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MATANUSKA ELECTRIC ASSOCIATION
Pal —c LT SS March 23, 2018
Ms. Brenda Applegate
Controller
Alaska Energy Authority
813 W. Northern Lights Blvd.
Anchorage, AK 99503
Dear Ms. Applegate:
Enclosed is Matanuska Electric Association, Inc.’s Audited Financial Statement for the
years ended December 31, 2017 and 2016.
Sincerely, DieundiaSt
Deanna Hracha
Controller
Enclosure
T:\Admin StaffiMATT\Fin Stmts\2018\AEA Applegate Fin Stmt Dist.docx
MATANUSKA ELECTRIC ASSOCIATION, INC. + P.O. Box 2929 « Palmer, Alaska 99645 « t 907.745.3231 « f 907.761.9368 » www.mea.coop
MATANUSKA ELECTRIC ASSOCIATION, INC.
PALMER, ALASKA
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
AND
REPORT OF INDEPENDENT AUDITORS
KMEA
MATANUSKA ELECTRIC ASSOCIATION
MATANUSKA ELECTRIC ASSOCIATION, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2017 AND 2016
Table of Contents
Report of Independent Auditors
Financial Statements
Balance Sheets
Statements of Revenue and Patronage Capital
Statements of Cash Flows
Notes to Financial Statements
@) MOSSADAMS
Report of Independent Auditors
To the Board of Directors
Matanuska Electric Association, Inc.
Report on Financial Statements
We have audited the accompanying financial statements of Matanuska Electric Association, Inc.,
which comprise the balance sheets as of December 31, 2017 and 2016, and the related statements
of revenue and patronage capital, and cash flows for the years then ended, and the related notes to
the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this
includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of financial statements that are free from material misstatement, whether due to
fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States
of America. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation
of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
Opini
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Matanuska Electric Association, Inc. as of December 31, 2017 and 2016, and the
results of its operations and its cash flows for the years then ended in accordance with accounting
principles generally accepted in the United States of America.
YNug Adam UP
Portland, Oregon
March 13, 2018
MATANUSKA ELECTRIC ASSOCIATION, INC.
BALANCE SHEETS
DECEMBER 31, 2017 and 2016
ASSETS
2017 2016
UTILITY PLANT, at Cost (Notes 1 and 2):
Electric Plant in Service $ 748,262,422 $ 737,597,712
Plant Held for Future Use 253,657 253,657
Construction Work in Progress (Note 2) 8,290,256 10,670,269
756,806,335 748,521,638
Less Accumulated Depreciation (187,955,933) (171,938,521)
Net Utility Plant 568,850,402 576,583,117
OTHER PROPERTY AND INVESTMENTS:
Non-Utility Property 83,449 87,286
Investments in Associated Organizations (Notes 1 and 3) 25,932,687 24,378,063
26,016,136 24,465,349
CURRENT ASSETS:
Cash and Cash Equivalents (Note 1) 8,769,555 4,715,759
Accounts Receivable, less Allowance for
Doubtful Accounts of $275,030 in 2017
and $277,730 in 2016 (Note 1) 12,825,442 11,839,665
Unbilled Revenue (Note 1) 8,045,902 7,299,304
Unbilled COPA Surcharges (Note 13) 902,885 -
Materials, Fuel and Supplies (Note 1) 12,003,698 14,100,534
Other Current Assets 2,134,216 944,083
44,681,698 38,899,345
DEFERRED CHARGES (Note 4) 4,245,406 6,859,623
$ 643,793,642 $ 646,807,434
The accompanying notes are an integral part of these statements.
MATANUSKA ELECTRIC ASSOCIATION, INC.
BALANCE SHEETS
DECEMBER 31, 2017 and 2016
EQUITIES AND LIABILITIES
2017
EQUITIES AND MARGINS:
Memberships $ 265,185
Patronage Capital (Note 8) 143,686,293
Other Equities (Note 5) 4,112,255
148,063,733
LONG-TERM DEBT, NET:
CFC Mortgage Notes (Note 6) 457,625,296
CURRENT LIABILITIES:
Current Portion of Long-Term Debt (Note 6) 12,311,893
Accounts Payable 8,958,852
Payroll and Annual Leave (Note 1) 2,130,725
Excess COPA Surcharges (Note 13) -
Customer Deposits 3,546,698
Accrued Taxes 375,415
Patronage Capital Payable (Note 8) 16,712
Other Current Liabilities 1,049,021
28,389,316
OTHER:
Other Deferred Credits and Postretirement
Benefit Obligation (Notes 9 and 10) 9,715,297
$ _643,793,642_
The accompanying notes are an integral part of these statements.
2016
$ 261,305
133,011,575
4,136,456
137,409,336
469,937,189
9,385,020
9,935,649
1,957,220
1,848,091
3,472,065
363,559
54
743,946
27,705,604
11,755,305
$ 646,807,434
[This Page Left Blank Intentionally]
The accompanying notes are an integral part of these statements.
MATANUSKA ELECTRIC ASSOCIATION, INC.
STATEMENTS OF REVENUE AND PATRONAGE CAPITAL
YEARS ENDED DECEMBER 31, 2017 AND 2016
OPERATING REVENUES
OPERATING EXPENSES:
Cost of Power and Production (Note 11)
Transmission - Operations/Maintenance
Distribution - Operations
Distribution - Maintenance
Customer Accounts
Customer Service, Information and Sales
Administrative and General
Depreciation and Amortization (Note 1)
Taxes
Interest on Long-Term Debt (Notes 1 and 6)
Other Interest and Deductions
Patronage Capital From Others (Note 1)
NET OPERATING MARGINS
NON-OPERATING MARGINS:
Interest Income
Non-Operating Income (Expense)
NET MARGINS
BEGINNING PATRONAGE CAPITAL
PATRONAGE CAPITAL RETURNED (Note 8)
ENDING PATRONAGE CAPITAL
2017
148,701,932 $
67,352,069
1,201,627
5,595,395 7,234,044 5,323,958 152,565 8,820,385 22,419,531 375,415 21,420,729 227,750
140,123,468
8,578,464
2,173,995
10,752,459
221,695
12,496
234,191
10,986,650
133,011,575 (311,932)
143,686,293 $
The accompanying notes are an integral part of these statements.
2016
137,279,126
59,661,300 794,772
5,042,781 6,592,010 5,218,259 150,432 8,054,299 21,811,517 363,559 21,989,630 177,785 129,856,344 7,422,782
2,542,587
9,965,369
131,683
(718) 130,965
10,096,334
123,299,099 (383,858)
133,011,575
MATANUSKA ELECTRIC ASSOCIATION, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2017 AND 2016
2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received from Customers $ 146,969,557
Cash Paid to Suppliers and Employees (98,956,913)
Interest Paid, Net of Capitalized Interest (21,430,372)
Taxes Paid (363,559)
Net Cash Flows Provided By Operating Activities 26,218,713
CASH FLOWS FROM INVESTING ACTIVITIES:
Extensions and Replacement of Plant (14,896,529)
Interest Received 219,812
Other Non Operating Income (Expense) 12,496
Changes in Assets & Liabilities That Provided (Used) Cash:
Investments in Associated Organizations 566,001
Materials, Fuel and Supplies 2,096,836
Deferred Credits (537,551)
Net Cash Flows Used In Investing Activities (12,538,935)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments When Due (9,385,020)
Capital Credit Payments (319,475)
Changes in Equity & Liabilities That Provided Cash:
Memberships 3,880
Customer Deposits 74,633
Net Cash Flows Used In Financing Activities (9,625,982)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,053,796
CASH AND CASH EQUIVALENTS-BEGINNING OF YEAR 4,715,759
CASH AND CASH EQUIVALENTS-END OF YEAR $ 8,769,555
The accompanying notes are an integral part of these statements.
2016
$ 136,245,282 (82,056,762) (21,996,565) (365,206)
31,826,749
(21,165,450) 131,690
(718)
1,004,878 (706,573) 182,026
(20,554,147)
(11,845,813) (393,411)
4,380
168,553
(12,066,291)
(793,689)
5,509,448
$ 4,715,759
MATANUSKA ELECTRIC ASSOCIATION, INC.
RECONCILIATION OF NET OPERATING MARGINS TO NET
CASH FLOWS FROM OPERATING ACTIVITIES
YEARS ENDED DECEMBER 31, 2017 AND 2016
2017
NET OPERATING MARGINS $ 10,752,459
RECONCILIATION OF NET OPERATING MARGINS TO NET
CASH FLOWS FROM OPERATING ACTIVITIES:
Non-Cash Components of Net Operating Margins:
Depreciation 23,683,822
Patronage Capital From Others (2,173,995)
Changes in Assets & Liabilities That Provided (Used) Cash:
Accounts Receivable (985,777)
Unbilled Revenue (746,598)
Unbilled COPA Surcharges (902,885)
Other Current Assets (1,188,250)
Deferred Charges 114,389
Accounts Payable (976,797)
Payroll and Annual Leave 173,505
Excess COPA Surcharges (1,848,091)
Other Current Liabilities 316,931
Total Adjustments 15,466,254
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 26,218,713
The accompanying notes are an integral part of these statements.
$
$
2016
9,965,369
23,214,400 (2,542,587)
(822,086) (211,758)
(179,077) 126,645 2,022,244 155,109 211,325 (112,835)
21,861,380
31,826,749
MATANUSKA ELECTRIC ASSOCIATION, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Accounting
Matanuska Electric Association, Inc. (Association) is an electric cooperative that was
organized in 1941. The Association’s service territory includes Eagle River and the
Matanuska-Susitna Valley in Southcentral Alaska.
The Association is regulated by the Regulatory Commission of Alaska (RCA), and thus
is subject to the Financial Accounting Standard Board’s (FASB) Accounting Standards
Codification (ASC) 980 relating to accounting for regulated entities (pre-codification
Financial Accounting Standard No. 71 “Accounting for the Effects of Certain Types of
Regulation”). This accounting standard recognizes that the ratemaking process can
result in differences in the application of generally accepted accounting principles
between regulated and non-regulated businesses. Such differences generally involve the
accounting period in which various transactions enter into the determination of net
margins.
The accounting records are maintained in accordance with the Uniform System of
Accounts prescribed by the Federal Energy Regulatory Commission (FERC).
Estimates
Preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the dates of the financial statements, and the reported
amounts of revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
Plant Additions and Retirements
Additions to electric utility plant are recorded at the original cost of contracted services,
direct labor and materials, and indirect overhead charges. For property replaced or
retired, the average unit cost of the property unit, plus removal cost, less salvage, is
charged to accumulated depreciation. The cost of replacement property is added to
electric utility plant.
Matanuska Electric Association, Inc.
Notes to Financial Statements
December 31, 2017 and 2016
Contributions and Advances in Aid of Construction
Nonrefundable contributions in aid of construction are credited to the cost of the related
property units. Advances in aid of construction which are or may become refundable are
included in deferred credits, pending determination of refundability.
Depreciation
Depreciation is computed on a straight-line basis using the following annual rates:
Production Plant 3.00% - 3.44%
Transmission Plant 2.75% - 2.93%
Distribution Plant 2.85%
General Plant 2.25% - 20.00%
Capitalized Interest and Allowance for Funds Used During Construction
The Association has adopted a policy for capitalizing interest and an Allowance for
Funds Used During Construction (AFUDC) for generation and transmission projects with
an expected net cost to the Association exceeding $3,000,000 and an expected
construction period exceeding twelve months. No Interest or AFUDC were capitalized in
either 2017 or 2016.
Investments in Associated Organizations
Investments in associated organizations, except for the investment in the Eklutna
Hydroelectric Project, are carried at cost, and include allocations of patronage capital.
The Eklutna Hydroelectric Project is accounted for using the equity method of
accounting.
Cash and Cash Equivalents
Investments with an original maturity of three months or less are considered cash
equivalents. The Association maintained cash balances of $4,644,555 at December 31,
2017 and $4,715,759 at December 31, 2016 with a commercial bank and credit union that
were insured, collateralized, or invested in repurchase agreements executed against U.S.
Government or agency obligations. The Association had temporary cash investments in
National Rural Utilities Cooperative Finance Corporation (CFC) commercial paper of
$4,125,000 at December 31, 2017 and zero at December 31, 2016.
Accounts Receivable
Accounts receivable are recorded when billings are issued and are written off when they
are determined to be uncollectible. The allowance for doubtful accounts is estimated
based on the Association’s historical losses, review of specific problem accounts, current
10
Matanuska Electric Association, Inc.
Notes to Financial Statements
December 31, 2017 and 2016
economic conditions and the financial stability of its customer base. Generally, the
Association considers accounts receivable past due after 25 days.
Unbilled Revenue
Revenues are based on cycle billings rendered throughout each month for metered kWh
sales. The Association also records estimated revenues from kWh sales that are not yet
billed at the end of each month.
Materials, Fuel and Supplies
Materials, fuel and supplies are recorded at average cost.
Patronage Capital From Others
The Association records allocations of patronage capital from other organizations in
revenue and investment accounts when assigned, which is generally in the year following
recognition of the assignable margins by the associated organization. Cash distributions
are recorded as a reduction of the investment account when received.
Annual Leave
The Association accrues accumulated unpaid annual leave as the obligations are incurred.
Income Tax Status
The Association is exempt from federal income taxes pursuant to Section 501(c)(12) of
the Internal Revenue Code. The Association files an exempt organization tax return in
the U.S. federal jurisdiction. Effective January 1, 2009 the Association adopted FASB
ASC 740-10, relating to accounting for uncertain tax positions. As of December 31,
2017 and 2016, the Association had no uncertain tax positions, and no provision for
income taxes, consistent with its tax-exempt status.
11
Matanuska Electric Association, Inc.
Notes to Financial Statements
December 31, 2017 and 2016
2. ELECTRIC PLANT IN SERVICE
Major classes of electric plant, substantially all of which are pledged to secure long-term
debt, are as follows:
December 31,
2017 2016
Production Plant $ 332,266,179 $ 3,452,460
Transmission Plant 73,070,021 48,490,042
Distribution Plant 311,876,762 304,550,010
General Plant 30,662,950 34,239,455
Unclassified Plant in Service 386,510 346,865,745
Total Electric Plant in Service 748,262,422 737,597,712
Plant Held for Future Use 253,657 253,657
Construction Work in Progress 8,290,256 10,670,269
Total Utility Plant $ 756,806,335 $ 748,521,638 ee See ee
INVESTMENTS IN ASSOCIATED ORGANIZATIONS
Investments in associated organizations consisted of the following:
December 31,
2017 2016
Chugach Electric Association, Inc.
Patronage Capital Credits $ 13,573,388 $ 13,573,388
National Rural Utilities Cooperative Finance
Corporation (CFC)
Capital Term Certificates, earning up to 5% per
annum, maturing in years 2018 through 2080 2,700,262 2,743,197
Patronage Capital Credits & Membership 6,176,591 5,162,330
Member Capital Securities, earning 5% per
annum, maturing in year 2044 25,000 25,000
Alaska Rural Electric Cooperative Association
(ARECA) Insurance Exchange
Patronage Capital Credits & Investment 1,037,899 962,924
Eklutna Hydroelectric Project 1,709,802 1,305,145
Matanuska Telephone Association, Inc.
Patronage Capital Credits & Membership 342,208 304,789
Alaska Railbelt Cooperative Transmission and
Electric Company, Inc. (ARCTEC) 223,466 175,314
Other Investments in Associated Organizations 144,071 125,976
Total $ 25,932,687 $ 24,378,063
12
Matanuska Electric Association, Inc.
Notes to Financial Statements
December 31, 2017 and 2016
4. DEFERRED CHARGES
Deferred charges, net of accumulated amortization, consisted of the following:
December 31,
2017 2016
Power Supply Planning/Projects $ 2,473,455 $ 2,602,160
Transmission System Planning/Projects 1,514,868 3,873,639
Distribution System Studies and Other Deferred 257,083 383,824
Ending Balance $ 4,245,406 $ 6,859,623
5. OTHER EQUITIES
Changes in other equities were as follows:
Year Ended December 31,
2017 2016
Beginning Balance $ 4,136,456 $ 4,143,271
Unclaimed Capital Credits (Net) (24,201) (6,815)
Ending Balance $ 4,112,255 $ 4,136,456
6. LONG-TERM DEBT
CFC Long-Term Debt
Long-term debt payable to CFC consisted of the following:
December 31,
2017 2016
Fixed Rate Notes $ 469,937,189 $ 479,322,209
Less: Current Portion (12,311,893) (9,385,020)
Long-Term Portion $ 457,625,296 $ 469,937,189
Fixed rate notes bore interest rates ranging from 3.8% to 7.25% at December 31, 2017.
Scheduled maturities of long-term debt occur at various times through 2045.
13
Matanuska Electric Association, Inc.
Notes to Financial Statements
December 31, 2017 and 2016
As of December 31, 2017, principal amounts of CFC long-term debt were scheduled to
become due as follows:
2018 2019 2020 2021 2022 2023 & After
$12,311,893 $9,764,513 $11,832,554 $12,483,428 $13,947,573 $409,597,228
The mortgage securing the Association’s long-term debt with CFC constitutes a direct
lien on substantially all assets. The Association is required to comply with all debt
covenants as set forth in the terms of the loan agreements. The Association is in
compliance with CFC’s requirements.
CFC PowerVision Credit Facility
The Association had a CFC PowerVision long-term credit commitment of $22,000,000
available at December 31, 2017 which is scheduled to expire February 9, 2019. The
maturity date of any advance drawn against this commitment may exceed no more than
31 years, depending on the date of the advance. During 2017 there were no advances
drawn against this commitment.
7. LINES OF CREDIT
During 2017, the Association restructured its existing $40,000,000 perpetual Line of
Credit (LOC) with CFC, and divided the commitment between the existing LOC and
CFC’s As-Offered Line of Credit (AOLOC). The existing LOC was reduced to a
$20,000,000 limit, and the AOLOC was established with a $20,000,000 limit. Both the
LOC and the AOLOC are unsecured, revolving, renew automatically on an annual basis,
and bear interest rates based on the prevailing bank prime rate. At December 31, 2017
the LOC rate was 2.75% and the AOLOC rate was 2.35%. No advances were
outstanding on these lines of credit at December 31, 2017 and 2016.
The CFC LOC agreement requires that the line be paid down to a zero balance for at least
five consecutive business days each year. There is no paydown restriction provision in
the AOLOC agreement.
8. RETURN OF PATRONAGE CAPITAL
The Association’s Board of Directors has established a patronage capital rotation, or
payment, policy which provides for the return of patronage capital to Association
members based on a percentage of the prior year’s total assigned capital. The retirement
percentage is set by the Board of Directors, taking into consideration the Association’s
financial performance, condition and capital needs.
The Board of Directors authorized patronage capital payments to Association members of
$311,932 in 2017 and $383,858 in 2016. Patronage capital general retirements are being
14
Matanuska Electric Association, Inc.
Notes to Financial Statements
December 31, 2017 and 2016
10.
deferred pending increased equity levels. All patronage capital assigned through 1986,
and capital associated with the estates of deceased members subject to certain limits, has
been retired. Capital credits that are retired, but remain unclaimed, are classified as
patronage capital payable for approximately two years before they are transferred to other
equities, or otherwise disposed of pursuant to action of the Board of Directors.
OTHER DEFERRED CREDITS
Other deferred credits consist primarily of advances in aid of construction received by the
Association for construction of electrical facilities, the refundability of which has not yet
been determined.
Other deferred credits consisted of the following:
December 31,
2017 2016
Customer Advances in Aid of Construction $ 7,628,925 $ 9,598,122
Estimated Initial Installation Costs for Meters,
Transformers and Other Equipment 632,368 700,554
Post Retirement Benefit Obligation 1,396,224 1,396,224
Other Deferred Costs 57,780 60,405
Ending Balance $ 9,715,297 $ 11,755,305
EMPLOYEE BENEFITS
Collective Bargaining Agreements
Approximately 40% of the Association's employees are covered by collective bargaining
agreements with the International Brotherhood of Electrical Workers (IBEW) and
International Union of Operating Engineers (IUOE). Collective bargaining agreement
expirations are as follows: the Outside IBEW agreement expires October 31, 2018, the
IUOE agreement expires February 28, 2019, and the Engineering, Operations and
Accounting (EOA) IBEW agreement expires February 29, 2020.
Pension Plans
Pension benefits for employees are provided through participation in the National Rural
Electric Cooperative Association (NRECA), Alaska Electrical Trust Fund (AETF), and
the IUOE Trust Fund plan. These are defined benefit pension plans qualified under
Section 401 of the Internal Revenue Code and are tax-exempt pursuant to Section 501(a).
These plans are considered multiemployer plans under the accounting standards.
15
Matanuska Electric Association, Inc.
Notes to Financial Statements
December 31, 2017 and 2016
A unique characteristic of a multiemployer plan compared to a single employer plan is
that all plan assets are available to pay benefits of any plan participant. Separate asset
accounts and accumulated benefit obligations are not maintained for participating
employers. This means that assets contributed by one employer may be used to provide
benefits to employees of other participating employers.
The Association records and pays its current pension obligations in the same amounts as
are billed by the plan administrators.
NRECA Pension Plan Information
The NRECA Retirement Security Plan (RS Plan) sponsor’s Employer Identification
Number is 53-0116145 and the RS Plan Number is 333. The RS Plan provides benefits
to two employee groups: 1) non-union employees, and 2) employees covered by the
EOA collective bargaining agreement. Contribution rates and benefit levels differ
between these two employee groups.
The Association’s contributions to the RS Plan in 2017 and in 2016 represented less than
5% of the total contributions made to the plan by all participating employers. The
Association made contributions to the plan of $4,178,591 in 2017 and $3,682,808 in
2016. There have been no significant changes that affect the comparability of 2017 and
2016 contributions.
In the RS Plan, a “zone status” determination is not required, and therefore not
determined, under the Pension Protection Act of 2006 (PPA). In total, the RS Plan was
over 80% funded at January 1, 2017 and January 1, 2016 based on the PPA funding target
and PPA actuarial value of assets on those dates.
Because the provisions of the PPA do not apply to the RS Plan, funding improvement
plans and surcharges are not applicable. Future contribution requirements are determined
each year as part of the actuarial valuation of the plan and may change as a result of plan
experience. Withdrawal from the RS Plan may result in the Association having a
significant obligation to the plan. The Association does not currently intend to withdraw
from the RS Plan and, accordingly, no provision has been included in the financial
statements.
AETF Pension Plan Information
The AETF Alaska Electrical Pension Plan (AEP Plan) sponsor’s Employer Identification
Number is 92-6005171 and the AEP Plan Number is 001. The AEP Plan provides
benefits to employees covered by the Outside collective bargaining agreement. The
Association contributes a defined amount per compensable hour for covered employees
pursuant to the collective bargaining agreement.
16
Matanuska Electric Association, Inc.
Notes to Financial Statements
December 31, 2017 and 2016
The Association’s contributions to the AEP Plan in 2017 and in 2016 represented less
than 5% of the total contributions made to the plan by all participating employers. The
Association made contributions to the plan of $669,260 in 2017 and $667,737 in 2016.
There have been no significant changes that affect the comparability of 2017 and 2016
contributions.
The AEP Plan’s “zone status” determination is “green” at December 31, 2017 and
December 31, 2016, as determined under the PPA, based on the PPA funding target and
PPA actuarial value of assets on those dates. Neither a funding improvement plan nor a
rehabilitation plan is required to be implemented.
IUOE Pension Plan Information
The Locals 302 & 612 of the IUOE-Employers Construction Industry Retirement Plan
(IUOE Plan) sponsor’s Employer Identification Number is 91-6028571 and the IUOE
Plan Number is 001. The IUOE Plan provides benefits to employees covered by the
IUOE collective bargaining agreement. The Association contributes a defined amount
per compensable hour for covered employees pursuant to the collective bargaining
agreement.
The Association’s contributions to the IUOE Plan in 2017 and in 2016 represented less
than 5% of the total contributions made to the plan by all participating employers. The
Association made contributions to the plan of $439,391 in 2017 and $402,450 in 2016.
There have been no significant changes that affect the comparability of 2017 and 2016
contributions.
The IUOE Plan’s “zone status” determination is “green” at January 1, 2017 and January
1, 2016, as determined under the PPA, based on the PPA funding target and PPA
actuarial value of assets on those dates. Neither a funding improvement plan nor a
rehabilitation plan is required to be implemented.
Other Postretirement Benefits
Certain postretirement health care benefits are made available to most classifications of
employees who retire from the Association. The Association recognizes the cost of these
postretirement benefits on an accrual basis as eligible employees render service to earn
the benefits. The Association has not adopted a funding policy, and the accrued
postretirement benefit liability was not funded at December 31, 2017.
The accumulated postretirement benefit obligation was $1,396,224 at December 31, 2017
and 2016. Overall, net periodic benefit costs and other changes in the benefit obligation
were zero in 2017 and $213,200 in 2016.
The following assumptions were used to determine the benefit obligation and net periodic
benefit costs: 1) discount rates of 4.0% at December 31, 2017 and 2016, 2) annual CPI-U
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Matanuska Electric Association, Inc.
Notes to Financial Statements
December 31, 2017 and 2016
11.
12.
increase of 1.8%, and 3) health care cost trends in 2017 of 7.5% for pre-65 medical and
9.5% for drugs, declining through 2026 and thereafter to 5% for pre-65 medical and 5%
for drugs.
401k Plan
A 401k plan is provided for qualifying employees who elect to participate. The
Association makes matching contributions of not more than 2% of participating
employee’s salaries. Association contributions to the plan were $168,352 in 2017 and
$153,766 in 2016.
Deferred Compensation Plan
A non-qualified deferred compensation plan is provided for certain employees who elect to
participate. The deferred compensation balances are maintained in a separate account and
totaled $857,813 at December 31, 2017 and $846,516 at December 31, 2016. These amounts
are not included in the accompanying financial statements, as they represent current or
former employees’ deferred compensation accounts and are not available to the Association
except under limited circumstances.
POWER SUPPLY
The Association provides for its own power supply requirements, primarily from the
Eklutna Generation Station (EGS), a 170 mW natural gas-fired generation station. EGS
was fully commercialized and in service of the Association’s load, effective May 1, 2015.
This wholly-owned facility is capable of dual fuel operation, using fuel oil as both a pilot
fuel during conventional natural gas operations, and a backup fuel in the event of
disruption to the natural gas supply. In addition, the Association has 16.67% ownership
share in the Eklutna Hydroelectric Project and 13.8% contractual share of output from the
Bradley Lake Hydroelectric Project. Beneficial use of these hydroelectric resources
totals approximately 20 mW.
COMMITMENTS AND CONTINGENCIES
Commitments
The Association has two consecutive all-requirements gas supply contracts with Hilcorp
Alaska, LLC. The contracts provide that Hilcorp meet all of the Association’s fuel gas
supply requirements at EGS. The first contract began in August 2014 and terminates
March 2018. Forecast volumes for the first contract period are estimated to be 20 BCF.
The second contract begins in April 2018 and terminates March 2023. Forecast volumes
for the second contract period are estimated to be 32 BCF. The RCA approved both
contracts and the recovery of the associated fuel and transportation costs as a cost
element in the Association’s cost of power adjustments.
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Matanuska Electric Association, Inc.
Notes to Financial Statements
December 31, 2017 and 2016
13.
In addition to its gas supply contracts with Hilcorp, the Association has various
contractual obligations arising in the ordinary course of business.
Contingencies
The Association is currently involved in arbitration with Haskell Corporation and
subcontractor Alcan Electric to resolve claims and counterclaims associated with their
contract for EGS project construction. The overall impact of the outcome of the
arbitration to the financial statements cannot be reasonably estimated at this time. The
final amounts of costs that may be determined as a result of this effort will be recorded as
amounts become known.
The Association is also party to various claims, legal actions and complaints both for and
against its interests arising in the ordinary course of business. These matters are either
covered by insurance or, if uninsured, will not in the opinion of management have a
material adverse effect on the operations or financial condition of the Association.
REGULATORY MATTERS
Quarterly Adjustments to Base Rates
The Association has elected to participate in the RCA’s Simplified Rate Filing (SRF)
program. The SRF program provides the Association the ability to adjust base rates each
quarter, subject to a maximum allowable ratemaking times interest earned ratio (TIER) of
2.00. The SRF filings must be approved by the RCA. For a portion of 2017, no filings
were submitted while the RCA reviewed the Association’s 2016 test year rate case.
Quarterly Surcharge for Fuel and Purchased Power Costs
The Association is authorized by the RCA to recover fuel used to generate electricity and
purchased power costs through a Cost of Power Adjustment (COPA). The surcharge is
updated quarterly, subject to RCA review and approval. The cumulative amount under-
or over-billed to customers at any point in time is classified as a current asset or current
liability.
2016 Test Year Rate Case
On June 30, 2017 the Association filed a revenue requirement study and cost of service
study based on a 2016 test year. The RCA reviewed and approved this rate case filing
without suspension, and the resulting new base rates went into effect September 1, 2017.
Following RCA approval, the Association resumed routine quarterly SRF filings in 2017.
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Matanuska Electric Association, Inc.
Notes to Financial Statements
December 31, 2017 and 2016
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
15.
The following methods and assumptions were used to estimate the fair value of each class
of financial instruments for which it is practicable to estimate the value:
Cash, Cash Equivalents and Temporary Cash Investments
The carrying amount approximates fair value because of the short maturity of these
instruments.
Investments in Associated Organizations
Investments in Associated Organizations are non-marketable and are accounted for under
the equity or cost method as applicable, which approximate fair value. It is not
practicable to determine the fair values.
Note Payable
The carrying amount of the CFC lines of credit approximates fair value because of the
short maturity and variable interest rate.
SUBSEQUENT EVENTS
The Association has evaluated subsequent events through March 13, 2018, the date these
financial statements were issued.
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