORITY AUTHORITY COMBINING STATEMENTS COMBINING STATEMENTS OF CASH CASH FLOWS FLOWS FOR THE YEAR ENDED ENDED JUNE 30, 30, 2007 2007 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) NATURAL GAS NATURAL GAS Pinedale Barnett Barnett Cash flows from operating Cash operating activities Receipts from participants Receipts participants $ 9,945 $ 2,784 2,784 Receipts Receipts from sale of oil and gas 17,327 1,008 1,008 Payments to operating operating managers managers (24,287) (24,287) (1,177) (1,177) disbursements and receipts Other disbursements receipts (2) (2) 12 Net cash cash flows from operating activities 2,983 2,627 2,627 Cash Cash flows from noncapital noncapital financing activities (withdrawals) by participants, net Advances (withdra'MIls) net 15,349 10,458 10,458. Cash capital financing activities Cash flows from capital activities Additions to plant, plant, net (2,126) (2,126) (55,101) (55,101) Debt interest payments payments (1,640) (1,640) (1,339) (1,339) Proceeds Proceeds from sale of bonds 44,900 44,900 Payment Payment for defeasance defeasance of revenue bonds Transfer of funds from escrowescrow payments on debt Principal payments debt Payment for bondbond issue costs Net cash used for capital and related financing activities (3,766) (3,766) (11,540) (11,540) Cash flows from investing investing activities Interest received Interest investments received on investments 808 808 31 31 Purchases of Purchases investments of investments (60)
..Proceeds sale/maturity of investments Proceeds from sale/maturity investments 3,749 Net cash provided provided by by (used for) investing activities 4,497 31 31 increase (decrease)
Net increase (decrease) in cash and cash equivalents cash equivalents 19,063 1,576 1,576 Cash and cash equivalents, beginning of year year 10,027 - Cash and cash equivalents, equivalents, endend of year $ 29,090 $ 1,576 1,576 Reconciliation Reconciliation of operating income (loss) to net cash provided by operating activities Operating income (loss) income (loss) $ 1,544 $ 2,715 2,715 reconcile operat Adjustments to reconcile Adjustments ing income (loss) operating (loss) to net cash provided by operating activities activities Depreciation Depreciation 2,237 2,237 501 Decommissioning Decommissioning Advances for capacity Advances capacity and energy Amortization of nuclear fuel Amortization Changes in assets andand liabilities Accounts Accounts receivable (29) (1,057) (1,057) Accounts payable and accruals Accounts accruals 278 278 559 559 Other Other (1,047) (1,047) (91) (91) Net Net cash provided by operating activities cash provided activities $ 2,983 =$ 2,983 2,627
$ ===2=,6=2=7=
Cash Cash and cash cash equivalents Combined equivalents as stated in the Combined Statements of Net Assets (Deficit) (Deficit) Cash and cash equivalents equivalents - restricted $$ 18,255 $ 1,401 Cash and cash equivalents equivalents - unrestricted unrestricted 10,835 175 175
$ 29,090 $ 1,576 1,576 50 50 See accompanying accompanying notes.notes.
SOUTHERN CALIFORNIA PUBLIC POWER SOUTHERN AUTHORITY POWER AUTHORITY COMBINING COMBINING STATEMENTS STATEMENTS OF CASH FLOWS FOR FOR THE YEAR ENDED ENDED JUNE 30, 2008 (AMOUNTS (AMOUNTS IN THOUSANDS) THOUSANDS) MISCELLANEOUS MISCELLANEOUS Projects' Multiple Multiple Stabilization Stabilizat ion . Total Project Project Fund Fund Combined Cash flows from operating activities Receipts Receipts from participants participants $ $ $ 393,905 393,905 Receipts Receipts from sale of oil and gas gas 19,399 19,399 Payments operating managers Payments to operating (189,572) (189,572) disbursements and receipts Other disbursements receipts 7,657 cash flows from operating Net cash operating activities - - 231,389 Cash flows from noncapital financing financing activities Advances (withdrawals) by participants, net Advances (withdra\Wls) 1,964 4,756 4,756 Cash flows from capital financing activities Additions to plant, net S- (94,212) Prepaid Prepaid natural natural gas (480,648) (480,648) Debt interest payments payments (3,388) (3,388) (111,042) (111,042) Proceeds Proceeds from sale of bonds 707,134 707,134 Payment for defeasance defeasance of revenue bonds (125,950) ( 125,950) Transfer of funds from escrow escrow 10,039 10,039 Principal payments payments on debt (79,615) (79,615) Payment Paymerit for bond bond issue costs costs (8,092) (8,092) cash used for capital and related financing Net cash financing activities activities (3,388) (3,388) - (182,386) (182,386) Cash Cash flows from investing activities activities Interest received on investments Interest received investments 4,449 4,188 22,783 22,783 Purchases Purchases of investments of investments (14,706) (14,706) (108,517) (108,517) (373,958) (373,958) Proceeds sale/maturity of investments Proceeds from sale/maturity investments 18,085 128,427 128,427 377,676 377,676 Net cash cash provided provided by (used (used for) investing investing activities 7,828 24,098 26,501 (decrease) in cash and cash equivalents Net increase (decrease) equivalents 4,440 26,062 80,260 Cash and cash equivalents, equivalents, beginning of year 8 9,883 149,740 149,740 Cash cquivalents, end of year Cash and cash equivalents, $ 4,448 $ 35,945 $ 230,000 230,000 income (loss) to net cash provided by operating activities Reconciliation of operating income income (loss) Operating income (loss) $ $ $ 149,616 149,616 Adjustments opcrating income (loss) to net cash provided Adjustmcnts to reconcile operating by operating opcrating activities activities Depreciation Depreciat ion 69,341 Decommissioning Decommissioning 11,780 11,780 Advances Advances for capacity and energyenergy 2,629 Amortization of nuclear Amortization nuclear fuel 8,059 8,059 Changes in assets and liabilities Changes Accounts Accounts receivable (13,316) (13,316) Accounts payable Accounts payable and accruals accruals 9,654 9,654 Other Other (6,374) (6,374) Net cash cash provided provided by operating operating activities $ - $ - $ 231,389 231,389 Cash and cash equivalents equivalents as stated stated in the Combined Combined Statements of Net Assets (Deficit) (Deficit) Cash and cash equivalents - restricted restricted $ 4,448 $ 35,945 $ 185,709 185,709 Cash and cash equivalents - unrestricted unrestricted S- 44,291
$ 4,448 $ 35,945 $ 230,000 230,000 See accompanying accompanying notes. notes. 51 See accompanying notes. 51
SOUTHERN SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY STATEMENTS OF CASH COMBINING STATEMENTS COMBINING CASH FLOWS FOR THE YEAR ENDED ENDED JUNE 30, 2007 2007 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) MISCELLANEOUS Projects' Multiple Stabilization St abilizat ion Total Project Fund Fund Combined Cash flows from operating activities Cash Receipts from participants participants $ $ $ 347,735 347,735 sale of oil and gas Receipts from sale 18,335 18,335 Payments to operating managers Payments (179,832) (179,832) Other disbursements and receipts receipts 7,803 7,803 cash flows from operating Net cash operating activities activities 194,041 financing activities Cash flows from noncapital financing activities Advances (withdrawals) by participants, net Advances (withdrawals) 10,052 10,052 25,321 Cash Cash flows from capital financing activities plant, net Additions to plant, Additions S- (100,105) (100,105) Debt interest payments payments (3,389) (3,389) (91,880) Proceeds Proceeds from sale of bonds 306,792 306,792 Payment for defeasance defeasance of revenue bonds (219,059) (219,059) Transfer of funds escrow fimds from escrow 6,535 Principal payments payments on debt (75,677) Payment for bond issue costs costs (2,125) (2,125) Net cash financing activities cash used for capital and related financing activities (3,389) (3,389) - (175,519) (175,519) Cash flows from investing activities activities Interest Interest received investments received on investments 4,298 2,332 21,862 21,862 Purchases Purchases of investments of investments (8,336) (8,336) (73,187) (224,572) (224,572) Proceeds sale/maturity of investments Proceeds from sale/maturity investments 7,435 67,611 227,829 227,829 Net cash cash provided (used for) investing activities provided by (used activities 3,397 3,397 (3,244) (3,244) 25,119 25,119 Net increase (decrease) equivalents (decrease) in cash and cash equivalents 8 6,808 68,962 Cash and cash equivalents, equivalents, beginning beginning of year 3,075 3,075 80,778 Cash and cash equivalents, end of year cash equivalents, year $$ 88 $$ 9,883 $ 149,740 149,740 Reconciliation of operating income (loss) to net cash Reconciliation provided by operating activities cash provided activities Operating income (loss) Operating (loss) $$ $$ - $ 98,803 reconcile operating Adjustments to reconcile Adjustments income (loss) to operating income net cash provided to'net provided by operating activities Depreciation Depreciat ion 67,586 67,586 Decommissioning Decommissioning 11,779 11,779 capacity and energy Advances for capacity 2,583 Amort izat ion of nuclear fuel Amortization 8,702 Changes in assets and liabilities Changes Accounts Accounts receivable 5,069 5,069 Accounts payable and accruals Accounts accruals 845 Other Other (1,326) (1,326) Net cash provided Net provided by by operating operating activities $ $$ - $$ 194,041 194,041 cash equivalents Cash and cash equivalents as stated in the Combined Combined Statements of Net Assets Statements (Deficit) Assets (Deficit) Cash and cash equivalents - restricted $ 88 $ 9,883 9,883 $ 116,782 116,782 Cash and cash equivalents equivalents - unrestricted S- 32,958 32,958
$ 88 $ 9,883 9,883 $$ 149,740 149,740 52 52 See accompanying accompanyingnotes. notes.
52 See accompanying notes.
SOUTHERN SOUTHERN CALIFORNIA PUBLIC PUBLIC POWER AUTHORITYAUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS COMBINED FINANCIAL STATEMENTS Note 1I - Organization Organization and Purpose The Southern California Public Power Authority (the "Authority" "Authority" or "SCPPA"),
"SCPPA"), a public entity organized organized under under the laws of the State of California, was formed by a Joint Powers Agreement dated as of November November 1, 1, 1980 1980 pursuant to the Joint Exercise of Powers Act of the State of California. The Authority's participantsparticipants consist of consist of eleven Southern California cities and one public district of the State of California. The Authority was formed for for the purpose of planning, financing, developing, developing, acquiring, constructing, operating and maintaining maintaining projects projects for the generation generation and transmission of electric energy and natural gas for sale to its participants. The Joint Powers Agreement Agreement has a term of fifty years.
The Authority Authority has interests in the following projects: Palo Verde Project - On August August 14, 1981, 1981, the Authority purchased a 5.91% 5.91% interest in the Palo Verde Nuclear Generating Generating Station ("PVNGS"), a 3,810 megawatt megawatt nuclear-fueled nuclear-fueled generating station near Phoenix, Arizona, a 5.56% 5.56% ownership ownership interest in the Arizona Nuclear Power Project High Voltage Switchyard, and a 6.55% Voltage Switchyard, 6.55% share of of the right to use certain portions of the Arizona Nuclear Power Project Valley Transmission Transmission System (collectively, the "Palo Verde Project"). Units 1,2 1, 2 and 3 of the Palo Verde Project Project began commercial commercial operations in January January 1986, September 1986, and January 1988, respectively. January 1988, Hoover Uprating Project - As of March March 1, 1986, the Authority 1, 1986, Authority and six participants entered into an agreement agreement pursuant to which which each participant participant assigned its entitlement entitlement to capacity capacity and associated firm energy to the Authority in return return for the Authority's Authority's agreement to make advance advance payments payments to the United United States Bureau Bureau of Reclamation Reclamation ("USBR") ("USBR") on behalf of such participants. The Authority 18.68% interest in the contingent Authority has an 18.68% contingent capacity of the Hoover Uprating Project ("HU"). San Juan Project - Effective July 1, 1, 1993, the Authority Authority purchased purchased a 41.80% 41.80% interest in Unit 3 and related related common facilities of the San Juan Generating Station ("SJGS") from Century Century Power Power Corporation. Unit 3, 3, a 497-megawatt unit, is one unit of a four-unit coal-fired power generating megawatt generating station in New Mexico. Magnolia Magnolia PowerPower Project - In March March 2003, the Authority received received approval from the California Energy Commission for construction construction of the Magnolia Power Project ("MPP"). The Project consists of a combined combined cycle cycle natural gas-fired -generating generating plant with a nominally rated net base capacity capacity of 242 megawatts megawatts and was built on a site in the City of Burbank, California. The plant is the first that is wholly owned by the Authority and entitlements 100% of the capacity entitlements to 100% capacity and energy of the Project have beenbeen sold to six of its members. members. The City of of Burbank, a Project participant, managed its construction and also serves as the operating operating agent for the Project. Commercial Commercial operations began September September 22, 2005.
** Gas Supply Supply and Services Services Agreement:
Agreement: SCPPA SCPP A entered into an agreement with Occidental Energy Marketing, Marketing, Inc. ("OEMI") ("OEMI") beginning January 2005. This agreement agreement is renewed renewed each year unless notification is given by either party prior to December December 31,31, of each year. OEMI provides 100% of the provides 100% natural gas plant natural gas plant requirements requirements on a daily basis, and also includes includes an option for the participants participants to bring in their own gas supply. In addition, OEMI provides gas balancing services.
** Transportation: SCPPA has an agreement Natural Gas Transportation: agreement with Southern California Gas Company Southern California
("SoGas") for intrastate intrastate transmission services. The agreement agreement took effect in January January 2005 and will expire in January 2009. SoGas provides provides transportation, transportation, storage, and balancing balancing services of natural gas from the Southern California California Border to the MPP Plant. 53
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC PUBLIC POWERPOWER AUTHORITY AUTHORITY NOTES TO NOTES TO COMBINED FINANCIAL STATEMENTS COMBINED FINANCIAL STATEMENTS . Organization and Purpose (Continued) Note 1 - Organization (Continued)
*
- Parts Parts and Special Services and Special Agreement: SCPPA Services Agreement: entered into an 18-year SCPPA entered 18-year agreement General Electric agreement with General Electric International ("GE") in September International agreement covered only September 2005. Initially, the agreement only the gas turbine, but but the agreement was amended agreement was amended in August 2007, in August 2007, to coverage for the to include coverage the gas generator, the steam turbine, and generator, the generator. GE provides the steam generator. planned and unplanned maintenance, provides planned maintenance, including replacement parts, including replacement parts, based on factored factored fired hours.
Geothermal Energy Ormat Geothermal Ormat Authority entered Project - The Authority Energy Project entered into long-term Power Purchase into long-term Agreements in Purchase Agreements December 2005 with divisions of Ormat December Technologies, Inc. for up to 20 Ormat Technologies, 20 megawatts ("MW") of electric megawatts ("MW") electric generation. The Project started delivery of generation. approximately 5 MW of approximately January 2006 from geothermal MW in January geothermal energy energy 2008, the agreements were amended California: In May 2008, facilities located in Heber, California. facilities amended to substitute new wells as the source of the generation, and source increase the capacity to 14 and to increase 14 MW. The City of Anaheim Anaheim acts as the Scheduling Scheduling Coordinator on behalf Coordinator behalf of the Project Project Participants. Project - On May 1, Transmission System Project Southern Transmission Southern 1983, the Authority I, 1983, agreement with the Authority entered into an agreement Intermountain Power Agency ("IP Intermountain ("IPA"), construction of the Southern acquisition and construction A"), to defray all the costs of acquisition Transmission System Project ("STS"), which Transmission which provides transmission of energy from the provides for the transmission Intermountain the Intermountain Generating Station in Utah to Southern California. STS commenced Generating Station commenced commercial operations in July 1986. commercial operations 1986. The Department of Water and Power of the City of Los Angeles Department ("LADWP"), a member Angeles ("LADWP"), serves as member of the Authority, serves project manager and operating agent of the Intermountain Intermountain Power Project ("IPP"). Projects - As of August 4, 1992, Mead-Adelanto Projects Mead-Phoenix and Mead-Adelanto Mead-Phoenix entered into an agreement to 1992, the Authority entered Mead-Phoenix Project ("Mead-Phoenix"), acquire an interest in the Mead-Phoenix acquire transmission line extending between the ("Mead-Phoenix"), a transmission Westwing substation in Arizona Westwing Marketplace substation in Nevada. The agreement provides Arizona and the Marketplace provides the Authority with an 18.31% Authority 18.31% interest Westwing-Mead project component, a 17.76% interest in the Westwing-Mead 17.76% interest in the Mead component and a 22.4 Substation project component 22.411% Mead-Marketplace project component.
% interest in the Mead-Marketplace As of August 4, 1992,1992, the Authority also entered into an agreement acquire a 67.92%
agreement to acquire interest in the Mead-67.92% interest ("Mead-Adelanto"), a transmission line extending between Adelanto Project ("Mead-Adelanto"), Adelanto Adelarito substation between the Adelanto substation in Southern Funding for these projects was provided by a transfer of Marketplace substation in Nevada. Funding California and the Marketplace of commercial operations commenced in April 1996. LADWP serves as funds from the Multiple Project Fund and commercial the operations manager of Mead-Adelanto. Natural Gas Pinedale Project - On July 1, 1, 2005, the Authority, together with LADWP and Turlock Turlock Irrigation District ("TID"), acquired 42.5% of an undivided working interest in three natural gas leases located in the Pinedale Anticline region of the State of Wyoming. The Authority's Authority'S individual share in these interests equals operating oil and gas wells and associated lateral pipelines, equipment, permits, 14.9%. The purchase includes 38 operating 14.9%. rights of way, and easements used in production. The natural gas field production production is expected to increase increase for several more years as additional capital is invested on drilling new wells and then decline over a life expectancy greater than 30 years.
* ("JOA"): In July Agreement ("JOA"):
Joint Operating Agreement July 2005, SCPPA's purchase of the natural gas reserve at Pinedale, Wyoming ("Pinedale") included an underlying long-term lOA interests at JOA with the operator, SCPPA pays the operator for SCPPA's share of both operating and drilling/capital Ultra Resources, Inc. SCPPA expenses on a monthly basis. 54 54
SOUTHERN SOUTHERN CALIFORNIA CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY NOTES NOTES TO COMBINED FINANCIAL STATEMENTS COMBINED FINANCIAL STATEMENTS Note 1 - Organization Organization and Purpose (Continued)
- Gathering Gathering and Processing Processing Agreements:
Agreements: SCPPA's SCPPA's purchase purchase of Pinedale Pinedale included underlying underlying agreements with Jonah Jonah Gas Gathering Gathering Company, Questar Gas Management Management Company, and MountainMountain Gas Resources, Resources, Inc. for gathering and processing of the natural gas. Natural Natural Gas Barnett Project - Natural gas resources in the Barnett Barnett shale geological formation in Texas was acquired acquired from Collins and Young Young Holding, L.L.P ("C&("C&Y")Y") for a total of $84 million with an effective effective production production date of April 1, 1, 2006. The acquisition settled on October 26, 2006 and was completed completed on December December 7, 2006 when the participants, participants, together with TID, exercised exercised their option to purchase additional additional resources from C&Y. Two of the original original participants, LADWP LADWP and the City of Glendale, made the decision not to participate but have have agreed agreed to pay their respective share share of the development costs incurred 13, 2006. The Gas Sales incurred through October 13,2006. Agreements Agreements have been revised accordingly accordingly to adjust the entitlement entitlement shares and product product cost shares for the remaining participants. remaining
- Joint Operating Agreement Agreement ("JOA"):
("JOA"): In October 2006, SCPPA's purchase purchase of the natural gas reserve interests in Barnett, TX ("Barnett") included an underlying reserve underlying long-term JOA with the operator, Devon Energy Production Company, L.P. SCPPA SCPPA pays the operator operator for SCPPA's SCPPA's share of both operating and drilling/capital expenses on a monthly operating and drilling/capital expenses on a monthly basis.basis. Prepaid Prepaid Natural Natural Gas Project No. 1- 1 - On October I11,I, 2007, 2007, the Authority Authority made a one-time prepayment of$481 of $481 million to acquire the right to receive approximately 135 billion billion cubic feet of natural gas from J. Aron & Company Company to be delivered delivered over a 30-year term, beginning July I, 1, 2008. On October 3, 2007, prior to the the acquisition acquisition of the prepaid gas supply, the Authority entered into five separate separate Prepaid Natural Natural Gas Sales Agreements Agreements (the Gas Sales Agreements) with J. 1. Aron and simultaneously, five Prepaid Natural Gas Supply Agreements Agreements (the Gas Supply Contracts) in which the Authority Authority sold its interest in the natural gas, on a "take-and-
"take-and-pay" basis, to the cities of Anaheim, Burbank, Colton, Glendale, and Pasadena Pasadena (the Project No. I1 Participants).
Participants). Through the Gas Supply Contracts, SCPPA has provided for the sale to the Project Participants,Participants, on a pay-as-you-pay-as-you-go basis, of all of the natural gas to be delivered to SCPPA pursuant pursuant to the Gas Sales Agreements. The Natural contracts expire in 2038. Gas contracts Under the Gas Supply Contracts, the approximate approximate average Daily Quantity Quantity of gas to be purchased purchased by each Project Participant Participant is as follows: AVERAGE DAILY AVERAGE DAILY PERCENTAGE PERCENTAGE BY BY PROJECT PARTICIPANT PROJECT PARTICIPANT QUANTITY (1) QUANTITY PARTICIP ANT PARTICIPANT City of Anaheim Anaheim 2,000 16.5% 16.5% City of Burbank Burbank 4,000 33.0% 33.0% City of Colton 1,375 11.0% 11.0% City of Glendale Glendale 2,750 23.0% City of Pasadena Pasadena 2,000 16.5% 16.5% TOTAL 12,125 12,125 100% 100% (1) The average average Daily Quantity Quantity is in MmBtu's and is calculated calculated over over the term term of the applicable Gas Supply Contract. 55 55
SOUTHERN SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY NOTES NOTES TO COMBINED COMBINED FINANCIAL STATEMENTS FINANCIAL STATEMENTS Note 1 - Organization Organization and Purpose (Continued) Multiple Multiple Project Fund - During fiscal year 1990, the Authority issued Multiple Multiple Project Revenue Revenue Bonds for net approximately $600 million to provide funds to finance costs of construction and acquisition of proceeds of approximately of ownership ownership interests or capacitycapacity rights in one or more, then unspecified, projects for the generationgeneration or transmission transmission of electric energy. Certain of these funds were used to finance the Authority's Authority's interests interests in Mead-Phoenix and Mead-Adelanto. Mead-Adelanto. Projects' Projects' Stabilization Stabilization Fund - In fiscal year 1997, the Authority authorized authorized the creation of a Projects' Projects' Stabilization Stabilization Fund. Deposits may be made into the fund from budget under-runs, under-runs, after authorization authorization of individual individual participants, and by direct contributions contributions from the participants. Participants Participants have discretion over the use of their deposits within SCPPA project purposes. This fund is not a project-related project-related fund; therefore, it it is not governed by by any project project Indenture of Trust. The members members participate participate in the Projects' Projects' Stabilization Stabilization Fund by making deposits to the fund at their discretion. Participant Ownership Interests Participant Interests - The Authority's participants participants may elect to participate in the projects. As of of June 30, 2008, the members have the following participation percentages in the Authority's participation percentages Authority's operating operating projects: GENERAT ION GENERATION TRANSMISSION TRANSMISSION NATURAL GAS Ormat Southern Southern Geo-Gco- T ran s-Trans-Palo Hoover San San Magnolia Magnolia thermal mission Mead- Nv lead-Mead-Verde Uprating Uprating Juan Power Energy System Phoenix Ad elanto Pinedale Phoenix Adelanto Barnett Pinedale Barnett Participants Participants Project Project Project Project Project ,Project Project Project Project Project Preoject Project Project Project Project of Los Angeles City <?f 67.0% - - 59.5% 59.5% 24.8% 24.8% 35.7% 35.7% Anaheim City of Anaheim 42.6% 38.0% 38.0% 60.0% 17.6% 17.6% 24.2% 24.2% 13.5% 13.5% 35.7% 35.7% 45.4% City of Riverside 5.4% 5.4% 31.9% - - 10.2% 10.2% 4.0% 4.0% 13.5% 13.5% Imperial Irrigation Irrigation District District 6.5% 6.5% 51.0% 51.0% City of Vernon Vernon 4.9% City of Azusa 1.0% 1.0% 4.2% 4.2% 14.7% 14.7% 1.0% 1.0% 2.2% 2.2% City of Banning Banning 1.0% 1.0% 2.1% 2.1% 9.8% 9.8% 10.0% 10.0% 1.0% 1.0% 1.3% 1.3% City of Colton 1.0% 1.0% 3.2% 3.2% 14.7% 14.7% 4.2% 4.2% 1.0% 1.0% 2.6% 2.6% 7.1% 7.1% 9.1% 9.1% City of Burbank Burbank 4.4% 16.0% 16.0% 31.0% 31.0% 4.5% 4.5% 15.4% 15.4% 11.5% 11.5% 14.3% 14.3% 27.3% 27.3% Glendale City of Glendale 4.4% 9.8% 9.8% 16.5% 16.5% 15.0% 15.0% 2.3% 2.3% 14.8% 14.8% 11.1% 11.1% 28.6% 28.6% Cerritos. City of Cerritos* 4.2% 4.2% A Aý/ City of Pasadena Pasadena 4.4% 6.1% 15.0% 5.9% 13.8% 8.6% 14.3% 18.2% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% The Authority Authority has entered into power sales, natural gas sales, and transmission transmission service agreements with the above project participants. Under the terms of the contracts, the participants are entitled to power output, natural gas or. or transmission service, service, as applicable. The participants participants are obligated obligated to make make payments on a "take "take or pay" pay" basis for their proportionate share of operating operating and maintenance maintenance expenses expenses and debt service. The contracts contracts cannot be terminated or amended amended in any manner that will impair or adversely affect the rights of the bondholders as long as any bonds issued by the specific project remain outstanding. 56
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY NOTES TO COMBINED FINANCIAL FINANCIAL STATEMENTS STATEMENTS Note 1 - Organization Organization and Purpose (Continued) The contracts contracts expire as follows: Palo Verde Project 2030 Southern Transmission System Project Southern 2027 Hoover Uprating Project Hoover Uprating 2018 2018 Mead-Phoenix Project Mead-Phoenix Project 2030 Mead-Adelanto Project Mead-Adelanto Project 2030 San Juan Project Project 2030 Magnolia Power Project 2036 Natural Natural Gas Pinedale Project Project 2030 Natural Gas Barnett Project Natural Project 2030 Geothermal Energy Ormat Geothermal Energy Project 2031 The Authority's interests in natural generation, and transmission natural gas, generation, transmission projects projects are jointly owned with other utilities, except for the Magnolia Power Project, which is wholly owned by the Authority. Under these undivided interest in a utility plant and is responsible for its participating member has an undivided arrangements, a participating proportionate operation and is entitled proportionate share of the costs of construction and operation entitled to its proportionate proportionate share of the energy or natural gas produced. Each participant, including the Authority, is responsible Each joint plant participant, responsible for financing its share of construction construction and operating statements reflect the Authority's interest in each operating costs. The financial statements each jointly owned project as well as the project that it owns. Additionally, the Authority's Authority's share of expenses expenses for each each project project is included in the statements changes in net assets (deficit) as part of operations statements of revenues, expenses, and changes maintenance expenses. and maintenance Accounting Policies Note 2 - Summary of Significant Accounting Basis of accounting accounting and presentation combined and individual presentation - The combined individual financial statements of the Authority Authority are prepared under the accrual accordance with accounting principles generally accepted accrual basis of accounting in accordance accepted in the United States of America America issued by the Governmental Accounting Standards Board (GASB) Governmental Accounting (GASB) applicable to governmental entities that use proprietary fund accounting governmental accounting and the Financial Standards Board Financial Accounting Standards (FASB) Board (F ASB) November 30, 1989 that do not conflict issued prior to November Revenues are recognized conflict with rules issued by the GASB. Revenues when earned recognized when incurred. The format of the Statement of Net Assets (Deficit) earned and expenses are recognized follows the inverted consistent with the Federal Energy inverted approach which is consistent Regulatory Commission Energy Regulatory Commission (FERC).
- capital assets, net of related debt and advances from participants Invested in capital participants - This component component of net assets consists of (a) capital assets, (b) net of accumulated depreciation, and (c) unamortized debt expenses, accumulated depreciation, outstanding balances of any bonds, reduced by the outstanding bonds, other advances from participants that are other borrowings, and advances attributable to the acquisition, construction, significant unspent construction, or improvement of those assets. If there are significant related debt proceeds proceeds is not included proceeds at year-end, the portion of the debt attributable to the unspent proceeds included calculation of invested in capital assets, net of related debt. Rather, that portion in the calculation portion of the debt is included included in the same net assets component as the unspent proceeds.
57
SOUTHERN SOUTHERN CALIFORNIA PUBLIC POWER POWER AUTHORITY NOTES TO TO COMBINED FINANCIAL STATEMENTS COMBINED FINANCIAL STATEMENTS Note 2 - Summary of Significant AccountingAccounting Policies (Continued)
- Restricted - This component component consists of net assets on which constraints are placed placed as to their use. Constraints include those imposed by creditors creditors (such (such as through debt covenants),
covenants), contributors, contributors, or laws or regulation regulation of of other governments or constraints constraints imposed by law through constitutional constitutional provisions provisions oror through enabling legislation. .
- Unrestricted - This component component of net assets consists of net assets that do not meet the definition definition of of "restricted" or "invested "restricted" or "invested inin capital capital assets, net of assets, net related debt of related debt and advances advances from participants."
participants." Use of estimates - The preparation preparation of financial statements in conformity with accounting accounting principles generally generally accepted in the United States of America America requires management management to make estimates and assumptions that affect the reported amounts of assets and liabilities liabilities and disclosure of contingent contingent assets and liabilities at the date of the financial statements statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Utility plant - The Authority's Authority's share of construction and betterment costs, natural gas reserves, reserves, intangibles, intangibles, and nuclear fuel associated with PVNGS, STS, Mead-Phoenix, Mead-Adelanto, Mead-Adelanto, SJGS, SJGS, Magnolia Power Project and the Natural Gas Projects Projects are are included included as utility plant and recorded at cost. Costs include labor, materials, materials, capitalized interest costs on funds used in construction, and allocated indirect charges capitalized engineering, charges such as engineering, supervision, transportation transportation and construction construction equipment, retirement plan contributions, health care care costs, and certain administrative and general expenses. The costs of routine maintenance, maintenance, repairs, and mi.nor minor replacements replacements incurred to maintain the plant in operating operating condition condition are charged to the appropriate appropriate operations and maintenance maintenance expense accounts in the period incurred. The original cost of property expense property retired, net of removal and salvage costs, is charged to accumulated accumulated depreciation. Depreciation expense straight-line method based expense is computed using the straight-line based on the estimated estimated service service lives, principally principally thirty-five years years for PVNGS, STS, Mead-Phoenix Mead-Adelanto, thirty years for Magnolia Mead-Phoenix and Mead-Adelanto, Magnolia and twenty-one years for SJGS. Natural gas reserve reserve depletion - Depletion Depletion expense for the NaturalNatural Gas Projects is computed using the unit of of production method method based on the future production production of the provedproved developed producing wells, estimated estimated at 54 years. The depletion rate for the Natural Natural Gas Pinedale ProjectProject was $1.87/MMbtu
$1.87/MMbtu and the estimated estimated total net revenue volume volume was 24,351,608 MMbtu MMbtu up to the period ending ending 2060. The depletion rate for the Natural Gas Barnett Project was $1.91/MMbtu
$1.91/MMbtu and the estimated total net revenue revenue volume was 28,906,440 28,906,440 MMbtu MMbtu up to the period ending 2060.
Nuclear fuel Nuclear fuel-- Nuclear Nuclear fuel fuel is amortized amortized and charged charged to expense on the basis of actualactual thermal energy produced produced relative to total thermal energy expected expected to be produced over the life of the fuel. Under the provisions of the Nuclear Waste Nuclear Waste Policy Policy Act Act of 1982, the of 1982, the federal government assesses each federal government each entity with nuclear operations, operations, including participants in PVNGS, $1 per megawatt hour of nuclear generation. The Authority records this charge the participants charge as a current year expense. See Note 10 for information about spent nuclear fuel disposal. 58 58
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY NOTES TO COMBINED NOTES FINANCIAL STATEMENTS COMBINED FINANCIAL STATEMENTS Note 2 - Summary Accounting Policies (Continued) Summary of Significant Accounting Nuclear decommissioning - Decommissioning ofPVNGS Nuclear of PVNGS is expected to commence subsequent to the year 2026. The total cost to decommission the Authority's interest interest in PVNGS estimated to be $125.6 PVNGS is estimated $125.6 million in 2007 dollars ($339.5 ($339.5 million in 2022 dollars, dollars, assuming a 6%6% estimated annual inflation inflation rate). This estimate is based on on an updated site specific study prepared by an independent independent consultant consultant in 2004. The Authority is providing for its decommissioning costs over the remaining life of the nuclear share of the estimated future decommissioning nuclear power plant through amounted to $8.7 million in fiscal years 2008 and 2007. The decommissioning annual charges to expense, which amounted decommissioning included as a component of accumulated depreciation liability is included depreciation and was $220.0 and $211.4 million at June June 30, 2008 and 2007, respectively. The Authority contributes contributes to external accordance with the Arizona Nuclear Power external trusts set up in accordance Power Plant Plant participation participation agreement and Nuclear Nuclear Regulatory Commission requirements. Regulatory Commission requirements. As of June 30, 2008, decommissioning funds totaledtotaled approximately $150.8
$150.8 million, including approximately $1.5 million of interest approximately $1.5 receivable.
Demolition and site reclamation reclamation - Demolition reclamation of SJGS, which involves restoring the site to Demolition and site reclamation a "green" condition, is projected "green" condition, projected to commence commence subsequent to the year 2014. Based Based upon the study performed performed byby an independent engineering firm, the Authority's share of the estimated estimated demolition and site reclamation reclamation costs is $30.8 million in 2003 dollars. The Authority Authority is providing for its share of the estimated estimated future demolition costs over the remaining remaining life of the power plant through through annual annual charges to expense of $3.1 $3.1 million. The demolition demolition liability is included as a component component of accumulated accumulated depreciation depreciation and totaled $46.7 million and $43.6 million at June 30, 2008 and 2007, respectively. participants for the cost of demolition nor has it established a As of June 30, 2008, the Authority has not billed participants demolition fund. Investments Investments - Investments includeinclude United States government government and governmental guaranteed governmental agency securities, guaranteed investment contracts, medium investment medium termterm notes and money market accounts. These investmentsinvestments are reported at fair fair value and changes in unrealized unrealized gains and losses are recorded recorded in the statement of revenues, expenses and changes changes exception of the guaranteed investment in net assets (deficit) with the exception contracts which are recorded investment contracts amortized recorded at amortized cost. Gains and losses realized on the sale of investments are generally generally determined determined using the specific identification identification method. The Bond Indentures for the Projects and the Multiple Project Fund require the use of trust funds to account account for for Authority's receipts and disbursements. Cash and investments the Authority's investments held in these funds are restricted to specific purposes as stipulated stipulated in the Bond Indentures. Natur:al Gas - SCPPA entered into a contract with the supplier Prepaid Natural supplier for a 30-year gas supply at a fixed entered into a contract discount and simultaneously entered project participants for the delivery of natural contract with each of the project gas. By prepaying participants will be able to procure the gas delivery at a fixed discount from prepaying the gas supply, the participants a monthly market market index price, as determined Natural Gas Agreements. determined by the Prepaid Natural Agreements. SCPPA also entered into commodity swap agreements on behalf commodity behalf of each participant to hedge against reductions each participant reductions in its revenues resulting resulting from changes in the monthly market index price. The payments participants for natural gas, payments received from the participants when delivered, will be sufficient to pay debt service. 59 59
CALIFORNIA PUBLIC POWER SOUTHERN CALIFORNIA SOUTHERN POWER AUTHORITY AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS COMBINED FINANCIAL STATEMENTS Note 2 - Summary Accounting Policies (Continued) Summary of Significant Accounting Advances for capacity and energy - Advance Advance payments to the United States Bureau of Reclamation Reclamation for the advances for capacity and energy. These uprating of the 17 generators at the Hoover Power Plant are included in advances These . advances are being reduced by the principal portion of the credits on billings to the Authority Authority for energy and current portion of these advances capacity. The current Prepaid and Other Assets in the Current Assets advances is recorded under Prepaid Statements of Net Assets (Deficit). Section of the Combined Statements Advance to IPA - Advance consists of cash transferred to IP Advance to IPA consists IPA A for reserve, contingency and self insurance funding. funding.* Certain expenses which may be subject to amortization Deferred Debits - Certain amortization in the future or items where final Deferred Debits and the underlying liability is presented in Advances disposition is uncertain are classified as Deferred Advances from Participants. Unamortized premiums, discounts, debt expenses and losses on refunding - Debt premiums, discounts, and Unamortized expenses are deferred and amortized debt expenses amortized to expense over the lives of the related debt issues. Losses on refunding ofthe refunding redeemed by refunding bonds are amortized related to bonds redeemed amortized over the shorter of the life of the refunding refunding bonds, or Unamortized issue costs are recorded the remaining term of bonds refunded. Unamortized recorded as a non current current asset. All other other unamortized debt expenses are recorded as an offset or addition to long-term long-term debt. equivalents include cash and investments with original maturities of equivalents - Cash and cash equivalents Cash and cash equivalents of 90 days or less. Materials Materials and supplies Materials and supplies - Materials supplies consist consist primarily construction and maintenance primarily of items for construction maintenance ofof plant assets and are stated at the lower of cost or market. Arbitrage rebate and yield restrictions - The unused proceeds tax-exempt debt have been proceeds from the issuance of tax-exempt been invested in taxable financial instruments. earnings on investments, if any, over the amount instruments. The excess of earnings amount that would have been earned if the investments had a yield equal to the bond yield or yield restricted rate, is payable payable to offering and each consecutive the IRS within five years of the date of the bond offering consecutive five years thereafter until final maturity of the related bonds. The recorded liability of the Multiple Project recorded liability Project Fund of $21.8 Mead-Phoenix
$21.8 million ($5.8 million payable to the Mead-Phoenix Mead-Adelanto Project) is a result of the cumulative
$16.0 million payable to the Mead-Adelanto Project and $16.0 cumulative savings from the 1994 refunding of the 1989 Multiple Project Bonds. The partial refunding within five years of the original issuance recalculation of the arbitrage yield, reducing the Multiple Project Fund's rebate liability.
issuance triggered a recalculation During the fiscal year ended June 30, 2008, the Authority made rebate payments to the IRS of $1.67 $1.67 million for
$48,440 for Palo Verde bonds.
the STS bonds and $48,440 Recorded liabilities as of June 30, 2008, were $0.11 Recorded arbitrage rebate and yield restriction liabilities $0.11 million for Palo Verde,
$0.72
$0.72 million for STS, $0.81 Mead-Phoenix, and $2.32 million for Mead-Adelanto.
$0.81 million for Mead-Phoenix, 60 60
SOUTHERN SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY NOTES TO COMBINED NOTES COMBINED FINANCIAL STATEMENTS STATEMENTS Accounting Policies (Continued) Note 2 - Summary of Significant Accounting Revenues - Revenues consist of billings to participants for the sales of electric energy, natural Revenues natural gas and transmission service accordance with the participation agreements. service in accordance Generally revenues are fixed at a level to agreements. Generally operating and any debt service costs over the commercial recover all operating commercial life of the property. September 1998, In September participants approved a resolution 1998, the Palo Verde participants resolution authorizing Authority to bill the authorizing the Authority participants an additional $65 million annually through June 30, 2004 to pay for increasedincreased debt service costs as a result of a refunding completed October 1997. In addition, the participants resolved to transfer any over completed in October over billings, renewal renewal and replacement excess funds or surplus amounts through June 30, 2004 into the Palo Verde replacement excess reserve account. On November 20, 2003, the Authority adopted a resolution to utilize the amounts on deposit in the reserve reserve accounts accounts to pay a portion maintenance expenses of the Palo Verde Project starting portion of the operating and maintenance starting July 1,1, 2004. Funds held in the reserve account as a result of this resolution resolution totaled $54.9
$54.9 million and $60
$60 million as of June 30, 2008 and 2007, respectively.
Transportation Costs-Transportation purchases agreements for natural gas entered into by SCPPA, Costs - As a result of the sales and purchases SepPA, participants receive less volume than processed the participants incurring embedded transportation costs. These processed incurring These costs are participants' revenue and expense to the Natural Gas Project. At June 30, 2008 and 2007, recorded as participants' approximately $.1 transportation costs were approximately transportation $.2 million, respectively, for the Natural Gas Pinedale
$. 1 million and $.2 Pinedale Project and $.5 $. 1 million, respectively, for the Natural Gas Barnett Project.
$.5 million and $.1 In Kind Contribution - Each participant of the Magnolia Power. Plant is responsible for their own share of of natural gas. They may elect to bring fuel to the plant or purchase fuel from Occidental Energy Eriergy Marketing, Inc.
(OEMI). OEMI computes the daily imbalances of fuel volume per participant using the daily consumption data OEMI computes that the operating operating manager reported together with the daily imbalances, manager provides. Monthly, actual fuel burnt is reported imbalances, participants' purchases from OEMI. participants' in kind contribution, and fuel purchases OEM!. In kind contributions are valued recorded as participant revenue valued at fair market value and recorded revenue and fuel expense to the Magnolia Power Project. SCPPA Magnolia participants' fuel contribution SepPA values the participants' contribution using monthly average from average pricing from Project's OEMI fuel purchases. During the fiscal year ended June 30, 2008 and 2007 the participants' the Project's participants' approximately 7.2 million and 6.7 million MmBtu's and was valued at approximately contribution in kind was approximately contribution approximately $56.9 million and $43.0 million, respectively. In Kind Payment - The Natural Gas Pinedale Pinedale Project pays federal royalties to Mineral Management Management Services Services (MMS). Beginning November sepPA elected November 2007, SCPPA elected to pay its obligation in kind with approximately approximately 0.6 million MMBtu, with a monetary value of approximately $0.5 million. 61
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC PUBLIC POWER AUTHORITY AUTHORITY NOTES TO COMBINED COMBINED FINANCIAL FINANCIAL STATEMENTS Note 3 - Utility Plant Plant At June 30, 2008 and 2007 Utility Plant consisted of the following (amounts in thousands): thousands): June 30, 30, 2008 2008 GENERATION GENERATION TRANSMISSION TRANSMISSION NATURAL NATURALGAS GAS Southern Southern Hoover Magnolia Magnolia Transmission Mead-Mead- Mead-Mead-Palo Verde Uprating Up rating San Juan Power Power System System Phoenix Adelanto Adelanto Pinedole Pinedale Barnett Barnett Project Project Project Project Project Project Project Project Project Project Project Project Total Utility Utility plant Production $662,942 S S
$ 231,192 231,192 $280,338 S $S $ - $ $ 1,174,472 1,174,4 72 Trannsmusion Transmission 14,082 14,082 - 15,239 15,239 674,606 674,606 50.770 50,770 172,319 172,319 927,016 927,016 General 2,797 2,797 21 7,443 15,224 15,224 18,911 2,640 473 6,611 6,611 9,245 63,365 Natural gas reserves gas reserves - - - - 44,747 44,747 46,340 46,340 91,087 91,087 679,821 21 2123R,635238,635 310,801 31O,ROI 693,517 693,517 53.410 53,410 172,792 51,358 55,585 55,5852,255,940 2,255,940 Less accumulated depreciatio 606.123 21 164,644 30,919 428,083 17,640 55,260 6,494 2.781 1,311,965 Less accumulated deprcCialio,_.::\;0:,..,,~,:;I~;;;~,...._ _--=2;..:1__--:;16::::;'f3*~:::94~94:"1--""'2:-:~::::".;.:"'81"'~__-'i::7~8~5:7~!",!:--_~!75';:'~:::7~:::~-.--::I;;;~::;';:;'~~:;----'4"::!'::;::"':7:--"""5"'22::';,~~7:'741- 1~341; **~~~
73,698 73,991 279,882 265.434 35,770 117,532 44,864 52.804 943,975 Construclion woerI inprogret Constructionworkinprogrc! 15.065 15,065 3,472 786 - 1,166 1.166 - 352 10,304 31,145 31.145 Nuclear Nuclear fuel, at amtrtized cot amC)rtizcd COl 34,211 34,211 - - - - - - 34,211 34,211 Net utilityplant Net utility plant 122,974
$ 122,974 $ $ 77,463 77.463 $280,668 $ 265,434 265,434 $ 36,936 $ 117,532 S 45,216 63,108
$ 63,108 $S 1,009,331 1,009,331 June 30, 30, 20072007 GENERATION GENERATION TRANSMISSION TRANSMISSION NATURAL NATURALGAS GAS Southern Hoover Magnolia Magnolia Transmistion Transmission Mead-Mead- Mead-Mcad-Palo Verde Uprating San Juan Power Power System System Phoenix Adelanto Adelanto Pinedale Pinedale Barnett Barnett Project Project Project Project Project Project Project Project Project Project Project Project Project Total Utility Utility plant Production Production $650,944
$650,944 $ $ 176,249 $278.303
$278,303 s $ - $ $ 1,105,496
$ 1,105,496 Transmission Trans mis s io n 14,076 14,076 - 15,144 674,606 674,606 50,770 172,319 926,915 General General 2,782 21 7,443 14,825 14,825 18,911 2,640 473 5,038 5,038 822 822 52,955 Natural gas reserves - - - - - - 44,747 44,747 46,340 467340 91,087 91,087 667,802 21 183,692 183,692 308,272 693,517 693,517 53,410 53,410 172.792 172,792 49,785 49,785 47,162 2,176,453 2,176,453 Less accumulated accumulated depreciatio 586,538 21 151,154 19,655 409,375 16,237 50,760 50,760 4,883 4,883 501 501 1,239,124 1,239,124 81,264 32,538 32,538 288,617 288,617 284,142 37,173 122,032 122,032 44,902 46,661 46,661 937,329 937,329 Construction work in progret Constructionworkinprogret 17,338 17,338 21.896 21,896 23 23 236 236 - 1,573 1,573 8,423 8,423 49,489 20 176 - - - - - 20.176 Nuclear fuel, at amC) rtized co!,-::--;;2;;..0';;,17;;;6~.-:-_..;,.._-::,-::-:-::,,;-:-_ -="""'=--;:-=::-;-;c;- '-::-~=~'-::-=-;:";'-::;- '-::-'"'7:""'-::'""""'-::-"'7.=-::-- ,-::-=,:;20::';',:;:17,;;.6_
Nuclear fuel, at amortized co! Net Net utility plant 118,778
$ 118,778 $ - $
$ 54,434 54.434 $288,640
$s28,640 $ 284,142 284,142 S S 37.409 31,409 $S 122,032 122,032 S 46,475 46,475 $ 55,084 55,084 $ 1,006,994 1,006,994 A summary summary of changes in Utility Plant follows (amounts (amounts in thousands):
Balance Balance Balance Balance July 1,2007 1, 2007 Additions Additions Disposals Transfers Transfers June JlUle 30, 30, 2008 No ndepreciable utility plant Nondepreciable plant Land Land $ 42,472 $ - $ $ - $ 42,472 42,472 Construct Construct ion work work in progress 39,493 58,694 58,694 41 (77,740) (77,740) 20,488 20,488 Construct Construct ion work progress - gas work in progress 9,996 2,234 2,234 (1,573) (1,573) 10,657 10,657 Nuclear Nuclear fuel" fuel* __~~2~0~,1~76=-, 20,176 ____~1~9~,9~4~3 19,943 ______~(5~,9~0~8~) (5,908) ____~~~ . ____~3~4~,2~1~1_ 34,211 Total nondepreciable nondepreciable utility utility plantplant __~I~I~2~,1~37~, 112,137 ____~8~0~,8~7~1 80,871 ______~(5~,8~6~7~) (5,867) ____~(7_9~,3_1_3~) (79,313) _____ 107,828 10_7~,8_2_8_ Depreciable Depreciable utility plant Production Production Nuclear generation Nuclear generation (Palo(Palo Verde Project) Verde Projcct) 650,208 19,876 19,876 (7,878) (7,878) 662,206 Coal-fired Coal-fired plant plant (San Joan Unit (San Juan Unit 3 Project) Project) 176,249 176,249 55,348 (405) (405) 231,192 Gas-fired Gas-fircd plant (Magnolia (Magnolia Power Project) Project) 278,303 2,035 280,338 280,338 Transmission Transmission 885,180 885,180 101 - 885,281 General 47,095 452 452 (38) (38) 15, 855 15,855 63,364 63,364 Acquisit ion ion of of gas reserves reserves 91,087 91,087 - 91,087 91,087 Intangibles Intangibles 4,797 4,797 1,497 (6, 294) (6,294) - Well equipment equipment and productionproduction facilities facilities __..."...~1~,0~6~2 1,062 ____~~8~,4~9~9 8,499 ______~~~ _____~(~9~,5~6~1) (9, 561) __~~~~ Total depreciable utility Total depreciable plant utility plant 2,133,981 87,808 (8,321) (8,321) 2,213,468 Less accumutlated depreciation accwnulated depreciation (1,239,124) (1,239,124) (81,120) (81,120) 8,279 - (1,311,965) (1,311,965)
$ 1,006,994 $ 87,559 $ (5,909) $ (79,313)
Total Total utility plant,plant, netnet ==$=1,;.,0=0=6=,9=94==$===8=7,;.,5=5=9===$====(5=,=90=9=)==$==(=7=9=,3=1 ==3) $$ 1,009,331I 1,009,33 "Nuclearfuel disposals represent
- Nuclear represent a~mortization, amortization.
62 62
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY NOTES TO COMBINED COMBINED FINANCIAL STATEMENTS FINANCIAL STATEMENTS Note 4 - Investments Investments The Authority's investment function operates operates within a legal framework established established by Sections Sections 6509.5 and 53600 et. seq. of the California .et. California Government Code, Indentures Indentures of Trust, instruments governing governing financial arrangements entered into by the Authority Authority to finance and operate Projects and the Authority's Authority's Investment Investment Policy. Guaranteed investment contracts ("OICs") Guaranteed ("GICs") are contracts contracts that guarantee the owner principal repayment and a specified interest interest rate for a predetermined predetermined period of time. OICs GICs are typically issued by insurance insurance companies and and marketed to institutions that qualify qualify for favorable tax status under federal laws. These These types of securities provide institutions with guaranteed guaranteed returns. GICs are negotiated negotiated on a case-by-case case-by-case basis. Based on SCPPA's Investment Policy, certain vehicles vehicles such as GICs, OICs, flexible repurchase repurchase agreements or forward debt service agreements, agreements, may be entered entered into only upon approval of the SCPP SCPPA A Board. In addition, eligible eligible securities and general limitations are derived from each Project's Indenture of Trust, the Government Government Code and SCPPA's evolving investment investment practices. The operative Indentures of Trust in which securities securities are authorized authorized for investment purposes purposes relate to the Palo Verde Project Bonds, the Southern Southern Transmission Transmission System Project Bonds, the Hoover Hoover Uprating Project Bonds, the Mead-Phoenix Project Bonds, the Mead-Adelanto Mead-Adelanto Project Bonds, the MultipleMultiple Project Fund Bonds, the San Juan Project Bonds, the Magnolia Magnolia Power Project Bonds, and the Natural Natural Gas Projects Bonds. Authorized investrnet;lts investments for the Projects' Projects' Stabilization Fund are set forth in a resolution approved by the Board in 1996. Eligible securities securities include:
** United States Treasury Securities, which are bonds or other obligations secured by the full faith and credit of Treasury Securities, of the United States of America; ** Federal Obligations, which have the full financial Federal Agency Obligations, financial backing backing of the U.S. Government; ** Government Government Sponsored Sponsored Enterprise Obligations, Obligations, which are created created by acts of Congress to provide provide liquidity for selected lending programs programs targeted by Congress; ** Repurchase Repurchase Agreements, which are collateralized collateralized loan contracts contracts where the seller includes a written agreement to repurchase the securities securities at a later date for a specified amount; ** Negotiable Negotiable Certificates Certificates of Deposit, which are deposit liabilities issued by a nationally or state-chartered state-chartered bank, a savings or a federal association or by a state-licensed state-licensed branch of a foreign bank which has short-term short-term ratings of at least "A-I" "A-I" by S&P and at least "P-I""P-l" by Moody's; *" Banker's Acceptances, Acceptances, a short-term short-term draft or bill of exchange guaranteed guaranteed for payment at face value to the holder of the instrument instrument on its maturity date, which has a short-term short-term rating of at least "A-I" "A- I" by S&P and at least "P- I" by Moody's; "P-l" ** Commercial Commercial Paper, a short-term unsecuredunsecured promissory note issued by non-financial non-financial or financial firms with a rating of at least "A-I" "A-1" by S&P and at least "P-l" "P-1" by Moody's; *" Medium Medium Term Notes rated "A" or better and only those issued by corporations corporations organized and operating operating within the United States, or by depository depository institutions licensed licensed by the United States or any state and operating within the United States; ** Equity-Linked Notes, which are categorized categorized as medium-term medium-term corporate notes and are subject to the constraints constraints set forth in the Government Government code and the Authority's InvestmentInvestment Policy.
63
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER POWER AUTHORITY AUTHORITY NOTES TO COMBINED COMBINED FINANCIAL STATEMENTS STATEMENTS Note 44 - Investments (Continued) Investments at June 30, 2008 and 2007 are as follows (amounts in thousands): J UNEJO, UNE30,20082008 GENERATION GENERATION TRANSMISS TRANS ION MIS S ION NATIJRALGAS NATURALGAS MIS CELLANEOUS MISCELLANEOUS Southern Southern Drmal Orat Trans-Trans.- Hooner Hoover Magnolia Magnolir Gen-Ceo- mission Mead-Mead. Mead-Mead- Prepaid Projects' Projects' Palo Verde PaloVerde Uprating Upraling Sanjuan SenJuan Power Power thermal rhermnI System Sysemr Phoenix Phoenix Adelanto Adelaero Barnell Barnett Pinedale Pinedae Natural Mulliple Multiple Siabilizalio Stabilirlaio Projecl Project Project Projcel Project Project Project Prujcci Project Project Project Prajcel Projeor Project Project Project Project Prajcel Gas Gas Projp, IFund ProjcclFund nFuad nFund Toral Tolal U.S. Agi u.s. n, ias Agencies $ 158,137 $ 569 $ - $ 23,977
$23,977 $$. - $ - - $ - $ - $ - $ $ - $ 50,465 SS 233,148 233,148 AgencyDio.ou.I Agency Note.
Discounl NOles 37,326 37,326 3,545 3,545 23,841 32,918 32,916 1,117 1,117 4B,239 48.239 5,149 13,065 13.065 6,112 25,729 25,729 BBD 880 35,7B7 35.787 231,706 231,706 Treasury Coupon TrcasuryCoupon GIC*s GIC's 55,302 55.302 21.323 20,449 20,449 37,179 7,143 22,626 22.626 45,013 15,067 15.067 10,887 63,252 63,252 298,241 Ncgol iable Negot iablr CD's 3,400 3,400 3.400 3,400 - 1,700 1,700 60 60 - 3,500 3,500 12,060 12,060 Conmer cia IPPaper Commercial aper 364 364 . 364 364 Equiry Link Nor Equity as NOI es ,Money Money Market Funl.ts Market Funds 992 992 136 136 35 35 1,594 2032,284 203 2,284 1,695 1,895 780 1,964 1.964 2,706 2,706 285 _ _ _..:6"'8 68 _ _ _ _...;'5:;:8:... 158 13,100 13,100 To- I Total S 251,757
$ 251,757 4,250 S 4,250 _S 45,199 0 S 82,336 82,336 SS 1,684 8S 89,102 SS 14,187 14,187 5S 38,171 S 53,089 S 53,089 $S 43.562 43,562 5 S 11,172 11,172 ==6=7=.7=0=0====8=6.;;4~1O==
S 67,700 S 86,410 S S 788,619 788,619 Sari-te dinaslmenels Relitricledinvestments $$163,930 163.930 $ 1.068 1,068 $$21,322 21,322 $$ 48,176 48,176 $$ .- $$ 41,319 $ 7,593 7,593 $ 25,406 $ 45,013 $$ 15,126 15.126 $10,887
$10,887 $ 63,252 63,252 $ 50,465 50,465 SS 493,557 493,557 Unrel..i.led invesl monas Unrestrictedinve5~ments 64,502 64,502 560 - - - - . - - 65,062 Casha d cashaquiualaes Cashandcashequivalents 23,325 23,325 2,622 2,622 23,877 23,877 34,160 34,160 1,684 47,783 6,594 6,594 12,765 8,076 28.436 28,436 285 4",.44=8_ _ _..:3",5.:;,94.;,;5:...,
_ _ _4,448 35,945 230,000 230,000 Total Total ~ S 251,757 S S 4,250 4,250 ~~~~~~~~~===67=.7=0=0====8=6.;;4~1O==. S 45,199 $ 82,336 S 1,684 S 89,102 $ 14,187 S 38,171 $ 53,0M89 43,562 S 11,172 S 67,700 S 86,410 S 788,619
$ 788,619 J UNE30, 2007 2007 GENERATION GENERATION TRANSMISSION TRANS MISS ION NATURALGAS NATURALGAS MIS CELLANEOUS MISCELLANEOUS
.*Southerr Southern Ormat 0rmal Trans-Trans-Hooner Hoover Magnolia Magnolia Gao-Geo- ein soa mission Mead-Mead- Mead-Mead- Multiple Multiple Prjects Projects' PuoVerde Palo Verde Uperuino Uprating SenJuan Sanjuan Po.er Power threnml thermal Systen System Phoenix Phoenix Adelrano Adelanto Barneta Barnelt PinedlaW Pinedale Project Stabilization Stabilization Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project Project Fund Fund Fund Fund Total Total U.S. Age Agencies noi $S 183,404 183,404 SS 2,203 2,20) SS 9,954 S S 18,812 18,812 S - S $ - S - $ $ . 5 . $ 69,968 S 284,341 Agecny Discount Notes Agency Notes 13,400 13,400 1.930 1,930 19,301 19,301 32,539 32,539 1,415 1,415 47,889 47,889 5,746 5,746 15,588 15,588 27,006 27,006 7,449 7,449 7,032 179,295 Tresapry Coupon Treasury Coupon 489 489 - - - - . 489 489 GIC's GlC's 60,058 60,058 .- 21,323 20,449 20,449 37,179 7,398 22,626 22,626 58,847 227,880 227,880 Negoleable CD',
NegotiableCD'li - - 60 60 - 60 60 ConenrcialPaper Commercial Paper F40it p Link EquilY Link Nor Notesre Markelunrd, Money Market 1,626 2,290 571 1,576 2,852 14,193 Funds 1,626 ._ _'126 615
;,;;';;.6_ _ _';.,;';..5_. 1.512 1,512 182 2.290 571 747 1.576 2.088 2,088 8 14.193 Total Total S$ 258,977 $S 4.259 4,259 $S 51.193 51,193 S
$ 73,312 $S 1,597 1,597 S 87,358 87,358 S 13,715 13,715 S 8 38,961 S 1,576
$ 1,576 S S 29.154 29,154 $S 66,304 66.304 8 79,852 79,852 5S 706,258 706,258 Rastriolediinvestments Restricted n.r.e.ents 166.233 S 166,233 SS 2,255 2,255 S 38,089 38,089 S 45.363 45,363 S$ -- S 58,681 S 98,681 S 7,399 S 7,399 $ 22,628 S 22,628 $$ - $ 64 64 SS 66,296 66,296 S 69,969 69,969 SS 476,977 476,977 Unrest
. oried Unrestricted ineal eentl inve!>1 ments 78.263 78,263 1,278 1,278 79,541 79,541 Cashandcashequioalentrs Cash and cash equiva lents 14,491 14,481 726 726 13,104 13,104 27.949 27,949 1,597 28,677 28,677 6,316 6,316 16,333 1,576 29,090 29,090 6 9,883 149,740 Total Total $ 258,977
~ SS 4.259 4,259 S$ 51,193 51,193 8 S 73,312 73,312 S 1,597 S 1,597 $ 87,358 S 87,358 $S 13,715 13,715 S 38,961 S 38,961 S$ 1,576 1,576 S S 29,154 29,154 SS 66,304 66,304 S 79,852 79,852 S 706,258 S 706,258 Interest rate risk - The Authority's Authority'S investment policy limits the maturity maturity of its investments to a maximum of 5 years years for investments investments in the United States Treasury, Federal Agency, and Government Sponsored Enterprise Enterprise securities, excluding: investments held in Project Debt Service Reserve; Reserve; long-term long-term commitmentscommitments or agreements agreements approved by the Authority's Authority's Board; 5 years for medium medium term corporate corporate notes; 270 days for commercial commercial paper; 180 180 days for banker's acceptances; acceptances; and one year for negotiable certificates certificates of deposits.
64
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY COMBINED FINANCIAL NOTES TO COMBINED FINANCIAL STATEMENTS STATEMENTS Investments (Continued) Note 4 - Investments Credit risk - Under its investment investment policy and the State of California Government Code, the Authority is subject to the prudent investor investor standard of care in managing managing all aspects of its portfolios. As an investment standard, each each investment shall be made with ')udgment "judgment and care under circumstances circumstances then prevailing, which a person person ofof
- prudence, prudence, discretion discretion and intelligence would exercise exercise in the management of his/her affairs, not in regard regard for speculation, but in regard regard to the permanent permanent disposition of funds, considering the probable income as well as the probable probable safety of the capital to be invested."
invested." The Authority's Authority's investment investment policy does not preclude active management management of the portfolio to address market opportunities. All transactions shall be undertaken undertaken in the best interest of the Authority and its participants. The Authority's investment policy policy specifies that all project funds may be invested in shares of beneficial interest interest for temporary temporary periods, pending disbursement disbursement or reinvestment reinvestment as allowed under the state of California Government Code ("Code"). The Code requires that the fund must have either 1) 1) attained attained the highest highest ranking or highest letter letter and numerical rating provided by not less than two nationally nationally recognized statistical rating organizations ("NRSRO") ("NRSRO") or 2) 2) retained an investment advisor registered or exempt from registration with the Securities and Exchange Exchange Commission with not less than five years experience managing money market mutual funds with assets under management management in excess of five hundred hundred million dollars. As of June 30, 2008 and 2007, each of the money money market funds in the portfolio have attained the highest possible possible ratings by three NRSRO's, specifically specifically AAA by Standard and Poor's, Aaa by Moody's Investors Service, and AAA by Fitch Ratings. The U.S. government agency securities securities in the portfolio consist of securities issued by government-sponsored government-sponsored enterprises, explicitly guaranteed by the U.S. government. As of June 30, 2008 and 2007, the U.S. enterprises, which are not explicitly government government agency agency securities in the portfolio carried carried the highest possible credit ratings by the NRSRO's that rated them. The Guaranteed Guaranteed Investment Contracts Contracts in the portfolio with AIG consist consist of securities securities issued corporations and issued by corporations and carry carry a rating of AA- by Standard Standard and Poor's, Aa3 by Moody's Moody's Investors Service and AA- by Fitch Rating. The Guaranteed Guaranteed Investment Contracts Contracts in the portfolio with PNC carry carry a rating of A+ by Standard and Poor's, Al by by Moody's Moody's Investors Service, and A+ by Fitch Ratings. The Investment Agreement Contract in the portfolio with FSA consists of securities issued Investment Agreement corporations and issued by corporations carries carries a rating of AAA AAA by Standard and Poor's, Aaa by Moody's Investors Service, Service, and AAA by Fitch Ratings. Concentration Concentration of credit risk - The Authority's Authority'S investment investment policy policy specifies a 50%50% to 100% 100% limitation on the amount that can be invested in U.S. government agency securities, except in certain issues of other Authority projects, such as the Southern Transmission Transmission System 19911991 Series and the Mead-Adelanto Mead-Adelanto and Mead-Phoenix Mead-Phoenix projects. Of the Authority's total investments as of June 30, 2008, $214.2 million (27%) was invested in securities securities issued by the Federal Home Loan Bank; $125.0 $125.0 million (16%) (16%) was invested in securities issued by the Federal National Mortgage Mortgage Association; (10%) was invested in an investment Association; $75.8 million (10%) investment agreement with Financial Financial Security Assurance Assurance (FSA); $93.0 million (12%) GIC's with PNC Financial (12%) was invested in OIC's Securities Group; and $129.5 Financial Securities $129.5 million (16%) (16%) was invested in GIC's with American American International International Group (AIG). 65 65
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER POWER AUTHORITY AUTHORITY NOTES TO COMBINED COMBINED FINANCIAL FINANCIAL STATEMENTSSTATEMENTS Note 4 - Investments Investments (Continued) Authority's total investments Of the Authority's investments as of June 30, 2007, $269.0 $269.0 million (38%) (38%) was invested in securities securities issued Federal Home by the Federal Home Loan Bank; $114.3 $114.3 million (16%) (16%) was invested in securities securities issued by the Federal Federal National Mortgage Association; $80.5 million (12%) (12%) was invested in an investment agreement with Financial Security Assurance (FSA); $88.9 million (13%) (13%) was invested in GIC's with PNC Financial Financial Securities Securities Group; and $58.5 $58.5 million (8%) invested in GIC's with AIG. (8%) was invested SCPPA is aware that there are global pressures on the current financial markets. Based on the best available available information at this time, SCPPA is vigilantly vigilantly monitoring the developmentsdevelopments in the markets and believes that it is is positioned positioned to deal with these developments developments should the market conditions conditions persist. Note 5 - Derivative Instruments Objective of the swaps - An interest rate swap is the exchange of payments payments between SCPPA and a counterparty counterparty in order to potentially obtain a lower cost of funding than traditional traditional fixed rate bonds, or to hedge interest rate exposure on SCPPA's assets or liabilities. The Authority Authority has entered into eight separate pay-fixed, pay-fixed, receive-variable interest rate swaps swaps and two basis swaps to produce savings or to result in lower costs over the life of each produce savings each transaction than what the Authority would have paid to issue fixed-rate fixed-rate debt. While these instruments carry SCPPA's swap policy and favorable negotiations have considered and helped to reduce additional risks, SCPPA'sswap reduce such risks. Terms, fair values, and credit risk - The terms, including including the fair values and credit ratings of the counterparties counterparties outstanding swaps as of June 30, 2008, are included under the outstanding included below. In most cases, the notional notional amount of any any swap matches the principal amount of the associated associated debt. Except Except as discussed under the rollover risk, the Authority's swap agreements contain scheduled scheduled reductions to outstanding notional amounts that are expected to approximately follow scheduled approximately scheduled or anticipated reductions reductions in the associated "bonds payable" payable" category. Notional Swap Swap Amount Effective Termination Termination Counterp Co artyy unl erp art (in thousands) (in thousands) Date Date Fixed Rate Rate Paid Paid Variable Rate Rate Received Received Fair Values Fair Date Date Credit Credit Rating MPP 2007 MPP 2007 Swap (Bear (Bear Stearns) Stearns) $S 111,603 111,603 6/13/2007 6113/2007 3.912% 3.912% 98.9%ofSIFMA less .06% 98.9%ofSlFMA .06% $ (3,792) (3,792) 7/V2036 71V2036 AAA/Aaa/NA AAAlAaa/NA MPP 2007 MPP (Citigraup) 2007 Swap (Citigroup) 111,603 111,603 6/13/2007 3.912% 3.912% 98.9%ofSIFMA less .06% 98.9%ofSlFMA (3,792) (3,792) 7/V2036 71V2036 AA/Aa1/AA-AA/AaVAA-MA Z007 MA 2007 Swap Swap 100,000 100.000 2/1/2008 2/V200R 1-month USOR Hnonth UBOR 100%oflO-yr LIO0R eMS IOO%of IO-yr UBOR CMS rate rate Jess less .414%
.414% 2,913 9/15/2030 91lS12030 AAA/Aaa/NA AAAlAaa/NA STS 2006 STS Amrended Swap 2006 Amended 100,000 100.000 5/U/2013 5/V2013 SIFMA SIFMA 58.99%of 10-yr 58.99%of eMS rate plus .664%
UBOR CMS IO-yr UBOR .664% (383) (383) 7/1/2023 71V2023 AA/Aaa/AA-AAlAaa/AA-MP 2004 Swap MP Swap 28,700 28.700 5/27/2004 5/2712004 3.894% 3,894% 65%ofLIBOR 65%ofUBOR (2,146) (2,146) 7/1/2020 71V2020 AA-/Aa1/AA-AA-/AallAA-MA 2004 MA 2004 Swap 96,025 96,025 5/27/2004 3.890% 65%ofULlBOR 65%ofUBOR (7,148) (7,148) 7/1/2020 7/V2020 AA-/Aa 1/AA-AA*/AaVAA* STS Swaption/Swap STS Swaption/Swap 125,000 125,000 2/6/2001 4.250% 4.250% 60%o f LMBOR 60%ofUBOR (20,141) (20,141) 7/1/2022 71V2022 AA-/Aa3/AA-AA*/Aa3/AA* STS 2001 STS 2001 Swap Swap 79.795 79,795 6/14/2001 6114/2001 4.240% 4.240% SIFMA less .40% SIFMA (8.071) (8.071) 7/V2021 -AA-/Aa VAA. 7/V2021 ,-AA*/AaVAA. STS STS 1991 1991Swap Swap 280,000 280,000 4/17/1991I 41171199 6.380% 6.380% Bond variable coupon rate variable coupon rate (52,373) (52,373) 6/30/2019 6/30/2019 AA-/Aa3/NA AA*/Aa3/NA 201,450 10/11/2007 5.0475% 67%of3-Month UBOR plus 1.47% (10,087) 11/1/2038 AA-/Aa3/AA-prepaidNatural Prepaid NaturalGas Gus 2007 2007 Swap Swap 201,450 IOIIV2007 5.0475% 67%of3-MonthUBORplus 1.47% ~) IVV2038 AA*/ Aa3/ AA-
$" 1,234.176 $(105,020)
$ 1,234,176 S (105.020) 66
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY COMBINED FINANCIAL NOTES TO COMBINED FINANCIAL STATEMENTS STATEMENTS . Note 5 - Derivative Instruments (Continued)
- PNG 2007 SwapSwap - In October 2007, SCPPA entered into an interest rate swap agreement agreement in connection connection with the issuance of the Prepaid Natural Natural Gas Project No. I1 Series 2007B Bonds. The swap swap hedges the interest-rate risk on the LIBOR LIB OR Floating-rate bonds, where SCPPA pays a fixed rate of 5.0475% 5.0475% in exchange exchange for receiving 67% of 3-month LIBOR plus 1.47%. The floating index on the swap exactly matches the coupon on the 67%
Bonds Bonds and therefore provides provides a hedge with no tax or basis risk. The swap expires on November November 1, I, 2038.
*" PNG 2007 Commodity Swap - At the same time, SCPPA also entered into five commodity price swap agreements, agreements, on behalf of each of the Prepaid Natural Gas Project No. I1 ParticipantsParticipants in order to hedge hedge against reductions reductions to its gas sale revenues revenues resulting from changes in monthly market index prices. SCPPA pays a floating natural gas price over a thirty-year period and receives receives specified specified fixed natural gas prices prices at an agreed agreed pricing pricing point as determined in the Prepaid Natural Gas No. 1 Agreements. The effective date of the swaps is I Agreements. is July 1, 1, 2008 and they all expire on September September 30,2038.
30, 2038.
** MPP 2007 Swap - In April 2007, the Authority entered entered into an interest rate swap in connection connection with the issuance variable-rate Magnolia issuance of variable-rate Magnolia Power Project A, Refunding Revenue Bonds, Series 2007-1 ("2007-1 Bonds"). The Swap createdcreated synthetic synthetic fixed-rate fixed-rate debt which consisted of a $223,260,000 29-year 29-year floating-to-fixed interest interest rate swap allocated equally between between two counterparties.
counterparties. The Authority Authority pays each of the counterparties counterparties a fixed rate of 3.912% exchange for receiving 3.912% in exchange receiving 98.9% of the SIFMA Index minus 6 basis points. The swap became effective on June 13,2007, became effective 13, 2007, and variable interest and swap payments commenced commenced on January 1, 2008. The swap expires on July 1, January 1,2008. 1, 2036.
** MA 2007 Swap - In January 2007, the Authority entered into a Constant Constant Maturity Swap ("CMS") in in connection connection with its outstanding outstanding Mead-Adelanto Mead-Adelanto Project. The transaction consisted of a $100 $100 million basis swap swap and does not relate to any single series of the Mead-Adelanto Mead-Adelanto bonds. The swap terms became became effective on February February 1,1, 2008 and the Authority pays the swap counterparty 100% 100% of the I-month 1-month LIBOR in exchange exchange for receiving receiving 100%
100% of the IO-year 10-year LIBOR LIBOR minus 41.4 basis points. The swap expires expires on September September 15,2030. 15, 2030.
** STS 2006 Amended Swap - In July 2006, the Authority Authority executed executed an amendment amendment to the STS $100 $100 million, floating-to-floating floating-to-floating Fixed-Spread basis swap entered into in November 2004. Under the amended amended swap, which became effective on August 1, SCPPA I, 2007, SCPP A continues to pay the swap counterparty counterparty the SIFMA SIFMA index but receives 58.99% of the IO-Year10-Year LIBOR LIBOR plus 66.4 basis points, instead of 65% 1-month LIBOR plus 65% of I-month 66.4%
66.4% basis points. The STS 2006 Constant Maturity Maturity Swap was suspended suspended for 5 years effective May 7, 7, 2008 and SCPPA received received the swap value of$3.7 of $3.7 million, which was recorded recorded as an offset to interest expense. The notional amount of the Swap Agreement Agreement remains at $100$100 million. The swap expires on July 1, 1, 2023.
** MP 2004 Swap - In connection connection with the issuance of the 2004 Mead-Phoenix Mead-Phoenix Project Revenue Bonds Series A auction-rate auction-rate security in May 2004, the Authority entered into an interest rate swap on March 3, 3, 2004. The floating-to-fixed floating-to-fixed rate swap created synthetic fixed-rate debt for the Authority. Under the Swap Agreement, the Authority pays the counterparty counterparty a fixed rate of 3.894% and in exchangeexchange the Authority receives a floating rate index equal to 65%65% of the one-month one-month LIBOR. The swap agreement agreement expires July 1, 1, 2020. The Authority received approximately received approximately $1.8$1.8 million in an upfront payment connection with the execution of the swap, payment in connection which has been deferred deferred and is being amortized as an interest yield adjustment over the life of the option.
Approximately Approximately $13.5$13.5 million in Mead-Phoenix Mead-Phoenix 2004 Project Revenue Bonds Series A are not swapped and remain floating-rate floating-rate bonds. The floating rate on the related bonds as of June 30, 2008 and 2007 was 2.958% 2.958% and 3.50%, respectively. 67
SOUTHERN CALIFORNIA PUBLIC POWER SOUTHERN CALIFORNIA POWER AUTHORITY NOTES TO COMBINED FINANCIAL STATEMENTS COMBINED FINANCIAL STATEMENTS Note 5 - Derivative Derivative Instruments Instruments (Continued)
- MA 2004 Swap - In connection with the issuance issuance of the 2004 Mead-Adelanto Mead-Adelanto Revenue Revenue Bonds Bonds Series A auction-rate security auction-rate security in May May 2004, the Authority Authority entered entered into an interest rate swap on March 3, 2004. The floating-to-fixed rate swap created synthetic floating-to-fixed synthetic fixed-rate debt for the Authority. Under the Swap Agreement, the Authority pays the counterparty counterparty a fixed rate of 3.89% for the swap and in exchange exchange the Authority Authority receives receives a floating rate index equal to 65%65% of the one-month LIBOR. The swap agreement expires July 1, 1, 2020. The approximately $5.9 million in an up Authority received approximately upfront front payment payment in connection connection with the execution of the swap, which has been deferred and is being amortized as an interest yield adjustmentadjustment over the life of the swap.
Approximately $45.1 million in Mead-Adelanto Approximately Mead-Adelanto 2004 Project Project Revenue Revenue Bonds Series A are not swapped and remain floating-rate floating-rate bonds. The average floating rate on the related bonds as of June 30, 2008 and 2007 was 3.032% 3.032% and 3.522%, respectively.
** STS 2003 SwapSwap - The STS 2003 interest rate swap was terminated on May 7, 7, 2008 and sepPA SCPPA paid the the associated swap termination associated of $1,287,000, before the STS 2003 Series Bonds termination value of$I,287,000, Bonds were refunded refunded on June 4, 2008. ** Swaption/Swap - In February 2001, STS Swaption/Swap 2001, the Authority entered entered into a transaction tninsaction whereby whereby it sold an option "Swaption") on a floating-to-fixed (the "Swaption") floating-to-fixed interest rate swap. The Swaption Swaption was exercised 1, 2002. The exercised on April 1, floating rate on the swap paid .by by the counterparty counterparty is 60% of the one-month one-month LIBOR; the annual fixed rate on the swap paid by the Authority Authority is 4.25%. In exchange for the right to exercise the Swaption, the counterparty counterparty paid the Authority a one-time up front option premium amount of$7.9 of $7.9 million which has been deferred and is being amortized amortized as an interest interest yield adjustment over the life of the option. The counterparty counterparty has the option to cancel the agreement agreement at the counterparty's counterparty's discretion. The swap expires on July 1,2022.1, 2022.
- STS 2001 Swap - In June 2001, 2001, the Authority entered into an interest rate swap agreement with a counterparty for the purpose of hedging against interest counterparty interest rate variations arising from the issuance of the 2001 Subordinate Subordinate Refunding Refunding Series A Southern Transmission Project Project-Revenue Revenue Bonds. The notional amount of the Swap Agreement is equal to the par value of the bonds. The Swap Agreement Agreement provides for the Authority to make payments to the counterparty counterparty at a fixed rate of 4.24%, and for the counterparty counterparty to make reciprocal payments based on a variable variable rate. The reset dates of the variable variable rate occur weekly and the rate for a reset date will be the rate determined determined by the Securities Industry and Financial Financial Markets Association SwapSwap Index
("SIFMA") minus 40 basis points. The counterparty counterparty has the option to cancel the agreement on July 5, 5, 2006 and on every Fixed Rate Payer Payment Date, thereafter, should the SIFMA SIFMA index average average more than 7% overover a consecutive 180-day period. The floating rates on the bonds were 1.60% consecutive 180-day 1.60% and 3.65% 3.65% at June 30, 2008 and 2007, respectively. The swap expires expires on July 1, 2021. I, 2021.
- STS 1991 Swap - In fiscal year 1991, 1991, the Authority Authority entered into an interest rate swap Agreement Agreement with a counterparty for the purpose of hedging against interest counterparty interest rate fluctuations arising from the issuance of the 1991 Subordinate Subordinate Refunding Refunding Series Southern Transmission Transmission Project Revenue Revenue Bonds. The notional amount of the Swap Swap Agreement is equal to the par value of the bonds. Under Under the Swap Agreement, Agreement, the Authority pays the counterparty a fixed rate of 6.38%; in exchange, counterparty exchange, the Authority receives receives payments mirroring mirroring the bond variable variable coupon rate (3.50% and 3.68%3.68% at June 30, 2008 and 2007, respectively).
respectively). The swap expires on June 30, 2019. 68 68
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY NOTES TO COMBINED COMBINED FINANCIAL FINANCIAL STATEMENTS STATEMENTS Note 5 - Derivative Instruments Instruments (Continued) Fair value - Fair values take into consideration consideration the prevailing interest rate environment, the specific terms and conditions of a given transaction and any upfront payments payments that were received. All fair values were were estimated using the zero-coupon zero-coupon discounting method. This method calculates the future payments required by the swap, assuming that the current forward rates implied by the yield curve are the market's market's best estimate estimate of future spot interest rates. These These payments are then discounted using the spot rates implied by the current yield curve for a hypothetical zero-coupon rate bond due on the date of each future net settlement on the swaps. While While some ofof SCPPA's current mark to market values are negative, this valuation valuation would be realized only if the swaps were terminated at the valuation date and only SCPPA SCPP A retains the right to optionally terminate most of the transactions. Credit risk - As of June 30, 2008, the net fair values of the Authority's applicable applicable swaps for which payments were made were negative negative for each counterparty counterparty except for the MA 2007 CMS swaps. However, should interest rates change change and the fair values of the swaps become become positive, positive, the Authority Authority may be exposed to credit risk in the amount of the derivatives' derivatives' fair value. The swap agreements contain varying collateral collateral agreements with the counterparties. The swaps require full collateralization of the fair value of the swap should the counterparty's collateralization counterparty's (or guarantors of the counterparty, as applicable) credit rating fall below AA- as issued applicable) issued by Standard & & Poor's or Aa3 as issued by Moody's Moody's Investors Service for the 1991 Swap; A+/Al Service A+fAI for the 2004 Fixed Spread Spread Basis Swap; A-/A3 A-fA3 for the 2001, the 2003 and the 2004 Swaps; Swaps; Baal/BBB+ Swaption/Swap; A-/A3 BaalIBBB+ for the SwaptioniSwap; A-fA3 for the Magnolia Magnolia 2007 Swap; and A/A2 AlA2 for the Prepaid Natural Natural Gas Project No. 1 2007 CommodityCommodity Swap. Collateral Collateral on all swaps is to be in the form of U.S. government securities held by a third-party custodian. agreements provide that when the Authority has more than one derivative The swap agreements derivative transaction transaction with a given counterparty involving involving the same Authority project project (and having the same swap/bond swap/bond insurer), should one party become insolvent or otherwise default on its obligations, close-out netting provisions permit the non-defaulting non-defaulting party to accelerate accelerate and terminate terminate all such related transactions and net the transactions' transactions' fair values so that a single sum will be owed by, or owed to, the non-defaulting non-defaulting party. Basis risk - Basis risk is the risk that the interest rate paid by the Authority on underlying underlying variable rate bonds to bondholders exceeds exceeds the variable swap rate received from a counterparty. With the exception exception of the 1991 1991 Swap, the Authority bears basis risk on each of its swaps. The 1991 Swap is perfectly hedged hedged since the counterparty counterparty pays the Authority Authority its actual actual variable bond rate on the 1991 bonds. All the other swaps swaps have a basis risk since under each of those swaps the Authority received a percentage (SIFMA less 40 basis points) to offset percentage of LIBOR (SIFMA the actual variable bond rate or variable variable swap rate the Authority pays on any related related bonds or on any basis swap. The Authority Authority is exposed exposed to basis risk should the floating rate that it receives on a swap be less than the actual variable rate the Authority pays on any related related bonds or in the case of the floating-to-floating floating-to-floating fixed-spread fixed-spread basis swap, less than the variable rate paid to the swap counterparty. counterparty. Depending on the magnitude magnitude and duration of any basis risk shortfall, the expected expected cost savings from a swap may not be fully realized. The 2001 2001 swap is based on SIFMA rate minus 40 basis points; similar to the LIBOR-based LIB OR-based swaps, SIFMA minus 40 bps may not exactly hedge the underlying underlying variable variable rate. As of June 30, 2008, the SIFMA SIFMA rate, minus 40 bps, was 1.185%, 98.9% of SIFMA minus 6 bps, was 2.145%, 60% 60% of LIBOR was 1.476%, 65% 1.476%, 65% of LIBOR was 1.599%, 100% 100% of 10-Year 10-Year LIBOR LIBOR minus 41.4 bps was 4.353 and 67% 67% of 3-month LIBOR plus 147 bps was 3.395%. 3.395%. 69
SOUTHERN SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY NOTES TO COMBINED COMBINED FINANCIAL FINANCIAL STATEMENTS STATEMENTS Note 5 ~- Derivative Derivative Instruments (Continued) The following is a summary summary of interest rates rates paid to and received received from the counterparties counterparties as of June 30, 2008: Type ofDerivative of Derivative MAG MAO Swaption/ Swaption/ M MPP 2004 MA 2004 MA 2007 MA 2007 2007 NOP repay NGP repay 1991Swap 1991 Swap Swap 200lSwap 2001Swap Swap Swap Swap Swap Swap Swap 2007 Swap Swap P ayments to counterparty Payments 6.380% 4.250% 4.240% 4.240% 3.894% 3.890% 2.459% 2.459% 3.912% 3.912% 5.048% 5.048% Less,variable Less, payments from counterparty variable payments 3.500% 1.476% 1.476% 1.185% 1.185% 1.599% 1.599% 1.599% 1.599% 4.353% 4.353% 2.145% 2.145% 3.395% 3.395% Net Net interest rate rate swap payments 2.880% 2.774% 3.055% 2.295% 2.295% 2.291% -1.894%
-1.894% L767%
l767% 1.653% 1.653% Add,variable-rate Add, variable-ra te bond co coupon payments upo n paym ents 3.500% N/A 1.600% 1.600% 2.958% 2.958% 3.032% N/A 3.750% 3.750% 3.395% 3.395% Synthetic interest rate on bonds Synthetic 6.380% 2.774% 4.655% 5.253% 5.253% 5.323% 5.323% -1.894%
-1.894% 5.517%
5.517% 5.048% 5.048% Termination risk - The Authority or the counterparty Termination counterparty may terminate any of the swaps if the other party fails to perform under the terms of the contract. In addition, the Swap/Swaption Swap/Swaption providesprovides the counterparty counterparty with an option to cancel cancel the swap agreement agreement if the consecutive 180-day 180-day averaged rate of the SIFMA index exceeds '7.0%. 7.0%. TheThe counterparty for the 200 counterparty 2001I Swap also has a cancellation cancellation option which can can be executed executed by the counterparty counterparty at their discretion. If any of the swaps swaps were terminated, any associatedassociated variable rate bonds would no longer be hedged hedged to a fixed rate. If at the time of termination termination the swap has a negativenegative fair value, the Authority would be liable to the counterparty for a payment equal to the swap's fair value. counterparty Rollover Rollover risk - RolloverRollover risk is the risk that the swap swap contract is not co-terminus with the related bonds. The Authority is exposed to rollover rollover risk on the Swap/Swaption Swap/Swaption and the 2001 Swap Swap because the counterparty counterparty has the option to terminate terminate the agreement prior to the maturity maturity of the associated debt. In the event that this swap terminates, the Authority Authority would be exposed to variable variable interest interest rates on the underlying bonds. The following debt is exposed to rollover risk: Associated Associated Debt Debt Issuance Debt Maturity Date Swap Termination Date STS 2001 Subordinate Refunding Series Refunding Series A July 1, 1,2021 2021 July 1,2021 1, 2021 70 70
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC PUBLIC POWER AUTHORITY POWER AUTHORITY NOTES NOTES TO COMBINED FINANCIAL STATEMENTS COMBINED FINANCIAL STATEMENTS Note (Continued) Note 5 - Derivative Instruments (Continued) Swap associated debt -- Using rates payments and associated Swap payments as of June .30, rates as 30, 2008, debt service requirements requirements of the Authority's Authority's outstanding outstanding variable rate debt debt and net net swap payments are as follows. follows. As rates vary, variable rate bond interest payments and net swap payments interest payments payments will vary. (Amounts in thousands) (Amounts thousands) Variable-Rate Variable-Rate Bonds Bonds Interest Rate Interest Rate Fiscal Year Year Ending Ending June 30, Principal Principal Interest Interest Swaps, Net Swaps, Total 2009 2009 $ 19,295 19,295 $ 24,254 $ 19,908 19,908 $ S 44,162 2010 2010 17,315 17,315 23,655 23,655 19,415 19,415 43,070 2011 2011 18,435 18,435 23,018 23,018 18,891 41,909 2012 2012 41,055 41,055 21,975 17,738 17,738 39,713 39,713 2013 2013 42,380 20,888 16,547 16,547 37,435 2014-2018 2014-2018 319,280 319,280 80,063 80,063 56,506 136,569 136,569 2019-2023 159,420 159,420 42,725, 42,725 22,061 22,061 64,786 2024-2028 2024-2028 53,605 32,500 15,314 15,314 47,814 47,814 2029-2033 65,435 21,154 21,154 9,968 31,122 2034-2038 2034-2038 287,055 287,055 20,019 20,019 9,672 9,672 29,691
$$ 1,023,275 1,023,275 $ 310,251 $ 206,020 206,020 $ $ 516,271 Long-Term Debt Note 6 - Long-Term Long-termn debt Long-term debt outstanding at June 30, 2008 consisted of "new money" refuinding bonds money" bonds, refunding subordinate bonds and subordinate refunding bonds bonds due in varying annual amounts through 2038. The new money bonds were issued to finance the money bonds the purchase purchase andand construction or acquisition of the Authority's interest in each of the Projects. Projects. The subordinate refunding bonds were issued to refund specified new money bonds. bonds.
indentures, the new money accordance with the bond indentures, In accordance money bonds and refunding bonds are special, special, limited obligations of the Authority. With Magnolia Power Project B, Lease exception of the Magnolia With the exception Lease Revenue Revenue Bonds Bonds (City ofof Cerritos, California) 2003-1 2003-1 ("Project B bonds issued by each project are payable B Bonds"), the bonds payable solely from and solely by interests in that project secured solely project as follows:
** Proceeds Proceeds from the sale of bonds;
*" All All revenues, revenues, incomes, attributable to that project and interest incomes, rents and receipts attributable interest earned earned on securities held under the bond indenture or indentures; and held under the bond indenture or indentures; and
** All established by the indenture All funds established indentures.
indenture or indentures. 71 71
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN AUTHORITY COMBINED FINANCIAL NOTES TO COMBINED NOTES STATEMENTS FINANCIAL STATEMENTS Note 6 - Long-Term Long-Term Debt (Continued) Authority has agreed to certain covenants with respect to bonded indebtedness, including The Authority including the requirement to enforce the natural gas, power and transmission sales agreements enforce agreements with the participants. participants. At the option of the Authority, all outstanding outstanding new money money bonds and refunding bonds are subject to redemption prior to maturity, except for the 2006-1 Magnolia Revenue Bonds; the 2002 Subordinate except Subordinate Refunding Series Series B Bonds, and portions of of . 1988A Refunding the 1988A Refunding Bonds, the 1992 and the 2008A 2008A Subordinate Subordinate Refunding Bonds issued for the Southern Southern Transmission Transmission System; the 2002A San Juan Revenue Revenue Bonds; a total of $125.5 $125.5 million of the MultipleMultiple Project Project Revenue Bonds and the 2007 A & Revenue & B Prepaid Prepaid Natural Natural Gas Project No. No.11 Bonds. Variable rate debt includes Auction Auction Rate Certificates ("ARCs"),("ARCs"), which bear interest at the applicable auction rate determined by an Auction as determined Auction Agent, as well as debt with rates based on daily, weekly and long term rates as determined by a Remarketing determined Remarketing Agent. Driven by by* the subprime mortgage mortgage problems which led to the downgrade downgrade of bond insurers, insurers, the contraction of of markets, and the loss of consumer confidence, financial markets, uncertainty in the viability of the auction rate confidence, there is uncertaintY market and the variable debt market continues to experience experience increased pressure. The availability of liquidity and credit facilities has been severely curtailed and the price severely curtailed price for obtaining obtaining these facilities has dramatically increased. Conditions continue Conditions continue to be challenging challenging and no assuranceassurance can be given that that there will not be other issues that affect the financial markets. A summary of changes changes in long-term long-term debt follows: (Amounts In Thousands) Thousands) GENERAT GENERATION ION TRANSMISSION TRANSMISSION Southern Palo Hoover Hoover Magnolia Transmission Transmission Mead- Mead-Verde Uprating San Juan Power Power System Phoenix Adelanto Adelanto Project Project Project Project Project Project Project Project Project debt at June Total long-term debt June 30, 2007 2007 $$88,373 88,373 $ 15,879 15,879 161,540
$ 161,540 $353,150
$353,150 $ 735,641 735,641 $$60,340 60,340 $ 192,959 192,959 Total debt due within one year year at June June 30, 2007 11,895 11,895 1,370 1,370 10,050 10,050 7,450 30,950 3,350 3,350 11,150 11,150 Total debt at June June 30, 2007 2007 100,268 17,249 17,249 171,590 171,590 360,600 766,591 766,591 63,690 204,109 Principal payments Principal payments (11,895)
(11,895) (1,370) (1,370) (10,050) (10,050) (7,450) (7,450) (30,950) (3,350) (3,350) (11,150) (11,150) Revenue bonds issued Revenue issued 7 refunded/defeased Bonds refunded/defeased - (50,050) ReflU1ding bonds issued Refunding bonds - - - - 48,025 48,025 Decrease in unamortized Decrease debt-related costs, net lU1amortized debt-related 2,052 436 (48) (48) (239) 11,866 11,866 582 582 1,663 Total debt at June JlU1e 30, 2008 90,425 90,425 16,315 16,315 161,492 161,492 352,911 745,482 745,482 60,922 194,622 194,622 Total debt due within one year at June JlU1e 30, 2008 ((12,250) 12,250) (1,425) (1,425) (10,550) (10,550) (7,930) (7,930) (31,075) (31,075) (3,425) (3,425) (11,400) (11,400) Total long-term long-term debt at June JlU1e 30, 2008 2008 $$78,175 78,175 $$14,890 14,890 $$150,942 150,942 $344,981
$ 344,981 $ 714,407 714,407 $57,497
$57,497 $183,222
$ 183,222 72
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY NOTES TO COMBINED COMBINED FINANCIAL STATEMENTS FINANCIAL STATEMENTS Long-Term Debt (Continued) Note 6 - Long-Term (Continued) (AmOlmts In Thousands) (Amounts NATURAL GAS MISC. Multiple Barnett Pinedale Pinedale Prepaid Project Project Project Project Project Natural Natural Gas Fund Total long-term debt at June 30, 2007 Total long-term 2007 $44,400
$ 44,400 $26,900
$ 26,900 $ $ 42,553 $1,721,735
$ 1,721,735 Total debt due within one year at JtU1e June 30, 30, 2007 500 1,300 - 78,015 78,015 Total debt at June June 30, 2007 44,900 28,200 42,553 1,799,750 1,799,750 Principal payments Principal payments (500)
(500) (1,300) (1,300) - (78,015) (78,015) Revenue bonds issued Revenue issued 5,900 5,900 - 504,445 504,445 510,345 510,345 Bonds refunded/defeased refunded/defeased (50,300) (50,300) (26,900) - (127,250) (127,250) issued Refunding bonds issued 99,007 42,053 - 189,085 189,085 Decrease in unamortized Decrease unamortized debt-related costs, net nct - - 5,080 1,274 22,666 22,666 Total debt debt at June June 30, 2008 99,007 99,007 42,053 509,525 509,525 43,827 2,316,581 Total debt due within one year year at June 30, 30, 2008 (4,765) (4,765) (2,015) (2,015) - - (84,835) (84,835) Total long-term long-term debt at June June 30, 2008 $94,242
$ 94,242 $40,038
$ 40,038 $$509,525 509,525 $ 43,827 $2,231,746
$ 2,231,746 Palo Verde Verde Project - Debt consists of subordinate subordinate refunding series bonds with variable interest rates and final maturities between between 2009 and 2017.
Hoover Uprating Uprating Project refunding series bonds with fixed interest rates between 4.0% and Project - Debt consists of refunding 5.25% and a final maturity 5.25% maturity during 2017. San Juan Project - Debt consists of refunding series bonds with fixed interest rates between 5.0% and 5.5% 5.5% and final maturities during 2014 and 2020. Magnolia Power Project - Debt consists of revenue bonds with fixed interest rates between between 2.00% 2.00% and 5.25% 5.25% with final maturities maturities occurring in 2036. Magnolia Power Magnolia Project Refunding - In June 2007, the Authority Power Project Authority issued $223.26 million of Magnolia Power Power Project Project A Refunding Revenue Bonds, 2007-1 2007-1 Series Series as variable rate demand obligations that currently bear interest at a weekly interest rate. The bonds were issued to refund $202.38 million of the Magnolia Magnolia Power Revenue Series 2003 -I. Project A Bonds, Revenue -1. The Authority also entered into two separate floating-to-fixed interest interest rate swap agreements allocated equally between agreements allocated counterparties in connection with the Series 2007-1 between two swap counterparties Bonds which effectively fixed the rate of the 2007-1 2007-1 Bonds. (See (See Note 5).5). Magnolia Power Magnolia Project Revenue Bonds - In July 2006, the Authority issued $37.73 million par value Magnolia Power Project Magnolia Power Project A, Revenue Bonds, Bonds, Series 2006-1. The bonds, issued at a premium, generated Series 2006-1. $38.63 million of generated $38.63 of new money proceeds proceeds and received a True Interest Cost of 4.13% 4.13% and a weighted weighted average life of 5.797 years. The primarily for the purpose bonds were issued primarily construction of the Magnolia Power Project. purpose of completing the construction 73
SOUTHERN CALIFORNIA PUBLIC POWER SOUTHERN POWER AUTHORITY AUTHORITY NOTES NOTES TO COMBINED COMBINED FINANCIAL STATEMENTS FINANCIAL STATEMENTS Long-Term Debt (Continued) Note 6 - Long-Term (Continued) outstanding Magnolia Of the outstanding Magnolia Power Project Revenue Bonds, $14.0 $14.0 million of "Project Bonds" are secured by "Project B Bonds" payments to be made by the City of Cerritos (the "City") in connection lease rental payments connection with the lease of certain Authority and the leaseback of such facilities and premises facilities and premises owned by the City to the Authority premises to the City. The Base Rental Payments will be equal to the principal Rental Payments interest on the Project B Bonds. In accordance principal and interest accordance Authority and the Trustee, the Authority between the Authority Agreement between with the Assignment Agreement certain of its Authority will assign certain rights under the Lease, including its right to receive the BaseBase Rental Payments, to the Trustee for the benefit of the owners of the Project B Bonds. The City has covenanted to budget and appropriate sufficient funds to make all payments payments required to be made under the Lease. The Lease has a term of 55 years. Southern Transmission Transmission System Project - Debt consists subordinate refunding series bonds consists of refunding and subordinate bonds with fixed and variable interest rates. Fixed interest interest rates range from 3.00% to 6.38% 6.38% with final maturities maturities occurring in 2022. Project Refunding - On June 4, 2008, SCPPA issued $48,025,000 of Southern Transmission Revenue STS Project Revenue Bonds, Subordinate Refunding 2008 Subordinate ("2008 Series A Bonds"). Due to the marked change in the performance Refunding Series A ("2008 performance of of Securities (ARS) versus Variable Auction-Rate Securities Variable Rate Demand Obligations ("VRDO") ("VRDO") in the current current market, driven by the credit crisis and subprime problems, SCPPA issued these fixed rate bonds to refund $50,050,000 of refund $50,050,000 of the Southern Transmission System Project Southern Transmission Project Revenue Refunding Series A Bonds ("STS Revenue Bonds, 2003 Subordinate Refunding 2003 ARS") and to pay the related costs of issuanceissuance for the 2008 Series Series A Bonds. In refinancing the 2003 Series SCPPA A Bonds, SCPP A successfully converted the STS 2003 ARS Bonds to fixed rate debt and completed successfully converted completed the first step in its strategy to exit the uncertainty of the ARS market. This transaction transaction resulted in a net loss for accounting purposes unamortized debt expenses associated with the refunded bonds. purposes of $6.6 million, consisting primarily of unamortized The loss on refunding was deferred and is being amortized in accordanceaccordance with GASB 23, over the remaining life life of the old debt which is shorter than the life of the new debt. interest rate swap with Citigroup was terminated The associated 2003 interest terminated on May 7, 2008 and SCPPA paid the swap 7,2008
$1,287,000. The 2006 Constant Maturity Swap with JP Morgan was suspended for 5 years termination value of $1,287,000.
effective May 7, 2008 and SCPPA received received a swap value of $3,745,000.
$3,745,000. The excess net proceeds proceeds of $2,458,000 service costs on other bonds. Both the swap termination will be used to pay debt service termination and swap swap suspension have been recorded to debt expense.
Phoenix Project - Debt consists of revenue and refunding series bonds with variable interest Mead Phoenix interest rates and a 5.15% fixed interest 5,15% interest rate. Final maturity occurs during 2020. Adelanto Project - Debt consists of revenue and refunding series Mead Adelanto series bonds with variable interest rates and a interest rate. Final maturity occurs during 2020. 5.15% fixed interest 5.15% Natural Gas Projects - On February 6, 2008, SCPPA SCPPA issued $141.1
$141.1 million Natural 'Gas Gas Project A Revenue Revenue Bonds, 2008 Series A in connection with the Natural Gas Projects. This fixed rate taxable taxable bond transaction was bond transaction outstanding $76 million of the expiring Natural Gas Project Revenue Bonds, Draw Down issued to pay-off the outstanding Series 2005A (the short-term bridge loan) and to provide for five years of capital drilling needs for both the Series Natural Gas Pinedale and Barnett Projects. Financing for the SCPPA Natural Gas Projects was executed executed as three separate transactions separate for each transactions for each of of the the Project A Participants Project A final maturity with final Participants with maturity in in 2032.
2032. 74 74
SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN CALIFORNIA AUTHORITY COMBINED FINANCIAL NOTES TO COMBINED STATEMENTS FINANCIAL STATEMENTS Note 6 - Long-Term Long-Term Debt (Continued) Project Fund - Debt consists of revenue Multiple Project revenue bonds with fixed interest rate of 6.75%6.75% and final maturity maturity during 2013. Related Costs - Unamortized debt-related costs, net are as follows (amounts in thousands): Debt Related thousands): June 30, 2008 Loss on on (Premium) (Premium) Unamortized debt-related costs, Unamortized debt-related costs, net net Refunding Refunding Discount Total Palo Verde Project Project $ 11,395
$$ $ 11,395 South em Transmission Southern Transmission System Project Project 80,770 80,770 14,893 95,663 Hoover Uprating Project Hoover Project 1,280 1,280 (195)
(195) 1,085 1,085 Mead-Phoenix Project Mead-Phoenix Project 4,523 (140) (140) 4,383 Mead-Adelanto Mead-Adelanto Project 13,451 (903) (903) 12,548 Multiple Project Fund Multiple 6,373 6,373 San Juan Project Project 4,169 (7,796) (3,627) Magnolia Project Magnolia Power Project 12,805 (4,206) 8,599 Prepaid Natural Gas Gas Project No. 1 Project No.1 ~5,080) (5,080) (5, 0802 (5,080)
$ 128,393 $$ 2,946 2,946 $ 131,339 131,339 June 30, 2007 Loss on on (Premium)
(premium) Unamortized debt-related Unamortized costs, net debt-related costs, net Refunding Refundin~ Discount Total Palo Verde Project Project $S 13,447 13,447 $
$ $ 13,447 13,447 Transmission System Project em Transmission Southern South Project 88,455 88,455 19,075 107,530 107,530 Project Hoover Uprating Project 1,751 (230) 1,521 Mead-Phoenix Project Mead-Phoenix 5,193 (229)
(229) 4,964 4,964 Mead-Adelanto Project Mead-Adelanto Project 15,445 (1,235) (1,235) 14,210 14,210 Project Fund Multiple Project Fund 7,647 7,647 San Juan Project Project 5,524 (9,199) (9,199) (3,675) (3,675) Magnolia Project Magnolia Power Project 13,262 (4,902) 8,360
$ 143,077 143,077 $ 10,927 10,927 $$ 154,004 154,004 Fair Value - The fair value Authority's long-term debt (including the current portion) is approximately value of the Authority'S approximately
$2.46 billion and $1.90 Management has estimated
$1.90 billion at June 30, 2008 and 2007, respectively. Management estimated fair value based on the quoted market prices for the same or similar similar issues or on the current average rates offered offered to the Authority for debt of approximately the same remainingremaining maturities, excluding the effect of a related interest rate swap agreement.
Refundings - The Authority has established irrevocable Advance Refundings the proceeds from issuance irrevocable escrow trusts with the'proceeds subordinate refunding of subordinate investments will be used to pay specified revenue bonds called refunding bonds. These investments called at scheduled redemption scheduled redemption dates. 75
SOUTHERN CALIFORNIA PUBLIC POWER SOUTHERN POWER AUTHORITY AUTHORITY NOTES NOTES TO COMBINED COMBINED FINANCIAL FINANCIAL STATEMENTS STATEMENTS Note 6 - Long-Term Long-Term Debt (Continued) (Continued) Defeasance of Debt - The Authority has defeased Defeasance defeased specified specified revenuerevenue bonds by placing the proceeds from the issuance of subordinate refunding bonds in irrevocable irrevocable trusts to provide for all future debt service payments on on the refunded bonds, bonds. The trust investments investments and related liability for bonds that are considered legally defeased defeased are not included included in the Authority's Authority's financial statements, statements. At June 30, 2008 and 2007, $853.4 million million and $880,1$880.1 million, respectively, of revenue bonds outstanding outstanding are considered considered legally defeased, defeased. The refunded bonds constitute a contingent contingent liability of the Authority Authority only to the extent extent that cash and investments investments presently in the control of the refunding trustees are not sufficient to meet debt service requirements presently requirements and are therefore excluded excluded from the combined financial statements statements because the likelihood likelihood of additional funding requirements is considered considered remote. remote, Debt ServiceService - The scheduled scheduled debt service payments for future years ending June 30 are included in the table service payments below, The variable rates used for the PV 1996 below. 1996 Subordinate Subordinate RefundingRefunding Series Band B and C, and the STS 1996 1996 Subordinate Refunding Series Series B were the rates at June 30, 2008 of 8.00% 8,00% and 1.28%, 1.28%, respectively, respectively. The variable rates used for the MA and MP 2004 Subordinate Subordinate RefundingRefunding Series A, and the STS 2000 and 2001 Subordinate Refunding Series Series A were'the were-the rates at June 30, 2008 of 3,03% 3.03% and 1.60%, respectively. The variable rates are set 1.60%, respectively, bond-remarketing agent on a weekly basis based on economic by the bond-rernarketing economic conditions conditions and bond ratings, ratings. (Amounts in thosands) thousands) GENERATION GENERATION TRANSMISSION TRANSMISSION NATURAL NATURALGAS GAS MISe MISC.-.. Southern Southern Trane-Trans- Multiple Ho over Hoover M ag no lie Magnolia mission mission Mead-Mead- Mead. Mead- Prepaid Project Project Palo Verde Palo Verde Uprrating Up ating San Juan San Juan Power Power System Phoenix Adelanto Adelanto Pine dale Pinedale Barnett Barnett Natural Natural GasGas Fund Fund Total Total 2009 Principal Principal S 12,250 12,230 1,425
$ 1,425 S$ 10,550 10,550 S$ 7,930 7,930 $S 31,075 31,075 3,425
$ 3,425 S$ 11,400 11,400 S52
$ 2,015 2015 $S 4,765 $ $ 84,835 84,835 2 009 Interet 2009 Interest 5,600 796 0,266 8,266 15,563 15,563 38,385 38,385 3,098 3,098 9,588 9,588 ,826 1,826 4,302 4,302 25,581 25,581 3,390 3,390 116,395 116,395 Principal 2010 Principal 10,075 ,480 1,480 11,115 11,115 8,615 30,585 30,585 3,500 3,500 11,725 ,956 1,956 4,639 5,625 5,625 89,315 89,315 4,926 7,699 14,734 37,817 ,956 4,606 4,606 25,440 25,440 3,389 3,389 113,615 113,615 2010 Interest Inerest 4.926 738 7,699 14.734 37,817 3,011 9,299 1,956 2
2011 Principal 2011Principai 10,375 10.375 1,540 1,540 11,715 11.715 8,930 8,93032,990 32,990 4,560 4,560 12,540 12,540 ,929 2,929 6,941 6,941 5,715 11,400 11,400 109,635 109,635 201 Interest 2011lnteresl 4,372 678 7,102 7,102 14,387 14,387 35,916 2,814 2,814 8,729 8,729 1,871 1,871 4.405 4,405 25,157 25,157 3,004 3,004 108,435 108,435 2 012 Principal 2012 Princip al 10,685 ,600 10,6851,60012,345 12,345 9,310 9.31035,650 35,650 4,840 4,840 13,310 13,3103.368 ,368 7,972 7,972 5,295 5,295 12,100 12,100 116,475 1<16,475 2012 Interest 3,002 3,802 614 614 6,472 14,004 14,004 33,951 33,951 2,497 2,497 7,856 7,856 1,756 4,132 24,881 24,881 2,211 2,211 102,176 102,176 Interest 21.756 Principsl1 2013 Principal 11,005 11,005 1,670 13,010 13,010 9,695 9,695 54,140 54,140 5,160 5,160 14,190 14,190 ,549 2,549 6,015 6,015 4,805 4,805 12,900 12,900 135,139 135,139 Interest 2013 Interest 3,214 537 5,808 5,808 13,595 13,595 31,921 31,921 2,159 2,159 6,928 6,928 ,640 1,640 3,857 3,857 24,629 24,629 1,366 1,366 95,654 95,654 9 10 2014*2018 2014.-2010 Principal Principal 47,430 47,430 ,685 9,685 84,140 84,140 50,705 50,705 253,475 25.945 25,945 84,155 84,155 ,975 10,975 25,745 25,745 20,895 20,895 13,800 13,800 626,950 626,950 6 2014 - 2010 Interest 2014-2018 Interest 6,619 6,619 1,3 13
),313 15,376 60,836 15.37660,836133,213 133,213 6.357 6,357 21,195 21,1956,628 ,628 15,582 120,005 120,005 465 465 387,589 387,589 2019 .2023 Principal 2019.2023 Principal - 14,990 14,990 42,930 42,930 333,715 17,875 59,850 7,691 7,691 18,054 38,200 38,200 533,305 533,305 4
2019 -.2023 Interest 2023 Interest 1,320 1.320 49,661 49,661 58,914 58,914 1.060 1,060 3.555 3,555 ,123 4,123 9,700 9,700 112,952 112,952 241,285 241,285 2024 -. 2020 2028 Principal Principal 53,700 53,700 69,515 69,515 ,766 5,766 13,559 13,559 72,310 72,310 214,850 214,850 2 2024 -2020 Interest 39,064 1,721 ,243 5,296 98,700 147,024
- 2028 Interest 39,064 1,721 42,243 5,296 98,700 147,024 2029 -2033 2029 - 2033 Principal Principal 65,670 65,670 .804 4,804 11,317 11,317 119,690 119,690 201,481 201,481 2029 -2033 2029 Interest
- 2033 Interest 27,294 27,294 696 1,643 74,448 74,448 104,081 104,081 2034 -2030 2034 Principal
- 2038 Principal 104,025 104,025 178,225 178,225 282,250 2034 --2038 Interest 2038 Interest 10,792 10,792 37,374 48,166 48,166 2039 --Principal Principal 53,685 53,685 53,685 53,685 2039 -- Interest Inte restI 1,355 1,355 1,355 1,355 Principael Principal $101,820
$101,820 S17,400
$17,400 $157,865
$157,865 $$ 361,510 361,510 $$ 841,145 841,145 $$ 65,305 65,305 $207,170
$207,170 $42,053
$42,053 $99,007
$99,007 $504,445
$504,445 $$ 50,200 50,200 $2,447,920
$2,447,920 Interest Interest $ 28,533 28,533 $S 4,676 $$52,043 52,043 $259,930
$259,930 $371,838
$371,838 $20,996
$20,996 $$ 67,150 67,150 $22,739
$22,739 $$53,523 53,523 $S 570,522 570,522 $ B,825 13,825 $S 1,465,775 1,465,775 76 76
CALIFORNIA PUBLIC POWER AUTHORITY SOUTHERN CALIFORNIA SOUTHERN AUTHORITY NOTES TO COMBINED COMBINED FINANCIAL FINANCIAL STATEMENTS STATEMENTS Note 7 - Notes Payable payable consist mainly of Palo Verde Notes payable Participants' over billings from prior periods and a note secured from Verde Participants' GE Capital Public Finance, Inc., to lease purchased spare parts inventory inventory for the Magnolia Magnolia Power Project. The notes payable in the Palo Verde Project are to be paid through June 2017. These notes are unsecured, bear bear an interest rate of 4.97%, and are due in monthly payments payments of $.6$.6 million. At June 30, 2008, the remaining remaining balance balance
$51.8 million. The note payable in the Magnolia Power Project has a coupon rate of 4.1 is $51.8 4.1%,
%, with principal payments due monthly through July 2010. At June 30, payments 2008, the remaining principal 30,2008, principal balance is $2.6 million.
Payable Rollforward (amounts in Notes Payable in thousands): thousands): Amortization of Amortization of Description 30, 2007 June 30,2007 Payments Surplus Surplus Fund June June 30, 2008 30,2008 PV prior year overbillings overbillings $ 56,128 $ (4,755) (4,755) $ 393 $ 51,766 MPP GE spare parts 3,966_ _ _ _.....(1,337) _ _ _3;....,,9'-'6~6 ("""1,3~3....;.7...,) _ _ _ _ _ - _ _ _ _--'22,629"-'-,6.:..:2:..;..9_
$ 60,094 $ (6,092)
(6,092) . $ 393 $ 54,395 Note 8 - Advances Advances from Participants Advances participants consist mainly of billings to participants related to acquisition, capital Advances from participants capital drilling, and inventory wherein the matching recognized at a future date. matching operating expenses will be recognized date. Also and specific only to advances held by the project are funds from LADWP and TID, both owners the Natural Gas Pinedale Project, advances independent of SCPP SCPPA, operating costs and capital expenditures A, are for their share of operating expenditures pursuant to their respective Agency Agency Agreements. Agreements. Advances Advances from participants roilforward (amounts in participants rollforward in thousands): thousands): Description Descr!ption June 30, 2007 Activity Activi~ June 30, 2008 NG Pinedale Pinedale advances advances from participants participants $ 37,998 $ 247 $$ 38,245 NG Barnett advances from participants participants 10,154 10,154 1,448 11,602 MPP advances from participants 19,522 19,522 2,602 22,124 ,- San Juan enviromental upgrade 32,000 (32,000) {32,000} _
$ 99,674 $ (27,703)
{27,703} $$ 71,971 77
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER POWER AUTHORITY AUTHORITY NOTES TO COMBINED COMBINED FINANCIAL STATEMENTS STATEMENTS Note 9 - Net Assets (Deficit) Authority's billing amounts to the participants The Authority's determined by its Board of Directors and are subject to participants are determined review and approval by the participants. Billings to participants are designed to recover "costs" "costs" as defined by the the power sales, natural gas sales, and transmission service service agreements. The billings are structured structured to systematically systematically provide for debt service requirements, requirements, operating operating funds and reserves in accordance accordance with these agreements. The accumulated difference between accumulated between billings and the Authority's calculated in accordance Authority's expenses calculated accordance with accounting accepted in the United States of America are presented as net assets (deficit). principles generally accepted (deficit). It is intended intended that this difference will be recoveredrecovered in the future through billings for repayment principal on the related bonds. repayment of principal Net assets (deficit) are comprised comprised of the following following (in thousands): Fiscal Year Fiscal Fiscal Year June 30, 30, 2007 2008 2006 Activity Activity June June 30, 2007 Activity June 30, 30, 2008 GAAP items not included included in billings billing<; to participants participants Depreciation Depreciation of plant $ (987,340) $ (67,586) (67,586) $(1,054,926)
$ (t ,054,926) $ (69,341)
(69,341) $ (1,124,267) (1,124,267) Nuclear fucl fuel amortization amortization (19,548) (19,548) (19,548) (19,548) 13,688 13,688 (5,860) (5,860) Decommissioning Decommissioning expense (164,546) (164,546) (11,779) (11,779) (176,325) (176,325) (11,779) (11,779) (188,104) (188,104) Amortization of bond discount, Amortization discount, debt refundings issue costs, and loss on refunding<; (653,205) (653,205) (16,800) ( 16,800) (670,005) (670,005) (17,516) (17,516) (687,521) (687,521) Interest expense (65,597) (65,597) (2,065) (67,662) 2,826 2,826 (64,836) Loss on defeasance of bonds bonds (85,827) (85,827) (85,827) (85,827) - (85,827) (85,827) Bond requirements billings to participants requirements included in billing<; participants Operations Operations and maintenance, net of investment investment income 295,341 9,698 9,698 305,039 8,091 313,130 313,130 Costs of acquisition capacity acquisition of capacity 16,129 16,129 (1,356) (1,356) 14,773 14,773 (1,411) (1,411) 13,362 13,362 Billing<; recoverable Billings to amortize costs recoverable 382,050 382,050 382,050 382,050 382,050 Reduction in debt service billing<; Reduction billings due to transfer transfer of excess ex cess funds fun ds (90,020) - (90,020) - (90,020) repayments Principal repayments 982,130 982,130 78,593 78,593 1,060,723 87,628 1,148,351 Other Other 71,556 28,463 100,019 100,019 59,315 59,315 159,334 159,334 (318,877) (318,877) 17,168 17,168 (301,709) (301,709) 71,501 71,501 (230,208) Multiple Multiple Project Fund net assets 5,752 (1,768) (1,768) 3,984 (1,255) (1,255) 2,729 Stabilization Fund Projects' Stabilization Fund net assets assets 66,593 14,049 14,049 80,642 6,228 86,870 86,870
$ (246,532)
(246,532) $ 29,449 29,449 $ (217,083) (217,083) $ 76,474 76,474 (140,609)
$ (140,609) 78 78
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY NOTES TO COMBINED COMBINED FINANCIAL STATEMENTS FINANCIAL STATEMENTS Note 10 - Commitments and Contingencies Industry Restructuring - Since the passage of Assembly Assembly Bill 18901890 (the "Bill")
"Bill") in September September 1996, the electric industry in California continues to remain uncertain. experiment has, for the most part, been deregulation experiment uncertain. The deregulation abandoned. The public power participants participants of SCPPA comply with the Bill's provisions.
SCPP A were not required to comply Fuel Supply Supply Pricing participants have made investments Pricing Volatility - Most of the SCPPA participants investments in gas-fired peaking or base-load generation located located in Southern California. The price price volatility of natural natural gas, which which is the fuel source source for many of California's electric generating generating units, may contribute greater volatility in revenues from the sale contribute to greater sale materially affect (and purchase) of electric energy and could materially affect the financial condition condition of the participants. participants. However, the very competitive additional services provided by SCPPA competitive prices for a portion of gas supply and additional SCPP A are intended intended to maintain and improve improve the competitive position position of the participants. participants. Public Benefits - The members continue continue to collect collect the public benefit charge through existing rate structures and have instituted in excess of $775 million of programsprograms to benefit their customers. The decisions on how these these funds are allocated are made by the local governing authority, in most cases this is the city council. council. Funds (approximately 2.85% of gross revenues) (approximately 2.85% conservation and energy efficiency revenues) have been spent on conservation efficiency programs, programs, public public educational programs, programs, research development, and low income rate subsidies. research and development, Environmental Environmental Matters legislation has addressed various issues affecting the utility industry Matters - Recent California legislation including the need to generate electricity electricity from renewable resources, the need to reduce greenhouse renewable resources, greenhouse gases, improve air quality, and ensure clean water. In general, these bills provide for reduced greenhousegreenhouse gas emission emission standards investment in energy-efficient and greater investment energy-efficient and environmentally environmentally friendly generation generation alternatives through more resource portfolio standards. The following is a brief summary stringent renewable resource certain of these bills: summary of certain
- Greenhouse Gas Emissions - In its 2003 Integrated Energy Policy Report, the California Greenhouse California State Energy Conservation and Development Resources and Conservation Development Commission (the "CEC") recommended recommended that utilities account for the cost of greenhouse procurement decisions. Some greenhouse gas emission reductions in utility procurement Some of these mandates include, but are not limited to: Executive Executive Order S-3-05 placed an emphasis on such efforts to reduce greenhouse Executive Order establishing statewide greenhouse gas reduction targets; Executive greenhouse gas emissions by establishing Order S 06 directs the State to meet a 20% utilization target within the renewable 20% biomass utilization renewable generation generation targets of 2010 20 I 0 and 2020 for the contribution to greenhouse reduction; Assembly Bill 32, the Global greenhouse gas emission reduction; Warming Global Warming Solutions Act of 2006 (the "GWSA") prescribed Solutions statewide cap on global warming pollution with a goal of prescribed a statewide of reaching 1990 emission levels by 2020 and 80%
greenhouse gas emission 1990 greenhouse 80% below 1990 levels by 2050; Senate Bill 1368 1368 provides for a restriction restriction on the negotiation negotiation of of contracts with potential potential base-load fossil fuel electric generating electric generating resources that exceed the rate of emissions for greenhouse gases for existing combined-cycle resources combined-cycle natural gas base-load generation seeks to allow the CEC to establish a regulatory framework necessary generation and seeks necessary to enforce the greenhouse gas emission performance greenhouse performance standard for publicly-owned publicly-owned utilities; Assembly Bill 1925 provides for the CEC to develop a cost effective strategystrategy for the geologic sequestration and management management of industrial carbon dioxide; and Senate Bill 1686, which authorizes Conservation Board to take into account authorizes the Wildlife Conservation account the potential of forestlands to beneficially beneficially reduce or sequester greenhouse greenhouse gas emissions when it prioritizes prioritizes proposed acquisitions. Many of these Bills restrict or mandate the reduction of existing funds available for proposed generating facilities; yet do not have enabling provisions to facilitate new compliant generation or generating development infrastructure required development of the transmission infrastructure required to support support new sources sources and locations of generation. The costs of new generation required infrastructures, and other requirements will have additional generation facilities, required significant significant financial implications on SCPPA participants. 79 79
SOUTHERN CALIFORNIA PUBLIC SOUTHERN PUBLIC POWER AUTHORITY POWER AUTHORITY NOTES NOTES TO COMBINED FINANCIAL STATEMENTS COMBINED FINANCIAL STATEMENTS Note 10 - Commitments Commitments and Contingencies Contingencies (Continued)
- Renewable Portfolio Portfolio Standards Standards (RPS) - Senate Bill 1078 ("SB 1078") I 078") directed directed municipal utilities to implement implement and enforce an RPS that recognizes recognizes the intent of the Legislature Legislature to encourage encourage development of of renewable renewable resources taking into consideration consideration the impact on a utility's standard standard on rates, reliability, financial resources, and the goal of environmental environmental improvement. Since the implementation implementation of SB 1078, the California California Public Public Utilities Commission Commission and the State Energy Resources Conservation Conservation and Development Development Commission have taken a number of actions that have had an impact on the renewable renewable energy goals set by legislation legislation primarily seeking seeking to accelerate accelerate the time-line time-line for meeting meeting the renewable renewable resource development goals and to provide provide additional additional standards for future extension extension of the goals. SCPPA participants have embraced embraced the objective objective of increasing increasing renewable resources resources within their portfolios. However, the costs of renewable generation, infrastructures, and other requirements will have additional significant generation, required infrastructures, significant financial SCPPA implications on SCPP A participants.
Nuclear Nuclear Spent Fuel and Waste Disposal - Under the Nuclear Waste Policy Act, the Department of Energy ("DOE") was to develop the facilities necessary necessary for the storage and disposal of spent fuel and to have the first such facility in operation operation by 1998. 1998. That facility was to be a permanent repository, but the DOE has announcedannounced thai that such a repository could not be completed beforebefore 2015. There is ongoing litigation with respect DOE's respect to the DOE's ability to accept spent nuclear fuel and no permanent permanent resolution has been reached reached to date. In July 2002, 2002, a measure was signed into law designating designating the Yucca Mountain Mountain in the state of Nevada as the nation's high-level high-level nuclear waste repository. This meant that the DOE could then file a construction construction and operation operation plan for Yucca Yucca Mountain with the Nuclear Regulatory Commission Nuclear Regulatory Commission ("NRC"). Due to a series of setbacks including including scientific scientific challenges challenges by the National Academy Academy of Science, Science, falsified research research data by consultants, consultants, delays in in submitting the construction construction application application to the Nuclear Nuclear Regulatory Commission, the DOE expected that the Yucca Yucca Mountain Mountain site would be open no earlier than 2015. However, the State of Nevada Nevada and its congressional congressional delegation delegation are still determined determined to halt the project through the NRC process process or through legal challenges which could put the in-service date further in the future A feud over a full and adequate adequate funding and budget for the development development of the repository repository between the administration administration aridand the Congressional Congressional leaders which comprise Nuclear opponents had further delayed delayed the feasibility feasibility study and the submission of the construction construction application. Meanwhile, Meanwhile, the Nevada delegation worked diligently diligently to delay the DOE's work on the license application for the Yucca site, in hopes of halting halting the transfer of of nuclear nuclear waste to the Nevada facility. As of today, the submission of the construction applicationapplication to the NRC is is still still, delayed because of an investigation investigation related to the allegation of scientific misconduct during the feasibility Mountain as a permanent study of Yucca Mountain permanent disposal facility for nuclear waste. In addition, the original regulatory standard of safe keeping nuclear nuclear waste at the disposal facility for 10,000 years was challenged challenged by the National Academy Academy of Sciences, and it is now agreed that the nuclear waste's storage period should increase to 100,000 100,000 years. Further engineering engineering studies are being being conducted conducted to increase increase the subsistence of the facility for a longer longer period of time. 80 80
SOUTHERN SOUTHERN CALIFORNIA CALIFORNIA PUBLIC POWER POWER AUTHORITY AUTHORITY NOTES NOTES TO COMBINED FINANCIAL TO COMBINED FINANCIAL STATEMENTS STATEMENTS Note Note 10 - Commitments Contingencies (Continued) Commitments and Contingencies (Continued) The spent fuel storage in the wet pool pool at PVNGS exhausted exhausted its capacity in 2003. its capacity 2003. A A Dry Dry Cask Storage Facility Cask Storage Facility "Facility"), also called (the "Facility"), called the Independent Storage Facility, was built Spent Fuel Storage Independent Spent built and completed 2003 at a completed in 2003 total cost of $33.9 million (about of $33.9 $2 million for the Authority). In addition to the Facility, the costs also account (about $2 account heavy lift equipment for heavy railroad track, tractors, equipment inside the units and at the yard, railroad transport canister, tractors, transporter, transport canister, and surveillance equipment. The surveillance Facility has the capacity The Facility capacity to store spent fuel generated store all the spent the PVNGS generated by the PVNGS plant plant until 2026. To date, over over 5454 casks, each containing 24 each containing assemblies were placed 24 spent fuel assemblies placed in the Facility. The calls for the current plan calls current removal of between the removal between 240 assemblies from the units to the 240 and 288 fuel assemblies the Facility Facility every every transportation of the casks are included as preparation and transportation year. The costs incurred by the procurement, packing, preparation part of the fuel expenses, $13 million a year (about approximately $13 expenses, and will cost approximately $760,000 for the Authority). If (about $760,000 If permanent repository the permanent scheduled in 2015, the spent fuel from PVNGS repository in Yucca Mountain is opened as scheduled PVNGS will be be shipped repository starting in 2036. No provision shipped to the repository accompanying financial included in the accompanying provision has been included statements. statements. Nuclear Insurance Nuclear Price-Anderson Act Insurance - The Price-Anderson "Act") requires that all utilities with Act (the "Act") nuclear generating with nuclear generating payment for claims resulting from a nuclear incident. The Act limits liability from third-party facilities share in payment facilities claims to approximately $10.8 billion per incident. Participants approximately $10.8 Verde Nuclear Generating Palo Verde Participants in the Palo Generating Station currently insure currently potential claims insure potential insurance with a $300 million limit; the commercial insurance claims and liability through commercial remainder potential liability is covered by the industry-wide remainder of the potential retrospective assessment industry-wide retrospective program provided assessment program provided program limits assessments to $101 under the Act. This program $101 million per reactor for each licensee for each nuclear payments under the program are limited to $15 nuclear reactor in the United States; payments incident occurring at any nuclear incident $15 million per reactor, per incident, per year to be indexedindexed for inflation every 5 years. Based Based on the Authority's Authority's 5.91% 5.91 Authority would be responsible for a maximum assessment of interest in Palo Verde, the Authority
% interest $17.8 million per of$17.8 per payments of $2.7 million per incident, per year.
incident for all 3 units, limited to payments In addition to the above, the Authority may be subject to retroactive insuranceinsurance assessments for its participation in participation in Program in the amount of Property Insurance Program the Neil Property $2.9 million.' of$2.9 Legal Matters - With respect to the San Juan Generating Other Legal Station (including the Authority's ownership Generating Station thereof), the Sierra Club and the Grand Canyon Trust have filed suit against Public Service interest in Unit 3 thereof), Service Company of New Mexico ("PNM") in federal court alleging alleging violations of the Clean Air Act and of the conditions of the San Juan Generating Station's operating permit. PNM is a co-owner of the San Juan Generating Generating Station and is the operating agent of the station. The lawsuit sought penalties as well as injunctive and declaratory relief. relief. During 2005, the parties achieved a settlement of the substantive elements of the case which has been approved by the United States District Court. A number of environmental upgrades have been made to the San Juan environmental upgrades expected to mitigate a number of environmental Generating Station as part of the settlement that is expected environmental consequences which might otherwise occur in the operation operation of the plant. The additional costs associated associated with these environmental upgrades have been shared by the San Juan Generation Station participants. The environmental environmental upgrades affecting Unit 3 and the SCPPA SCPP A San Juan participants have been added this year. The estimated costs which have been borne by the SCPPA San Juan Generating approximately $34 Generating Station participants totaled approximately $34 million. Since 2005, SCPP SCPPA A has budgeted forfor its portion of the added costs of these upgrades which have now SCPPA been paid by the SCPP A participants. 81 81
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER POWER AUTHORITY AUTHORITY NOTES TO COMBINED COMBINED FINANCIAL FINANCIAL STATEMENTS STATEMENTS Note 10 - Commitments and Contingencies (Continued) Claims and a lawsuit for damages have been filed with the Authority, Intermountain Power Authority (the "IP "IPA") A") and LADWP seeking $100 $100 million in special damages and a like amount in general damages. The claimants allege, among among other things, that due to improper grounding of the transmission line of STS, their dairy herds were damaged and the value of their land was diminished. The claimantsclaimants also seek injunctive relief. relief. The Authority claims were believed these Claims were substantially without merit as to itself because because the Authority has no ownership or or operational control over the subject transmission lines, and merely acted as a financing agency with respect operational respect to STS. In July 2003, the Authority, IPA, and LADWP LADWP filed a motion to dismiss, or in the alternative, alternative, a motion to defendants argued that the case had little connection conveniens, in which the defendants stay based upon forum non conveniens, connection with California and should be heard in Utah. The Los Angeles Angeles Superior Court granted the motion and in a 2004 unpublished opinion the California California Court Court of Appeal affirmed this matter on appeal. A Petition for Review was subsequently denied denied by the California Supreme Supreme Court. In February 2005, the remaining remaining Utah plaintiffs filed a complaint in the Third Judicial District Court in and for Salt Lake County, Utah, which alleged alleged facts similar to those alleged in California. The action action was later later transferred to the District Court in and for Millard County, Utah. SCPPA moved the Utah court to dismiss the action as to SCPPA. SCPPA. This motion resulted in the dismissal of certain of the causes of action in the complaint SCPPA against SCPP A however other causes of action still remain. The case has concluded the discovery stage of the litigation and SCPPA SCPP A and several other defendants have now filed motions for Summary Judgment which which are currently pending before the District Court for Millard County, Utah. During During the pendency of the Summary Judgment determinations, the plaintiffs in the case moved to disqualify disqualify the judge presently presiding over the matter. While the case had originally originally been scheduled for trial in October 2008, the pending motions could cause this date to be deferred. No provision for this litigation matter has beenbeen included included in the accompanying financial statements. Prior to the commencement commencement of the construction construction of the Magnolia Power Power Project ("Project"), the Authority entered entered into an engineering, procurement and construction agreement (the "EPC engineering, procurement "EPC Agreement") with Kvaerner E&C E&C ("Kvaerner"), a division of Aker Kvaerner, which is headquartered in Oslo, Norway. Under the EPC Agreement, Agreement, Kvaerner was responsible for the design, engineering procurement, construction, installation, installation, training forfor operation, commissioning, start-up, testing and completion completion of the Project. Construction of the Project commenced commenced during 2003 and was substantially completed in late 2005. During 2006, a claim was submitted submitted on behalf of of compensation in the amount of approximately Kvaerner for additional compensation approximately $15$15 million with respect to work on the Project. The Operating Agent, the Authority Authority and the Authority's outside legal counsel on this matter believed believed that the claim for additional compensation compensation was substantially without merit and violated substantially without violated many provisions of the EPC Agreement. The matter went to mediation and in the mediation, in order to avoid further costly time consuming litigation, SCPPA offered to settle the matter for approximately approximately $1.9
$1.9 million which was an amount amount approximately approximately equaling the amount of liquidated liquidated damages which, due to the alleged alleged delay in completion, completion, had been withheld from Kvaerner K vaerner at the conclusion of construction. The mediation of this matter, however, failed to settle the matter. In In May 2007, Kvaerner filed a lawsuit against the Authority in California California state court for damages for breach breach ofof contract and violation of the California California prompt payment act. After a number of preliminary preliminary filings and motions in connection with the early stages of this litigation, Kvaerner Kvaerner and SCPPA SCPPA ultimately agreed to settle the matter for
$1,860,000 amount which the $1,860,000 which SCPPA had previously offered. The parties have recently entered into a settlement agreement with respect to this matter and this litigation has now been concluded.
The Authority is also involved in various various other legal actions. In the opinion of management, management, the outcome outcome of such litigation or claims will not have a material material effect effect on the financial financial position or the results of operations operations of the Authority or the respective respective separate Projects. 82
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY NOTES TO COMBINED COMBINED FINANCIAL FINANCIAL STATEMENTS STATEMENTS Note 11 - Subsequent Events Palo Verde Power Project Subordinate RefundingRefunding Bonds - As of June 30, 2008, SCPPA has outstanding outstanding $101,820,000 of subordinate $101,820,000 subordinate bonds relating to the Palo Verde Project, consisting $12,250,000 aggregate consisting of $12,250,000 aggregate principal principal amount of the 1996 Subordinate Refunding Series B ("1996 Series Series B Bonds") and $89,570,000
$89,570,000 aggregate principal principal amount of the 1996 Subordinate Refunding Series C ("1996 Series C Bonds"). The 1996 Subordinate Refunding 1996 Series B and C Bonds ("Refunded Band ("Refunded Bonds") were issued issued to refund certain certain Senior Bonds and consist of insured variable rate bonds.
The Palo Verde 2008 Series Subordinate Subordinate Bonds ("2008 Series Series A and B Bonds") in the aggregate amount aggregate principal amount of $99,830,000,
$99,830,000, consisting consisting of $49,915,000 principal principal amount of 2008 Series Series A Bonds and $49,915,000 of 2008 Series B B Bonds, are being issued to provide funds, together with certain other available available moneys, to refund all of of SCPPA's SCPP outstanding 1996 Series Band A's outstanding B and C Bonds. This refunding is necessary necessary to remove the current bond bond insurance, given the continued deterioration deterioration in the performance of certain bond bond insured insured variable rate debt
("VRDOs"), and to replace them with VRDOs that are supported by bank issued Letter of Credit obligations ("VRDOs"), Credit which are expected expected to perform perform better in the current market. No Senior Senior Palo Verde Bonds are currently currently outstanding. Upon issuance issuance of the 2008 Series A and B Bonds on on August 28, 2008, the 2008 Series A and B Bonds will be the only bonds outstanding relating to SCPPA's interest August 28,2008, in Palo Verde. These bonds are subject to optional redemption but will mature on July 1, 1, 2017. The Refunded Refunded Bonds were redeemed redeemed on or before September 3, 2008. 3,2008. 83 83
SUPPLEMENTAL SUPPLEMENTAL INFORMATION INFORMATION
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY PALO VERDE PROJECT SUPPLEMENTAL SCHEDULE SUPPLEMENTAL SCHEDULE OF RECEIPTS RECEIPTS AND DISBURSEMENTS IN FUNDS AND DISBURSEMENTS FUNDS REQUIRED BY THE BOND BOND INDENTURE INDENTURE FOR THE YEAR ENDED ENDED JUNE 30, 2008 2008 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) Debt Debt Debt Service Service Decom-Decom- Deposit General General Service Service Reserve Reserve missioning missionmg Deposit Deposit Reserve Escrow Reserve Reserve Issue Operating Reserve & Reserve Revenue Revenue Fund Fund Trust Fund Installment Instalhnent Installment hlstallment Account Account Account Account Account Account Account Contingency Contingenc~ Fund Total Total Balance at June 30,2007 atluDe 30.2007 $ $ S 143,409 143,409 S S S 356,997 356,997 S $ 3,206 3,206 S 86,626 86,626 S 28,086 S S 618,324 618,324 Additio Additionsns Investment earnings 5,993 5,993 8,953 140 3,317 3,317 735 19 19,157 19,157 Discount on investment 0 n owes tment purchases purchases 147 - 110 110 204 191 191 652 Dis tributio n ooff inve Distnbution s tm ent earnings investment - (250) (250) (644) (644) (926) (926) 1,820
~820 -
powersales Revenue from powersales - - - - 78,711 78,711 78,711 78,711 Distribution Dis tnbutio no ofrevenue frevenue (38) (38) 17,390 17,390 46,080 46,080 17,118 17,118 (80,550) (80,550) - Transferfrom escrowfund Trans fer fro m es ero w fund forprincipal fo r principal and interest payments 3,704 - (54,609) (54,609) 50,905 - - - Total Total 3,704 6,140 6,140 (45,694) (45,694) 68,295 48,957 17,118 17,118 98,520 98,520 Deductions Deductions Construction Cons truetio n expenditures expenditures - - - 19,704 19,704 19,704 Operating expenditures 3 - 40,961 - 40,964 40,964 Remarketing/conmmitment fees Remarketing/commitment fees 270 270 - 270 Fuelcosts - 22,268 22,268 22,268 22,268 P ayment 0o fprincipal Payment fprincipal 11,895 1~895 - 11,895 1~895 Interestt paid Interes paid -- non no n escrow escro w - 3,974 3,974 3,974 3,974 P remium and interest Premium on interest paid on investment OlVes tm~nt purchases purchas es - 59 59 (243) (243) - (2) (2) (186) (186) P ayment Payment 0 o fprincipaland interest paid escrow escrow 3,704 - - 50,905 - - 54,609 54,609 To ta1 Total 3,704 62 (243) (243) 67,044 63,229 19,702 153,498 153,498 Balance Balance at June 30,2008 S - SS 149,487 149,487 S - - S
$311,546
$ 31~546 S - S 4,457 S 72,354 72,354 $ 25,502 S - $563,346 563,346 This schedule schedule summarizes summarizes the receipts receipts and disbursements in funds required under the Bond Indenture Indenture and have been prepared from the trust statements, statements. These balances do not include accrued interest receivable, unrealized gain (loss) on investments, receivable, umealized investments, and $83 and $101 $101 held in the revolving revolving fund at June 30, 2008 and 2007, respectively.
respectively, 83 83
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY HOOVER UPRATING UPRATING PROJECT SUPPLEMENTAL SCHEDULE SUPPLEMENTAL SCHEDULE OF RECEIPTS AND AND DISBURSEMENTS DISBURSEMENTS IN FUNDS FUNDS REQUIRED BY THE BOND BOND INDENTURE INDENTURE FOR THE YEAR ENDED ENDED JUNE 30, 30, 2008 2008 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) Advance Advance Debt Service Service General General Payment Operating Operating Revenue Revenue Fund FlIDd Reserve Fund Reserve FlIDd Fund FlIDd Fund FlIDd Fund FlIDd Total Balance Balance at June JlIDe 30, 30, 2007 $ 1,205 1,205 $ 1,703 $ $ 1,360 $ - $ 4,268 Additions Additions Investment earnings 6 64 64 30 30 101 Discount DiscolIDt on investment investment purchases purchases 35 5 26 66 Distribution Distribution of of investment earnings (41) (41) (69) (69) (56) (56) 166 - Revenue Revenue from power power sales - - - 2,261 2,261 2,261 Distribution Distribution of revenue 2,095 333 (2,428) (2,428) - Other Other 4 4 Total 2,095 337 2,432 Deductions Deductions Operating expenses Operat ing ex penses - 259 259 Payment Payment of principal principal 1,370 1,370 - 1,370 Interest Interest paid paid 852 - 852 852 Total 2,222 2,222 - 259 2,481 Balance June 30, 2008 Balance at JlIDe $ 1,078 1,078 $ 1,703 $ $ 1,438 $ $ 4,219 4,219 This schedule summarizes summarizes the receipts and disbursements disbursements in funds required under under the Bond Indenture Indenture and have been been prepared prepared from the trust statements. statements, The balances balances in the funds consist of cash and investments at original original cost. These These balances balances do not include accrued interest interest receivable, receivable, unrealized unrealized gain (loss) on
$18 and $21 held in the revolving fund at June 30, 2008 and 2007, respectively, investments, and $18 respectively.
84 84
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY SAN SAN JUAN JUAN PROJECT SUPPLEMENTAL SUPPLEMENT SCHEDULE OF RECEIPTS AND AL SCHEDULE AND DISBURSEMENTS DISBURSEMENTS IN FUNDS FUNDS REQUIRED BY THE BOND BOND INDENTURE INDENTURE FOR THE YEAR ENDED ENDED JUNE 30, 2008 2008 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) Debt Service Reserve & Reserve & General of Cost of Acquisition Reserve Reserve Revenue Revenue Operating Contingenc Contingenc Reserve Reserve Issuance Issuance Escrow Escrow Account Account ____F_un_d _A_c_c_o_un_t_._A_c_co_un_t Fund_____F_un_d__ Fund y Fund Fund Fund Fund Account Account Total Balance Balance at June 30, 2007 2007 $ 4,386 $ 21,323___$______ _$_4....;,""3_86_._$_2_1""',_32_3 - $_ _3....;,_8_81_ 3,881 $ 21,460 $ 31 $ (1) (I) $ 76,050 127,130
$ 127,130 Additions Additions Investment earnings Investment earnings 6 1,101 1,101 15 15 8 365 3,101 3,101 4,596 Discount on investments investments 240 - 19 19 117 706 - 1,082 investment earnings Distribution of investment (246)
(246) (1,101) (1,101) 2,543 (125) ( 125) (1,071) (1,071) - power sales Revenue from po""r - 95,856 - - - 95,856 Distribution of revenues Distribution 18,568 (98,433) (98,433) 52,733 27,163 27,163 (31)) (31 - Other Total 18,568 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _1....;8,""5_68_. 52,733 _ _27,163 52....;,_7_33_. (31) _ _ _ _ _ _ _ _3,101 2_7""',_16_3____~(3_1~) 3""',_10_1_ 101,534 101,534 Deductions Operating expenses - 49,626 - - - 49,626 49,626 Construction expenses expenscs - 35,909 35,909 - 35,909 escrow Payment of principal and interest - escrow - 3,772 3,772 3,772 Premium and interest on investment Premiwn investment purchases purchases Payment of principal 10,050 10,050 10,050 Interest paid - non-escrow non-escrow 8,769 8,769 - - - 8,769 8,769 Total 18,819 - 49,626 35,909 35,909 3,772 3,772 108,126 108,126 Balance Balance at June 30, 2008 $ 4,135 $ 21,323 21,323 $ $ 6,988 $ 12,714 12,714 $ $ (1) (I) $ 75,379 75,379 120,538
$ 120,538
=============c======,=======
disbursements in funds required under the Bond Indenture and have been This schedule summarizes the receipts and disbursements been prepared prepared from the trust statements. The balances in the funds consist of cash and investmentsinvestments at original cost. These These balances do not include include accrued interest receivable, unrealized gain (loss) on interest receivable, on investments, and $27 and $34 held in the revolvingrevolving fund at June 30,200830, 2008 and 2007, respectively. 85 85
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY MAGNOLIA POWER PROJECT MAGNOLIA PROJECT SUPPLEMENTAL SCHEDULE SUPPLEMENTAL SCHEDULE OF RECEIPTS AND DISBURSEMENTS IN FUNDS AND DISBURSEMENTS FUNDS REQUIRED BY THE BOND INDENTURE FOR THE YEAR BOND INDENTURE YEAR ENDED ENDED JUNE 30, 2008 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) Debt Debt Service Operating Operating General General Service Reserve Reserve Project Reserve Reserve Reserve and Operating Operating Revenue Reserve Reserve Escrow Escrow Account AccOimt Account AccOimt Fund Ftmd Fund Ftmd Contingency Contingency Fund Ftmd Fund Ftmd Fund FlIDd Fund FlIDd Total Balance Balance at June JlIDe 30, 2007 $10,765
$ 10,765 $$29,922 29,922 $$5,381 5,381 $ 4,919 4,919 $ 9,554 9,554 $ 3,451 3,451 $ - $ 9,108 $ - $ 73,100 73,100 Additions Additions Investment earnings Investment 62 1,612 1,612 13 137 137 482 23 16 13 5,342 7,700 7,700 Discount on investment DiscolIDt investment purchases purchases 252 49 192 192 25 28 117 1 342 - 1,006 1,006 Distribution of investment earnings (314)
(314) (1,661) (1,661) - (162) (162) (510) (140) (140) 2,787 - - Transfer of flIDds Transfer funds for debt service service payment payment 10,119 - - - - (10,119) (10,119) - Bond Escrow 2007A2007 A - - 219,059 219,059 219,059 219,059 participants Receipt from participants - - - 74,935 - 74,935 74,935 Distribution of revenues 24,055 - 1,442 1,442 27,750 (77,739) (77,739) 24,492 - Other transfers - 70 - 24,400 24,400 (24,470) (24,470) Other receipts receipts Total 34,174 275 1,442 1,442 52,150 52,150 377 214,282 214,282 302,700 302,700 Deductions Deductions Construction expenditures expenditures - 1,571 1,571 1,141 1,141 98 - - 2,810 . 2,810 Operating expenses expenses - - 5 46,667 46,672 46,672 Liquidity & & Remarketing Remarketing Fees Fees 437 - 66 503 Interest In terest paid paid 21,444 - - 21,444 21,444 Premium and interest on investment purchases Premium 2 (38) (38) (36) (36) Payment of principal 7,450 - - 7,450 Debt issuance issuance costs costs - - 360 - - 360 Total 29,333 - 1,931 1,931 - 1,108 46,831 79,203 Balance at June JlIDe 30, 2008 $15,606
$ 15,606 $$29,922 29,922 $$3,725 3,725 $ 4,919 4,919 $ 9,888 9,888 $ 8,770 $ $ 9,485 9,485 $214,282
$ 214,282 $$296,597 296,597 schedule summarizes the receipts and disbursements This schedule required under disbursements in funds required under the Bond Indenture prepared from the trust statements. The Indenture and have been prepared balances in the funds consist of cash balances cash and investments investments at original original cost. These balances balances do not include accrued accrued interest receivable, unrealized unrealized gain (loss) on investments, and $34 and $31 held in the revolving fund at June 30, 2008 and 2007, respectively.
86 86
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC PUBLIC POWER POWER AUTHORITY AUTHORITY SOUTHERN TRANSMISSION SYSTEM SOUTHERN TRANSMISSION SYSTEM PROJECT SUPPLEMENTAL SCHEDULE SUPPLEMENTAL SCHEDULE OF RECEIPTS AND AND DISBURSEMENTS DISBURSEMENTS IN FUNDS FUNDS REQUIRED REQUIRED BY BY THE BOND BOND INDENTURE INDENTURE FOR THE YEAR YEAR ENDED ENDED JUNE 30, 30, 2008 (AMOUNTS (AMOUNTS IN IN THOUSANDS) THOUSANDS) Debt Service General General Operating Operating Revenue Revenue Fund Escrow Fund Rescrve Reserve Fund Fund Issue Fund Fund Fund Fund Fund Fund Total Total Balance at June Balance June 30, 2007 2007 $ $ $ - $ - $ 81,606 81,606$ $ 3,996 3,996$ $ -$ $ 85,602 85,602 Additions Additions Investment earnings --- 2,872 9 17 17 2,898 2,898 Discount investment purchases Discount on investment purchases -- 55 1,113 1,113 138 138 26 26 1,282 1,282 Distribution Distribution of investment investment earnings earnings -- (5) (5) (3,985) (3,985) (147) (147) 4,137 - Revenue Revenue from transmission transmission sales sales ---- - 87,917 87,917 87,917 87,917 Distribution of revenue Distribution revenue --- 71,8*56 71,856 20,241 20,241 (92,097) (92,097) - Bond Bond Proceeds Proceeds 2008A 2008A
- 50,047--
50,047 - - 50,047 50,047 Transfer Transfer from/to escrow ftmd from/to escrow fund required required by by bonds issuance refunding bonds issuance - 80 -(80)-- (80) Transfer Transfer 2008A 2008A Bond Proceeds from Escrow Bond Proceeds Escrow - (50,047) (50,047) - 50,047 50,047--- Other Transfers Transfers -- 2,118 2,118 1,627 1,627 -(3,745) (3,745) - Other Receipts Receipts --- - - 3,745 3,745 3,745 3,745 Total -80 80 2,118 2,118 123,450 123,450 20,241 20,241 - 145,889 145,889 Deduct ions Deductions Operating expelscs Operating expenses --- - 18,172 18,172 -18,172 18,172 Payment Payment of principal principal - - - 30,950 -- 30,950 Interest paid - - 41,164 41,164 - -41,164 41,164 Arbitrage Rebate Arbitrage Rebate - -- 1,670 -1,670 1,670 LOG & LOC & Remarketing Remarketing Fees - -1,419 1,419 - -1,419 1,419 Debt issuance costs Debt issuance costs - - -290 290 -- 290 290 2003 2003A A Bond Redemption Redemption - - 50,050 50,050 - -50,050 50,050 Total --- 123,873 123,873 19,842 19,842 - 143,715 143,715 Balance June 30, 2008 Balance at June 2008 $ -$ $ 80 $ 2,118 2,118 $ 81,183 81,183 $ 4,395 4,395 $ - $ 87,776 87,776 schedule summarizes This schedule summarizes the receipts and disbursementsdisbursements in funds required under the Bond Bond Indenture Indenture and have been prepared from the the trust trust statements. statements. These These balances do not include accrued balances interest receivable, accrued interest receivable, unrealized gain (loss) (loss) on investments, investments, and $49 and and $52
$52 held held in the revolving revolving fund at June June 30, 2008 and 2007, 2007, respectively.
87 87
CALIFORNIA PUBLIC SOUTHERN CALIFORNIA SOUTHERN PUBLIC POWERPOWER AUTHORITY AUTHORITY MEAD-PHOENIX MEAD-PHOENIX PROJECT SUPPLEMENTAL SCHEDULE. SUPPLEMENTAL SCHEDULE OF RECEIPTS AND OF RECEIPTS DISBURSEMENTS IN AND DISBURSEMENTS IN FUNDS FUNDS REQUIRED BY REQUIRED BY THE THE BOND INDENTURE FOR BOND INDENTURE FOR THE THE YEAR ENDED JUNE 30, YEAR ENDED 30, 2008 2008 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) Debt Debt Debt Debt Service Service Reserve & Reserve & Revenue Revenue Service Reserve Reserve Operating Operating Contingency Contingency Surplus Surplus Fund Fund Account Account Account Account Fund Fund Fund Fund Fund Fund Total Total Balance at Balance at June June 30, 30, 2007 2007 $ $ 4,841 4,841 $ 5,915 5,915 $ 362 362 $ 1,248 1,248 $ 1,305 1,305 S
$ 13,671 13,671 Additions Additions Investment earnings Investment 33 67 435 435 10 10 96 33 614 614 Discount investment earnings Discount on investment 26 - 5 33 54 54 88 88 Distribution of Distribution of investment investment earnings earnings 689 (83)
(83) (435) (435) (15) ( 15) (99) (99) (57) (57) - Transmission revenue Transmission 8,452 - - - - - 8,452 8,452 Distribut ion of Distribution of revenues revenues (9,144) (9,144) 6,064 6,064 1,333 1,333 1,303 1,303 444 444 - Payments Payments fromfrom Western Western Area Power Administration Area Power Administration Other transfers Total Total 6,074 6,074 1,333 1,303 444 9,154 9,154 Deductions Deductions Construction expenditures Construction expenditures - - 930 930 930 Operating expenses Operating expenses - 896 896 - 896 896 Principal payment Principal payment 3,350 3,350 - 3,350 3,350 Interest Interest paid paid 3,497 3,497 - - 3,497 Total 6,847 6,847 - 896 896 930 930 8,673 8,673 Balance at June Balance June 30, 2008 $ - $ 4,068 4,068 $ 5,915 5,915 $ 799 799 $ 1,621 $ 1,749 1,749 $$ 14,152 14,152 disbursements in funds required under the Bond Indenture summarizes the receipts and disbursements This schedule summarizes Indenture and have been prepared prepared from the trust statements. The balances in the funds consist of cash and investments original cost. These balances do not include accrued investments at original accrued interest receivable, unrealized gain (loss) onon investments, $15 and $18 investments, and $15 revolving fund at June 30, 2008 and 2007, respectively.
$18 held in the revolving 88 88
SOUTHERN SOUTHERN CALIFORNIA CALIFORNIA PUBLIC PUBLIC POWER POWER AUTHORITY AUTHORITY MEAD-ADELANTO PROJECT MEAD-ADELANTO PROJECT SUPPLEMENTAL SCHEDULE SUPPLEMENTAL SCHEDULE OF RECEIPTS RECEIPTS AND DISBURSEMENTS IN FUNDS AND DISBURSEMENTS FUNDS REQUIRED BY THE BOND REQUIRED INDENTURE FOR BOND INDENTURE FOR THE YEAR ENDED THE YEAR ENDED JUNE 30, 2008 JUNE 30, 2008 (AMOUNTS IN (AMOUNTS IN THOUSANDS) THOUSANDS) Debt Debt Debt Service Service Service Service Reserve Reserve Operating Operating Reserve Reserve && Revenue Surplus Surplus Account AccOlmt Fund Fund Fund Fund Contingency Contingency Fund Fund Total Balance at June Balance June 30, 30, 2007 2007 $ 13,679 13,679 $ 16,267 16,267 $ 645 $ 6,383 6,383 $ $ 1,880 1,880 $$ 38,854 38,854 Additions Additions Investment earnings Investment 21 21 1,195 11 II 469 469 5 21 1,722 1,722 Discount Discoilllt on investment investment earnings 183 183 - 99 - 70 262 262 Distribution of investment Distribution investment earnings (204) (204) (1,195) (1,195) (20) (20) (469) (469) 1,980 1,980 (92) (92) - Transmission revenue - - - 20,827 20,827 - 20,827 20,827 Distribution of revenues Distribution 19,961 1,541 1,541 (22,812) 1,310 1,310 - Payment from Western Payment Western Area Area Power Power Administration Administration Other transfers transfers Total 19,961 1,541 1,309 1,309 22,811 22,811 Deductions Deductions Principal payment Principal payment 11,150 11,150 - - 11,150 11,150 Interest paid Interest paid 10,756 10,756 - 10,756 10,756 Operating expenses Operating - 1,675 1,675 1,675 Total 21,906 21,906 - 1,675 - - 23,581 - Balance at June Balance June 30, 2008 $ 11,734 11,734 $$ 16,267 $ 511 511 $$ 6,383 6,383 $ $$ 3,189 3,189 38,084
$$ 38,084 This schedule summarizes disbursements in funds required under the Bond Indenture and have been summarizes the receipts and disbursements prepared from the trust statements. The been prepared The balances in the funds consist of cash balances do not include accrued interest investments at original cost. These balances cash and investments interest receivable, unrealized gain (loss) on
$15 and $18 investments, and $15 $18 held in the revolving fund at June 30, 2008 and 2007, respectively.
89
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC PUBLIC POWER POWER AUTHORITY AUTHORITY MULTIPLE PROJECT PROJECT FUND FUND SUPPLEMENTAL SCHEDULE SUPPLEMENTAL SCHEDULE OF RECEIPTS RECEIPTS AND DISBURSEMENTS IN AND DISBURSEMENTS IN FUNDS FUNDS REQUIRED BY REQUIRED BY THE THE BOND INDENTURE FOR BOND INDENTURE FOR THE THE YEAR ENDED JUNE YEAR ENDED JUNE 30, 30, 2008 2008 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) Cost of of Proceeds Proceeds Debt Debt Service Service Earnings Earnings Redemption Redemption Account AccOimt Account Account Account Account Account Account Total Total Balance at Balance at June June 30, 2007 2007 $ 64,999 64,999 $ 1,305 1,305 $$ - $ - $$ 66,304 66,304 Additions Additions Investment earnings Investm.ent 4,605 176 176 4,781 Distribution Distribution ofof investment investment earnings (4,595) (4,595) 7,617 7,617 (3,022) (3,022) Transfer Transfer for debt service payment service payment (3,071) (3,071) 3,071 3,071 Transfer Transfer from debt service service account account Total (3,061) (3,061) 7,793 7,793 49 4,781 Deductions Deductions Interest paid paid 3,388 3,388 3,388 Payment of principal principal Redemption of bonds Redemption Cost of redemption Cost redemption Total - 3,388 3,388 - - 3,388 3,388 Balance Balance at June 30, 30, 2008 2008 $ 61,938 61,938 $ 5,710 $ 49 $ - $ 67,697 67,697 disbursements in funds required This schedule summarizes the receipts and disbursements statements. The required under the Bond Indenture and have been prepared from the trust statements. balances do not include investments at original cost. These balances balances in the funds consist of cash and investments interest receivable. include accrued interest receivable. 90 90
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY NATURAL GAS NATURAL GAS BARNETT BARNETT PROJECT SUPPLEMENTAL SUPPLEMENT AL SCHEDULE SCHEDULE OF RECEIPTS AND AND DISBURSEMENTS DISBURSEMENTS IN FUNDS FUNDS REQUIRED BY BY THE BOND BOND INDENTURE INDENTURE FOR THE YEAR ENDED JUNE 30, YEAR ENDED 30, 2008 2008 (AMOUNTS IN (AMOUNTS IN THOUSANDS) THOUSANDS) Debt General Revenue Revenue Operating Operating Service Service Reserve Reserve Capital Capital Depository Depository _ _Fund Fund _ _ _F_illI_d F_illI_d_ _ _ _F_illI_d Fund _ _ _ _Fund F_illI_d_ Project Fund FillId Fund FillId Fund FillId Total Total Balance at June lillie 30, 2007 $___ _$ - _ _$_ _ _ 17_5_ S 175 $ 1,089 $ - $ 99 $ 303 $ - $ 1,576 1,576 Additions Investment earnings 5 14 8 5 4 37 37 Discount Discoilllt on investment investment purchases 7 7 293 1 308 Distribution Distribution of investment earnings 10 (6) (6) (3) (3) (1) (I) Bond Bond Proceeds 2008A - - 50,366 50,366 54,841 105,207 105,207 Receipt Receipt from participants 15,624 15,624 3,739 3,739 - 19,363 Distribution Distribution of revenues (15,639) (15,639) 5,390 5,390 8,160 (8,761) (8,761) 10,850 - Other Other receipts receipts 1I (18) (18) (17) ( 17) Other Other transfer transfer 55 - 245 (245) (245) (5) (5) - - Total 9,149 9,149 58,538 245 46,134 ---:-110,832 46,134 0::-,-::-8-:-32~*-----..,.,1
- 2""4:-:,8:-::9-::'8-124,898 Deductions Construction expenditures Construction expenditures - - - - 10,822 - 10,822 10,822 Operating Operat ing expenses expenses 8,615 8,615 - - - - 8,615 8,615 Payment Payment of principal - 51,100 - - 51,100 51,100 Interest paid paid 1,786 - - 1,786 1,786 Debt Issuance Issuance Cost - - - 1,093 1,093 - - 1,093 1,093 Total 8,615 8,615 52,886 - 1,093 1,093 10,822 - 73,416 73,4 I 6 Balance at June lillie 30, 2008 $
=$~====;,$ - $ ==7;.,;0.;,9=
709 $$ 6,741 6,741 $$ 245 245 $$ 45,050 $ 313 45,050 =$~~3;.,;1.;,3==$~=== $ - $ 53,058 53,058 This schedule summarizes the receipts and disbursements disbursements in funds required required under the Bond Indenture and have been prepared prepared from the trust statements. The balances balances in the funds consistconsist of cash and investments at original cost. These balances balances do not include accrued accrued interest interest receivable, unrealized unrealized gain (loss) on on investments, and $18
$18 and $6 held in the revolving revolving fund at June 30, 30, 2008 and 2007, respectively.
91
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY AUTHORITY NATURAL GAS PINEDALE NATURAL PINEDALE PROJECT SUPPLEMENTAL SCHEDULE OF RECEIPTS AND SUPPLEMENTAL AND DISBURSEMENTS DISBURSEMENTS IN FUNDS FUNDS REQUIRED BY THE BOND REQUIRED INDENTURE FOR THE YEAR ENDED BOND INDENTURE ENDED JUNE 30, 2008 2008 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) Debt General General Revenue Operating Operating Service Service Reserve Reserve Capital Depository Depository Fund Fund Fund Fund Fund Project Project Fund Fund Fund Total Balance Balance at June 30, 2007 $ $ 10,837 $ 2,313 2,3 \3 $ $ 400 $ 15,479 $ $ 29,029 Additions Additions Investment earnings Investment earnings 9 49 7 1 8 22 96 96 Discount on investment investment purchases purchases 441 48 96 720 1,305 Distribution investment earnings Distribution of investment earnings 9 ((1) I) (4) (4) (1) (I) (3) (3) 2008A Bond Proceeds 2008A - 25,635 25,635 16,418 16,418 - 42,053 42,053 Receipt from participants Receipt participants 5,913 19,789 - - - 25,702 Distribution ofrevenucs Distribution of revenues (5,931)) (5,931 2,421 4,093 4,093 (552) (552) (31) (31) - Other Other receipts receipts 3 - - 16 16 19 Other Other transfer transfer (231) (231) (4) (4) 47 (47) (47) 235 235 - Total 22,471 29,775 29,775 47 15,923 15,923 959 69,175 Deductions Deductions Construction Construction expenditures - - - 3,216 3,216 3,216 3,216 Operating expenses Operating expenses 21,151 - - 21,151 Payment of principal Payment principal - 28,200 28,200 28,200 28,200 Interest paid 1,035 - 1,035 1,035 Debt Issuannce Debt Issuance Cost Cost - - 1,093 1,093 - 1,093 Total 21,151 29,235 29,235 1,093 1,093 3,216 3,216 54,695 Balance Balance at June 30, 2008 2008 $ $ 12,157 $ 2,853 $ 47 $ 15,230 15,230 $ 13,222 $ $ 43,509 This schedule schedule summarizes the receipts and disbursements disbursements in funds required under the Bond Indenture Indenture and have been prepared from the trust statements. The balances in the funds consist of cash and investments balances investments at original original cost. These These balances do not include include accrued interestinterest receivable, unrealized gain (loss) on on investments, and $40 and $18held
$18.held in the revolving fund at June 30, 2008 and 2007, respectively.
92
SOUTHERN CALIFORNIA SOUTHERN CALIFORNIA PUBLIC POWER POWER AUTHORITY AUTHORITY PREPAID PREPAID NATURAL NATURAL GAS PROJECT No.1 No. 1 SUPPLEMENTAL SCHEDULE SUPPLEMENTAL SCHEDULE OF RECEIPTS AND AND DISBURSEMENTS DISBURSEMENTS IN FUNDS FUNDS REQUIRED REQUIRED BY THE BOND BOND INDENTURE INDENTURE FOR THE YEAR YEAR ENDED ENDED JUNE JUNE 30, 2008 30, 2008 (AMOUNTS IN THOUSANDS) (AMOUNTS THOUSANDS) Debt Revenue Revenue Operating Operating Service Service of Cost of Fund Flllld Fund Flllld Fund Flllld Project Fund Project Flllld Issuance Issuance Total Total Balance at June Balance Jlllle 30, 30, 2007 $ $- $ - $ - $ - $ - $$ - Additions Additions Investment Investment earnings earnings -312 312 422 422 3 -737 737 Diacount purchases Discollllt on investment purchases - - -3 3 -3 3 Distribution investment earnings Distribution of investment earnings 312 312 (312) (312) - --- Bond Bond Proceeds Proceeds 20072007A&B A&B - 9,613 15,063 485,151 - 509,827 509,827 Receipt participants Receipt from participants Distribution Distribution of revcnues of revenues (312) (312) 312 312 - --- Other Other receipts receipts - - 4,915 - -4,915 4,915 Other Ot her transfer transfer -(27) (27) - 27 27 - Total Total - 9,898 20,400 485,184 485,184 - 515,482 515,482 Deductions Deductions Prepayment Prepayment to J. J. Aron Aron & Co Co -- - 480,600 - 480,600 480,600 A A & G expenses expenses -19 19 -27 27 -46 46 Payment principal Payment of principal Interest paid -- 19,126 - - 19,126 19,126 Debt Issuance Cost Debt Issuance Cost -- - 4,533 4,533 - 4,533 4,533 Total Total -19 19 19,126 485,160 - 504,305 504,305 Balance Balance at Jlllle June 30, 2008 $ $ - $ 9,879 9,879 $ 1,274 1,274 $ 24 24 $ - $ 11,177 11,177 schedule summarizes This schedule summarizes the receipts receipts and disbursements in funds required under the the Bond Indenture Indenture and have been preparedprepared from the trust trust statements. statements. The balances in the funds consist of cash investments at original cash and investments original cost. These balances do not include These balances include accrued interest receivable. accrued interest receivable. 93
rn LOS ANGELES DEPARTMENT OF WATER ANGELES DEPARTMENT WATER AND POWER AND POWER POWER SYSTEM POWER SYSTEM Financial Statements and Financial Statements and Required Supplementary Information Required Supplementary Information June 30, 2008 and 2007 (With Independent Auditors' Auditors' Report Thereon)
LOS ANGELES ANGELES DEPARTMENT DEPARTMENT OF WATER AND POWER AND POWER SYSTEM POWER SYSTEM Table of Contents Page(s) Independent Auditors' Independent Auditors' Report 1-2 1-2 Management's Discussion Management's Discussion and Analysis Analysis 3 -- 12 Financial Statements: Statements: Balance Sheets Balance 13-14 13 -14 Statements Statements of Revenues, Expenses, Expenses, and Changes in Fund Net Assets 15 15 Statements of Cash Flows 16-17 16 -17 Notes to Financial Financial Statements 18-61 18 - 61 Supplementary Information Required Supplementary Information 62 62
KPMG LLPLLP Suite 2000 355 South Grand Avenue Avenue Los Angeles, CA 90071-1568 90071-1568 Independent Auditors' Independent Auditors' Report Report The Board of Water and Power Commissioners Department of Water and Power Department Power City of Los Angeles: We have audited accompanying balance sheets of the City of Los Angeles' audited the accompanying Angeles' Department Department of Water and Power's Power Revenue Revenue Fund (Power System), System), an enterpriseenterprise fund of the City of Los Angeles, Angeles, California, as of June 30, 2008 and 2007, 2007, and the related statements statements of revenues, revenues, expenses, and changes in fund net assets, and cash cash flows for the years then ended,ended. These financial statements statements are the responsibility of the Los Department of Water and Power's Angeles Department Power's (the Department) management. Our responsibility is to express financial statements based on our audits. an opinion on these financial accordance with auditing standards conducted our audits in accordance We conducted standards generally generally accepted in the UnitedUnited States ofof America and the standards applicable applicable to financial audits contained in Government Auditing Standards Standards Comptroller General issued by the Comptroller General of the United States. Those standards standards require that we plan and perform the audit to obtain obtain reasonable assurance about whether reasonable assurance whether the financial statements are free of material includes consideration of internal misstatement. An audit includes internal control control over over financial reporting reporting as a basis for designing designing audit procedures circumstances, but not for the purpose of expressing appropriate in the circumstances, procedures that are appropriate expressing effectiveness of the Power System's internal control an opinion on the effectiveness control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence basis, evidence supporting disclosures in the financial statements, assessing the accounting supporting the amounts and disclosures accounting principles significant estimates made by management, used and the significant management, as* as. well as evaluating the overall financial statement presentation. We believe that our audits provide statement provide a reasonable basis for our opinion. discussed in note 1, As discussed 1, the financial statements of the Power System are intended intended to present present the financial financial position and, cash flows of only that portion of the business-type position, and the changes in financial business-type activities, and each major fund of the City City of Los Angeles,Angeles, CaliforniaCalifornia that is attributable to the transactions transactions of the Power System. They do not purport purport to, and do not, present fairly the financial position position the City of City of of Los Angeles as of June 30, 2008 and 2007, the changes in its financial financial position, position, or its cash flows for the years then ended in conformity conformity with U.S. generally generally acceptedaccepted accounting accounting principles. statements referred In our opinion, the financial statements referred to above present fairly, in all material material respects, the financial position of the Power System as of June 30, 2008 and 2007 and the changes in its financial financial position and its cash flows for the years then ended in conformity conformity with U.S. generally generally accepted accounting accounting principles. accordance with Government Auditing Standards, In accordance Standards, we have also issued our'report our report dated December December 10, consideration of the Power 2008 on our consideration Power System's internal control control over financial reporting and on our tests of its compliance compliance with certain provisions provisions of laws, regulations, contracts, and grant agreements, agreements, and other matters. The purpose of that report is to describe the scope matters. scope of our testing of internal control over financial reporting compliance and the results of that testing, and not to provide an opinion on the internal reporting and compliance control compliance. That report is an integral part of an audit performed control over financial reporting or on compliance. performed in KPMG LLP, a u.s. KPMG U.S. limited liability partnership, partnership, is the U.S. U.S. International, a member firm of KPMG International, a Swiss cooperative. cooperative.
accordance accordance with Government Government Auditing Standards Standards and should be considered considered in assessing the results of our our audit. The management's management's discussion and analysis included on pages 3 through 12 and the schedules of funding progress for the pension plan and postemployment postemployment healthcare healthcare plan on page 62 are not a required part of the basic financial statements statements but are supplementary supplementary information required required by U.S. generally generally accepted accepted accounting principles. accounting principles. We have applied certain have applied certain limited procedures, which consisted principally of inquiries of management management regarding the methods of measurement measurement and presentation of the required supplementary information. information. However, we did not audit the information express no opinion on it. information and express LL-P December December 10, 10, 2008 2
LOS ANGELES DEPARTMENT DEPARTMENT OF WATER WATER AND POWER AND POWER POWER SYSTEM Management's Discussion Management's Discussion and Analysis June 30, 2008 and 2007 The following discussion perfonnance of the City of Los Angeles' discussion and analysis of the financial performance Angeles' (the City) Department of Water and Power's Department Power's (the Department) Power Revenue Revenue Fund (the Power Power System) provides an overview of the financial financial activities for the fiscal years ended ended June June 30, 2008 and 2007. Descriptions Descriptions and other pertaining to the Power System are included in the notes to the financial statements. This discussion and details pertaining analysis should be read in conjunction with the Power System's financial statements, page 13. statements, which begin on page 13. Using This Financial Report This annual financial financial report report consists consists of the Power Power System's financial statements and required supplementary infonnation information and reflects the self-supporting activities of the Power System that are funded primarily self-supporting activities primarily through the sale of energy, transmission, transmission, and distribution distribution services services to the public it serves. Statements of Revenues, Balance Sheets, Statements Revenues, Expenses, and ChangesChanges in Fund Net Assets, and Statements Statements ofof Cash Flows Flows indication of the Power System's financial health. The balance The financial statements provide an indication balance sheets include System's assets and liabilities, using the accrual basis of accounting, as well as an indication all of the Power System's indication about which assets can be utilized for general purposes, and which net assets are restricted restricted as a result of bond covenants and other commitments. The statements of revenues, expenses, and changes in fund net assets report periods indicated. The statements of cash flows report revenues and expenses during the time periods all of the revenues report the cash provided by and used in operating provided activities; as well as other cash sources and uses, such as investment operating activities, investment income and cash payments for bond principal betterments. principal and capital additions and bettennents. 3 (Continued)
LOS ANGELES DEPARTMENT DEPARTMENT OF WATER WATER ANDAND POWER POWER POWER SYSTEM POWER Management's Discussion and Analysis Management's Analysis June 30, 2008 and 2007 The following table summarizes the financial condition and changes in fund net assets of the Power System as of The following table summarizes the financial condition and changes in fund net assets of the Power System as of and for the fiscal years ended June 30, 2008, 2007, and 2006: Summary of Financial Condition and Changes in Fund Table 1 - Summary Fund Net Assets (Amounts in millions) June 30 Assets 2008 2007 2006 Utility plant, net $ 6,212 6,212 5,923 5,923 5,709 5,709 Restricted investments 723 669 669 955 955 noncurrent assets Other noncurrent 1,843 1,843 1,843 1,362 1,362 Current assets . 2,007 1,535 1,535 1,720 1,720
$ 10,785 9,970 9,970 9,746 9,746 Liabilities and Fund Net Assets Long-term debt, net of current portion Long-term portion $ 4,802 4,183 4,262 long-term liabilities Other long-term liabilities 567 567 756 756 710 710 Current liabilities liabilities 1,009 1,009 763 662 6,378 6,378 5,702 5,634.
5,634 Fund net assets: Invested in capital assets, net of related related debt 1,489 1,489 1,582 1,582 1,774 1,774 Restricted Restricted 1,306 1,306 1,166 1,159 1,159 Unrestricted Unrestricted 1,612 1,612 1,520 1,520 1,179 1,179 Total fund net assets 4,407 4,268 4,112 4,112
$ 10,785 10,785 9,970 9,746 9,746 4 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND ANGELES DEPARTMENT AND POWER POWER SYSTEMSYSTEM Management's Management's Discussion and Analysis Analysis June 30, 2008 and 2007 Expenses, and Changes Revenues, Expenses, Changes in Fund Net Assets (Amounts in millions) (Amounts millions) Year ended June 30 30 2008 2007 2006 Residential $$884 884 818 818 759 759 Commercial and* Commercial and industrial 1,771 1,771 1,643 1,643 1,545 Sales for resale 90 90 103 103 153 153 Other 36 36 36 36 39 39 operating revenues Total operating revenues 2,781 2,781 2,600 2,600 2,496 2,496 Fuel for generation purchased power generation and purchased power (1,338) (1,338) (1,245) (1,245) (1,283) (1,283) Maintenance Maintenance and other other operating expenses operating expenses (1,120) (1,120) (1,021) (1,021) (1,004) (1,004) Total operating expenses expenses (,58 {2,4581 {2, 2661 (2,287) {2, 2871 Operating income Operating 323 323 334 334 209 Nonoperating revenues (expenses): Nonoperating revenues (expenses): Investment income Investment 159 159 153 153 123 123 nonoperating revenues Other nonoperating revenues and expenses, expenses, net 17 17 15 15 13 13 Debt expenses expenses (195) (195) (191) (191) (167) (167) Income Income before capital capital -contributions contributions and transfers 304 304 311 311 178 178 Capital contributions contributions 18 18 20 20 30 Transfer to the reserve reserve fund of the City of Los Angeles Angeles (182) (182) (175) (175) (158) (158) Increase in fund net assets Increase 140 140 156 156 50 50 Beginning balance of fund net assets 4,268 4,112 4,112 4,062 balance of fund net assets Ending balance assets $ $ 4,408 4,268 4,112 4,112 Assets Assets Utility Utility Plant During fiscal years 2008 and 2007, the Power capitalized $434 million and $281 Power System capitalized $281 million of additions, additions, respectively, including respectively, construction work including transfers from construction work in progress progress to utility plant in service. utility plant service. Of the the $434 million, $312
$312 million, or 72%, mostly related distribution plant related to distribution plant assets to include include poles, towers, fixtures, fixtures, replacement of transformers, replacement transformers, underground underground conductors, increase is attributable conductors, and conduit. The increase attributable to our new Power Power Reliability Program (PRP)(PR-P) to improve distribution system reliability. In addition, system reliability. addition, during 2008, the PowerPower System System had a net decrease transmission plant. The decrease decrease of $85 million for transmission decrease is a result result of retired assets assets from the Sylmar Sylmar Converter Station. Of the $281 million Converter million during fiscal year 2007, $156 million, 2007, $156 million, or 56%, related related to distribution distribution plant assets. In addition, addition, during 2007, capitalized $53 2007, the Power System capitalized $53 million million related related to transmission transmission.,assets.
assets. 5 (Continued) (Continued)
LOS ANGELES DEPARTMENT OF WATER ANGELES DEPARTMENT WATER AND POWER AND POWER POWER SYSTEM POWER SYSTEM Management's Discussion Management's Discussion and Analysis June 30, 2008 and 2007 2007 Furthermore, the Power System had capital improvements Furthermore, improvements to its transmission transmission and distribution distribution utility plant assets to maintain and support normal load growthgrowth of the distribution and transmission systems. Construction work in progress increased by $116 Construction $116 million in fiscal year 2008 and by $203 million in fiscal year 2007. The 2008 increases were mostly* mostly attributable to the Pinetree Pinetree Wind Project, Generation System, Underground Underground Transmission, Transmission, and Automated Automated Meter Reading Reading (AMR). The increase in 2007 was mostly attributable to the Pinetree Pinetree Wind Project and Distribution Distribution Control Systems. regarding the Power System's utility plant assets can be found in note 4 to the Additional information regarding accompanying accompanying financial statements. statements. The Department's Department's strategy is to have generating utility plant assets that can produceproduce energy from a variety of fuel types. This is referred referred to as a hedged power supply. This is important in that if the costs related to a particular particular fuel type rise substantially substantially in a short period of time, the Department Department can utilize its mix of generation generation assets to meet customer demand demand and to minimize increases in fuel expense. The Department Department has implemented implemented a $2.4 billion, Integrated Resource Resource Plan 2007 (IRP) focusing on renewable power, greenhousegreenhouse gas reduction, andand energy efficiency efficiency through fiscal year 2015. The IRP is a energy resource planning document that provides provides a framework for assuring assuring that the future energy needs of customers customers are reliably reliably met in a cost-effective cost-effective manner, and are consistent with the City's commitment to environmental leadership. Through June 30, 2008, the Department Department
$1.3 billion related to such upgrades.
has incurred $1.3 The tables that follow summarize summarize the generating resources resources available available to the Department as of June 30, 2008. These resources include include those owned by the Department Department (either solely or jointly with other utilities) as well as resources available through long-term long-term purchase purchase agreements. Generating station capacity capacity is measured in megawatts (MWs). (MWs). Table Table 2 - Department-Owned Department-Owned Generation Generation Facilities Net Net maximum dependable dependable Number of Number Number of Number capability capability capability Tn~e Type of fuel facilities units ~MWs~ (MWs) (MWs) (MWs) Natural Gas Natural 4 (I) (1) 22 3,421 3,354 3,354 (2) Large Large Hydro Hydro 1 6 (2) 1,175 1,075 (3) (4) Renewables Renewables 14 22 (3) 233 (4) 177 177 Subtotal Subtotal 19 50 4,829 4,606 (5) CDWR CDWR -- - (65) {652 (5) (65) {652 Total 19 50 4,764 4,541 () (I) Consists of the following generating generating stations: Harbor Station, Haynes Station, Scattergood Scattergood Station, and Valley Station. 6 (Continued)
LOS ANGELES LOS ANGELES DEPARTMENT DEPARTMENT OF OF WATER WATER AND AND POWER POWER POWER SYSTEM POWER SYSTEM Management's Discussion Management's Discussion and Analysis Analysis June 30, 2008 2008 and and 2007 (2) (2) The Castaic Plant The Castaic has six currently has Plant currently six out out of seven units of seven units available due to available due to ongoing modernization work ongoing modernization work scheduled scheduled to be completed completed byby 2011. 2011. (3) The (3) The Department-owned Department-owned renewable renewable resources include the resources include the 22 22 Los Los Angeles Angeles Aqueduct, Owens Owens Valley, Valley, and and Owens Owens Gorge small hydro units Gorge units that qualify qualify under the Department's Department's renewable resource definition. This number renewable resource number does does not include not include two two of the Scattergood gas-fueled units that partially bum digester Scattergood gas-fueled digester gas in which output related which the output related qualifies under digester gas also qualifies to the digester Department's renewable resource under the Department's resource definition. (4) (4) Includes Includes 2222 MWs MWs ofof renewable renewable energy energy generated generated atat the Scattergood Station the Scattergood Station by burning digester digester gas from the Hyperion Treatment Plant. Hyperion Treatment (5) Energy (5) Energy payable payable to to the California Department the California Department of Water Resources of Water Resources for energy generated Castai~ Plant. generated at the Castaic Table 3 - Jointly Owned and Table Contracted Facilities and Contracted Facilities Net Net Net maximum maximum dependable Number of Number capability capability Type facilities .(MWs) (MWs) (MWs) (MWs) (I) Large Hydro Hydro 1 491 (1434 434 (2) Nuclear 1 387 (2) 381 (3) Coal 3 1,526 (3) 1,526 1,526 (4) Renewables/DG RenewableslDG 1,317 (4) 141 141 Total(5 ) Total(5) 1,322 2,545 2,545 2,482 2,482 (1)The (I) Department's Hoover Plant contract entitlement Department's contingent capacity of 25.16% of the Hoover total contingent entitlement is 25.16% of 1,951 MWs. Current reduced lake level has reduced capacity to 434 MWs annual average for fiscal reduced available capacity years 2007 - 2008. (2) (2) Department's Palo The Department's The Palo Verde Station (PVNGS) Verde Station entitlement is (PVNGS) entitlement is 9.66% of the maximum net plant capability of 9.66% of the maximum net plant capability of 4,008 MWs. Recent capacity increase is from upgrading Unit 3 completed on January 2008. (3) (3) The Department's The Department's current Intermountain Station current Intermountain Station (IPP) (IPP) entitlement entitlement is 57.67%57.67% of the maximum net plant 1,800 MW. A portion of the IPP entitlement is subject to variable recall. The Department's capability of 1,800 Department's entitlement is 21.20% of the maximum net plant capability Navajo Station entitlement of 2,250 MWs. The Mohave Station capability of2,250 generating units were removed from service service at the end of 2005. (4) (4) The Department's The Department's contract contract renewable renewable resources resources include include energy energy generated generated fromfrom various various landfills in the Los
.Angeles Angeles area, hydro from from British Columbia, Canada, wind from Wyoming, variety of photovoltaic of solar photovoltaic resources and fuel cell installations, also located in the Los Angeles area, and green energy purchases.
Customer distributed generation (DG) units located in the City also provide energy resources. 7 (Continued)
LOS ANGELES ANGELES DEPARTMENT DEPARTMENT OF WATER WATER AND AND POWER POWER POWER SYSTEM SYSTEM Management's Discussion Management's Discussion and Analysis Analysis June 30, 2008 and 2007 Liabilities and Fund Net Assets Long-Term Debt As of June 30, 2008, the Power System's total outstanding long-term long-term debt balance was approximately increase of $611 million over the prior year resulted $5.0 billion. The increase resulted from the sale of $654 million million of the Power Power System revenue bonds and scheduled maturities of $43 million. Outstanding Outstanding principal, plus scheduled scheduled interest as of June 30, 2008, is scheduled scheduled to mature as shown in the chart chart below: Chart: Debt Service Service Requirements Requirements
$1,600,000
$1,600,000
$1,400,000
$1,400,000
$1,200,000
$1,200,000 0
0
'" $1,000,000
$1,000,000 00 $800,000
$800,000 f>"7 1:::1
-- $600,000
$600,000
$400,000
$200,000
$200,000 _l _
2013 . 2018 2023 2028 2033 2038 2043 Five-Year Five-Year Period Ending As of June 30, 2008, $51 $51 million principal principal amount of long-term long-term debt is considered considered defeased defeased and remains outstanding. This debt, together with trust funds set aside for its full repayment at scheduled scheduled maturity dates, dates, is not reflected reflected on the balance sheet. In addition, the Power System had $529 million and $503 $503 million on deposit in trust funds restricted restricted for the use of debt reduction as of June June 30, 2008 and 2007, respectively. respectively. In October October 2008,2008, Standard Standard & Poor's Rating Services, Moody's Moody's Investors Investors Service, Service, and Fitch Ratings affirmed affirmed the Power System's System's bond rating of AA-, Aa3, respectively, due to the Power Aa3, and AA-, respectively, Power System's broad revenue stream, approval of the rate increases, increases, and the City Council authorizing authorizing the unfreezing unfreezing of the energy costcost adjustment factor, which allows the Power System to fully recoverrecover changes in purchased power costs, fuel costs, and renewable resource costs. Additional Additional information information regarding regarding the Power System's System's long-term debt can be found in note 10 to the financial statements. 8 (Continued)
DEPARTMENT OF ANGELES DEPARTMENT LOS ANGELES WATER AND OF WATER AND POWER POWER POWER SYSTEM POWER SYSTEM Management's Discussion Management's Discussion and and Analysis Analysis June 30, 2008 June 2008 and 2007 Changes in Fund Fund Net Assets Assets Operating OperatingRevenues The operating The System are revenues of the Power System operating revenues are generated wholesale and retail customers. There are four generated from wholesale customer categories of retail revenue. These major customer major categories include residential, These categories commercial, industrial, and residential, commercial, and other, which includes includes public street street lighting. Table Table 4 summarizes percentage contribution of retail summarizes the percentage retail revenues from each customer segment years 2008 and 2007. segment in fiscal years Percentage of Revenue Table 44 - Revenue and Percentage Revenue by by Customer Customer Class thousands) (Amounts in thousands) Fiscal year year 2008 Fiscal year 2007 Fiscal Revenue Percentage Percentage Revenue Revenue Percentage Percentage Customer type: Residential Residential $ 883,503 883,503 33% 33% $ 817,642 817,642 33% 33% Commercial Commercial 1,535,554 1,535,554 57 1,428,282 1,428,282 57 57 Industrial 235,502 9 214,795 9 Other Other 36,390 1 36,353 1 Total retail revenue $ 2,690,949
$==2=,6=9=0,=94=9= 100%
100% $ 2,497,072 2,497,072 100% 100%
=::::::::::::::::::.=
While commercial customers consume the most electricity, residential customers represent the largest customer commercial customers customer 30, 2008 and 2007, the Power System had approximately 1.4 million class. As of June 30,2008 million customers. As shown in Table 5, 1.3 million, or 87%, of total customers were in the residential residential customer class. Percentage of Customers by Customer Class Number of Customers and Percentage Table 5 - Number (Numbers in thousands) Fiscal year 2008 Fiscal year 2007 Number Percentage Percentage Number Percentage Percentage Customer type: Residential 1,252 87% 87% 1,247 1,247 86% 86% Commercial 179 179 12 12 185 185 13 13 Industrial 13 13 1 14 11 Other Other 2 - 2 - 1,446 100% 100% 1,448 100% 100% Fiscal FiscalYear 2008 2008
$193.9 million while wholesale revenues decreased $12.6 Retail revenues increased $193.9 $12.6 million from fiscal year 2007. The increase in retail revenue is due to a 11% % increase in consumption, an increase in base rates approved by the City Council in April 2008, and an increase in in costs that are recoverable through the energy cost adjustment billing factor. The decrease in wholesale revenue is due the deferral of of $23.6 million to the rate stabilization account.
9 (Continued)
LOS ANGELES LOS ANGELES DEPARTMENT DEPARTMENT OF OF WATER WATER AND AND POWER POWER POWER SYSTEM POWER SYSTEM Management's Discussion and Analysis Management's Discussion Analysis June 30, 2008 andand 2007 2007 Fiscal Year 2007 Fiscal Retail revenues increased revenues decreased
$154.2 million while wholesale revenues increased $154.2 decreased $50.5 million from fiscal year
$50.5 million year The increase 2007. The in retail revenue increase in revenue is mostly due to the the unfreezing adjustment factor the energy cost adjustment unfreezing of the factor and and a 3.2% increase 3.2% increase in retail consumption.
consumption. The decrease revenue is decrease in wholesale revenue is due to decreased decreased sales sales activity. Operating Expenses Operating Fuel for generation and purchased power power are are two of expenses that the Power System incurs each fiscal of the largest expenses year. Fuel for generation expense includes the cost of fuel that is used to generate generation expense majority of fuel The majority generate energy. The include the cost costs include natural gas, coal, and nuclear cost of natural nuclear fuel. Purchased power expense Purchased power on the open market and paying the current portion of cost of buying power expense includes the cost of the Power System's purchase power System's purchase power contracts. purchase power Under these purchase contracts. Under power contracts, Department has an contracts, the Department entitlement to the energy entitlement energy that that is produced produced at various generating entitlement to the use of various generating stations and an entitlement transmission facilities. Most of these contracts require the Department transmission Department to paypay for these services regardless of services regardless of whether the energy whether energy or transmission transmission is used. These types types of contracts are referred to as "take-or-pay" "take-or-pay" contracts. Depreciation Depreciation expense is computed computed using the straight-line straight-line method based completed based on service lives for all projects completed after July 1, 1973, 1973, and for all office and shop structures, related furniture and equipment, and transportation and completed prior to July 1, 1973 is computed using the 5% construction equipment. Depreciation for facilities completed construction 5% sinking fund method based on estimated Department uses the composite method of estimated service lives. The Department of depreciation and, therefore, depreciation therefore, groups assets into composite composite groups for purposes of calculating calculating depreciation depreciation service lives range from* expense. Estimated service expense. from 55 to 75 years. Amortization Amortization expense for computer software is computed using the straight-line computed method over five years. straight-line method summarizes the Power System's operating expenses below summarizes The table below expenses during fiscal years 2008 and 2007: Table 6 - Operating Operating Expenses and Percentage of Expense by Type of Expense (Amounts in thousands) Fiscal year 2008 Fiscal year 2007 Expense Percentage Percentage Expense Percentage Type of expense: Fuel for generation generation $ 647,814 26% 26% $ 545,221 24% Purchased power 690,200 28 699,841 31 Other operating costs 591,211 24 496,599 22 22 Maintenance 246,831 10 254,988 11 11 Depreciation and amortization amortization 281,541 12 269,587 12
$ 2,457,597 100% $
100% 2,266,236 2,266;236 100% 100% 2008 FiscalYear 2008 Fiscal Fiscal year 2008 operating expenses were $191 compared to fiscal year 2007. Fuel for
$191 million higher as compared generation expenses were $103.0$103.0 million higher in fiscal year 2008 due to the increase in the price of natural gas. gas.
10 (Continued)
LOS ANGELES ANGELES DEPARTMENT DEPARTMENT OF WATER AND AND POWER POWER POWER SYSTEM POWER SYSTEM Management's Discussion and Analysis Management's Analysis June 30, 2008 and 2007 Other operating costs increased increased by $95
$95 million million with an offset in maintenance maintenance expense expense of $8 $8 million million decrease, and and depreciation depreciation expense increased increased by $12 million
$12 million as compared to fiscal year 2007. The increase increase in other operating costs was primarily primarily due to $45 million in distribution expenses, expenses, $18$18 million million in public benefits, $13 million in benefits, $13 administrative administrative and general expenses, $12
$12 million in transmission expenses, expenses, and $6
$6 million in other production expenses. The decrease in maintenance maintenance costs was mostly related to distribution plant.
Fiscal Fiscal Year 2007 Fiscal Fiscal year 2007 operating expenses expenses were $21 million lower as compared to fiscal year 2006. Purchased Purchased power costs were $42 million lower as compared to fiscal year 2006. The decrease is attributable attributable to lower sales for resale. resale. This decrease was offset by a $4 million increase in fuel for generation expense expense related related to natural gas run plants. Other operating costs increased increased by $24 million and were were offset by decreases decreases in maintenance maintenance and depreciation depreciation expense of $5 $5 million and $1 million, respectively. respectively. The increase in other operating costs was primarily due to $10 million in customer accounting and collection $10 collection expenses and $8 $8 million in other production expenses. The decrease in decrease in maintenance maintenance costs costs was was mostly mostly related to distribution distribution plant. Nonoperating Nonoperating Revenues and Expenses Expenses Fiscal Fiscal Year 2008 The major nonoperating nonoperating activities of the Power System for fiscal year 2008 included the transfer $182 million transfer of $182 to the City's General General Fund, interest income earned earned on investments of $159 $159 million, and $196$196 million in debt expenses. The transfer to the City is based on 7% 7% of the previous operating revenues. Operating previous year's operating Operating revenues for fiscal year year 2007 were $2.6 billion, which generated generated a city transfer of $182
$182 million.
Interest income increased increased $6.4 million due to more cash available available for investing in fiscal year 2008 as compared compared to 2007. The increase increase in debt expense is due to having 8.5 months of interest on the 2007 series series debt that were issued issued October 2007 offset by lower interest rates on variablevariable rate debt. The variable variable rate bonds' bonds' daily and weekly weekly rate range decrease decrease from 3.70% to 3.76% as of June 30, 2007 to 1.55% 1.55% to 1.65% 1.65% as of June June 30, 2008. Fiscal Fiscal Year 2007 The major nonoperating activities of the Power System for fiscal year 2007 included the transfer of nonoperating activIties of $174.7 $174.7 million to the City's General General Fund, interest income earned on investments investments of $153
$153 million, and and
$191 million in debt expenses. $191 The transfer transfer to the City is based on 7% 7% of the previous operating revenues. Operating previous year's operating Operating revenues for fiscal year 2006 were $2.5 billion, which generated a city transfer of $174.7 $174.7 million. Interest income increased $30 $30 million due to more cash available for investing in fiscal year 2007 as compared compared to 2006. . I1I 11 (Continued) (Continued)
LOS ANGELES ANGELES DEPARTMENT DEPARTMENT OF WATER WATER AND POWER AND POWER POWER SYSTEM SYSTEM Management's Discussion Management's Discussion and Analysis June 30, 2008 and 2007 The increase in debt expense expense is due to having a full year of interest expense expense on the 2005 series debt that was issued December December 2005 offset by slightly lower interest rates on variable rate debt. The variable rate bonds' bonds' daily and weekly weekly rate range increased from 3.94% 3.94% to 3.95% 3.95% as of June 30, 2006 to 3.70% to 3.76%3.76% as of June 30, 2007. Other Significant Significant Matters Matters In November November 6, 2008 the Power System sold $550
$550 million million in fixed rate bonds with an effective effective interest rate of of 5.28%.
5.28%. 12
LOS ANGELES DEPARTMENT OF WATER AND POWER LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM SYSTEM Balance Sheets June 30, 2008 and 2007 (Amounts (Amounts in thousands) Assets 2008 2007 Noncurrent assets: Utility plant: Generation Generation $ 3,514,113 3,514,113 3,479,754 3,479,754 Transmission Transmission 877,550 877,550 962,290 962,290 Distribution Distribution 4,755,330 4,755,330 4,443,792 General General 1,033,043 1,033,043 979,960 979,960 10,180,036 10,180,036 9,865,796 9,865,796 Accumulated depreciation Accumulated depreciation (5,119,238) (5,119,238) (4,969,876) 5,060,798 4,895,920 Construction Construction work in progress 889,226 889,226 773,694 773,694 Nuclear fuel, at amortized cost 32,982 32,982 18,311 18,311 Natural gas field, net 228,824 228,824 235,163 6,211,830 6,211,830 5,923,088 5,923,088 Restricted Restricted investments 723,346 723,346 668,710 668,710 Long-term California wholesale energy receivable, net Long-term California 116,333 116,333 116,339 116,339 Long-term Long-term notes and other receivables, receivables, net of current portion portion 1,107,510 1,107,510 1,117,142 1,117,142 Deferred Deferred debits 160,000 160,000 228,181 Net pension asset 77,479 77,479 84,710 84,710 Net postemployment postemployment asset 381,462 381,462 296,053 296,053 Total noncurrent assets 8,777,960 8,777,960 8,434,223 Current assets: Cash and cash equivalents - unrestricted unrestricted 389,529 389,529 448,817 448,817 Cash and cash equivalents - restricted 494,512 494,512 196,959 196,959 Cash collateral securities lending transactions collateral received from securities transactions 239,703 237,946 237,946 Customer and other accounts receivable, receivable, net of$14,555 of $14,555 allowance for losses in both 2008 and 2007 allowance 2007 323,238 323,238 282,897 Current Current portion of long-term long-term notes receivable 14,032 14,032 31,778 Accrued unbilled revenue Accrued revenue 153,585 153,585 147,335 147,335 Under recovered recovered costs 190,609 190,609 19,381 Materials Materials and fuel 134,847 134,847 118,349 118,349 Prepayments and other current assets Prepayments 67,504 67,504 52,350 Total current assets 2,007,559 2,007,559 1,535,812 1,535,812 Total assets $ 10,785,519 10,785,519 9,970,035 9,970,035
==========
13 13 (Continued)
ANGELES DEPARTMENT LOS ANGELES DEPARTMENT OF WATER AND POWER POWER SYSTEM POWER SYSTEM Balance Sheets June 30, 2008 and 2007 2007 (Amounts in thousands) thousands) Fund Net Assets and Liabilities 2008 2007 Fund net assets: capital assets, net of related debt Invested in capital $ 1,489,096 1,489,096 1,581,687 1,581,687 Restricted: Debt service service 593,283 546,071 Capital projects 110,234 110,234 102,799 Other postemployment benefits 381,462 296,053 Pension benefits 77,479 84,710 84,710 Other purposes 143,604 136,487 Unrestricted 1,612,382 1,612,382 1,520,077 Total fund net assets 4,407,540 4,407,540 4,267,884 Long-term debt, net of current portion 4,801,728 4,801,728 4,183,127 Other noncurrent noncurrent liabilities: Accrued Accrued liabilities 31,340 228,181 Deferred credits 503,436 503,436 499,677 Accrued workers' Accrued compensation claims workers' compensation 32,089 32,089 28,368 Total other noncurrent liabilities 566,865 756,226 Current liabilities: Current portion of long-term debt debt 175,455 158,756 158,756 Accounts payable payable and accrued accrued expenses 411,006 411,006 198,836 198,836 Accrued interest 90,682 78,507 78,507 Accrued employee expenses expenses 74,090 74,090 84,908 System Due to Water System 18,450 18,450 3,845 Obligation under securities lending transactions 239,703. 239,703 237,946 Total current liabilities 1,009,386 1,009,386 762,798 Total liabilities 6,377,979 5,702,151 Total liabilities and fund net assets $ 10,785,519 10,785,519 9,970,035 9,970,035 See accompanying accompanying notes to financial statements. 14
LOS ANGELES ANGELES DEPARTMENT DEPARTMENT OF WATER AND AND POWER POWER SYSTEM POWER SYSTEM Statements Statements of Revenues, Revenues, Expenses, Changes in Fund Net Assets Expenses, and Changes Years ended June 30, 2008 and 2007 (Amounts in thousands) thousands) 2008 2007 Operating Operating revenues: Residential $ 883,503 817,642 Commercial and industrial 1,771,056 1,771,056 1,643,077 Sales for resale 90,375 102,983 Other 49,043 45,519 45,519 Uncollectible accounts Uncollectible (12,653) (12,653) (9,166) 2,781,324 2,600,055 Operating expenses: Fuel for generation generation 647,814 647,814 545,221 Purchased power 690,200 699,841 Maintenance and other operating expenses Maintenance expenses 838,042 751,587 751,587 Depreciation and amortization Depreciation amortization 281,541 269,587 2,457,597 2,266,236 2,266,236 Operating Operating income income 323,727 333,819 333,819 Nonoperating Nonoperating revenues (expenses): 159,334 152,936 Investment income 159,334 152,936 Other nonoperating income 22,035 20,556 20,556 181,369 181,369 173,492 Other nonoperating expenses expenses *(5,463) (5,463) (4,899)
~4,899) 175,906 168,593 Debt expenses: (210,468) (201,840)
Interest on debt (210,468) (201,840) Allowance for funds used during construction construction 14,894 14,894 10,773 10,773 (195,574) (195,574) (191,067) (191,067) Income Income before capital contributions and transfers 304,059 304,059 311,345 Capital contributions contributions 17,601 19,719 19,719 Transfers to the reserve fund of the City of Los Angeles (182,004) (182,004) (174,747)
~174,747)
Increase in fund net assets Increase 139,656 139,656 156,317 156,317 Fund net assets: Beginning of year 4,267,884 4,267,884 4,111,567 End of year $ 4,407,540 4,267,884 See accompanying accompanying notes to financial statements. statements. 15
LOS ANGELES DEPARTMENT DEPARTMENT OF WATER AND AND POWER POWER POWER SYSTEM SYSTEM Statements of Cash Flows Years ended June 30,30, 2008 and 2007 (Amounts in thousands) 2008 2007 Cash flows from operating activities: Cash receipts: Cash receipts from customers $$ 2,553,451 2,464,217 2,464,217 Cash receipts from customers for other agency services 463,001 379,152 Cash receipts receipts from interfund services provided provided 416,442 308,898 308,898 Other cash receipts 23,603 17,074 Cash disbursements: Cash payments employees payments to employees (464,543) (464,543) (473,496) Cash payments payments to suppliers (1,622,551) (1,622,551) (1,451,947) (1,451,947) Cash payments payments for interfund services used (448,367) (369,717) (369,717) Cash payments payments to other agencies agencies for fees collected collected (451,848) (366,247) (366,247) 469,188 507,934 507,934 Cash flows from noncapital financing activities: Payments Payments to the reserve fund of the City of Los Angeles Angeles (182,004) (182,004) (174,747) (174,747) Payments to the Retiree Health Benefits Benefits Fund (68,000) (425,672) Interest paid on noncapital revenue bonds (14,182) (14,182) (20,014) (264,186)
~264,186) (620,433)
~620,433)
Cash flows from capital and related financing activities: Additions Additions to plant and equipment equipment (568,469) (568,469) (489,135) Capital contributions 24,425 24,425 22,937 22,937 Principal Principal payments payments and maturities on long-term long-term debt (43,033) (43,033) (108,434) (108,434) Proceeds Proceeds from issuance of bonds and revenue certificates certificates 674,136 674,136 Debt interest payments (184,326) (184,326) (182,981) (182,981) (97,267) (97,267) (757,613) (757,613) Cash flows from investing activities: Purchases Purchases of investment investment securities (1,299,739) (1,299,739) (1,839,545) (1,839,545) Sales and maturities of investment investment securities 1,245,102 1,245,102 2,126,176 Proceeds receivable Proceeds from notes receivable 31,778 32,887 32,887 Investment income 153,389 153,389 149,867 130,530 130,530 469,385 Net increase (decrease) increase (decrease) 238,265 (400,727) Cash and cash equivalents: Cash and cash equivalents at July 1, 1, 2007 and 2006 (including $196,959 (including $196,959 and $731,205 reported in restricted restricted accounts, respectively) respectively) 645,776 1,046,503 Cash and cash equivalents at June 30, 2008 and 2007 (including $494,512 and $196,959
$196,959 reported in restricted restricted accounts, respectively) accounts, respectively) $ 884,041 645,776 16 (Continued)
(Continued)
LOS ANGELES DEPARTMENT OF WATER AND ANGELES DEPARTMENT AND POWER POWER POWER SYSTEM SYSTEM Statements of Cash Flows Years ended June 30, 2008 and 2007 (Amounts in thousands) thousands) 2008 2007 Reconciliation of operating income to net cash provided Reconciliation provided by operating activities: Operating income $ 323,727 333,818 333,818 Adjustments to reconcile income to net cash reconcile operating income provided by operating activities: Depreciation amortization Depreciation and amortization 281,541 269,587 Depletion expenses 5,668 5,668 6,358 6,358 Amortization Amortization of nuclear fuel 7,411 7,411 10,227 10,227 Provision for losses on customer and other other accounts accounts receivable 12,653 12,653 9,166 9,166 Changes Changes in assets and liabilities: Customer and other accounts receivable Customer receivable (58,267) (58,267) (15,441) (15,441) Accrued unbilled revenue Accrued revenue (6,250) (6,949) (6,949) Under recovered recovered costs (171,228) (171,228) (19,382) (19,382) Materials Materials and fuel (16,497) (16,497) (6,242) (6,242) Deferred Deferred debits 68,181 (228,181) (228,181 ) Net pension asset asset 7,231 15,083 Accounts payable and accrued expenses expenses 212,170 (24,598) Accrued Accrued liabilities (196,841) (196,841) 228,181 Deferred Deferred credits 3,759 3,759 (64,486) Due to Water Water System 14,605 (9,562) (9,562) postemployment asset Net other postemployment asset (17,409) (17,409) 18,795 18,795 Workers' compensation liability and other Workers' compensation other (1,266) (1,266) (8,440) (8,440) 507,934
$==~~=
Net cash provided by operating activities $ 469,188 469,188 507,934 See See accompanying accompanying notes to financial statements. 17
LOS ANGELES DEPARTMENT OF ANGELES DEPARTMENT OJ? WATER WATER AND AND POWER POWER POWER SYSTEMSYSTEM Notes to Financial Statements June 30, 2008 and 2007 (1) Summary of Significant Accounting Accounting Policies Angeles' (the City) Department The City of Los Angeles' Water and Power (the Department) exists as a separate Department of Water proprietary department of the City under and by virtue of the City Charter proprietary Charter enacted enacted in 1925 and as revised effective July 2000. The Department's Power effective Power Revenue Fund (the Power System) is responsible responsible for the generation, transmission, distribution of electric power for sale in the City. The Power transmission, and distribution Power System is is operated as an enterprise fund of the City. (a) (a) Method ofAccounting ofAccounting The accounting records of the Power System are maintained accounting records accordance with U.S. generally maintained in accordance generally accepted accounting principles (GAAP) for governmental entities. The financial statements statements have economic resources measurement focus and the accrual basis of accounting. prepared using the economic been prepared elected to follow all Governmental Department has elected The Department Accounting Standards Board (GASB) Governmental Accounting (GASB) statements and only Financial Financial Accounting Standards Board (F Accounting Standards ASB) statements (FASB) statements and interpretations issued on or before November 30, 1989. The Department's The Department's rates rates are are determined determined by by the board of water and power commissioners (the Board) the board and are subject to review and approval approval by the City City Council. As a regulated enterprise, the Department utilizes utilizes Statement of Financial Accounting Standards (SFAS) (SFAS) No. 71, 71, Accounting Accountingforfor the Effects of Certain Regulation, which requires that the effects of the rate-making process be Certain Types of Regulation, be financial statements. Such effects recorded in the financial recorded effects primarily concern the time at which various items primarily concern changes in fund net assets. Accordingly, the Power System records determination of changes enter into the determination various regulatory assets and liabilities to reflect the Board's Board's actions. Regulatory Regulatory liabilities are recorded in deferred credits and regulatory assets were included as deferred debits and under under Management believes that the Power recovered costs on the balance sheets. Management Power System meets the criteria criteria for continued continued application of SF SFAS AS No. 71, evaluate its applicability 71, but will continue to evaluate applicability based on on environment (see notes 3 and 14(d)ii). changes in the regulatory and competitive environment l4(d)ii). (b) Use of Estimates of Estimates preparation of financial statements in conformity with GAAP requires management The preparation management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure disclosure ofof statements and the reported amounts of contingent assets and liabilities at the date of the financial statements contingent of period.- Actual results reporting period._Actual the reporting could differ those estimates: from those differ from revenues and expenses expenses during the results could estimates: (c) Utility Plant Plant additions to utility plant The costs of additions replacements of retired units of property plant and replacements property are capitalized. capitalized. Costs include labor, materials, an allowance construction (AFUDC), allowance for funds used during construction (AFUDC), and and charges, such as engineering, supervision, transportation allocated indirect charges, construction transportation and construction equipment, retirement retirement plan contributions, healthcare costs, and certain administrative and general contributions, healthcare maintenance, repairs, and minor replacements are charged to the appropriate expenses. The costs of maintenance, operations and maintenance expense accounts. operations 18 18 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND ANGELES DEPARTMENT POWER AND POWER POWER SYSTEMSYSTEM Notes to Financial Financial Statements June 30, 2008 and 2007 (d) (d) Impairment of Long-Lived Assets Impairment The Department Department follows GASB Statement No. 42, 42, Accounting and Financial Reporting and Financial Reporting for Capital Assets and Impairment of Capital Impairment and for Insurance Recoveries (GASB No. 42). Governments are for Insurance required to evaluate prominent prominent events or changes circumstances affecting changes in circumstances affecting capital assets to determine whether determine whether impairment of a capital capital asset has occurred. A capital asset is considered impaired considered impaired when its service utility has declined unexpectedly. Under GASB No. 42, impaired declined significantly and unexpectedly. capital assets that will no longer capital government should be reported at the lower of longer be used by the government of Impairment losses on capital assets that will continue to be used by the carrying value or fair value. Impairment carrying measured using the method that best reflects the cause of the diminished government should be measured government diminished service utility of the capital asset. service (e) Depreciation and Depreciation and Amortization Depreciation Depreciation expense is computed straight-line method based on service lives for all computed using the straight-line projects completed after July 1, 1, 1973, office and shop structures, related furniture and 1973, and for all office equipment, and transportation and construction equipment, Depreciation for facilities completed construction equipment. Depreciation completed prior to July 1, 1973 is computed computed using the 5.0% 5.0% sinking fund method based on estimated service estimated service lives. The Department Department uses the composite composite method of depreciation depreciation and, therefore, groups assets into composite groups for purposes of calculating composite Estimated service lives range depreciation expense. Estimated calculating depreciation expense for computer software is computed from 5 to 75 years. Amortization expense computed using the straight-line method over five years. Depreciation amortization expense as a percentage Depreciation and amortization percentage of average depreciable utility plant in service depreciable 2.8% service was 2.8% for both fiscal years 2008 and 2007. (D) (j) Nuclear Decommissioning NuclearDecommissioning The Department owns a 5.70% 5.70% direct ownership interest in the Palo Verde Nuclear Generating Generating participation in the Southern California Station (PVNGS). In addition, through its participation California Public Power Power Authority Authority (SCPPA), Department is party to a contract for an additional 3.95% (SCPPA), the Department 3.95% of the output of of decommissioning costs associated with the Power System's output entitlement are PVNGS. Nuclear decommissioning PVNGS. purchased power expense (see note 6). included in purchased Decommissioning of PVNGS is expected Decommissioning commence subsequent to the year 2024. The total cost expected to commence cost decommission the Power System's direct to decommission interest in PVNGS is estimated to be direct ownership interest
$117 million in 2007 dollars. This estimate is based on an updated
$117 prepared by an updated site-specific study prepared independent consultant in 2008. As of June 30, independent 30, 2008 and 2007, the Power System has recorded recorded
$122.4 million, respectively,
$129.8 million and $122.4
$129.8 accumulated depreciation to provide respectively, to accumulated provide for the decommissioning liability.
decommissioning contributed $70.2 million to external December 1999, the Power System contributed Prior to December external trusts established in accordance with the PVNGS participation agreement and Nuclear Nuclear Regulatory Commission Commission requirements. During fiscal year 2000, the Department suspended contributingcontributing additional amounts to the trust funds, as management believes contributions made, combined believes that contributions reinvested earnings, combined with reinvested earnings, will be sufficient to fully fund the Department's Department's share of decommissioning Department decommissioning costs. The Department reinvest its investment income on the trust investments into the decommissioning will continue to reinvest decommissioning Department reinvested trusts. The Department reinvested $7.4 million and $5.8 $5.8 million of investment investment income in fiscal years 19 19 (Continued)
LOS ANGELES DEPARTMENT DEPARTMENT OF WATER WATER AND AND POWER POWER POWER SYSTEM POWER Statements Notes to Financial Statements June 30, 2008 and 2007 2008 and 2007, respectively. Decommissioning Decommissioning funds, which are included included in restricted investments,
$110.2 million and $102.8 totaled $110.2 $102.8 million as of June 30,2008 30, 2008 and 2007 (at fair value), respectively.
The Department's Department's current accounting accounting policy recognizes unrealized investment recognizes any realized and unrealized investment earnings from nuclear decommissioning decommissioning trust funds as a component of accumulated component accumulated depreciation. (g) (g) Nuclear Fuel Nuclear Fuel Nuclear Nuclear fuel is amortized and charged to fuel for generation on the basis of actual thermal energy produced produced relative to total thermal energy expected to be produced over the life of the fuel. Under the provisions provisions of the Nuclear Nuclear Waste Policy Act of 1982, 1982, the federal government government assesses each utility with nuclear operations, including the Power System, $1 $1 per megawatt hour of nuclear generation. The Power System includes this charge as a current year expense in fuel for generation. See note 14 14 for discussion discussion of spent nuclear fuel disposal. (h) NaturalGas Field Natural Field In July 2005, 2005, the Power System acquired acquired approximately approximately a 74.5% 74.5% ownership ownership interest in gas properties located in Pinedale, Wyoming. The Power System uses the successful successful efforts method of accounting accounting for its investment investment in gas producing properties. Costs to acquire the mineral interest interest in gas producing properties, properties, to drill and equip exploratory exploratory wells that find proven reserves, and to drill and equip development wells are capitalized. Costs to drill exploratory wells that do not find proven reserves reserves are expensed. Capitalized Capitalized costs of gas producing properties are depleted by the unit-of-production unit-of-production method based on the estimated future production production of the proved proved developed developed producing wells. Depletion Depletion expense expense related to the gas field is recorded recorded as a component of fuel for generation expense. During fiscal years 2008 and 2007, the Power System System recorded $7.4 million and $10.2 $10.2 million of of depletion expense, respectively. (i) (i) Cash and Cash and Cash Cash Equivalents Equivalents As provided for by the State of California Government Code (the Code), the Power Power System's cash is is deposited with the City Treasurer Treasurer in the City's general investment investment pool for the purpose of of maximizing maximizing interest interest earnings through pooled pO,oled investment investment activities. Cash and cash equivalents equiv!llents in the City's general investment investment pool are reported at fair value and changes changes in unrealized unrealized gains and losses are recorded recorded in the statements statements of revenues, expenses, and changes in fund net assets. Interest earnedearned on such pooled investments is allocated to the participating funds based on each fund's average daily cash balance balance during the allocation allocation period. The City Treasurer invests available available funds of the City and its independent departments on a combined basis. The Power System classifies all cash and independent operating departments cash equivalents equivalents that are restricted either by creditors, the Board, or by law, as restricted cash and cash equivalents equivalents on the balance sheets. The Power Power System considers its portion of pooled pooled investments in the City's pool to be cash and cash equivalents. 20 20 (Continued)
LOS ANGELES DEPARTMENT OF WATER ANGELES DEPARTMENT WATER AND AND POWER POWER POWER SYSTEM SYSTEM Notes to Financial Financial Statements June 30, 2008 and 2007 At June June 30, 2008 and 2007, restricted cash and cash equivalents include the following (amounts (amounts in thousands): June June3030 2008 2007 Bond redemption redemption and interest funds $ 153,485 120,044 Construction funds 254,449 254,449 483 Self-insurance fund Self-insurance 83,878 73,868 Other Other 2,700 2,564
$ ===49=4=,5=12=
$ 494,512 196,959 196,959 (1") Materials (j) Materials and Fuel Fuel Materials Materials and supplies supplies are recorded recorded at average cost. Fuel is recorded recorded at lower of cost or market, on an average cost basis.
(k) (k) Accrued UnUnbilled billed Revenue Accrued Accrued unbilled revenue revenue is the receivable for estimated energy sales during the period for which the customer customer has not been been billed. (1) (/) RestrictedInvestments Restricted Investments Restricted investments include primarily commercial Restricted commercial paper, U.S. government government and and governmental governmental agency securities, and corporate bonds. Investments agency securities, Investments are reported at fair value and changes in unrealized unrealized gains and losses are recorded recorded in the statements statements of revenues, revenues, expenses, expenses, and changes in fund net assets except except for Nuclear Decommissioning Decommissioning Trust Funds. The stated fair value of investments investments is generally generally based on published published market prices or quotations from major investment investment dealers (see (see note 7). (m) (in) Accrued Employee Expenses Accrued Accrued employee employee expenses expenses include accrued payroll and an estimated estimated liability for vacation leave, sick leave, and compensatory compensatory time, which is accrued when employees earn the rights to the benefits. Below Below is a schedule of accrued accrued employee expenses as of June 30, 2008 and 2007 (amounts in thousands): 2008 2007 Type of expenses: Accrued payroll payroll $ 12,793 29,352 29,352 Accrued vacation vacation 40,992 37,704 37,704 Accrued sick leave 9,433 9,433 8,727 Compensatory time Compensatory 10,872 9,125 Total $ 74,090 74,090 84,908 84,908
$========
21 (Continued)
LOS ANGELES ANGELES DEPARTMENT DEPARTMENT OF WATER WATER AND AND POWER POWER POWER SYSTEM SYSTEM Financial Statements Notes to Financial June 30, 2008 and 2007 (n) Debt Expenses Expenses Debt premium, discount, and issue expenses are deferred deferred and amortized amortized to debt expense using the effective-interest effective-interest method over the lives of the related debt issues. Gains and losses on refundings related to bonds redeemed by proceeds from the issuance issuance of new bonds are amortized amortized to interest on on debt using the effective-interest effective-interest method method over the shorter of the life of.the of the new bonds or the remaining remaining term of the bonds refunded. (o) (0) Gas and Electricity Electricity Option Option and Location Location Swap Agreements Gas and electricity option and location swap agreements agreements are accounted for on a settlement basis (see 9). note 9). (p) (P) Accrued Workers' Compensation Claims Compensation Claims Liabilities for unpaid workers' workers' compensation compensation claims are recorded recorded at their present value, (see (see note 13). 13). (q) Customer Deposits Customer Deposits Customer deposits represent represent deposits deposits collected from customers customers upon opening opening of new accounts. These deposits are obtained when the customer customer does not have a previously established established credit history history with the Department. Original deposits plus interest are paid to the customer once a satisfactorysatisfactory payment payment history is maintained, generally generally after one to three years. The Water System is responsible responsible for collection, maintenance, maintenance, and refunding of these deposits for all the Department's customers, including those of the Power System. As such, the Water System's balance sheets balance sheets include a deposit deposit liability of $77.0
$77.0 million and $80.0
$80.0 million as of June 30, 2008 and 2007, respectively, for all customer deposits collected. In the event that the Water System defaults defaults on refunds of such deposits, the Power System System would be required required to pay amounts it owes its customers.
(r) Revenues The Power Power System's rates are established by a rate ordinance, ordinance, which is approved by the City Council. The Power System sells energy to the City's other departments at rates provided provided in the ordinance. The Power System recognizes ordinance. recognizes energy costs in the period incurred incurred and accrues for estimated energy energy sold but not yet billed. Effective Effective October 1, 1, 2006, the Energy Cost Adjustment Adjustment Factor (ECAF), which is a billing factor defined in the electric rate ordinance ordinance was unfrozen. This change allows the Power System to increase increase or decrease decrease the factor on a quarterly basis in compliance with the ordinance. ordinance. While this change allows the Power Power System to fully recover fuel costs, purchased power power costs, and other costs outlined outlined in the ordinance, ordinance, the difference difference between the amount billed billed to customers, and the value of the costs allowed to be recovered through the factor create create an over/under over/under recovered amount. Costs that are under recovered will be recovered recovered in future periods. Amounts over recoveredrecovered will be factored factored into quarterly rates. As of June 30, 2008 and 2007, the amount of under recovered future quarterly recovered costs was
$190.6
$190.6 million, and $19.4
$19.4 million, respectively. These balances balances are recorded as current assets on the balance sheets.
22 (Continued) (Continued)
LOS ANGELES DEPARTMENT OF WATER AND ANGELES DEPARTMENT AND POWER POWER POWER POWER SYSTEMSYSTEM Notes to Financial Statements Statements June 30, 2008 and 2007 Operating revenues are revenues derived from activities that are billable in accordance with the Operating revenues are revenues derived from activities that are billable in accordance with the electric rate ordinance ordinance approved by the City Council. (s) CapitalContributions Capital Contributions Capital contributions and other grants received by the Department Department for constructing constructing utility plant and other activities activities are recognized recognized when all applicable eligibility eligibility requirements, including time requirements, are met. requirements, (t) (I) Allowance for Funds Funds Used During During Construction Construction (AFUDC) An AFUDC charge represents represents the cost of borrowed borrowed funds used for the construction construction of utility plant. Capitalized AFUDC is included Capitalized included as part of the cost of utility plant and as a reduction of debt expenses. As of June 30, 2008 and 2007, 2007, the average average AFUDC rates were 4.4% and 4.6%, respectively. (u) Restrictedand Unrestricted Use of Restricted UnrestrictedResources Resources The Power System's policy is to use unrestricted unrestricted resources prior to restricted restricted resources to meet expenses to the extent that it is prudent operational perspective. Once it is not prudent, prudent from an operational restricted resources will be utilized to meet intended intended obligations. (v) Reclassifications Reclassifications Certain financial statement statement items for 2007 have been reclassified to conform to the 2008 presentation. (2) (2) Recent Accounting Pronouncements Recent Accounting Pronouncements (a) (a) GASB No. GASB No. 48 In September 2006, 2006, the GASB issued Statement No. 48, Board Sales and Board Sales andPledges Pledges of Receivables Receivables and Future Future Revenues and Intra-Entity Transfers of Assets and Intra-Entity Transfers and Future Future Revenues (GASB No. 48). This Statement establishes criteria Statement criteria that governments governrnents will use to ascertain ascertain whether the proceeds proceeds received received from an exchange exchange of an interest interest in expected expected cash flows for immediate cash payments should be reported as revenue or as a liability. The Department has determined determined that this statement and the expanded disclosures expanded disclosures of pledged pledged revenues revenues does not apply to its stand-alone stand-alone financial statements statements as its operations operations are financed financed primarily primarily by a single major revenue revenue source. source. (b) (b) GASB No. GASB No. 49 In November November 2006, the GASB issued Statement Statement No. 49, Accounting and Financial Reporting for Financial Reporting Pollution Remediation Pollution Remediation Obligations Obligations (GASB No. 49). This StatementStatement addresses accounting and financial reporting reporting standards for pollution (including contamination) remediation obligations, which (including contamination) are obligations to address the current or potential potential detrimental detrimental effects of existing pollution by participating in pollution remediation participating remediation activities, such as site assessments and cleanups. The scope of of the document excludes pollution prevention document excludes prevention or control obligations with respect to current operations and future pollution pollution remediation remediation activities activities that are required upon retirement retirement of an asset, such as 23 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND ANGELES DEPARTMENT AND POWER POWER SYSTEM POWER SYSTEM Notes to Financial Statements Statements June 30, 2008 and 2007 landfill closure and post closure care and nuclear power plant decommissioning. This statement statement is effective for the Department Department beginning fiscal year 2009. The Department has not yet determined determined the financial statement statement impact of adopting this new statement. (c) GASB GASB No.No. 50 In May 2007, the GASB issued Statement No. 50, Pension Pension Disclosures Disclosures - an amendment to GASB Statement's Statement's No. 25 and and No 27 (GASB (GASB No. 50). This statement more closely aligns the financial reporting requirements for pensions with those for other postemployment postemployment benefits (OPEB) and, in doing so, enhances information disclosed information disclosed in notes to the financial statements or presented presented as required supplementary information supplementary information (RSI) by pension plans and by employers that provide pension pension benefits. The reporting changes required by this statement amend amend applicable note disclosures disclosures and RSI requirements of GASB Statements Statements No. 25, Financial Reporting for Financial Reporting Defined Benefit Pension for Defined Pension Plans Plans and Note Disclosuresfor Disclosuresfor Defined Contribution ContributionPlans, Plans, and No. 27, Accounting Accountingforfor Pensions Pensions by State and State and Local Governmental Governmental Employers, Employers, to conform conform to requirements requirements of GASB Statements Statements No. 43, 43, Financial Financial Reporting Reporting for Postemployment Postemployment Benefit Plans Plans Other Pension Plans, Other Than Pension Plans, and No. 45, Accounting and Financial Financial Reporting Reporting by Employers for for Postemployment Postemployment Benefits Other Other Than Pensions. Pensions. The Department Department has implemented these disclosures disclosures in fiscal year 2008. (d) (d) GASB No. 51 GASB In June June 2007, the GASB issued Statement Statement No. 51, Accounting and Financial No.51, Financial Reporting Reporting for Intangible Intangible Assets (GASB No. 51). This statement establishes accounting and financial reporting reporting standards for intangible assets. Intangible assets include, but are not limited to, easements, water water rights, timber rights, patents, trademarks, trademarks, and computer software. This statement statement is effective effective for the Department beginning fiscal year 2010. The Department Department has not yet determineddetermined the financial statement impact of adopting this new statement. (e) GASB No. 53 GASB In June June 2008, the GASB issued Statement Statement No. 53, 53, Accounting and Financial Financial Reporting Reporting for Derivative Derivative Instruments. Instruments. This statement statement addresses addresses the recognition, recognition, measurement, measurement, and disclosure of of information regarding derivative instruments entered into by state and local governments. governments. Common Common derivative instruments used by the Department include electricity types of derivative electricity swaps, forward contracts, and financial natural natural gas hedges. Governments enter into derivative instruments as investments; investments; as hedges of identified financial risks associated with assets or liabilities, or expected expected transactions transactions (i.e., hedgeable (i.e., hedgeable items); items); or to lower lower cost of borrowings. Governments often enter borrowings. Governments enter into derivative instruments with the intention effectively fixing cash flows or synthetically intention of effectively synthetically fixing prices. The changes in fair value of derivative instruments that are used for investment purposes purposes or that are reported as investment derivative instruments because because of ineffectiveness ineffectiveness are reported within the investment revenue classification. Alternatively, investment Altematively, the changes in fair value of derivative instruments that are classified as hedging hedging derivative instruments instruments are reported reported in the statements statements of net assets or deferrals on the balance sheets. This statement statement is effective effective for the Department beginning fiscal year 2010. The Department has not yet determined the financial statement statement impact of adopting this new new statement. 24 24 (Continued) (Continued)
LOS ANGELES DEPARTMENT OF WATER AND ANGELES DEPARTMENT AND POWER POWER POWER SYSTEM POWER SYSTEM Notes to Financial Statements Statements June 30, 2008 and 2007 (3) (3) Regulatory Regulatory Matters (a) (a) Federal FederalRegulation Transmission Access Regulation of Transmission The Energy Policy Act of 1992 (the Energy Policy Act) made fundamental changes changes in the federal regulation of the electric utility utility industry, particularly in the area of transmission. As amended amended by the Energy Policy Act, Sections 211, 211, 212, and 213 of the Federal Federal Power Act (FPA) provide provide Federal Energy Regulatory Regulatory Commission Commission (FERC) (FERC) authority, authority, upon application application by any electric electric utility, federal power marketing marketing agency,' agency; or other person person or entity generating electric energy for sale or resale, resale, to require a transmitting transmitting utility to provide transmission transmission services (including any enlargement of of transmission capacity capacity necessary necessary to provide provide such services) to the applicant at rates, charges, charges, terms, conditions set by FERC based and conditions based on standards and provisions in the FPA. Under the Energy Policy Act, electric utilities owned by municipalities and other public public agencies, which own or operate electric power power transmission facilities that are used for the sale of electric electric energy at wholesale wholesale rates are "transmitting "transmitting utilities" utilities" subject to the requirements of Sections 211,211, 212, and 213. 213. FERC has encouraged encouraged in the past the voluntary formation of regional regional transmission transmission organizations organizations (RTOs) independent independent from owners of generation and other market participants participants that will provide transmission access on a nondiscriminatory nondiscriminatory basis to buyers and sellers of power. Investor-owned Investor-owned utilities (lOos) owned utilities have been encouraged to participate in the formation and (IOUs) and publicly owned operation of RTOs, but are not, at this time, being ordered by FERC to participate. FERC has operation adopted a "go "go slow" approach to the issue of RTO formation formation in the western United States; it is contemporaneously engaged contemporaneously engaged in a wholesale overhaul overhaul of the California market design, referred referred to initially as the Market Market Design 2002 proceeding proceeding and lately lately as the Market Redesign and Technology Update (MRTU) proceeding. proceeding. These FERC proceedings proceedings will have potential impacts on every every electric electric utility doing business business in California. MRTU MRTU involves a comprehensive comprehensive overhaul of the electricity markets administered by California California Independent System Operator (CAISO), including the areas of System Operator of transmission management, trading and scheduling transmission congestion management, scheduling energy in the day ahead, or spot spot market, improved improved market power transparency measures and system power mitigation, and pricing transparency improvements improvements to increase operational efficiency and enhance reliability, among other things. operational efficiency Currently, Currently, MRTU MRTU is scheduled to be implemented implemented on February 1, 2009. It is not certain at this time what impact, if any, FERC's final decision on MRTU MRTU will have on the Power System. In addition, CAISO CAISO has announced announced its intention to implement further market changes changes over the next five years. (b) FederalEnergy Legislation Federal Legislation On August 8, 8, 2005, the Energy Policy Act of 2005 (the EP Act) was enacted,enacted, the first comprehensive comprehensive energy legislation legislation in over a decade. One of the most significant provisions provisions of the EP Act empowers FERC to certify an Electric Reliability Organizatiqn Organization (ERO) to improve improve the reliability reliability of the nation's nation's "bulk-power "bulk-power system" through mandatory and enforceable enforceable electric reliability standards standards (in contrast to the long-standing long-standing voluntary system). The definition of "bulk-power "bulk-power system" system" does not include facilities used in the local distribution of electric electric energy. The ERO will file any proposed reliability standard or modification modification with FERC. A "reliability "reliability standard" is a requirement that provides provides for reliable operation of the bulk-power bulk-power system. Such a standard includes includes requirements requirements for the operation operation of existing transmission facilities or the design design of planned additions or modifications modifications to the extent extent necessary necessary to provide for reliable operation. It does not include, and the ERO may not impose, impose, any 25 25 (Continued)
LOS ANGELES DEPARTMENT OF-WATER ANGELES DEPARTMENT OF* WATER AND AND POWER POWER POWER SYSTEM POWER Notes to Financial Statements Statements June 30, 2008 and 2007 enlarge existing facilities or to construct requirement to enlarge construct new transmission or generation. All users, operators of the bulk-power system are required to comply with the electric owners, and operators electric reliability reliability standards. The ERO may impose a penalty on a user, owner, or operator for violating a reliability standard, and FERC may order compliancecompliance with such a standard and impose a penalty penalty if it finds that a user, owner, or operator operator is about to engage in an act that would violate a reliability standard. The EP Act authorizes authorizes FERC to require nondiscriminatory nondiscriminatory access to transmission transmission facilities owned owned by cooperative, and other municipal, cooperative, currently regulated by FERC, unless other transmission companies not currently exercising this authority would violate private activity bond rule for purposes of Section violate a private Section 141 of the Internal Revenue Code Code of 1986. FERC is prohibited requiring any such entities to join RTOs. prohibited from requiring The EP Act also allows FERC to issue permits construction of new transmission facilities permits for the construction when states have been unable load-serving entities to use the firm unable or unwilling to act and allows load-serving transmission rights, or equivalent tradable or financial transmission rights, in order to deliver output equivalent tradable energy to the extent required to meet its service obligations. The EP Act does not or purchased energy relieve a load-serving load-serving entity from any obligation under state or local law to build transmission or distribution facilities adequate to meet its service obligations, obligations, or to abrogate preexisting firm transmission service contracts. incentive-based rates for transmission directs FERC to establish, by rule, incentive-based The EP Act directs transmission no later later than August 2006 and requires FERC to establish market transparency market transparency rules for the electric electric wholesale market (entities (entities that have a de minimis minimis market presence are exempt from the rules). The EP Act market presence Act transparency rules must provide for the timely dissemination of information instructs that the market transparency information about the availability and prices of wholesale wholesale electric electric energy and transmission transmission service service to FERC, state commission, buyers buyers and sellers of wholesale electric electric energy, users of transmission services, and the serVices, public. Within 180 180 days of the EP Act's enactment, FERC and the Commodity Commodity Futures Futures Trading Trading Commission are required to enter into a memorandum memorandum of understanding understanding regarding regarding information information sharing pursuant to these rules. In addition, the EP Act prohibits any person from willfully and knowingly knowingly reporting false information to any federal agency on the price of wholesale electricity electricity or availability of transmission transmission capacity, or using (directly or indirectly) any manipulative manipulative device device in contravention contravention of any FERC increases civil and criminal penalties, rule. The EP Act increases penalties, modifies the procedures procedures for review of FERC orders under the FPA, and changes changes the refund date under the FPA to be effective effective as of the date an applicable complaint establishes an entity's right to a refund if (i) it makes complaint is filed. The EP Act also establishes makes a short term sale of electric electric energy energy through through an organized market in which the rates for the sale are set organized market FERC-approved tariff (not by a contract) and (ii) the sale violates by a FERC-approved violates the terms of the tariff or applicable FERC rule in effect at the time of the sale. Based on the EP Act authority vested vested upon the FERC, the FERC approved approved the North American American Corporation (NERC) as the ERO, and last year made mandatory Electric Reliability Corporation mandatory more than 80 80 NERC and Western Electricity Electricity Coordinating Coordinating Council (WECC) standards, all of which are (WECC) reliability standards, subject to penalties ranging from $1,000 $1,000,000, depending on the impact of the violation to
$1,000 to $1,000,000, reliability reliability and other other factors. LADWP has implemented a NERC/WECC implemented NERCIWECC Reliability Standards Compliance Program to proactively Compliance proactively prevent, monitor, and stop any potential violations to these standards.
standards. 26 26 (Continued)
LOS ANGELES DEPARTMENT OF WATER AND ANGELES DEPARTMENT POWER AND POWER POWER SYSTEM SYSTEM Notes to Financial Financial Statements June 30, 30, 2008 and 2007 The overall overall impact impact of the EP Act on the Department Department cannot cannot be predicted at this time. (4) Utility Plant Plant The Power System had the following activities in utility plant activities III plant during fiscal year 2008 (amounts (amounts in thousands): Balance Retirements Balance July 1, 2007 2007 Additions and disposals Transfers June 30, 2008 2008 Nondepreciable utility Nondepreciable utility plant: Land and land land rights $ 143,513 143,513 12,194 12,194 -- 155,707 155,707 Construction work in progress 773,694 773,694 306,635 306,635 (191,103) (191,103) 889,226 889,226 Nuclear Nuclear fuel 18,311 18,311 20,340 20,340 (5,669) -- 32,982 Natural field Natural gas field 235,163 235,163 1,071 (7,410) -- 228,824 228,824 Total nondepreciable nondepreciable utility plant 1,170,681 340,240 (13,079) (13,079) (191,103) (191,103) 1,306,739 Depreciable Depreciable utility plant: Generation 3,465,219 3,465,219 40,280 40,280 (29,727) (29,727) 11,613 11,613 3,487,385 Transmission 882,586 6,000 (97,451) (97,451) 6,710 6,710 797,845 Distribution 4,400,292 155,380 155,380 (1,587) (1,587) 157,745 4,711,830 4,711,830 General 974,186 40,872 (2,824) 15,035 15,035 1,027,269 1,027,269 Total depreciable depreciable utility plant plant 9,722,283 9,722,283 242,532 (131,589) (131,589) 191,103 10,024,329 10,024,329 Accumulated Accumulated depreciation: Generation (2,049,213) (2,049,213) (114,391) (114,391) 29,727 - (2,133,877) (2,133,877) Transmission (376,658) (376,658) (19,482) (19,482) 97,451 - (298,689) (298,689) Distribution (1,893,791) (1,893,791) (121,925) (121,925) 1,587 1,587 - (2,014,129) (2,014,129) General (650,214) (650,214) (25,153) (25,153) 2,824 2,824 - (672,543) (672,543) Total accumulated accumulated depreciation depreciation (4,969,876) (280,951) (280,951) 131,589 131,589 - (5,119,238) (5,119,238) Total utility utility plant, net $$ ==5=,9=2::3,=08=8= 5,923,088 301,821 301,821 (13,079) (13,079) - 6,211,830 6,211,830 Depreciation}}