Loading...
HomeMy WebLinkAboutBradley Lake PMC Meeting - Teleconf Friday, 03-24-2000 1AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 A Professional Corporation AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 Audited Financial Statements BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS Anchorage, Alaska Page Independent Auditor's Report 1 Balance Sheets 2 Statements of Revenue, Expenses and Changes in Surplus 3 Statements of Cash Flows 4 Notes to Financial Statements 5-8 Independent Auditor's Report on Additional Information 9 Statements of Expenses 10 Beusena, Shomberg & Company A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 Independent Auditor's Report Bradley Lake Project Management Committee Anchorage, Alaska We have audited the accompanying balance sheets as of June 30, 1999 and 1998, and the related statements of revenues, expenses and changes in surplus and of cash flows for the years then ended, of the Bradley Lake Project Management Committee Operating and Revenue Funds (a project management committee). These special purpose financial statements are the responsibility of the Bradley Lake Project Management Committee. Our responsibility is to express an opinion on these special purpose financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying special purpose financial statements were prepared to present revenue and expenses on an accrual basis with the exception of interest income and fixed asset replacements, which have been presented on a cash basis in order to conform to the fiscal year operations and maintenance budget. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and surplus of the Bradley Lake Project Management Committee as of June 30, 1999 and 1998 and its revenue, expenses and changes in surplus and cash flows for the years then ended, in conformity with generally accepted accounting principles. This report is intended for the information and use of the Bradley Lake Project Management Committee and should not be used for any other purpose. Pe ell ‘ eAUa PPE Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS BALANCE SHEETS June 30, 1999 and 1998 1999 ASSETS Current assets: Investments (Note B) $ 1,235,307 Total Assets $1,235,307 LIABILITIES AND SURPLUS Current liabilities: Due to AIDEA $ 126,111 Accounts payable 334,944 Total Liabilities 461,055 Surplus 774,252 Total liabilities and surplus 1,235,307 See accompanying notes to the financial statements. 2 1998 $777,428 $777,428 $ 16,176 240,634 256,810 520,618 777,428 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN SURPLUS YEARS ENDED June 30, 1999 and 1998 1999 1998 Budget Actual Variance Actual Revenue: Utility contributions $ 13,843,836 $13,843,841 $ 5 $ 13,210,675 Interest receipts 1,699,979 1,837,883 137,904 1,845,862 Transfer from (to) operating reserve (117,560) - 117,560 a Additional utility contribution - - - - Miscellaneous income 5,000 - (5,000) 1,477 Total revenue 15,431,255 15,681,724 250,469 15,058,014 Expenses, fixed asset replacements and debt service: Operations and maintenance 2,246,947 1,939,433 (307,514) 1,776,667 Debt service 13,494,308 13,746,181 251,873 13,017,785 Bond refunding costs (reimbursement) (Note E) (350,000) (283,288) 66,712 294,124 Fixed asset replacements 40,000 25,764 (14,236) 23,832 Total expenses, fixed asset replacements and debt service 15,431,255 15,428,090 (3,165) 15,112,408 Excess (deficiency) of revenue over expenses, fixed asset replacements and debt service - 253,634 253,634 (54,394) Surplus, beginning of year 520,618 575,012 Surplus, end of year $774,252 $520,618 See accompanying notes to the financial statements. 3 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF CASH FLOWS YEARS ENDED June 30, 1999 and 1998 Cash flows from operating activities: Excess (deficiency) of revenues over expenses, fixed asset replacements and debt service Adjustments to reconcile excess of revenues over expenses, fixed asset replacements and debt service to net cash provided by operating activities: Increase (decrease) in accounts payable Increase (decrease) in amounts due to AIDEA Net cash provided by operating activities Available cash and cash equivalents at beginning of year Available cash and cash equivalents at end of year Supplemental disclosure of cash flows information: Interest paid See accompanying notes to the financial statements. 4 1999 $ 253,634 94,310 109,935 457,879 717,428 1,235,307 $ 10,136,181 1998 $ (54,394) (11,708) (109,080) (175,182) 952,610 $777,428 $9,637,785 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES Description of Business: The Bradley Lake Project Management Committee (the Committee) was established pursuant to Section 13 of the Agreement for the Sale and Purchase of Electric Power (Power Sales Agreement) dated December 8, 1987. The purpose of the Committee is to arrange for the operation and maintenance of the Bradley Lake Hydroelectric Project, which became operational in September 1991, and the scheduling, production and dispatch of power. The members of the Committee include the Alaska Energy Authority (AEA) and the five purchasers under the Power Sales Agreement - Chugach Electric Association, Inc.; Golden Valley Electric Association, Inc.; the Municipality of Anchorage (Municipal Light & Power); the City of Seward (Seward Electric System); and the Alaska Electric Generation & Transmission Cooperative, Inc. (AEG&T). The Homer Electric Association, Inc. (HEA) and the Matanuska Electric Association, Inc. (MEA) are additional parties to the Power Sales Agreement but are included as power purchasers for purposes of representation while AEG&T has no direct vote as a consequence of the individual representation of HEA and MEA. Section 13 of the Power Sales Agreement delineates other Committee responsibilities, including: establishing procedures for each party's water allocation, budgeting for annual Project costs and calculating each party's required contribution to fund annual project costs. Committee approval of operations and maintenance arrangements for the Project, sufficiency of the annual budgets and wholesale power rates and the undertaking of optional Project work requires a majority affirmative vote and the affirmative vote of AEA. The Power Sales Agreement extends until the later of: 1) 50 years after commencement of commercial operation or 2) the complete retirement of bonds outstanding under the AEA Power Revenue Bond Resolution along with the satisfaction of all other payment obligations under the Power Sales Agreement. Renewal options for additional terms exist. Establishment of Trust Funds: Article V, Section 502 of the Alaska Energy Authority's Power Revenue Bond Resolution established a Revenue Fund and an Operating Fund, including an Operating Reserve account, to be held by AEA. In actuality these funds, along with the Debt Service, Excess Investment Earnings (arbitrage), and various construction funds related to the Bradley Lake Hydroelectric Project are all held by the Corporate Trust Department of US Bank in Seattle, Washington. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS : NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (Continued) All deposits, including utility contributions and interest earnings, are made into the Revenue Fund, which transfers amounts approximately equal to one-twelfth of the annual operating and maintenance budget into the Operating Fund on a monthly basis. Additional transfers are made from the Revenue Fund to the Debt Service Fund in order to satisfy semiannual interest payments and annual principal payments on the Project's outstanding bonds payable. Interest earnings available for operations and maintenance are derived from the following funds: Debt Service Fund; Operating Reserve Fund; Operating Fund; Revenue Fund; Capital Reserve Fund; and the Renewal & Contingency Fund. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. Revenue and Expense Recognition: Utility contributions are recognized as revenue when due to be received under the terms of the Power Sales Agreement. Transfers from other funds are recognized when the transfer is made and interest earnings are recognized when received. Operating and maintenance expenses are recognized when incurred, while interest and principal payments on bonds are recognized when paid. Purchases of fixed asset replacements are expensed when purchased. Income Taxes: The Bradley Lake Project Management Committee is exempt from income taxation under Section 501 (a) of the Internal Revenue Code. NOTE B: INVESTMENTS Substantially all of the balances in the following funds are invested in collateralized investment agreements through the trust department of US Bank. The specified interest rate for monies from the Operating and Revenue Funds invested in the agreements is 7.38%. Balances at June 30, 1999 and 1998 are as follows: 1999 1998 Operating Fund $ 1,099,685 $ 296,292 Revenue Fund 135,622 481.136 Total investments $1,235,307 $777,428 6 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE B: INVESTMENTS (Continued) Investments are sold as needed to cover operating requisitions submitted to the trustee and are therefore considered to be short-term and available for sale. Investments are presented at aggregate cost, which approximates market value. For purposes of the cash flow statements, management considers the full amount of the investment balance to be cash available for operations. NOTE C: MAJOR CONTRACTS AND AGREEMENTS During May 1994, the Alaska Energy Authority entered into the Master Maintenance and Operating agreement with the Committee. The purpose of the agreement is to establish contract administration and budgeting procedures for maintenance and operation contracts of the Bradley Lake Hydroelectric Project and to provide for the lease or other use of facilities and equipment in a manner consistent with the requirements of the Power Sales Agreement. The term of the Master Agreement is indefinite, remaining in effect until termination of the Power Sales Agreement or until AEA no longer legally exists. This agreement authorizes AEA to enter into any contracts necessary to perform operating or maintenance-type services to the Project, subject to the approval of the Committee. On behalf of the Committee, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. (CEA) in August, 1996, for the provision of all services necessary to dispatch the Bradley Project's electric power output. The dispatch agreement runs concurrently with the wheeling and related services contract entered into by and among the parties to the Power Sales Agreement in December 1987 and remains in effect for the term of the wheeling agreement unless CEA ceases to be the output dispatcher. In August 1996, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. on behalf of the Committee for the provision of maintenance services for the Daves Creek and Soldotna SVC Substations. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE C: MAJOR CONTRACTS AND AGREEMENTS (Continued) An operation and maintenance agreement dated February 11, 1994, was executed between Homer Electric Association and the Alaska Energy Authority. This agreement provides for the operation and maintenance of the Bradley Lake Hydroelectric Project by Homer Electric Association. The agreement is through June 30, 2004 and continues from year to year thereafter, except upon written notice to terminate by either party. Notice of termination must be given one year in advance of the termination date. HEA is to be reimbursed for costs associated with the operation, maintenance and repair of the Project as determined in advance through the submission of an annual budget based upon prudent estimates and anticipated operation and maintenance costs. In August, 1996, the agreement was amended to separate the maintenance of the transmission facilities from the hydroelectric project. The transmission agreement continues from year to year, except upon written notice to terminate by either party. Notice of termination must be given six months in advance of termination dates. NOTE D: RELATED PARTY TRANSACTIONS During the years ended June 30, 1999 and 1998 the Committee paid the following amounts to related parties for costs incurred under the various contracts described in Note D: 1999 1998 Homer Electric Association - operation and maintenance $ 753,962 $ 697,735 Chugach Electric Association - substation service maintenance $ 23,624 $ 29,727 For the years ended June 30, 1999 and 1998, Chugach Electric Association provided dispatch services to the Committee for no charge. NOTE E: COMMITMENTS AND CONTINGENCIES Forward Delivery Bond Purchase Agreement: In December, 1997, Bradley Lake Project Management Committee entered into a forward delivery bond purchase agreement providing for the issuance of two series of Power Revenue Refunding Bonds in April of 1999 and 2000. The costs associated with the refunding were expensed in the year ended June 30, 1998 and repaid by funds provided by the bonds during the year ended June 30, 1999. Leusena, Somberg & Company A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION Bradley Lake Project Management Committee Operating and Revenue Funds Anchorage, Alaska Our report on our audits of the special purpose financial statements of the Bradley Lake Project Management Committee Operating and Revenue Funds for June 30, 1999 and 1998, appears on the page preceding the balance sheets. Those audits were made for the purpose of forming an opinion on the special purpose financial statements taken as a whole. The supplemental Statements of Expenses are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the special purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the special purpose financial statements taken as a whole. eee ae 7 ZU ae Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF EXPENSES June 30, 1999 and 1998 Expenses: Generation expense: Operation supervision and engineering Hydraulic operation Electric plant operation Hydraulic power generation operation FERC land use fees Structure maintenance Reservoir, dam, and waterway maintenance Electric plant maintenance Hydraulic plant maintenance System control and load dispatching Substation operation and maintenance Overhead line maintenance Total generation expense Administrative, general and regulatory expense: Insurance AEA administrative fee PMC costs Arbitrage expense Regulatory commission: FERC administrative fees FERC licensing Total administrative, general and regulatory expense Total operating and maintenance expenses 1999 Variance Favorable 1998 Budget Actual (Unfavorable) Actual $ 103,500 $ 66,746 $ 36,754 $ 76,936 15,000 4,932 10,068 5,585 149,000 135,801 13,199 130,686 304,322 248,830 55,492 227,663 64,050 71,242 (7,192) 72,661 136,000 74,643 61,357 20,856 8,000 37,566 (29,566) 27) 263,000 220,494 42,506 244,357 102,000 74,536 27,464 77,603 256,575 247,397 9,178 238,382 47,000 23,624 23,376 29,727 20,000 20,139 (139) 19,157 1.468.447 1,225,950 242.497 1,143,884 322,200 293,559 28,641 299,593 200,000 200,000 - 200,000 66,800 40,193 26,607 44,924 - 34,110 (34,110) 27,976 161,000 104,451 56,549 43,938 28,500 41.170 (12,670) 16,352 778,500 713,483 65,017 632,783 $_ 2,246,947 $ 1.939.433 $ 307,514 $ 1,776,667 10 AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 A Professional Corporation AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 Audited Financial Statements BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS Anchorage, Alaska Independent Auditor's Report Balance Sheets Statements of Revenue, Expenses and Changes in Surplus Statements of Cash Flows Notes to Financial Statements Independent Auditor's Report on Additional Information Statements of Expenses 5-8 10 BPrusena, Sheomberg & Company A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 Independent Auditor's Report Bradley Lake Project Management Committee Anchorage, Alaska We have audited the accompanying balance sheets as of June 30, 1999 and 1998, and the related statements of revenues, expenses and changes in surplus and of cash flows for the years then ended, of the Bradley Lake Project Management Committee Operating and Revenue Funds (a project management committee). These special purpose financial statements are the responsibility of the Bradley Lake Project Management Committee. Our responsibility is to express an opinion on these special purpose financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying special purpose financial statements were prepared to present revenue and expenses on an accrual basis with the exception of interest income and fixed asset replacements, which have been presented on a cash basis in order to conform to the fiscal year operations and maintenance budget. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and surplus of the Bradley Lake Project Management Committee as of June 30, 1999 and 1998 and its revenue, expenses and changes in surplus and cash flows for the years then ended, in conformity with generally accepted accounting principles. This report is intended for the information and use of the Bradley Lake Project Management Committee and should not be used for any other purpose. Pid ee ia Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS BALANCE SHEETS June 30, 1999 and 1998 ASSETS Current assets: Investments (Note B) Total Assets LIABILITIES AND SURPLUS Current liabilities: Due to AIDEA Accounts payable Total Liabilities Surplus Total liabilities and surplus See accompanying notes to the financial statements. 1999 SU2353307 $1,235:307 $ 126,111 334,944 461,055 774,252 $ 1,235,307 1998 $ 777,428 $ 777.428 $ 16,176 240,634 256,810 520,618 742 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN SURPLUS YEARS ENDED June 30, 1999 and 1998 1999 1998 Budget Actual Variance Actual Revenue: Utility contributions $ 13,843,836 $13,843,841 $ 5 $13,210,675 Interest receipts 1,699,979 1,837,883 137,904 1,845,862 Transfer from (to) operating reserve (117,560) - 117,560 - Additional utility contribution - - - - Miscellaneous income 5,000 - (5,000) 1,477 Total revenue 15,431,255 15,681,724 250,469 15,058,014 Expenses, fixed asset replacements and debt service: Operations and maintenance 2,246,947 1,939,433 (307,514) 1,776,667 Debt service 13,494,308 13,746,181 251,873 13,017,785 Bond refunding costs (reimbursement) (Note E) (350,000) (283,288) 66,712 294,124 Fixed asset replacements 40,000 25,764 (14,236) 23,832 Total expenses, fixed asset replacements and debt service 15,431,255 15,428,090 (3,165) 15,112,408 Excess (deficiency) of revenue over expenses, fixed asset replacements and debt service - 253,634 253,634 (54,394) Surplus, beginning of year 520,618 575,012 Surplus, end of year $774,252 520.61 See accompanying notes to the financial statements. 3 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF CASH FLOWS YEARS ENDED June 30, 1999 and 1998 Cash flows from operating activities: Excess (deficiency) of revenues over expenses, fixed asset replacements and debt service Adjustments to reconcile excess of revenues over expenses, fixed asset replacements and debt service to net cash provided by operating activities: Increase (decrease) in accounts payable Increase (decrease) in amounts due to AIDEA Net cash provided by operating activities Available cash and cash equivalents at beginning of year Available cash and cash equivalents at end of year Supplemental disclosure of cash flows information: Interest paid See accompanying notes to the financial statements. 4 1999 $ 253,634 94,310 109,935 457,879 777,428 1,235,307 $ 10,136,181 1998 $ (54,394) (11,708) (109,080) (175,182) 952,610 $777,428 $9,637,785 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES Description of Business: The Bradley Lake Project Management Committee (the Committee) was established pursuant to Section 13 of the Agreement for the Sale and Purchase of Electric Power (Power Sales Agreement) dated December 8, 1987. The purpose of the Committee is to arrange for the operation and maintenance of the Bradley Lake Hydroelectric Project, which became operational in September 1991, and the scheduling, production and dispatch of power. The members of the Committee include the Alaska Energy Authority (AEA) and the five purchasers under the Power Sales Agreement - Chugach Electric Association, Inc.; Golden Valley Electric Association, Inc.; the Municipality of Anchorage (Municipal Light & Power); the City of Seward (Seward Electric System); and the Alaska Electric Generation & Transmission Cooperative, Inc. (AEG&T). The Homer Electric Association, Inc. (HEA) and the Matanuska Electric Association, Inc. (MEA) are additional parties to the Power Sales Agreement but are included as power purchasers for purposes of representation while AEG&T has no direct vote as a consequence of the individual representation of HEA and MEA. Section 13 of the Power Sales Agreement delineates other Committee responsibilities, including: establishing procedures for each party's water allocation, budgeting for annual Project costs and calculating each party's required contribution to fund annual project costs. Committee approval of operations and maintenance arrangements for the Project, sufficiency of the annual budgets and wholesale power rates and the undertaking of optional Project work requires a majority affirmative vote and the affirmative vote of AEA. The Power Sales Agreement extends until the later of: 1) 50 years after commencement of commercial operation or 2) the complete retirement of bonds outstanding under the AEA Power Revenue Bond Resolution along with the satisfaction of all other payment obligations under the Power Sales Agreement. Renewal options for additional terms exist. Establishment of Trust Funds: Article V, Section 502 of the Alaska Energy Authority's Power Revenue Bond Resolution established a Revenue Fund and an Operating Fund, including an Operating Reserve account, to be held by AEA. In actuality these funds, along with the Debt Service, Excess Investment Earnings (arbitrage), and various construction funds related to the Bradley Lake Hydroelectric Project are all held by the Corporate Trust Department of US Bank in Seattle, Washington. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS / NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (Continued) All deposits, including utility contributions and interest earnings, are made into the Revenue Fund, which transfers amounts approximately equal to one-twelfth of the annual operating and maintenance budget into the Operating Fund on a monthly basis. Additional transfers are made from the Revenue Fund to the Debt Service Fund in order to satisfy semiannual interest payments and annual principal payments on the Project's outstanding bonds payable. Interest earnings available for operations and maintenance are derived from the following funds: Debt Service Fund; Operating Reserve Fund; Operating Fund; Revenue Fund; Capital Reserve Fund; and the Renewal & Contingency Fund. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. Revenue and Expense Recognition: Utility contributions are recognized as revenue when due to be received under the terms of the Power Sales Agreement. Transfers from other funds are recognized when the transfer is made and interest earnings are recognized when received. Operating and maintenance expenses are recognized when incurred, while interest and principal payments on bonds are recognized when paid. Purchases of fixed asset replacements are expensed when purchased. Income Taxes: The Bradley Lake Project Management Committee is exempt from income taxation under Section 501 (a) of the Internal Revenue Code. NOTE B: INVESTMENTS Substantially all of the balances in the following funds are invested in collateralized investment agreements through the trust department of US Bank. The specified interest rate for monies from the Operating and Revenue Funds invested in the agreements is 7.38%. Balances at June 30, 1999 and 1998 are as follows: 1999 1998 Operating Fund $ 1,099,685 $ 296,292 Revenue Fund 135,622 481,136 Total investments $ 1,235,307 $777,428 6 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE B: INVESTMENTS (Continued) Investments are sold as needed to cover operating requisitions submitted to the trustee and are therefore considered to be short-term and available for sale. Investments are presented at aggregate cost, which approximates market value. For purposes of the cash flow statements, management considers the full amount of the investment balance to be cash available for operations. NOTE C: MAJOR CONTRACTS AND AGREEMENTS During May 1994, the Alaska Energy Authority entered into the Master Maintenance and Operating agreement with the Committee. The purpose of the agreement is to establish contract administration and budgeting procedures for maintenance and operation contracts of the Bradley Lake Hydroelectric Project and to provide for the lease or other use of facilities and equipment in a manner consistent with the requirements of the Power Sales Agreement. The term of the Master Agreement is indefinite, remaining in effect until termination of the Power Sales Agreement or until AEA no longer legally exists. This agreement authorizes AEA to enter into any contracts necessary to perform operating or maintenance-type services to the Project, subject to the approval of the Committee. On behalf of the Committee, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. (CEA) in August, 1996, for the provision of all services necessary to dispatch the Bradley Project's electric power output. The dispatch agreement runs concurrently with the wheeling and related services contract entered into by and among the parties to the Power Sales Agreement in December 1987 and remains in effect for the term of the wheeling agreement unless CEA ceases to be the output dispatcher. In August 1996, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. on behalf of the Committee for the provision of maintenance services for the Daves Creek and Soldotna SVC Substations. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE C: MAJOR CONTRACTS AND AGREEMENTS (Continued) An operation and maintenance agreement dated February 11, 1994, was executed between Homer Electric Association and the Alaska Energy Authority. This agreement provides for the operation and maintenance of the Bradley Lake Hydroelectric Project by Homer Electric Association. The agreement is through June 30, 2004 and continues from year to year thereafter, except upon written notice to terminate by either party. Notice of termination must be given one year in advance of the termination date. HEA is to be reimbursed for costs associated with the operation, maintenance and repair of the Project as determined in advance through the submission of an annual budget based upon prudent estimates and anticipated operation and maintenance costs. In August, 1996, the agreement was amended to separate the maintenance of the transmission facilities from the hydroelectric project. The transmission agreement continues from year to year, except upon written notice to terminate by either party. Notice of termination must be given six months in advance of termination dates. NOTE D: RELATED PARTY TRANSACTIONS During the years ended June 30, 1999 and 1998 the Committee paid the following amounts to related parties for costs incurred under the various contracts described in Note D: 1999 1998 Homer Electric Association - operation and maintenance $ 753,962 $ 697,735 Chugach Electric Association - substation service maintenance $ 23,624 $ 29,727 For the years ended June 30, 1999 and 1998, Chugach Electric Association provided dispatch services to the Committee for no charge. = NOTE E: COMMITMENTS AND CONTINGENCIES Forward Delivery Bond Purchase Agreement: In December, 1997, Bradley Lake Project Management Committee entered into a forward delivery bond purchase agreement providing for the issuance of two series of Power Revenue Refunding Bonds in April of 1999 and 2000. The costs associated with the refunding were expensed in the year ended June 30, 1998 and repaid by funds provided by the bonds during the year ended June 30, 1999. A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION Bradley Lake Project Management Committee Operating and Revenue Funds Anchorage, Alaska Our report on our audits of the special purpose financial statements of the Bradley Lake Project Management Committee Operating and Revenue Funds for June 30, 1999 and 1998, appears on the page preceding the balance sheets. Those audits were made for the purpose of forming an opinion on the special purpose financial statements taken as a whole. The supplemental Statements of Expenses are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the special purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the special purpose financial statements taken as a whole. gee MUU eee ee TI Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF EXPENSES June 30, 1999 and 1998 1999 Variance Favorable 1998 Budget Actual (Unfavorable) Actual Expenses: Generation expense: Operation supervision and engineering $ 103,500 $ 66,746 §$ 36,754 $ 76,936 Hydraulic operation 15,000 4,932 10,068 5,585 Electric plant operation 149,000 135,801 13,199 130,686 Hydraulic power generation operation 304,322 248,830 55,492 227,663 FERC land use fees 64,050 71,242 (7,192) 72,661 Structure maintenance 136,000 74,643 61,357 20,856 Reservoir, dam, and waterway maintenance 8,000 37,566 (29,566) 271 Electric plant maintenance 263,000 220,494 42,506 244,357 Hydraulic plant maintenance 102,000 74,536 27,464 77,603 System control and load dispatching 256,575 247,397 9,178 238,382 Substation operation and maintenance 47,000 23,624 23,376 29,727 Overhead line maintenance 20,000 20,139 (139) 19,157 Total generation expense 1.468.447 1,225,950 242,497 1,143,884 Administrative, general and regulatory expense: Insurance 322,200 293,559 28,641 299,593 AEA administrative fee 200,000 200,000 - 200,000 PMC costs 66,800 40,193 26,607 44,924 Arbitrage expense - 34,110 (34,110) 27,976 Regulatory commission: FERC administrative fees 161,000 104,451 56,549 43,938 FERC licensing 28,500 41,170 (12,670) 16,352 Total administrative, general and regulatory expense 778.500 713,483 65,017 632.783 Total operating and maintenance expenses $ 2,246,947 $ 1,939.433 $ 307,514 $ 1,776,667 10 AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 Brisena, Saonbeg ¢ Company A Professional Corporation AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 Audited Financial Statements BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS Anchorage, Alaska Page Independent Auditor's Report 1 Balance Sheets 2 Statements of Revenue, Expenses and Changes in Surplus 3 Statements of Cash Flows 4 Notes to Financial Statements 5-8 Independent Auditor's Report on Additional Information 9 Statements of Expenses 10 BPousena, Somberg & Company A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 Independent Auditor's Report Bradley Lake Project Management Committee Anchorage, Alaska We have audited the accompanying balance sheets as of June 30, 1999 and 1998, and the related statements of revenues, expenses and changes in surplus and of cash flows for the years then ended, of the Bradley Lake Project Management Committee Operating and Revenue Funds (a project management committee). These special purpose financial statements are the responsibility of the Bradley Lake Project Management Committee. Our responsibility is to express an opinion on these special purpose financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying special purpose financial statements were prepared to present revenue and expenses on an accrual basis with the exception of interest income and fixed asset replacements, which have been presented on a cash basis in order to conform to the fiscal year operations and maintenance budget. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and surplus of the Bradley Lake Project Management Committee as of June 30, 1999 and 1998 and its revenue, expenses and changes in surplus and cash flows for the years then ended, in conformity with generally accepted accounting principles. This report is intended for the information and use of the Bradley Lake Project Management Committee and should not be used for any other purpose. (riven. blremelnen, : Lopes, pe Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS BALANCE SHEETS June 30, 1999 and 1998 ASSETS Current assets: Investments (Note B) Total Assets LIABILITIES AND SURPLUS Current liabilities: Due to AIDEA Accounts payable Total Liabilities Surplus Total liabilities and surplus See accompanying notes to the financial statements. 1999 $1,235,307 $1,235,307 $ 126,111 334,944 461,055 774,252 1,2 07 1998 $777,428 $777,428 $ 16,176 240.634 256,810 520,618 $___777.428 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN SURPLUS YEARS ENDED June 30, 1999 and 1998 1999 1998 Budget Actual Variance Actual Revenue: Utility contributions $ 13,843,836 $ 13,843,841 SH Soe 0/675 Interest receipts 1,699,979 1,837,883 137,904 1,845,862 Transfer from (to) operating reserve (117,560) - 117,560 - Additional utility contribution - - - - Miscellaneous income 5,000 - (5,000) 1,477 Total revenue 15,431,255 15,681,724 250,469 15,058,014 Expenses, fixed asset replacements and debt service: Operations and maintenance 2,246,947 1,939,433 (307,514) 1,776,667 Debt service 13,494,308 13,746,181 251,873 13,017,785 Bond refunding costs (reimbursement) (Note E) (350,000) (283,288) 66,712 294,124 Fixed asset replacements 40.000 25.764 (14,236) 23,832 Total expenses, fixed asset replacements and debt service 15,431,255 15,428,090 (3,165) 15,112,408 Excess (deficiency) of revenue over expenses, fixed asset replacements and debt service - 253,634 253,634 (54,394) Surplus, beginning of year 520,618 575,012 Surplus, end of year pun 45252, 20.618 See accompanying notes to the financial statements. 3 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF CASH FLOWS YEARS ENDED June 30, 1999 and 1998 Cash flows from operating activities: Excess (deficiency) of revenues over expenses, fixed asset replacements and debt service Adjustments to reconcile excess of revenues over expenses, fixed asset replacements and debt service to net cash provided by operating activities: Increase (decrease) in accounts payable Increase (decrease) in amounts due to AIDEA Net cash provided by operating activities Available cash and cash equivalents at beginning of year Available cash and cash equivalents at end of year Supplemental disclosure of cash flows information: Interest paid See accompanying notes to the financial statements. 4 1999 $ 253,634 94,310 109,935 457,879 717,428 1.2 7 10,136,181 1998 $ (54,394) (11,708) (109,080) (175,182) 952,610 $777,428 9.63 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES Description of Business: The Bradley Lake Project Management Committee (the Committee) was established pursuant to Section 13 of the Agreement for the Sale and Purchase of Electric Power (Power Sales Agreement) dated December 8, 1987. The purpose of the Committee is to arrange for the operation and maintenance of the Bradley Lake Hydroelectric Project, which became operational in September 1991, and the scheduling, production and dispatch of power. The members of the Committee include the Alaska Energy Authority (AEA) and the five purchasers under the Power Sales Agreement - Chugach Electric Association, Inc.; Golden Valley Electric Association, Inc.; the Municipality of Anchorage (Municipal Light & Power); the City of Seward (Seward Electric System); and the Alaska Electric Generation & Transmission Cooperative, Inc. (AEG&T). The Homer Electric Association, Inc. (HEA) and the Matanuska Electric Association, Inc. (MEA) are additional parties to the Power Sales Agreement but are included as power purchasers for purposes of representation while AEG&T has no direct vote as a consequence of the individual representation of HEA and MEA. Section 13 of the Power Sales Agreement delineates other Committee responsibilities, including: establishing procedures for each party's water allocation, budgeting for annual Project costs and calculating each party's required contribution to fund annual project costs. Committee approval of operations and maintenance arrangements for the Project, sufficiency of the annual budgets and wholesale power rates and the undertaking of optional Project work requires a majority affirmative vote and the affirmative vote of AEA. The Power Sales Agreement extends until the later of: 1) 50 years after commencement of commercial operation or 2) the complete retirement of bonds outstanding under the AEA Power Revenue Bond Resolution along with the satisfaction of all other payment obligations under the Power Sales Agreement. Renewal options for additional terms exist. Establishment of Trust Funds: Article V, Section 502 of the Alaska Energy Authority's Power Revenue Bond Resolution established a Revenue Fund and an Operating Fund, including an Operating Reserve account, to be held by AEA. In actuality these funds, along with the Debt Service, Excess Investment Earnings (arbitrage), and various construction funds related to the Bradley Lake Hydroelectric Project are all held by the Corporate Trust Department of US Bank in Seattle, Washington. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS : NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (Continued) All deposits, including utility contributions and interest earnings, are made into the Revenue Fund, which transfers amounts approximately equal to one-twelfth of the annual operating and maintenance budget into the Operating Fund on a monthly basis. Additional transfers are made from the Revenue Fund to the Debt Service Fund in order to satisfy semiannual interest payments and annual principal payments on the Project's outstanding bonds payable. Interest earnings available for operations and maintenance are derived from the following funds: Debt Service Fund; Operating Reserve Fund; Operating Fund; Revenue Fund; Capital Reserve Fund; and the Renewal & Contingency Fund. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. Revenue and Expense Recognition: Utility contributions are recognized as revenue when due to be received under the terms of the Power Sales Agreement. Transfers from other funds are recognized when the transfer is made and interest earnings are recognized when received. Operating and maintenance expenses are recognized when incurred, while interest and principal payments on bonds are recognized when paid. Purchases of fixed asset replacements are expensed when purchased. Income Taxes: The Bradley Lake Project Management Committee is exempt from income taxation under Section 501 (a) of the Internal Revenue Code. NOTE B: INVESTMENTS Substantially all of the balances in the following funds are invested in collateralized investment agreements through the trust department of US Bank. The specified interest rate for monies from the Operating and Revenue Funds invested in the agreements is 7.38%. Balances at June 30, 1999 and 1998 are as follows: 1999 1998 Operating Fund $ 1,099,685 $ 296,292 Revenue Fund 135,622 481.136 Total investments $1,235,307 $ 777,428 6 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE B: INVESTMENTS (Continued) Investments are sold as needed to cover operating requisitions submitted to the trustee and are therefore considered to be short-term and available for sale. Investments are presented at aggregate cost, which approximates market value. For purposes of the cash flow statements, management considers the full amount of the investment balance to be cash available for operations. NOTE C: MAJOR CONTRACTS AND AGREEMENTS During May 1994, the Alaska Energy Authority entered into the Master Maintenance and Operating agreement with the Committee. The purpose of the agreement is to establish contract administration and budgeting procedures for maintenance and operation contracts of the Bradley Lake Hydroelectric Project and to provide for the lease or other use of facilities and equipment in a manner consistent with the requirements of the Power Sales Agreement. The term of the Master Agreement is indefinite, remaining in effect until termination of the Power Sales Agreement or until AEA no longer legally exists. This agreement authorizes AEA to enter into any contracts necessary to perform operating or maintenance-type services to the Project, subject to the approval of the Committee. On behalf of the Committee, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. (CEA) in August, 1996, for the provision of all services necessary to dispatch the Bradley Project's electric power output. The dispatch agreement runs concurrently with the wheeling and related services contract entered into by and among the parties to the Power Sales Agreement in December 1987 and remains in effect for the term of the wheeling agreement unless CEA ceases to be the output dispatcher. In August 1996, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. on behalf of the Committee for the provision of maintenance services for the Daves Creek and Soldotna SVC Substations. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE C: MAJOR CONTRACTS AND AGREEMENTS (Continued) An operation and maintenance agreement dated February 11, 1994, was executed between Homer Electric Association and the Alaska Energy Authority. This agreement provides for the operation and maintenance of the Bradley Lake Hydroelectric Project by Homer Electric Association. The agreement is through June 30, 2004 and continues from year to year thereafter, except upon written notice to terminate by either party. Notice of termination must be given one year in advance of the termination date. HEA is to be reimbursed for costs associated with the operation, maintenance and repair of the Project as determined in advance through the submission of an annual budget based upon prudent estimates and anticipated operation and maintenance costs. In August, 1996, the agreement was amended to separate the maintenance of the transmission facilities from the hydroelectric project. The transmission agreement continues from year to year, except upon written notice to terminate by either party. Notice of termination must be given six months in advance of termination dates. NOTE D: RELATED PARTY TRANSACTIONS During the years ended June 30, 1999 and 1998 the Committee paid the following amounts to related parties for costs incurred under the various contracts described in Note D: 1999 1998 Homer Electric Association - operation and maintenance $ 753,962 $ 697,735 Chugach Electric Association - substation service maintenance $ 23,624 $ 29,727 For the years ended June 30, 1999 and 1998, Chugach Electric Association provided dispatch services to the Committee for no charge. NOTE E: COMMITMENTS AND CONTINGENCIES Forward Delivery Bond Purchase Agreement: In December, 1997, Bradley Lake Project Management Committee entered into a forward delivery bond purchase agreement providing for the issuance of two series of Power Revenue Refunding Bonds in April of 1999 and 2000. The costs associated with the refunding were expensed in the year ended June 30, 1998 and repaid by funds provided by the bonds during the year ended June 30, 1999. A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION Bradley Lake Project Management Committee Operating and Revenue Funds Anchorage, Alaska Our report on our audits of the special purpose financial statements of the Bradley Lake Project Management Committee Operating and Revenue Funds for June 30, 1999 and 1998, appears on the page preceding the balance sheets. Those audits were made for the purpose of forming an opinion on the special purpose financial statements taken as a whole. The supplemental Statements of Expenses are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the special purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the special purpose financial statements taken as a whole. Berue Lm v 2... JIPE__. Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF EXPENSES June 30, 1999 and 1998 1999 Variance Favorable 1998 Budget Actual (Unfavorable) Actual Expenses: Generation expense: Operation supervision and engineering $ 103,500 $ 66,746 $ 36,754 $ 76,936 Hydraulic operation * 15,000 4,932 10,068 5,585 Electric plant operation 149,000 135,801 13,199 130,686 Hydraulic power generation operation 304,322 248,830 55,492 227,663 FERC land use fees 64,050 71,242 (7,192) 72,661 Structure maintenance 136,000 74,643 61,357 20,856 Reservoir, dam, and waterway maintenance 8,000 37,566 (29,566) 274 Electric plant maintenance 263,000 220,494 42,506 244,357 Hydraulic plant maintenance 102,000 74,536 27,464 77,603 System control and load dispatching 256,575 247,397 9,178 238,382 Substation operation and maintenance 47,000 23,624 23,376 29,727 Overhead line maintenance 20,000 20,139 (139) 19,157 Total generation expense 1,468,447 1,225,950 242,497 1,143,884 Administrative, general and regulatory expense: Insurance 322,200 293,559 28,641 299,593 AEA administrative fee 200,000 200,000 - 200,000 PMC costs 66,800 40,193 26,607 44,924 Arbitrage expense - 34,110 (34,110) 27,976 Regulatory commission: FERC administrative fees 161,000 104,451 56,549 43,938 FERC licensing 28,500 41,170 (12,670) 16,352 Total administrative, general and regulatory expense 778,500 713.483 65,017 632.783 Total operating and maintenance expenses $2,246,947 $ 1,939.433 $ 307.514 $ 1,776,667 10 AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 A Professional Corporation AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 Audited Financial Statements BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS Anchorage, Alaska Independent Auditor's Report Balance Sheets Statements of Revenue, Expenses and Changes in Surplus Statements of Cash Flows Notes to Financial Statements Independent Auditor's Report on Additional Information Statements of Expenses 5-8 10 LPousena, Shomberg & Company A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 Independent Auditor's Report Bradley Lake Project Management Committee Anchorage, Alaska We have audited the accompanying balance sheets as of June 30, 1999 and 1998, and the related statements of revenues, expenses and changes in surplus and of cash flows for the years then ended, of the Bradley Lake Project Management Committee Operating and Revenue Funds (a project management committee). These special purpose financial statements are the responsibility of the Bradley Lake Project Management Committee. Our responsibility is to express an opinion on these special purpose financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying special purpose financial statements were prepared to present revenue and expenses on an accrual basis with the exception of interest income and fixed asset replacements, which have been presented on a cash basis in order to conform to the fiscal year operations and maintenance budget. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and surplus of the Bradley Lake Project Management Committee as of Juné 30, 1999 and 1998 and its revenue, expenses and changes in surplus and cash flows for the years then ended, in conformity with generally accepted accounting principles. This report is intended for the information and use of the Bradley Lake Project Management Committee and should not be used for any other purpose. ee | aan ae Lone, SP Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS BALANCE SHEETS June 30, 1999 and 1998 ASSETS Current assets: Investments (Note B) Total Assets LIABILITIES AND SURPLUS Current liabilities: Due to AIDEA Accounts payable Total Liabilities Surplus Total liabilities and surplus See accompanying notes to the financial statements. 1999 $1,235,307 12 $ 126, 7 111 334,944 461,055 774,252 1.2 307 1998 $777,428 $777,428 $ 16,176 240,634 256,810 —_520,618 $__777.428 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN SURPLUS YEARS ENDED June 30, 1999 and 1998 1999 1998 Budget Actual Variance Actual Revenue: Utility contributions $ 13,843,836 $13,843,841 $ 5 $13,210,675 Interest receipts 1,699,979 1,837,883 137,904 1,845,862 Transfer from (to) operating reserve (117,560) - 117,560 - Additional utility contribution - - - - Miscellaneous income 5,000 - (5,000) 1,477 Total revenue 15,431,255 15,681,724 250,469 15,058,014 Expenses, fixed asset replacements and debt service: Operations and maintenance 2,246,947 1,939,433 (307,514) 1,776,667 Debt service 13,494,308 13,746,181 251,873 13,017,785 Bond refunding costs (reimbursement) (Note E) (350,000) (283,288) 66,712 294,124 Fixed asset replacements 40,000 25,764 (14,236) 23,832 Total expenses, fixed asset replacements and debt service 15,431,255 15,428,090 (3,165) 15,112,408 Excess (deficiency) of revenue over expenses, fixed asset replacements and debt service - 253,634 253,634 (54,394) Surplus, beginning of year 520,618 575,012 Surplus, end of year 774,252 520,618 See accompanying notes to the financial statements. 3 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF CASH FLOWS YEARS ENDED June 30, 1999 and 1998 Cash flows from operating activities: Excess (deficiency) of revenues over expenses, fixed asset replacements and debt service Adjustments to reconcile excess of revenues over expenses, fixed asset replacements and debt service to net cash provided by operating activities: Increase (decrease) in accounts payable Increase (decrease) in amounts due to AIDEA Net cash provided by operating activities Available cash and cash equivalents at beginning of year Available cash and cash equivalents at end of year Supplemental disclosure of cash flows information: Interest paid See accompanying notes to the financial statements. 4 1999 $ 253,634 94,310 109.935 457,879 777,428 $1,235,307 $10,136,181 1998 $ (54,394) (11,708) (109,080) (175,182) 952.610 $777,428 $9,637,785 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES Description of Business: The Bradley Lake Project Management Committee (the Committee) was established pursuant to Section 13 of the Agreement for the Sale and Purchase of Electric Power (Power Sales Agreement) dated December 8, 1987. The purpose of the Committee is to arrange for the operation and maintenance of the Bradley Lake Hydroelectric Project, which became operational in September 1991, and the scheduling, production and dispatch of power. The members of the Committee include the Alaska Energy Authority (AEA) and the five purchasers under the Power Sales Agreement - Chugach Electric Association, Inc.; Golden Valley Electric Association, Inc.; the Municipality of Anchorage (Municipal Light & Power); the City of Seward (Seward Electric System); and the Alaska Electric Generation & Transmission Cooperative, Inc. (AEG&T). The Homer Electric Association, Inc. (HEA) and the Matanuska Electric Association, Inc. (MEA) are additional parties to the Power Sales Agreement but are included as power purchasers for purposes of representation while AEG&T has no direct vote as a consequence of the individual representation of HEA and MEA. Section 13 of the Power Sales Agreement delineates other Committee responsibilities, including: establishing procedures for each party's water allocation, budgeting for annual Project costs and calculating each party's required contribution to fund annual project costs. Committee approval of operations and maintenance arrangements for the Project, sufficiency of the annual budgets and wholesale power rates and the undertaking of optional Project work requires a majority affirmative vote and the affirmative vote of AEA. The Power Sales Agreement extends until the later of: 1) SO years after commencement of commercial operation or 2) the complete retirement of bonds outstanding under the AEA Power Revenue Bond Resolution along with the satisfaction of all other payment obligations under the Power Sales Agreement. Renewal options for additional terms exist. Establishment of Trust Funds: Article V, Section 502 of the Alaska Energy Authority's Power Revenue Bond Resolution established a Revenue Fund and an Operating Fund, including an Operating Reserve account, to be held by AEA. In actuality these funds, along with the Debt Service, Excess Investment Earnings (arbitrage), and various construction funds related to the Bradley Lake Hydroelectric Project are all held by the Corporate Trust Department of US Bank in Seattle, Washington. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS | NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (Continued) All deposits, including utility contributions and interest earnings, are made into the Revenue Fund, which transfers amounts approximately equal to one-twelfth of the annual operating and maintenance budget into the Operating Fund on a monthly basis. Additional transfers are made from the Revenue Fund to the Debt Service Fund in order to satisfy semiannual interest payments and annual principal payments on the Project's outstanding bonds payable. Interest earnings available for operations and maintenance are derived from the following funds: Debt Service Fund; Operating Reserve Fund; Operating Fund; Revenue Fund; Capital Reserve Fund; and the Renewal & Contingency Fund. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. Revenue and Expense Recognition: Utility contributions are recognized as revenue when due to be received under the terms of the Power Sales Agreement. Transfers from other funds are recognized when the transfer is made and interest earnings are recognized when received. Operating and maintenance expenses are recognized when incurred, while interest and principal payments on bonds are recognized when paid. Purchases of fixed asset replacements are expensed when purchased. Income Taxes: The Bradley Lake Project Management Committee is exempt from income taxation under Section 501 (a) of the Internal Revenue Code. NOTE B: INVESTMENTS Substantially all of the balances in the following funds are invested in collateralized investment agreements through the trust department of US Bank. The specified interest rate for monies from the Operating and Revenue Funds invested in the agreements is 7.38%. Balances at June 30, 1999 and 1998 are as follows: 1999 1998 Operating Fund $ 1,099,685 $ 296,292 Revenue Fund 135,622 481.136 Total investments $ 1,235,307 $ 777,428 6 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE B: INVESTMENTS (Continued) Investments are sold as needed to cover operating requisitions submitted to the trustee and are therefore considered to be short-term and available for sale. Investments are presented at aggregate cost, which approximates market value. For purposes of the cash flow statements, management considers the full amount of the investment balance to be cash available for operations. NOTE C: MAJOR CONTRACTS AND AGREEMENTS During May 1994, the Alaska Energy Authority entered into the Master Maintenance and Operating agreement with the Committee. The purpose of the agreement is to establish contract administration and budgeting procedures for maintenance and operation contracts of the Bradley Lake Hydroelectric Project and to provide for the lease or other use of facilities and equipment in a manner consistent with the requirements of the Power Sales Agreement. The term of the Master Agreement is indefinite, remaining in effect until termination of the Power Sales Agreement or until AEA no longer legally exists. This agreement authorizes AEA to enter into any contracts necessary to perform operating or maintenance-type services to the Project, subject to the approval of the Committee. On behalf of the Committee, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. (CEA) in August, 1996, for the provision of all services necessary to dispatch the Bradley Project's electric power output. The dispatch agreement runs concurrently with the wheeling and related services contract entered into by and among the parties to the Power Sales Agreement in December 1987 and remains in effect for the term of the wheeling agreement unless CEA ceases to be the output dispatcher. In August 1996, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. on behalf of the Committee for the provision of maintenance services for the Daves Creek and Soldotna SVC Substations. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE C: MAJOR CONTRACTS AND AGREEMENTS (Continued) An operation and maintenance agreement dated February 11, 1994, was executed between Homer Electric Association and the Alaska Energy Authority. This agreement provides for the operation and maintenance of the Bradley Lake Hydroelectric Project by Homer Electric Association. The agreement is through June 30, 2004 and continues from year to year thereafter, except upon written notice to terminate by either party. Notice of termination must be given one year in advance of the termination date. HEA is to be reimbursed for costs associated with the operation, maintenance and repair of the Project as determined in advance through the submission of an annual budget based upon prudent estimates and anticipated operation and maintenance costs. In August, 1996, the agreement was amended to separate the maintenance of the transmission facilities from the hydroelectric project. The transmission agreement continues from year to year, except upon written notice to terminate by either party. Notice of termination must be given six months in advance of termination dates. NOTE D: RELATED PARTY TRANSACTIONS During the years ended June 30, 1999 and 1998 the Committee paid the following amounts to related parties for costs incurred under the various contracts described in Note D: 1999 1998 Homer Electric Association - operation and maintenance $ 753,962 $ 697,735 Chugach Electric Association - substation service maintenance $ 23,624 $ 29,727 For the years ended June 30, 1999 and 1998, Chugach Electric Association provided dispatch services to the Committee for no charge. 7 NOTE E: COMMITMENTS AND CONTINGENCIES Forward Delivery Bond Purchase Agreement: In December, 1997, Bradley Lake Project Management Committee entered into a forward delivery bond purchase agreement providing for the issuance of two series of Power Revenue Refunding Bonds in April of 1999 and 2000. The costs associated with the refunding were expensed in the year ended June 30, 1998 and repaid by funds provided by the bonds during the year ended June 30, 1999. A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION Bradley Lake Project Management Committee Operating and Revenue Funds Anchorage, Alaska Our report on our audits of the special purpose financial statements of the Bradley Lake Project Management Committee Operating and Revenue Funds for June 30, 1999 and 1998, appears on the page preceding the balance sheets. Those audits were made for the purpose of forming an opinion on the special purpose financial statements taken as a whole. The supplemental Statements of Expenses are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the special purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the special purpose financial statements taken as a whole. \Brénaan Lomorado-ne v 2... IPE Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF EXPENSES June 30, 1999 and 1998 1999 Variance Favorable 1998 Budget Actual (Unfavorable) Actual Expenses: Generation expense: Operation supervision and engineering $ 103,500 $ 66,746 $ 36,754 $ 76,936 Hydraulic operation 15,000 4,932 10,068 5,585 Electric plant operation 149,000 135,801 13,199 130,686 Hydraulic power generation operation 304,322 248,830 55,492 227,663 FERC land use fees 64,050 71,242 (7,192) 72,661 Structure maintenance 136,000 74,643 61,357 20,856 Reservoir, dam, and waterway maintenance 8,000 37,566 (29,566) Zi Electric plant maintenance 263,000 220,494 42,506 244,357 Hydraulic plant maintenance 102,000 74,536 27,464 77,603 System control and load dispatching 256,575 247,397 9,178 238,382 Substation operation and maintenance 47,000 23,624 23,376 29,727 Overhead line maintenance 20,000 20,139 (139) 19,157 Total generation expense 1,468,447 1,225,950 242.497 1,143,884 Administrative, general and regulatory expense: Insurance 322,200 293,559 28,641 299,593 AEA administrative fee 200,000 200,000 - 200,000 PMC costs 66,800 40,193 26,607 44,924 Arbitrage expense - 34,110 (34,110) 27,976 Regulatory commission: FERC administrative fees 161,000 104,451 56,549 43,938 FERC licensing 28,500 41,170 (12,670) 16,352 Total administrative, general and regulatory expense 778,500 713,483 65,017 632,783 Total operating and maintenance expenses $2,246,947 $ 1,939,433 $ 307,514 $ 1,776,667 10 AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 A Professional Corporation AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 Audited Financial Statements BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS Anchorage, Alaska Page Independent Auditor's Report 1 Balance Sheets 2 Statements of Revenue, Expenses and Changes in Surplus 3 Statements of Cash Flows 4 Notes to Financial Statements 5-8 Independent Auditor's Report on Additional Information 9 Statements of Expenses 10 DBrisena, Shomberg & Company A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 Independent Auditor's Report Bradley Lake Project Management Committee Anchorage, Alaska We have audited the accompanying balance sheets as of June 30, 1999 and 1998, and the related statements of revenues, expenses and changes in surplus and of cash flows for the years then ended, of the Bradley Lake Project Management Committee Operating and Revenue Funds (a project management committee). These special purpose financial statements are the responsibility of the Bradley Lake Project Management Committee. Our responsibility is to express an opinion on these special purpose financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying special purpose financial statements were prepared to present revenue and expenses on an accrual basis with the exception of interest income and fixed asset replacements, which have been presented on a cash basis in order to conform to the fiscal year operations and maintenance budget. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and surplus of the Bradley Lake Project Management Committee as of June 30, 1999 and 1998 and its revenue, expenses and changes in surplus and cash flows for the years then ended, in conformity with generally accepted accounting principles. This report is intended for the information and use of the Bradley Lake Project Management Committee and should not be used for any other purpose. Ne Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS BALANCE SHEETS June 30, 1999 and 1998 ASSETS Current assets: Investments (Note B) Total Assets LIABILITIES AND SURPLUS Current liabilities: Due to AIDEA Accounts payable Total Liabilities Surplus Total liabilities and surplus See accompanying notes to the financial statements. 1999 $1,235,307 $_ 1,235,307 $ 126,111 334,944 461,055 774,252 $1,235,307 1998 $777,428 $777,428 $ 16,176 240.634 256,810 520,618 7 42 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN SURPLUS YEARS ENDED June 30, 1999 and 1998 1999 1998 Budget Actual Variance Actual Revenue: Utility contributions $ 13,843,836 $13,843,841 $ 5 $13,210,675 Interest receipts 1,699,979 1,837,883 137,904 1,845,862 Transfer from (to) operating reserve (117,560) - 117,560 - Additional utility contribution - - - - Miscellaneous income 5,000 - (5,000) 1,477 Total revenue 15,431,255 15,681,724 250,469 15,058,014 Expenses, fixed asset replacements and debt service: Operations and maintenance 2,246,947 1,939,433 (307,514) 1,776,667 Debt service 13,494,308 13,746,181 251,873 13,017,785 Bond refunding costs (reimbursement) (Note E) (350,000) (283,288) 66,712 294,124 Fixed asset replacements 40.000 25,764 (14,236) 23,832 Total expenses, fixed asset replacements and debt service 15,431,255 15,428,090 (3,165) 15,112,408 Excess (deficiency) of revenue over expenses, fixed asset replacements and debt service - 253,634 253,634 (54,394) Surplus, beginning of year 520,618 575,012 Surplus, end of year $774,252 $520,618 See accompanying notes to the financial statements. 3 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF CASH FLOWS YEARS ENDED June 30, 1999 and 1998 Cash flows from operating activities: Excess (deficiency) of revenues over expenses, fixed asset replacements and debt service Adjustments to reconcile excess of revenues over expenses, fixed asset replacements and debt service to net cash provided by operating activities: Increase (decrease) in accounts payable Increase (decrease) in amounts due to AIDEA Net cash provided by operating activities Available cash and cash equivalents at beginning of year Available cash and cash equivalents at end of year Supplemental disclosure of cash flows information: Interest paid See accompanying notes to the financial statements. 4 1999 $ 253,634 94,310 109,935 457,879 777,428 $1,235,307 $ 10,136,181 1998 $ (54,394) (11,708) (109,080) (175,182) 952,610 $777,428 $_9,637.785 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES Description of Business: The Bradley Lake Project Management Committee (the Committee) was established pursuant to Section 13 of the Agreement for the Sale and Purchase of Electric Power (Power Sales Agreement) dated December 8, 1987. The purpose of the Committee is to arrange for the operation and maintenance of the Bradley Lake Hydroelectric Project, which became operational in September 1991, and the scheduling, production and dispatch of power. The members of the Committee include the Alaska Energy Authority (AEA) and the five purchasers under the Power Sales Agreement - Chugach Electric Association, Inc.; Golden Valley Electric Association, Inc.; the Municipality of Anchorage (Municipal Light & Power); the City of Seward (Seward Electric System); and the Alaska Electric Generation & Transmission Cooperative, Inc. (AEG&T). The Homer Electric Association, Inc. (HEA) and the Matanuska Electric Association, Inc. (MEA) are additional parties to the Power Sales Agreement but are included as power purchasers for purposes of representation while AEG&T has no direct vote as a consequence of the individual representation of HEA and MEA. Section 13 of the Power Sales Agreement delineates other Committee responsibilities, including: establishing procedures for each party's water allocation, budgeting for annual Project costs and calculating each party's required contribution to fund annual project costs. Committee approval of operations and maintenance arrangements for the Project, sufficiency of the annual budgets and wholesale power rates and the undertaking of optional Project work requires a majority affirmative vote and the affirmative vote of AEA. The Power Sales Agreement extends until the later of: 1) 50 years after commencement of commercial operation or 2) the complete retirement of bonds outstanding under the AEA Power Revenue Bond Resolution along with the satisfaction of all other payment obligations under the Power Sales Agreement. Renewal options for additional terms exist. Establishment of Trust Funds: Article V, Section 502 of the Alaska Energy Authority's Power Revenue Bond Resolution established a Revenue Fund and an Operating Fund, including an Operating Reserve account, to be held by AEA. In actuality these funds, along with the Debt Service, Excess Investment Earnings (arbitrage), and various construction funds related to the Bradley Lake Hydroelectric Project are all held by the Corporate Trust Department of US Bank in Seattle, Washington. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS ; NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (Continued) All deposits, including utility contributions and interest earnings, are made into the Revenue Fund, which transfers amounts approximately equal to one-twelfth of the annual operating and maintenance budget into the Operating Fund on a monthly basis. Additional transfers are made from the Revenue Fund to the Debt Service Fund in order to satisfy semiannual interest payments and annual principal payments on the Project's outstanding bonds payable. Interest earnings available for operations and maintenance are derived from the following funds: Debt Service Fund; Operating Reserve Fund; Operating Fund; Revenue Fund; Capital Reserve Fund; and the Renewal & Contingency Fund. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. Revenue and Expense Recognition: Utility contributions are recognized as revenue when due to be received under the terms of the Power Sales Agreement. Transfers from other funds are recognized when the transfer is made and interest earnings are recognized when received. Operating and maintenance expenses are recognized when incurred, while interest and principal payments on bonds are recognized when paid. Purchases of fixed asset replacements are expensed when purchased. Income Taxes: The Bradley Lake Project Management Committee is exempt from income taxation under Section 501 (a) of the Internal Revenue Code. NOTE B: INVESTMENTS Substantially all of the balances in the following funds are invested in collateralized investment agreements through the trust department of US Bank. The specified interest rate for monies from the Operating and Revenue Funds invested in the agreements is 7.38%. Balances at June 30, 1999 and 1998 are as follows: 1999 1998 Operating Fund $ 1,099,685 $ 296,292 Revenue Fund 135,622 481,136 Total investments $1,235,307 $ 777,428 6 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE B: INVESTMENTS (Continued) Investments are sold as needed to cover operating requisitions submitted to the trustee and are therefore considered to be short-term and available for sale. Investments are presented at aggregate cost, which approximates market value. For purposes of the cash flow statements, management considers the full amount of the investment balance to be cash available for operations. NOTE C: MAJOR CONTRACTS AND AGREEMENTS During May 1994, the Alaska Energy Authority entered into the Master Maintenance and Operating agreement with the Committee. The purpose of the agreement is to establish contract administration and budgeting procedures for maintenance and operation contracts of the Bradley Lake Hydroelectric Project and to provide for the lease or other use of facilities and equipment in a manner consistent with the requirements of the Power Sales Agreement. The term of the Master Agreement is indefinite, remaining in effect until termination of the Power Sales Agreement or until AEA no longer legally exists. This agreement authorizes AEA to enter into any contracts necessary to perform operating or maintenance-type services to the Project, subject to the approval of the Committee. On behalf of the Committee, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. (CEA) in August, 1996, for the provision of all services necessary to dispatch the Bradley Project's electric power output. The dispatch agreement runs concurrently with the wheeling and related services contract entered into by and among the parties to the Power Sales Agreement in December 1987 and remains in effect for the term of the wheeling agreement unless CEA ceases to be the output dispatcher. In August 1996, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. on behalf of the Committee for the provision of maintenance services for the Daves Creek and Soldotna SVC Substations. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE C: MAJOR CONTRACTS AND AGREEMENTS (Continued) An operation and maintenance agreement dated February 11, 1994, was executed between Homer Electric Association and the Alaska Energy Authority. This agreement provides for the operation and maintenance of the Bradley Lake Hydroelectric Project by Homer Electric Association. The agreement is through June 30, 2004 and continues from year to year thereafter, except upon written notice to terminate by either party. Notice of termination must be given one year in advance of the termination date. HEA is to be reimbursed for costs associated with the operation, maintenance and repair of the Project as determined in advance through the submission of an annual budget based upon prudent estimates and anticipated operation and maintenance costs. In August, 1996, the agreement was amended to separate the maintenance of the transmission facilities from the hydroelectric project. The transmission agreement continues from year to year, except upon written notice to terminate by either party. Notice of termination must be given six months in advance of termination dates. NOTE D: RELATED PARTY TRANSACTIONS During the years ended June 30, 1999 and 1998 the Committee paid the following amounts to related parties for costs incurred under the various contracts described in Note D: 1999 1998 Homer Electric Association - operation and maintenance $ 753,962 $ 697,735 Chugach Electric Association - substation service maintenance $ 23,624 $ 29,727 For the years ended June 30, 1999 and 1998, Chugach Electric Association provided dispatch services to the Committee for no charge. 7 NOTE E: COMMITMENTS AND CONTINGENCIES Forward Delivery Bond Purchase Agreement: In December, 1997, Bradley Lake Project Management Committee entered into a forward delivery bond purchase agreement providing for the issuance of two series of Power Revenue Refunding Bonds in April of 1999 and 2000. The costs associated with the refunding were expensed in the year ended June 30, 1998 and repaid by funds provided by the bonds during the year ended June 30, 1999. A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION Bradley Lake Project Management Committee Operating and Revenue Funds Anchorage, Alaska Our report on our audits of the special purpose financial statements of the Bradley Lake Project Management Committee Operating and Revenue Funds for June 30, 1999 and 1998, appears on the page preceding the balance sheets. Those audits were made for the purpose of forming an opinion on the special purpose financial statements taken as a whole. The supplemental Statements of Expenses are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the special purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the special purpose financial statements taken as a whole. ee eee tM ee Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF EXPENSES June 30, 1999 and 1998 1999 Variance Favorable 1998 Budget Actual (Unfavorable) Actual Expenses: Generation expense: Operation supervision and engineering $ 103,500 $ 66,746 $ 36,754 $ 76,936 Hydraulic operation 15,000 4,932 10,068 5,585 Electric plant operation 149,000 135,801 13,199 130,686 Hydraulic power generation operation 304,322 248,830 55,492 227,663 FERC land use fees 64,050 71,242 (7,192) 72,661 Structure maintenance 136,000 74,643 61,357 20,856 Reservoir, dam, and waterway maintenance 8,000 37,566 (29,566) Qa Electric plant maintenance 263,000 220,494 42,506 244,357 Hydraulic plant maintenance 102,000 74,536 27,464 77,603 System control and load dispatching 256,575 247,397 9,178 238,382 Substation operation and maintenance 47,000 23,624 23,376 29,727 Overhead line maintenance 20,000 20,139 (139) 19,157 Total generation expense 1,468,447 1,225,950 242,497 1,143,884 Administrative, general and regulatory expense: Insurance 322,200 293,559 28,641 299,593 AEA administrative fee 200,000 200,000 - 200,000 PMC costs 66,800 40,193 26,607 44,924 Arbitrage expense - 34,110 (34,110) 27,976 Regulatory commission: FERC administrative fees 161,000 104,451 56,549 43,938 FERC licensing 28,500 41.170 (12,670) 16,352 Total administrative, general and regulatory expense 778,500 713,483 65,017 632.783 Total operating and maintenance expenses $2,246,947 $ 1,939.433 $ 307,514 $ 1,776,667 10 AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 A Professional Corporation AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 Audited Financial Statements BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS Anchorage, Alaska Independent Auditor's Report Balance Sheets Statements of Revenue, Expenses and Changes in Surplus Statements of Cash Flows Notes to Financial Statements ~ : E co © + wow vb -& Ie Independent Auditor's Report on Additional Information Statements of Expenses 10 BPrusena, Stromberg & Company A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 Independent Auditor's Report Bradley Lake Project Management Committee Anchorage, Alaska We have audited the accompanying balance sheets as of June 30, 1999 and 1998, and the related statements of revenues, expenses and changes in surplus and of cash flows for the years then ended, of the Bradley Lake Project Management Committee Operating and Revenue Funds (a project management committee). These special purpose financial statements are the responsibility of the Bradley Lake Project Management Committee. Our responsibility is to express an opinion on these special purpose financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying special purpose financial statements were prepared to present revenue and expenses on an accrual basis with the exception of interest income and fixed asset replacements, which have been presented on a cash basis in order to conform to the fiscal year operations and maintenance budget. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and surplus of the Bradley Lake Project Management Committee as of June 30, 1999 and 1998 and its revenue, expenses and changes in surplus and cash flows for the years then ended, in conformity with generally accepted accounting principles. This report is intended for the information and use of the Bradley Lake Project Management Committee and should not be used for any other purpose. ee ‘ ANN SI Pe Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS BALANCE SHEETS June 30, 1999 and 1998 ASSETS Current assets: Investments (Note B) Total Assets LIABILITIES AND SURPLUS Current liabilities: Due to AIDEA Accounts payable Total Liabilities Surplus Total liabilities and surplus See accompanying notes to the financial statements. 1999 $1,235,307 1.2 ‘7 $ 126,111 334,944 461,055 774,252 $1,235,307 1998 $777,428 $777,428 $ 16,176 240,634 256,810 520,618 $777,428 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN SURPLUS YEARS ENDED June 30, 1999 and 1998 1999 1998 Budget Actual Variance Actual Revenue: Utility contributions $ 13,843,836 $13,843,841 $ 5 $13,210,675 Interest receipts 1,699,979 1,837,883 137,904 1,845,862 Transfer from (to) operating reserve (117,560) - 117,560 - Additional utility contribution - - - 7 Miscellaneous income 5,000 - (5,000) 1,477 Total revenue 15,431,255 15,681,724 250,469 15,058,014 Expenses, fixed asset replacements and debt service: Operations and maintenance 2,246,947 1,939,433 (307,514) 1,776,667 Debt service 13,494,308 13,746,181 251,873 13,017,785 Bond refunding costs (reimbursement) (Note E) (350,000) (283,288) 66,712 294,124 Fixed asset replacements 40,000 25,764 (14,236) 23,832 Total expenses, fixed asset replacements and debt service 15,431,255 15,428,090 (3,165) 15,112,408 Excess (deficiency) of revenue over expenses, fixed asset replacements and debt service : 253,634 253,634 (54,394) Surplus, beginning of year 520,618 575,012 Surplus, end of year 774,252 520.618 See accompanying notes to the financial statements. 3 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF CASH FLOWS YEARS ENDED June 30, 1999 and 1998 Cash flows from operating activities: Excess (deficiency) of revenues over expenses, fixed asset replacements and debt service Adjustments to reconcile excess of revenues over expenses, fixed asset replacements and debt service to net cash provided by operating activities: Increase (decrease) in accounts payable Increase (decrease) in amounts due to AIDEA Net cash provided by operating activities Available cash and cash equivalents at beginning of year Available cash and cash equivalents at end of year Supplemental disclosure of cash flows information: Interest paid See accompanying notes to the financial statements. 4 1999 $ 253,634 94,3 10 109,935 457,879 717,428 1,2 10,1 1 07 1 1998 $ (54,394) (11,708) (109,080) (175,182) 952,610 77,42 9,637,785 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES Description of Business: The Bradley Lake Project Management Committee (the Committee) was established pursuant to Section 13 of the Agreement for the Sale and Purchase of Electric Power (Power Sales Agreement) dated December 8, 1987. The purpose of the Committee is to arrange for the operation and maintenance of the Bradley Lake Hydroelectric Project, which became operational in September 1991, and the scheduling, production and dispatch of power. The members of the Committee include the Alaska Energy Authority (AEA) and the five purchasers under the Power Sales Agreement - Chugach Electric Association, Inc.; Golden Valley Electric Association, Inc.; the Municipality of Anchorage (Municipal Light & Power); the City of Seward (Seward Electric System); and the Alaska Electric Generation & Transmission Cooperative, Inc. (AEG&T). The Homer Electric Association, Inc. (HEA) and the Matanuska Electric Association, Inc. (MEA) are additional parties to the Power Sales Agreement but are included as power purchasers for purposes of representation while AEG&T has no direct vote as a consequence of the individual representation of HEA and MEA. Section 13 of the Power Sales Agreement delineates other Committee responsibilities, including: establishing procedures for each party's water allocation, budgeting for annual Project costs and calculating each party's required contribution to fund annual project costs. Committee approval of operations and maintenance arrangements for the Project, sufficiency of the annual budgets and wholesale power rates and the undertaking of optional Project work requires a majority affirmative vote and the affirmative vote of AEA. The Power Sales Agreement extends until the later of: 1) 50 years after commencement of commercial operation or 2) the complete retirement of bonds outstanding under the AEA Power Revenue Bond Resolution along with the satisfaction of all other payment obligations under the Power Sales Agreement. Renewal options for additional terms exist. Establishment of Trust Funds: Article V, Section 502 of the Alaska Energy Authority's Power Revenue Bond Resolution established a Revenue Fund and an Operating Fund, including an Operating Reserve account, to be held by AEA. In actuality these funds, along with the Debt Service, Excess Investment Earnings (arbitrage), and various construction funds related to the Bradley Lake Hydroelectric Project are all held by the Corporate Trust Department of US Bank in Seattle, Washington. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS , NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (Continued) All deposits, including utility contributions and interest earnings, are made into the Revenue Fund, which transfers amounts approximately equal to one-twelfth of the annual operating and maintenance budget into the Operating Fund on a monthly basis. Additional transfers are made from the Revenue Fund to the Debt Service Fund in order to satisfy semiannual interest payments and annual principal payments on the Project's outstanding bonds payable. Interest earnings available for operations and maintenance are derived from the following funds: Debt Service Fund; Operating Reserve Fund; Operating Fund; Revenue Fund; Capital Reserve Fund; and the Renewal & Contingency Fund. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. Revenue and Expense Recognition: Utility contributions are recognized as revenue when due to be received under the terms of the Power Sales Agreement. Transfers from other funds are recognized when the transfer is made and interest earnings are recognized when received. Operating and maintenance expenses are recognized when incurred, while interest and principal payments on bonds are recognized when paid. Purchases of fixed asset replacements are expensed when purchased. Income Taxes: The Bradley Lake Project Management Committee is exempt from income taxation under Section 501 (a) of the Internal Revenue Code. NOTE B: INVESTMENTS ~ Substantially all of the balances in the following funds are invested in collateralized investment agreements through the trust department of US Bank. The specified interest rate for monies from the Operating and Revenue Funds invested in the agreements is 7.38%. Balances at June 30, 1999 and 1998 are as follows: 1999 1998 Operating Fund $ 1,099,685 $ 296,292 Revenue Fund 135,622 481,136 Total investments $1,235,307 $ 777,428 6 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE B: INVESTMENTS (Continued) Investments are sold as needed to cover operating requisitions submitted to the trustee and are therefore considered to be short-term and available for sale. Investments are presented at aggregate cost, which approximates market value. For purposes of the cash flow statements, management considers the full amount of the investment balance to be cash available for operations. NOTE C: MAJOR CONTRACTS AND AGREEMENTS During May 1994, the Alaska Energy Authority entered into the Master Maintenance and Operating agreement with the Committee. The purpose of the agreement is to establish contract administration and budgeting procedures for maintenance and operation contracts of the Bradley Lake Hydroelectric Project and to provide for the lease or other use of facilities and equipment in a manner consistent with the requirements of the Power Sales Agreement. The term of the Master Agreement is indefinite, remaining in effect until termination of the Power Sales Agreement or until AEA no longer legally exists. This agreement authorizes AEA to enter into any contracts necessary to perform operating or maintenance-type services to the Project, subject to the approval of the Committee. On behalf of the Committee, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. (CEA) in August, 1996, for the provision of all services necessary to dispatch the Bradley Project's electric power output. The dispatch agreement runs concurrently with the wheeling and related services contract entered into by and among the parties to the Power Sales Agreement in December 1987 and remains in effect for the term of the wheeling agreement unless CEA ceases to be the output dispatcher. In August 1996, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. on behalf of the Committee for the provision of maintenance services for the Daves Creek and Soldotna SVC Substations. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE C: MAJOR CONTRACTS AND AGREEMENTS (Continued) An operation and maintenance agreement dated February 11, 1994, was executed between Homer Electric Association and the Alaska Energy Authority. This agreement provides for the operation and maintenance of the Bradley Lake Hydroelectric Project by Homer Electric Association. The agreement is through June 30, 2004 and continues from year to year thereafter, except upon written notice to terminate by either party. Notice of termination must be given one year in advance of the termination date. HEA is to be reimbursed for costs associated with the operation, maintenance and repair of the Project as determined in advance through the submission of an annual budget based upon prudent estimates and anticipated operation and maintenance costs. In August, 1996, the agreement was amended to separate the maintenance of the transmission facilities from the hydroelectric project. The transmission agreement continues from year to year, except upon written notice to terminate by either party. Notice of termination must be given six months in advance of termination dates. NOTE D: RELATED PARTY TRANSACTIONS During the years ended June 30, 1999 and 1998 the Committee paid the following amounts to related parties for costs incurred under the various contracts described in Note D: 1999 1998 Homer Electric Association - operation and maintenance $ 753,962 $ 697,735 Chugach Electric Association - substation service maintenance $ 23,624 $ 29,727 For the years ended June 30, 1999 and 1998, Chugach Electric Association provided dispatch services to the Committee for no charge. il " NOTE E: COMMITMENTS AND CONTINGENCIES Forward Delivery Bond Purchase Agreement: In December, 1997, Bradley Lake Project Management Committee entered into a forward delivery bond purchase agreement providing for the issuance of two series of Power Revenue Refunding Bonds in April of 1999 and 2000. The costs associated with the refunding were expensed in the year ended June 30, 1998 and repaid by funds provided by the bonds during the year ended June 30, 1999. A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION Bradley Lake Project Management Committee Operating and Revenue Funds Anchorage, Alaska Our report on our audits of the special purpose financial statements of the Bradley Lake Project Management Committee Operating and Revenue Funds for June 30, 1999 and 1998, appears on the page preceding the balance sheets. Those audits were made for the purpose of forming an opinion on the special purpose financial statements taken as a whole. The supplemental Statements of Expenses are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the special purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the special purpose financial statements taken as a whole. Peiruan, Lom v 2... JIVE. Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF EXPENSES June 30, 1999 and 1998 1999 Variance Favorable 1998 Budget Actual (Unfavorable) Actual Expenses: Generation expense: Operation supervision and engineering $ 103,500 $ 66,746 $ 36,754 $ 76,936 Hydraulic operation 15,000 4,932 10,068 5,585 Electric plant operation 149,000 135,801 13,199 130,686 Hydraulic power generation operation 304,322 248,830 55,492 227,663 FERC land use fees 64,050 71,242 (7,192) 72,661 Structure maintenance 136,000 74,643 61,357 20,856 Reservoir, dam, and waterway maintenance 8,000 37,566 (29,566) 271 Electric plant maintenance 263,000 220,494 42,506 244,357 Hydraulic plant maintenance 102,000 74,536 27,464 77,603 System control and load dispatching 256,575 247,397 9,178 238,382 Substation operation and maintenance 47,000 23,624 23,376 29,727 Overhead line maintenance 20,000 20,139 (139) 19,157 Total generation expense 1,468,447 1,225,950 242.497 1,143,884 Administrative, general and regulatory expense: Insurance 322,200 293,559 28,641 299,593 AEA administrative fee 200,000 200,000 - 200,000 PMC costs 66,800 40,193 26,607 44,924 Arbitrage expense = 34,110 (34,110) 27,976 Regulatory commission: FERC administrative fees 161,000 104,451 56,549 43,938 FERC licensing 28,500 41,170 (12,670) 16,352 Total administrative, general and regulatory expense 778,500 713,483 65,017 632,783 Total operating and maintenance expenses $2,246,947 $ 1,939,433 $ 307.514 $ 1,776,667 10 AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 Audited Financial Statements BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS Anchorage, Alaska Independent Auditor's Report Balance Sheets Statements of Revenue, Expenses and Changes in Surplus Statements of Cash Flows Notes to Financial Statements Independent Auditor's Report on Additional Information Statements of Expenses Prusena, Stromberg & Company A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 Independent Auditor's Report Bradley Lake Project Management Committee Anchorage, Alaska We have audited the accompanying balance sheets as of June 30, 1999 and 1998, and the related statements of revenues, expenses and changes in surplus and of cash flows for the years then ended, of the Bradley Lake Project Management Committee Operating and Revenue Funds (a project management committee). These special purpose financial statements are the responsibility of the Bradley Lake Project Management Committee. Our responsibility is to express an opinion on these special purpose financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying special purpose financial statements were prepared to present revenue and expenses on an accrual basis with the exception of interest income and fixed asset replacements, which have been presented on a cash basis in order to conform to the fiscal year operations and maintenance budget. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and surplus of the Bradley Lake Project Management Committee as of Jurie 30, 1999 and 1998 and its revenue, expenses and changes in surplus and cash flows for the years then ended, in conformity with generally accepted accounting principles. This report is intended for the information and use of the Bradley Lake Project Management Committee and should not be used for any other purpose. iporene lvoe Cen a Lm, I Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS BALANCE SHEETS June 30, 1999 and 1998 ASSETS Current assets: Investments (Note B) Total Assets LIABILITIES AND SURPLUS Current liabilities: Due to AIDEA Accounts payable Total Liabilities Surplus Total liabilities and surplus See accompanying notes to the financial statements. 1999 1,235,307 1,235,307 $ 126,111 334,944 461,055 774,252 1,235,307 1998 $777,428 T1714 $ 16,176 240,634 256,810 520,618 $777,428 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN SURPLUS YEARS ENDED June 30, 1999 and 1998 1999 1998 Budget Actual Variance Actual Revenue: Utility contributions $ 13,843,836 $13,843,841 $ 5 $ 13,210,675 Interest receipts 1,699,979 1,837,883 137,904 1,845,862 Transfer from (to) operating reserve (117,560) - 117,560 - Additional utility contribution - - - - Miscellaneous income 5,000 - (5,000) 1,477 Total revenue 15,431,255 15,681,724 250,469 15,058,014 Expenses, fixed asset replacements and debt service: Operations and maintenance 2,246,947 1,939,433 (307,514) 1,776,667 Debt service 13,494,308 13,746,181 251,873 13,017,785 Bond refunding costs (reimbursement) (Note E) (350,000) (283,288) 66,712 294,124 Fixed asset replacements 40,000 25,764 (14,236) 23,832 Total expenses, fixed asset replacements and debt service 15,431,255 15,428,090 (3,165) 15,112,408 Excess (deficiency) of revenue over expenses, fixed asset replacements and debt service - 253,634 253,634 (54,394) Surplus, beginning of year 520,618 575,012 Surplus, end of year 774,252 20,618 See accompanying notes to the financial statements. 3 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF CASH FLOWS YEARS ENDED June 30, 1999 and 1998 Cash flows from operating activities: Excess (deficiency) of revenues over expenses, fixed asset replacements and debt service Adjustments to reconcile excess of revenues over expenses, fixed asset replacements and debt service to net cash provided by operating activities: Increase (decrease) in accounts payable Increase (decrease) in amounts due to AIDEA Net cash provided by operating activities Available cash and cash equivalents at beginning of year Available cash and cash equivalents at end of year Supplemental disclosure of cash flows information: Interest paid See accompanying notes to the financial statements. 4 1999 $ 253,634 94,310 109.935 457,879 717,428 $_ 1,235,307 $10,136,181 1998 $ (54,394) (11,708) (109,080) (175,182) 952,610 TIA $9,637,785 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES Description of Business: The Bradley Lake Project Management Committee (the Committee) was established pursuant to Section 13 of the Agreement for the Sale and Purchase of Electric Power (Power Sales Agreement) dated December 8, 1987. The purpose of the Committee is to arrange for the operation and maintenance of the Bradley Lake Hydroelectric Project, which became operational in September 1991, and the scheduling, production and dispatch of power. The members of the Committee include the Alaska Energy Authority (AEA) and the five purchasers under the Power Sales Agreement - Chugach Electric Association, Inc.; Golden Valley Electric Association, Inc.; the Municipality of Anchorage (Municipal Light & Power); the City of Seward (Seward Electric System); and the Alaska Electric Generation & Transmission Cooperative, Inc. (AEG&T). The Homer Electric Association, Inc. (HEA) and the Matanuska Electric Association, Inc. (MEA) are additional parties to the Power Sales Agreement but are included as power purchasers for purposes of representation while AEG&T has no direct vote as a consequence of the individual representation of HEA and MEA. Section 13 of the Power Sales Agreement delineates other Committee responsibilities, including: establishing procedures for each party's water allocation, budgeting for annual Project costs and calculating each party's required contribution to fund annual project costs. Committee approval of operations and maintenance arrangements for the Project, sufficiency of the annual budgets and wholesale power rates and the undertaking of optional Project work requires a majority affirmative vote and the affirmative vote of AEA. The Power Sales Agreement extends until the later of: 1) 50 years after commencement of commercial operation or 2) the complete retirement of bonds outstanding under the AEA Power Revenue Bond Resolution along with the satisfaction of all other payment obligations under the Power Sales Agreement. Renewal options for additional terms exist. Establishment of Trust Funds: Article V, Section 502 of the Alaska Energy Authority's Power Revenue Bond Resolution established a Revenue Fund and an Operating Fund, including an Operating Reserve account, to be held by AEA. In actuality these funds, along with the Debt Service, Excess Investment Earnings (arbitrage), and various construction funds related to the Bradley Lake Hydroelectric Project are all held by the Corporate Trust Department of US Bank in Seattle, Washington. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS / NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (Continued) All deposits, including utility contributions and interest earnings, are made into the Revenue Fund, which transfers amounts approximately equal to one-twelfth of the annual operating and maintenance budget into the Operating Fund on a monthly basis. Additional transfers are made from the Revenue Fund to the Debt Service Fund in order to satisfy semiannual interest payments and annual principal payments on the Project's outstanding bonds payable. Interest earnings available for operations and maintenance are derived from the following funds: Debt Service Fund; Operating Reserve Fund; Operating Fund; Revenue Fund; Capital Reserve Fund; and the Renewal & Contingency Fund. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. Revenue and Expense Recognition: Utility contributions are recognized as revenue when due to be received under the terms of the Power Sales Agreement. Transfers from other funds are recognized when the transfer is made and interest earnings are recognized when received. Operating and maintenance expenses are recognized when incurred, while interest and principal payments on bonds are recognized when paid. Purchases of fixed asset replacements are expensed when purchased. Income Taxes: The Bradley Lake Project Management Committee is exempt from income taxation under Section 501 (a) of the Internal Revenue Code. NOTE B: INVESTMENTS Substantially all of the balances in the following funds are invested in collateralized investment agreements through the trust department of US Bank. The specified interest rate for monies from the Operating and Revenue Funds invested in the agreements is 7.38%. Balances at June 30, 1999 and 1998 are as follows: 1999 1998 Operating Fund $ 1,099,685 $ 296,292 Revenue Fund 135,622 481,136 Total investments $1,235,307 $ 777,428 6 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE B: INVESTMENTS (Continued) Investments are sold as needed to cover operating requisitions submitted to the trustee and are therefore considered to be short-term and available for sale. Investments are presented at aggregate cost, which approximates market value. For purposes of the cash flow statements, management considers the full amount of the investment balance to be cash available for operations. NOTE C: MAJOR CONTRACTS AND AGREEMENTS During May 1994, the Alaska Energy Authority entered into the Master Maintenance and Operating agreement with the Committee. The purpose of the agreement is to establish contract administration and budgeting procedures for maintenance and operation contracts of the Bradley Lake Hydroelectric Project and to provide for the lease or other use of facilities and equipment in a manner consistent with the requirements of the Power Sales Agreement. The term of the Master Agreement is indefinite, remaining in effect until termination of the Power Sales Agreement or until AEA no longer legally exists. This agreement authorizes AEA to enter into any contracts necessary to perform operating or maintenance-type services to the Project, subject to the approval of the Committee. On behalf of the Committee, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. (CEA) in August, 1996, for the provision of all services necessary to dispatch the Bradley Project's electric power output. The dispatch agreement runs concurrently with the wheeling and related services contract entered into by and among the parties to the Power Sales Agreement in December 1987 and remains in effect for the term of the wheeling agreement unless CEA ceases to be the output dispatcher. In August 1996, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. on behalf of the Committee for the provision of maintenance services for the Daves Creek and Soldotna SVC Substations. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE C: MAJOR CONTRACTS AND AGREEMENTS (Continued) An operation and maintenance agreement dated February 11, 1994, was executed between Homer Electric Association and the Alaska Energy Authority. This agreement provides for the operation and maintenance of the Bradley Lake Hydroelectric Project by Homer Electric Association. The agreement is through June 30, 2004 and continues from year to year thereafter, except upon written notice to terminate by either party. Notice of termination must be given one year in advance of the termination date. HEA is to be reimbursed for costs associated with the operation, maintenance and repair of the Project as determined in advance through the submission of an annual budget based upon prudent estimates and anticipated operation and maintenance costs. In August, 1996, the agreement was amended to separate the maintenance of the transmission facilities from the hydroelectric project. The transmission agreement continues from year to year, except upon written notice to terminate by either party. Notice of termination must be given six months in advance of termination dates. NOTE D: RELATED PARTY TRANSACTIONS During the years ended June 30, 1999 and 1998 the Committee paid the following amounts to related parties for costs incurred under the various contracts described in Note D: 1999 1998 Homer Electric Association - operation and maintenance $ 753,962 $ 697,735 Chugach Electric Association - substation service maintenance $ 23,624 Si 29027 For the years ended June 30, 1999 and 1998, Chugach Electric Association provided dispatch services to the Committee for no charge. NOTE E: COMMITMENTS AND CONTINGENCIES Forward Delivery Bond Purchase Agreement: In December, 1997, Bradley Lake Project Management Committee entered into a forward delivery bond purchase agreement providing for the issuance of two series of Power Revenue Refunding Bonds in April of 1999 and 2000. The costs associated with the refunding were expensed in the year ended June 30, 1998 and repaid by funds provided by the bonds during the year ended June 30, 1999. BPusena, Seomberg & Company A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION Bradley Lake Project Management Committee Operating and Revenue Funds Anchorage, Alaska Our report on our audits of the special purpose financial statements of the Bradley Lake Project Management Committee Operating and Revenue Funds for June 30, 1999 and 1998, appears on the page preceding the balance sheets. Those audits were made for the purpose of forming an opinion on the special purpose financial statements taken as a whole. The supplemental Statements of Expenses are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the special purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the special purpose financial statements taken as a whole. (Brinwan, Loomelbin s nar, pe Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF EXPENSES June 30, 1999 and 1998 1999 Variance Favorable 1998 Budget Actual (Unfavorable) Actual Expenses: Generation expense: Operation supervision and engineering $ 103,500 $ 66,746 $ 36,754 $ 76,936 Hydraulic operation 15,000 4,932 10,068 5,585 Electric plant operation 149,000 135,801 13,199 130,686 Hydraulic power generation operation 304,322 248,830 55,492 227,663 FERC land use fees 64,050 71,242 (7,192) 72,661 Structure maintenance 136,000 74,643 61,357 20,856 Reservoir, dam, and waterway maintenance 8,000 37,566 (29,566) 271 Electric plant maintenance 263,000 220,494 42,506 244,357 Hydraulic plant maintenance 102,000 74,536 27,464 77,603 System control and load dispatching 256,575 247,397 9,178 238,382 Substation operation and maintenance 47,000 23,624 23,376 29,727 Overhead line maintenance 20,000 20,139 (439) 19.157 Total generation expense 1,468,447 1,225,950 242.497 1,143,884 Administrative, general and regulatory expense: Insurance 322,200 293,559 28,641 299,593 AEA administrative fee 200,000 200,000 - 200,000 PMC costs 66,800 40,193 26,607 44,924 Arbitrage expense - 34,110 (34,110) 27,976 Regulatory commission: FERC administrative fees 161,000 104,451 56,549 43,938 FERC licensing 28.500 41,170 (12,670) 16,352 Total administrative, general and regulatory expense 778.500 713.483 65.017 632,783 Total operating and maintenance expenses $2,246,947 $ 1.939.433 $ 307,514 $ 1.776.667 10 AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 Audited Financial Statements BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS Anchorage, Alaska Page Independent Auditor's Report 1 Balance Sheets 2 Statements of Revenue, Expenses and Changes in Surplus 3 Statements of Cash Flows 4 Notes to Financial Statements 5-8 Independent Auditor's Report on Additional Information 9 Statements of Expenses 10 Prusena, Sheomberg & Company A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 Independent Auditor's Report Bradley Lake Project Management Committee Anchorage, Alaska We have audited the accompanying balance sheets as of June 30, 1999 and 1998, and the related statements of revenues, expenses and changes in surplus and of cash flows for the years then ended, of the Bradley Lake Project Management Committee Operating and Revenue Funds (a project management committee). These special purpose financial statements are the responsibility of the Bradley Lake Project Management Committee. Our responsibility is to express an opinion on these special purpose financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying special purpose financial statements were prepared to present revenue and expenses on an accrual basis with the exception of interest income and fixed asset replacements, which have been presented on a cash basis in order to conform to the fiscal year operations and maintenance budget. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and surplus of the Bradley Lake Project Management Committee as of June 30, 1999 and 1998 and its revenue, expenses and changes in surplus and cash flows for the years then ended, in conformity with generally accepted accounting principles. This report is intended for the information and use of the Bradley Lake Project Management Committee and should not be used for any other purpose. Sfrerene A tronley ‘ Le yommr, AP Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS BALANCE SHEETS June 30, 1999 and 1998 ASSETS Current assets: Investments (Note B) Total Assets LIABILITIES AND SURPLUS Current liabilities: Due to AIDEA Accounts payable Total Liabilities Surplus Total liabilities and surplus See accompanying notes to the financial statements. 1999 $£1,235;307 12 7 $ 126,111 334,944 461,055 774,252 $1,235,307 1998 $777,428 $ 777,428 $ 16,176 240.634 256,810 520,618 771 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN SURPLUS YEARS ENDED June 30, 1999 and 1998 1999 1998 Budget Actual Variance Actual Revenue: Utility contributions $ 13,843,836 $ 13,843,841 5 $13,210,675 Interest receipts 1,699,979 1,837,883 137,904 1,845,862 Transfer from (to) operating reserve (117,560) - 117,560 - Additional utility contribution - - - - Miscellaneous income 5,000 - (5,000) 1,477 Total revenue 15,431,255 15,681,724 250,469 15,058,014 Expenses, fixed asset replacements and debt service: Operations and maintenance 2,246,947 1,939,433 (307,514) 1,776,667 Debt service 13,494,308 13,746,181 251,873 13,017,785 Bond refunding costs (reimbursement) (Note E) (350,000) (283,288) 66,712 294,124 Fixed asset replacements 40,000 25,764 (14,236) 23,832 Total expenses, fixed asset replacements and debt service 15,431,255 15.428.090 (3,165) 15,112,408 Excess (deficiency) of revenue over expenses, fixed asset replacements and debt service - 253.634 253,634 (54,394) Surplus, beginning of year 520,618 575,012 Surplus, end of year $__774,252 $__520.618 See accompanying notes to the financial statements. 5 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF CASH FLOWS YEARS ENDED June 30, 1999 and 1998 Cash flows from operating activities: Excess (deficiency) of revenues over expenses, fixed asset replacements and debt service Adjustments to reconcile excess of revenues over expenses, fixed asset replacements and debt service to net cash provided by operating activities: Increase (decrease) in accounts payable Increase (decrease) in amounts due to AIDEA Net cash provided by operating activities Available cash and cash equivalents at beginning of year Available cash and cash equivalents at end of year Supplemental disclosure of cash flows information: Interest paid See accompanying notes to the financial statements. 4 1999 $ 253,634 94,310 109,935 457,879 777,428 $_ 1,235,307 10.1 1998 $ (54,394) (11,708) (109,080) (175,182) 952,610 $__777.428 $9,637,785 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES Description of Business: The Bradley Lake Project Management Committee (the Committee) was established pursuant to Section 13 of the Agreement for the Sale and Purchase of Electric Power (Power Sales Agreement) dated December 8, 1987. The purpose of the Committee is to arrange for the operation and maintenance of the Bradley Lake Hydroelectric Project, which became operational in September 1991, and the scheduling, production and dispatch of power. The members of the Committee include the Alaska Energy Authority (AEA) and the five purchasers under the Power Sales Agreement - Chugach Electric Association, Inc.; Golden Valley Electric Association, Inc.; the Municipality of Anchorage (Municipal Light & Power); the City of Seward (Seward Electric System); and the Alaska Electric Generation & Transmission Cooperative, Inc. (AEG&T). The Homer Electric Association, Inc. (HEA) and the Matanuska Electric Association, Inc. (MEA) are additional parties to the Power Sales Agreement but are included as power purchasers for purposes of representation while AEG&T has no direct vote as a consequence of the individual representation of HEA and MEA. Section 13 of the Power Sales Agreement delineates other Committee responsibilities, including: establishing procedures for each party's water allocation, budgeting for annual Project costs and calculating each party's required contribution to fund annual project costs. Committee approval of operations and maintenance arrangements for the Project, sufficiency of the annual budgets and wholesale power rates and the undertaking of optional Project work requires a majority affirmative vote and the affirmative vote of AEA. The Power Sales Agreement extends until the later of: 1) 50 years after commencement of commercial operation or 2) the complete retirement of bonds outstanding under the AEA Power Revenue Bond Resolution along with the satisfaction of all other payment obligations under the Power Sales Agreement. Renewal options for additional terms exist. Establishment of Trust Funds: Article V, Section 502 of the Alaska Energy Authority's Power Revenue Bond Resolution established a Revenue Fund and an Operating Fund, including an Operating Reserve account, to be held by AEA. In actuality these funds, along with the Debt Service, Excess Investment Earnings (arbitrage), and various construction funds related to the Bradley Lake Hydroelectric Project are all held by the Corporate Trust Department of US Bank in Seattle, Washington. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS : NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (Continued) All deposits, including utility contributions and interest earnings, are made into the Revenue Fund, which transfers amounts approximately equal to one-twelfth of the annual operating and maintenance budget into the Operating Fund on a monthly basis. Additional transfers are made from the Revenue Fund to the Debt Service Fund in order to satisfy semiannual interest payments and annual principal payments on the Project's outstanding bonds payable. Interest earnings available for operations and maintenance are derived from the following funds: Debt Service Fund; Operating Reserve Fund; Operating Fund; Revenue Fund; Capital Reserve Fund; and the Renewal & Contingency Fund. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. Revenue and Expense Recognition: Utility contributions are recognized as revenue when due to be received under the terms of the Power Sales Agreement. Transfers from other funds are recognized when the transfer is made and interest earnings are recognized when received. Operating and maintenance expenses are recognized when incurred, while interest and principal payments on bonds are recognized when paid. Purchases of fixed asset replacements are expensed when purchased. Income Taxes: The Bradley Lake Project Management Committee is exempt from income taxation under Section 501 (a) of the Internal Revenue Code. NOTE B: INVESTMENTS Substantially all of the balances in the following funds are invested in collateralized investment agreements through the trust department of US Bank. The specified interest rate for monies from the Operating and Revenue Funds invested in the agreements is 7.38%. Balances at June 30, 1999 and 1998 are as follows: 1999 1998 Operating Fund $ 1,099,685 $ 296,292 Revenue Fund 135,622 481,136 Total investments $1,235,307 $ 777.428 6 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE B: INVESTMENTS (Continued) Investments are sold as needed to cover operating requisitions submitted to the trustee and are therefore considered to be short-term and available for sale. Investments are presented at aggregate cost, which approximates market value. For purposes of the cash flow statements, management considers the full amount of the investment balance to be cash available for operations. NOTE C: MAJOR CONTRACTS AND AGREEMENTS During May 1994, the Alaska Energy Authority entered into the Master Maintenance and Operating agreement with the Committee. The purpose of the agreement is to establish contract administration and budgeting procedures for maintenance and operation contracts of the Bradley Lake Hydroelectric Project and to provide for the lease or other use of facilities and equipment in a manner consistent with the requirements of the Power Sales Agreement. The term of the Master Agreement is indefinite, remaining in effect until termination of the Power Sales Agreement or until AEA no longer legally exists. This agreement authorizes AEA to enter into any contracts necessary to perform operating or maintenance-type services to the Project, subject to the approval of the Committee. On behalf of the Committee, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. (CEA) in August, 1996, for the provision of all services necessary to dispatch the Bradley Project's electric power output. The dispatch agreement runs concurrently with the wheeling and related services contract entered into by and among the parties to the Power Sales Agreement in December 1987 and remains in effect for the term of the wheeling agreement unless CEA ceases to be the output dispatcher. In August 1996, the Alaska Energy Authority entered into an agreement with Chugach Electric Association, Inc. on behalf of the Committee for the provision of maintenance services for the Daves Creek and Soldotna SVC Substations. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1999 and 1998 NOTE C: MAJOR CONTRACTS AND AGREEMENTS (Continued) An operation and maintenance agreement dated February 11, 1994, was executed between Homer Electric Association and the Alaska Energy Authority. This agreement provides for the operation and maintenance of the Bradley Lake Hydroelectric Project by Homer Electric Association. The agreement is through June 30, 2004 and continues from year to year thereafter, except upon written notice to terminate by either party. Notice of termination must be given one year in advance of the termination date. HEA is to be reimbursed for costs associated with the operation, maintenance and repair of the Project as determined in advance through the submission of an annual budget based upon prudent estimates and anticipated operation and maintenance costs. In August, 1996, the agreement was amended to separate the maintenance of the transmission facilities from the hydroelectric project. The transmission agreement continues from year to year, except upon written notice to terminate by either party. Notice of termination must be given six months in advance of termination dates. NOTE D: RELATED PARTY TRANSACTIONS During the years ended June 30, 1999 and 1998 the Committee paid the following amounts to related parties for costs incurred under the various contracts described in Note D: 1999 1998 Homer Electric Association - operation and maintenance $ 753,962 $ 697,735 Chugach Electric Association - substation service maintenance $ 23,624 $ 29,727 For the years ended June 30, 1999 and 1998, Chugach Electric Association provided dispatch services to the Committee for no charge. NOTE E: COMMITMENTS AND CONTINGENCIES Forward Delivery Bond Purchase Agreement: In December, 1997, Bradley Lake Project Management Committee entered into a forward delivery bond purchase agreement providing for the issuance of two series of Power Revenue Refunding Bonds in April of 1999 and 2000. The costs associated with the refunding were expensed in the year ended June 30, 1998 and repaid by funds provided by the bonds during the year ended June 30, 1999. A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel. (907) 563-4547 FAX (907) 561-7683 INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION Bradley Lake Project Management Committee Operating and Revenue Funds Anchorage, Alaska Our report on our audits of the special purpose financial statements of the Bradley Lake Project Management Committee Operating and Revenue Funds for June 30, 1999 and 1998, appears on the page preceding the balance sheets. Those audits were made for the purpose of forming an opinion on the special purpose financial statements taken as a whole. The supplemental Statements of Expenses are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the special purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the special purpose financial statements taken as a whole. Vossen pre sO JIPE__ Parisena, Stromberg & Company, APC Anchorage, Alaska December 28, 1999 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF EXPENSES June 30, 1999 and 1998 1999 Variance Favorable 1998 Budget Actual (Unfavorable) Actual Expenses: Generation expense: Operation supervision and engineering $ 103,500 $ 66,746 $ 36,754. $ 76,936 Hydraulic operation 15,000 4,932 10,068 5,585 Electric plant operation 149,000 135,801 13,199 130,686 Hydraulic power generation operation 304,322 248,830 55,492 227,663 FERC land use fees 64,050 71,242 (7,192) 72,661 Structure maintenance 136,000 74,643 61,357 20,856 Reservoir, dam, and waterway maintenance 8,000 37,566 (29,566) 271 Electric plant maintenance 263,000 220,494 42,506 244,357 Hydraulic plant maintenance 102,000 74,536 27,464 77,603 System control and load dispatching 256,575 247,397 9,178 238,382 Substation operation and maintenance 47,000 23,624 23,376 29,727 Overhead line maintenance 20,000 20,139 (139) 19,157 Total generation expense 1.468.447 1,225,950 242.497 1,143,884 Administrative, general and regulatory expense: Insurance 322,200 293,559 28,641 299,593 AEA administrative fee 200,000 200,000 - 200,000 PMC costs 66,800 40,193 26,607 44,924 Arbitrage expense - 34,110 (34,110) 27,976 Regulatory commission: FERC administrative fees 161,000 104,451 56,549 43,938 FERC licensing 28,500 41,170 (12,670) 16,352 Total administrative, general and regulatory expense 778.500 713,483 65,017 632,783 Total operating and maintenance expenses $2,246,947 $ 1.939.433 $ 307.514 $ 1,776,667 10 AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 A Professional Corporation AUDITED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS JUNE 30, 1999 AND 1998 A Professional Corporation