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HomeMy WebLinkAboutCopper Valley Electric Association Audit 1995 Peggy Sutton ~ Board President WRikce ein aw CVEA, P.O. Box 45, Glennallen, Alaska 99588 GLN: (907) 822-3211 FAX: (907) 822-5586 VDZ: (907) 835-4301 FAX: (907) 835-4328 Customer Base Statistics: 12/31/92 12/31/93 12/31/94 12/31/95 Copper Basin District 1,171 1,227 1,283 1,326 Valdez District 1,701 1,715 1,760 1,781 Total Consumers 2,872 2,942 3,043 3,107 CVEA’s service territory is composed of two discrete districts, the Copper Basin district and the Valdez district. CVEA operates the system as a single utility system. The Copper Basin district is comprised of all members and territory north of Mile 27 of the Richardson Highway. The Valdez district is comprised of all members and territory south of Mile 27. The two districts are connected electrically with a 138 kilovolt transmission line which is owned by the State of Alaska and maintained by CVEA. Operations - Distribution CVEA maintains 363 miles of distribution line, which includes 50 miles of underground line. This averages 8.6 meters per mile of line. The distribution service area extends from: Alyeska Pipeline mainline refrigeration site number 1, Mile 156 Richardson Highway, south to Mile 62. Valdez north to Mile 12 Richardson Highway. The Hub of the Glenn and Richardson Highways in Glennallen, west to Mile 109 Glenn Highway (81 miles) - Sheep Mountain area. From the junction of the Richardson Highway out the Tok Cutoff to Mile 17. From the junction of the Richardson Highway 18 miles east on the Edgerton Highway towards Chitina. CVEA maintains a crew of three line personnel in each district. Rate Schedule Effective September 1985 Copper River Basin Residential Customer Charge $7.50 /month First 400 kwh .189/kwh Over 400 kwh .170/kwh Small Commercial Customer Charge $ 12.00 /month First 1,500 kwh .189/kwh Over 1,500 kwh .160/kwh Large Commercial (3-phase) Customer Charge $ 15.00 /month Demand Charge 8.00 /kw First 40,000 kwh .148/kwh Over 40,000 kwh .116/kwh Cost of Power Adjustment - varies Valdez Residential Customer Charge $7.50 /month First 600 kwh .159/kwh Over 600 kwh .153/kwh Small Commercial Customer Charge $ 12.00 /month First 2,000 kwh .165/kwh Over 2,000 kwh .130/kwh Large Commercial (3-phase) Customer Charge $ 15.00 /month Demand Charge 8.00 /kw First 25,000 kwh .133/kwh Over 25,000 kwh .090/kwh Cost of Power Adjustment - varies Corporate Facilities HEADQUARTERS: Mile 187 Glenn Highway, Aurora Drive PO Box 45 Glennallen, Alaska 99588 (907) 822-3211 Fax: 822-5586 DISTRICT OFFICE: 359 Fairbanks Drive PO Box 927 Valdez, Alaska 99686 (907) 835-4301 Fax: 835-4328 Copper Valley Electric Association (CVEA) was incorporated under the laws of the State of Alaska, pursuant to the Rural Electrification Act of 1937, in September 1955 and began operation in Glennallen during March of 1959. The Valdez district was added to the system in 1964. Glennallen Office Building General Manager’s office/Board Room, Manager - Administration and Finance, Accounting Department, Billing Department, Customer Service, Staking Engineer, Member Services, and Line Superintendent. Valdez Office Building Manager - Engineering Services, Junior Engineer, Work Order Accounting, Collections, and Customer Service. Above the office, CVEA maintains four apartments for traveling staff members. Organizational Structure Management & Staff: Clayton Hurless General Manager Robert A. Wilkinson, CPA Manager, Administration & Finance Michael E. Easley, PE Manager, Engineering Services Colleen Granger Manager, Member Services Ray Woodworth Line Superintendent Linda Lanegan Accounting Supervisor Personnel Breakdown: Glennallen Office/Headquarters 12 employees 5 exempt Valdez Office 5 employees 2 exempt Valdez Line Crew 3 employees IBEW Copper Basin Line Crew 3 employees IBEW Solomon Gulch Hydro facility 6 employees IBEW Valdez Diesel Plant 3 employees IBEW Glennallen Diesel Plant 6 employees IBEW Attorney: Richard Huffman Kemppel, Huffman, and Ellis Auditor: Deloitte & Touche Generation Resources CVEA operates three generation plants. Located in Valdez are a 12 mw hydroelectric plant, owned by the State of Alaska and operated by CVEA under long-term contract, and a 10 mw diesel plant owned and operated by CVEA. The third plant is a 5.9 mw diesel plant located in Glennallen. CVEA had a 13.2 mw coincidental peak demand in December 1995. The Valdez peak load in 1995 was 9.1 mw. Valdez has 22 mw of total available installed capacity during any period when there is adequate water in the Solomon Gulch reservoir to run both turbines at rated capacity. During the draw down and low water period, the length of time the project’s full capacity is available is directly related to the level of the lake, i.e., the amount of water available. For a short period of time in the late spring when the reservoir is at its lowest level, total capacity is reduced to the capacity of the diesel plant, plus any capacity available from Solomon Gulch. The Copper Basin district peaked at 4.8 mw in 1995. This district has 5.9 mw of capacity in well maintained generating units located in Glennallen. Two 300 kw 1958 vintage units are also operable in an emergency but not considered to be sufficiently reliable to be classed as available on a dependable basis. CVEA did have to utilize these units during the winter of 1995-96. History of total power produced (in kilowatt hours): 1988 1989 1990 1991 49.3 million 54.5 million 57.2 million 58.5 million 1992 1993 1994 1995 59.2 million 71.2 million 73 million 74.9 million History of total number of kilowatt-hour retail sales: 1988 1989 1990 1991 44.6 million 51.8 million 52.9 million 53 million 1992 1993 1994 1995 54.6 million 66.6 million 69.1 million 71.8 million Generation Statistics 1991-1995: Solomon Gulch Hydro Costs MWH 1991 $ 2,415,366 37,740 1992 2,406,351 37,600 1993 3,243,907 50,519 1994 3,177,847 48,200 1995 3.082.328 47,485 Total $14,325,799 221,544 The cost of purchase power from Solomon Gulch is currently $.064 kwh as set by the Project Management Committee of the Four Dam Pool. Diesel Plants Costs MWH Cost/kwh ($) 1991 $ 3,120,232 20,765 $.150 1992 3,273,466 21,607 15zZ 1993 3,398,283 20,548 165 1994 3,393,702 24,907 136 1995 3,801,857 27,449 138 Total $16,987,540 115,276 $.148 (average) All plants average costs (based on kilowatt hours sold): 1991-1995 $31,313,339 336,820 mwh $.093/kwh COPPER VALLEY ELECTRIC ASSOCIATION, INC. Membership Board of Directors | Consultant, LI General Manager LI Attorney | Manager, Administration & Finance Accou Supervisor | Accountant Office Assistant V Customer Sve Rep G Customer VD Plant Svc Rep V Operators SG Plant Operators GD Plant Operators JABYD [BUOHLZIULSIO Audit Report COPPER VALLEY ELECTRIC ASSOCIATION, INC. FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND INDEPENDENT AUDITORS' REPORT, SUPPLEMENTARY REPORTS FOR THE YEAR ENDED DECEMBER 31, 1995 COPPER VALLEY ELECTRIC ASSOCIATION, INC. TABLE OF CONTENTS INDEPENDENT AUDITORS' REPORT FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994: Balance sheets Statements of operations Statements of equities Statements of cash flows Notes to financial statements SUPPLEMENTARY REPORTS FOR THE YEAR ENDED DECEMBER 31, 1995: Independent auditors' report on the internal control structure Independent auditors' report on compliance Independent auditors’ management letter report ADDITIONAL INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994: Schedule of operations and patronage capital by district-1995 Schedule of operations and patronage capital by district-1994 16 18 19 23 24 Deloitte & Touche Lup 550 West 7th Avenue Facsimile: (907) 264-3181 IN Suite 1500 Telephone: (907) 272-8462 = Anchorage, Alaska 99501 INDEPENDENT AUDITORS' REPORT Board of Directors Copper Valley Electric Association, Inc. Glennallen, Alaska We have audited the accompanying balance sheets of Copper Valley Electric Association, Inc. as of December 31, 1995 and 1994, and the related statements of operations, equities, and cash flows for the years then ended. These financial statements are the responsibility of the Association's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Copper Valley Electric Association, Inc. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Our audits were conducted for the purpose of forming an opinion on the financial statements taken as a whole. The additional information on pages 23 and 24 is presented for the purpose of additional analysis of the financial statement, rather than to present the results of operations and patronage capital of the Copper Basin and Valdez districts, and is not a required part of the financial statements. This additional information is the responsibility of the Association’s management. Such information has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated February 23, 1996 on our consideration of Copper Valley Electric Association, Inc.’s internal control structure and a report dated February 23, 1996 on its compliance with laws and regulations. | Loot f Jomeks £4? February 23, 1996 Deloitte Touche Tohmatsu International COPPER VALLEY ELECTRIC ASSOCIATION, INC. BALANCE SHEETS DECEMBER 31, 1995 AND 1994 ASSETS UTILITY PLANT: Plant in service, at cost Construction work-in-progress Less accumulated provision for depreciation and amortization NONCURRENT ASSETS: Investments in associated organizations Nonutility property CURRENT ASSETS: Cash and cash equivalents - Cash - general Temporary investments Cash - loan funds Accounts receivable, less allowance for doubtful accounts of $66,000 and $65,000, respectively Accrued utility revenues Due from the Project Management Committee and Alaska Energy Authority (AEA) Cost of Power Adjustment Materials and supplies Prepaid expenses Other current assets Total current assets DEFERRED CHARGES TOTAL See notes to financial statements. 1995 $ 29,578,986 84,240 29,663,226 14,088,082 15,575,144 1,044,935 9,000 1,053,935 426,985 500,000 2 1,076,671 586,880 175,061 8,003 446,204 8,217 7,522 3,235,545 1US;929 $ 20,580,553 1994 $ 28,669,215 38,718 28,707,933 13,388,534 15,319,399 1,001,495 9,000 1,010,495 457,292 712,507 2 1,123,565 670,172 185,855 58,186 519,701 19,139 5,013 3,751,432 683,205 $ 20,764,531 EQUITIES AND LIABILITIES 1995 EQUITIES: Memberships $ 11,610 Patronage capital 8,829,176 Donated capital 2,985 Total equities 8,843,771 LONG-TERM DEBT: Mortgage and equipment notes, less current maturities 9,642,818 CURRENT LIABILITIES: Accounts payable 538,459 Due to the Project Management Committee 125,413 Consumer deposits 117,780 Taxes accrued 35,919 Other current and accrued liabilities 437,975 Current portion of long-term debt and capital leases 651,000 Total current liabilities 1,906,546 CONTRIBUTIONS IN AID OF CONSTRUCTION 187,418 CONTINGENCIES AND COMMITMENTS (NOTES H & J) TOTAL $ 20,580,553 $ 1994 11,555 8,556,867 2,985 8,571,407 10,226,238 518,899 160,873 115,753 34,553 383,091 620,000 1,833,169 133,717 $ 20,764,531 COPPER VALLEY ELECTRIC ASSOCIATION, INC. STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994 1995 1994 OPERATING REVENUES $ 10,542,548 $ 10,429,867 OPERATING EXPENSES: Purchased power 3,076,933 3,172,452 Power production 3,392,619 2,985,807 Administrative and general 966,834 862,811 Depreciation and amortization 836,246 812,346 Distribution - maintenance 427,447 370,560 Distribution - operations 569,898 488,074 Consumer accounts 346,932 354,021 Customer service and information 79,386 84,480 Taxes 35,919 34,553 Other deductions 85,613 108,815 Total operating expenses 9,817,827 9,273,919 INTEREST EXPENSE 477,820 485,007 Net operating margins 246,901 670,941 NONOPERATING MARGINS: Patronage capital from associated organizations 78,727 178,078 Interest income 122,756 95,452 NET MARGINS $ 448,384 $ 944,471 See notes to financial statements. COPPER VALLEY ELECTRIC ASSOCIATION, INC. STATEMENTS OF EQUITIES YEARS ENDED DECEMBER 31, 1995 AND 1994 Patronage Patronage capital capital Donated Memberships assigned unassigned capital Total BALANCE, January 1, 1994 $ 11,285 $7,253,835 $ 479,570 $ 2,985 $7,747,675 New memberships, net of cancellations 270 270 Retirement of capital credits (121,009) (121,009) Net margin 944.471 944.471 BALANCE, December 31, 1994 11,555 7,132,826 1,424,041 2,985 8,571,407 New memberships, net of cancellations 55 55 Retirement of capital credits (176,075) (176,075) Net margin 448.384 448,384 BALANCE, December 31, 1995 $ 11,610 $6,956,751 $1,872,425. $ 2,985 $8,843,771 See notes to financial statements. 4 COPPER VALLEY ELECTRIC ASSOCIATION, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995 AND 1994 19951994 OPERATING ACTIVITIES: Net margins $ 448,384 S 944,471 Adjustments to reconcile net margins to net cash provided by operating activities: Depreciation and amortization 1,015,104 924,048 Capital credits from associated organizations (43,440) (140,566) Provision for bad debts 1,000 38,000 Changes in assets and liabilities which provided (used) cash: Accounts receivable 45,894 (98,399) Accrued utility revenues 83,292 (162,856) Due from the Project Management Committee and AEA 10,794 45,528 Materials and supplies 73,497 (72,228) Prepaid expenses 10,922 7,265 Other current assets (2,509) 1,392 Deferred charges (5,049) 14,161 Accounts payable 19,560 (179,167) Due to the Project Management Committee (35,460) (19,350) Cost of power adjustment 50,183 34,056 Taxes accrued 1,366 1,297 Other current and accrued liabilities 54,884 1,057 Net cash provided by operating activities 1,728,422 1,338,709 INVESTING ACTIVITIES: Additions to plant (1,311,524) (1,101,540) Proceeds from sale of plant 13,000 5,992 Net cash used in investing activities (1,298,524) (1,095,548) BALANCE (carried forward) 429,898 243,161 See notes to financial statements. 5 COPPER VALLEY ELECTRIC ASSOCIATION, INC. STATEMENTS OF CASH FLOWS (continued) YEARS ENDED DECEMBER 31, 1995 AND 1994 BALANCE (brought forward) $ FINANCING ACTIVITIES: Proceeds from long-term debt Repayments of long-term debt Payments to retire patronage capital credits Deposits received Deposits refunded Receipt of contributions in aid of construction Proceeds from memberships Payments to refund memberships Net cash used in financing activities DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS: Beginning of year End of year $ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest during the year $ See notes to financial statements. 1995 429,898 68,867 (621,287) (176,075) 35,899 (33,872) 53,701 950 (895) (672,712) (242,814) 1,169,799 926,985 477,820 1994 $ 243,161 182,744 (514,171) (121,009) 91,460 (75,169) 13,137 1,950 (1,680) (422,738) (179,577) 1,349,376 $ 1,169,799 $ 484,977 COPPER VALLEY ELECTRIC ASSOCIATION, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1994 NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting records: The accounting records of Copper Valley Electric Association, Inc. (the Association) conform to the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission as modified for Electric Borrowers of the Rural Utility Services (RUS). The Association is subject to the regulatory authority of the Alaska Public Utilities Commission (APUC) as to rates and various other matters. The Association maintains separate accounting records for the Copper Basin and Valdez districts for determining assignment of patronage capital and for rate making purposes. All of the customers of the Association are located in the Copper Basin and Valdez areas. Plant additions and retirements: Additions and replacements of plant in service are recorded at the original cost of contracted services, direct labor, materials, and indirect overhead charges. Except for certain specifically identifiable units of property, replacements and retirements of plant are charged to the accumulated provision for depreciation at the average unit cost of the property unit, plus removal cost, less salvage. The cost of replacement is added to the plant in service. Interest during construction: The Association capitalizes interest on short-term borrowings used to finance construction. Interest is allocated to major construction projects. During the years ending December 31, 1995 and 1994, the Association had no short-term borrowings which would result in capitalization of interest. Depreciation and amortization: Depreciation and amortization rates are applied on a straight-line basis and at December 31, 1995 are as follows: Rate Production plant 3% Distribution plant 2.7% - 4.2% General plant: Structures and improvements 3% Office furniture 6% - 16% Transportation equipment 10% - 25% Power operated equipment 6% Communications equipment 6% Other general plant 6% Contributions in aid of construction: Contributions in aid of construction are credited to the associated cost of construction of property units. Cash and cash equivalents: For purposes of the statement of cash flows, the Association considers all highly liquid instruments with an original maturity of three months or less, when purchased, to be cash equivalents. Materials and supplies: Materials and supplies are stated at weighted average cost. Fuel inventory is recorded under the FIFO method. Patronage capital: Patronage capital consists of undistributed net margins accumulated since inception. The distribution of such patronage capital to members of the Association is restricted under covenants of RUS mortgage notes. The Board of Directors has established a twenty year patronage rotation policy. Donated capital: Donated capital consists of amounts received by the Association from escheatment of membership fees. Operating revenues: Operating revenues are based on billing rates authorized by the APUC which are applied to the customer's usage of electricity. The Association records unbilled revenues at the end of the accounting periods. Unbilled revenue is presented on the financial statements as accrued utility revenues. Cost of power adjustment: Cost of power adjustment provides for current collection of estimated amounts of fuel and purchased power costs, from that collected in the base rate for electricity, with subsequent settlement of actual costs and amounts collected. Accumulated balances or credits relating to the cost of power adjustment flow through to the consumers on a quarterly basis. Nonoperating margin: Nonoperating margin is an accumulation of all nonoperating margins reduced by nonoperating losses and operating losses as required by RUS regulations. Ifa positive balance exists at year-end, it is transferred to patronage capital unassigned. Income taxes: The Association is exempt from federal and state income taxes under the provisions of Section 501(c)(12) of the Internal Revenue Code. Collective bargaining agreement: Employment terms and conditions for outside plant personnel are covered under a collective bargaining agreement between the Association and Local 1547 of the International Brotherhood of Electrical Workers. The agreement was due to expire on December 31, 1995; however, a letter of agreement was signed extending the collective bargaining agreement through December 31, 1999. Interest on customer deposits: In accordance with Alaska law the Association pays interest on customer deposits for single meters in excess of $100. Interest is accrued at the prevailing rate received by the Association on such funds and is paid upon deposit refund. Reclassified balance: Certain prior year balances have been reclassified to conform with current year presentation. Use of estimates: Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing the financial statements. NOTE B: UTILITY PLANT Major classes of the Association's utility plant are as follows: December 31, 1995 1994 Production plant $ 8,291,555 $ 8,182,852 Distribution plant 17,379,132 16,827,072 General plant 3,905,396 3,383,884 General plant - property under capital leases 1,183 1,183 Completed construction not classified 272,504 Intangible plant 1,720 1,720 Plant in service 29,578,986 28,669,215 Construction work-in-progress 84,240 38,718 $ 29,663,226 $ 28,707,933 A summary of the provision for depreciation and amortization follows: December 31, 1995 1994 Depreciation and amortization expense $ 836,246 $ 812,346 Depreciation and amortization charged to operating expense or construction accounts 178,858 111,702 $1,015,104 $ 924,048 NOTE C: INVESTMENTS IN AND TRANSACTIONS WITH ASSOCIATED ORGANIZATIONS A summary of investments in associated organizations consists of the following: December 31, 1995 1994 National Rural Utilities Cooperative Finance Corporation (NRUCFC): Capital term certificates $ 371,981 $ 372,350 Membership 1,000 1,000 Alaska Rural Electric Cooperative Association (ARECA) Insurance Exchange 671,687 627,878 Ruralite - patronage capital credits 267 267 $ 1,044,935 $1,001,495 The Association purchased insurance coverage during the years ended December 31, 1995 and 1994, from ARECA Insurance Exchange for $227,392 and $221,182, respectively. NOTE D: DEFERRED CHARGES Deferred charges consist of the following: December 31, 1995 1994 Intertie feasibility study $ 701,265 $ 673,590 Work plan 14,664 4,220 Long range power study 5,395 $ 715,929 $ 683,205 Deferred charges are amortized over a two to five year period. The Intertie feasibility study costs will be capitalized or written off after final determination whether or not to proceed with the project (see Note J). 10 NOTE E: LONG-TERM DEBT Long-term debt consists of 2% and 5% mortgage notes payable to RUS, 6% equipment notes payable to NRUCFC, and capital leases, as follows: December 31, 1995 1994 2% mortgage notes payable $ 1,814,889 $ 2,015,631 5% mortgage notes payable 8,313,098 8,646,680 6% equipment notes payable 164,648 182,744 Obligation under capital leases 1,183 1,183 10,293,818 10,846,238 Less current maturities 651,000 620,000 $ 9,642,818 $ 10,226,238 Each of the mortgage notes are for 35-year periods and all assets are pledged as security. The notes are scheduled to be fully repaid at various dates from 1997 to 2020. The Association incurred interest expense on RUS mortgage notes of $464,827 and $484,977 in 1995 and 1994, respectively. Future minimum lease payments under office equipment capital leases together with the present value of the net minimum lease payments at December 31, 1995 and 1994, is $1,183 for both years, and is reflected in the financial statements as current portion of long-term debt. During 1995, the Association entered into a three-year revolving credit agreement with the National Rural Utilities Cooperative Finance Corporation in connection with the acquisition of a computer system. The agreement, which terminates in September 1997, allows for maximum borrowings of $305,125 and provides for quarterly interest and principal repayments. Borrowings totaled $68,867 at December 31, 1995. The interest rate on the revolving credit agreement is based on NRUCFC’s published variable lending rates, which during 1995 was 6%. Total long-term debt matures as follows: Year ending December 31 Amount 1996 $ 651,000 1997 638,000 1998 570,000 1999 583,000 2000 566,000 Thereafter 7,285,818 $10,293,818 11 NOTE F: RETURN OF CAPITAL Under provisions of RUS mortgage covenants, until total equities and margins equal or exceed 40% of the total assets of the Association, the return to patrons of capital contributed by them is limited to 25% of the net margins received by the Association in the preceding year. In 1995, the Board authorized the retirement of the remainder of 1982 and 100% of 1983 patronage capital in 1995. The retirement which totaled $176,075 is reflected as a reduction of patronage capital and includes $11,041 for early estate retirements during the year ended December 31, 1995. The Board authorized the retirement of 19% of 1982 patronage capital in 1994. The retirement which totaled $121,009 is reflected as a reduction of patronage capital and includes $11,241 for early estate retirements during the year ended December 31, 1994. NOTE G: PENSION PLANS Pension benefits are provided for substantially all employees through the International Brotherhood of Electrical Workers (IBEW) for union employees and the National Rural Electrical Cooperative Association (NRECA) for nonunion employees. The Association funds pension costs at rates as determined by NRECA and the collective bargaining agreement with IBEW. Total pension costs for union employees were $163,554 and $173,122 in 1995 and 1994, respectively. The plans are multi-employer plans in which the accumulated benefits and plan assets are not determined or allocated to an individual employer. In August 1987, NRECA declared a moratorium on contributions to the pension plan to avoid over-funding of the plan. No contributions were made for the period January 1, 1994 through October 31, 1994 for non-union employees; however, contributions of $21,057 were made for November and December 1994. Contributions were made for the period January 1, 1995 through April 30, 1995 in the amount of $44,125. NRECA declared a moratorium on contributions for the period May 1, 1995 through December 31, 1995. The Association participates in a 401(k) plan for all full time employees. The Association contributes 1% of employee wages to the plan. Contributions for the years ended December 31, 1995 and 1994 were $21,093 and $20,621, respectively. NOTE H: PURCHASE COMMITMENTS On October 28, 1985, the Association entered into a 45 year agreement with four other utilities and the Alaska Energy Authority (AEA) to purchase wholesale power from four State of Alaska hydroelectric projects collectively known as the Four Dam Pool (Project). The agreement includes the Solomon Gulch hydroelectric project in Valdez. In addition, the Association entered into a separate agreement with the AEA to operate and maintain the Solomon Gulch project on behalf of the State of Alaska. 12 The Project Management Committee (PMC), created by the agreement, consists of a representative from the AEA and each of the five purchasing utilities. PMC is responsible for administering the purchase agreement and annually determining the wholesale power rate. The five purchasing utilities collectively bear the pooled cost of operating and maintaining the Project. This is achieved through the purchase of power from the PMC at the established wholesale power rate, which is the sum of the following two components: 1. Power production cost component - Power production costs used in determining this component include operating costs of the facilities, joint insurance costs, specific administrative and general costs of the AEA, cost of the PMC, and an annual fixed contribution to a renewal and replacement fund for Project facilities. 2. Debt service component - This component is based on contracted forecast sales determined at the inception of the agreement and is subject to revision at fifteen year intervals after the effective date of the agreement. The agreements provide for monthly payment for purchased power and collection of Operating and Maintenance (O & M) costs due the Association. As provided by the agreements, O & M costs are offset against purchased power costs with the balance remitted to the PMC monthly. A summary of the purchased power and O & M costs follows: December 31, — 199 ——=«d199 Power purchased from PMC $ 3,076,933 $ 3,172,452 O & Mcosts collected from purchased power payments 1,154,510 1,023,282 Net payments to PMC $ 1,922,423 $ 2,149,170 The wholesale power rate in effect during 1993 through February 1994 was 6.4 cents per kilowatt hour. The rate increased to 6.6 cents per kilowatt hour March 1, 1994 through December 31, 1994 and the first six months of fiscal year 1995. The rate then reverted back to 6.4 cents per kilowatt hour for the period July 1, 1995 through December 31, 1995. Throughout each contract year, the PMC analyzes whether funds collected from the purchasing utilities for power sales are sufficient to cover the pooled costs of the Project. The resultant wholesale cost of power adjustment (true-up) flows through to the wholesale power rate charged in the subsequent contract year. The Association's share of the underpayment or over-recovery will be collected through subsequent modifications of the wholesale power rate. 13 NOTE I: REGULATORY MATTERS A cost of power adjustment tariff provides for the flow through to consumers of changes in purchased power and diesel fuel costs. The tariff provides for quarterly true-up of estimated kilowatt hour sales, purchased power and diesel fuel costs to actual sales and costs. NOTE J: CONTINGENCIES AND COMMITMENTS The Association is responsible for ongoing contaminated soil clean-up costs associated with various sites on the Association’s property. Costs included for clean-up activities are $204,257 and $32,499 in 1995 and 1994, respectively. Management believes that future costs of clean-up will have no material effect on the Association’s financial statements. No provision for future costs associated with the clean-up are included in current year operations. During 1993, the Association entered into a Memorandum of Agreement with the Alaska Energy Authority to conduct a feasibility study of a proposed 138 kilovolt transmission line between Sutton and Glennallen. The study, which was to be conducted in accordance with the former AS 44.83.161, is requisite to obtaining a $35,000,000 no-interest loan appropriated by the State of Alaska Legislature in 1993. In November 1994, the State of Alaska was enjoined in federal court from proceeding with the loan pending the outcome of a lawsuit filed by Alaska Cogeneration Systems, Inc., a potential power supplier, against the State of Alaska. The Association was granted intervenor status in the case in January 1995 and the injunction barring execution of the loan agreement was reversed in February 1995. On July 5, 1994, the Commissioner of the Department of Community and Regional Affairs concluded that the transmission line alternative was feasible and that it could be successfully financed and the Commissioner directed the Division of Energy to develop a loan agreement with the Association for construction of the project. Newly elected Governor Tony Knowles, who took office January 1995, elected to review the earlier approval. In April 1995, Knowles ordered an interagency review of the project be conducted. The review resulted in an update to the feasibility study which was released in November 1995. At this time no final decision has been made concerning the Governor’s review process. As a result, the future of the project is not presently determinable. Should the project go forward, study costs will remain a project cost. If the project is canceled, accumulated costs would be expensed or amortized to expense over a period of years. Amortization of costs would require the prior approval of the Rural Utilities Services and the Alaska Public Utilities Commission. As of December 31, 1995, and December 31, 1994, the Association has capitalized costs for the study totaling $701,265 and $673,590, respectively, which are reflected in deferred charges in the financial statements. 14 The Association is currently the defendant against two formal complaints before the Alaska Public Utilities Commission brought by a potential power supplier. Management does not expect the outcome of the complaints to have a material affect on the financial statements. NOTE K: MAJOR CUSTOMERS During the year ended December 31, 1995, the Association sold power to two major customers. Revenue recognized for each major customer was $1,498,827 and $1,366,798. During the year ended December 31, 1994, the Association sold power to two major customers. Revenue recognized from each major customer was $1,426,169 and $1,317,565. 15 SUPPLEMENTARY REPORTS Deloitte & Touche LP 550 West 7th Avenue Facsimile: (907) 264-3181 TAN Suite 1500 Telephone: (907) 272-8462 = Anchorage, Alaska 99501 INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL STRUCTURE BASED ON THE AUDIT OF THE FINANCIAL STATEMENTS Board of Directors Copper Valley Electric Association, Inc. Glennallen, Alaska We have audited the basic financial statements of Copper Valley Electric Association, Inc. as of and for the year ended December 31, 1995, and have issued our report thereon dated February 23, 1996. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The management of Copper Valley Electric Association, Inc. is responsible for establishing and maintaining the internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. In planning and performing our audit of the financial statements of Copper Valley Electric Association, Inc. for the year ended December 31, 1995, we obtained an understanding of the internal control structure. With respect to the internal control structure, we obtained an understanding of the design of relevant policies and procedures and whether they have been placed in operation, and we assessed control risk in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control structure. Accordingly we do not express such an opinion. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. Deloitte Touche Tohmatsu International 16 A material weakness is a condition in which the design or operation of one or more of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control structure and its operations that we consider to be material weaknesses as defined above. This report is intended for the information of the board of directors, management, and the Rural Utilities Service and supplemental lenders. However, this report is a matter of public record and its distribution is not limited. Debi $ Trceno Lap February 23, 1996 17 Deloitte & Touche Lip 550 West 7th Avenue Facsimile: (907) 264-3181 Anchorage, Alaska 99501 TAN Suite 1500 Telephone: (907) 272-8462 She INDEPENDENT AUDITORS' REPORT ON COMPLIANCE BASED ON THE AUDIT OF THE FINANCIAL STATEMENTS Board of Directors Copper Valley Electric Association, Inc. Glennallen, Alaska We have audited the basic financial statements of Copper Valley Electric Association, Inc. as of and for the year ended December 31, 1995, and have issued our report thereon dated February 23, 1996. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Compliance with laws, regulations, contracts, and grants applicable to Copper Valley Electric Association, Inc. is the responsibility of the Association's management. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of the Association's compliance with certain provisions of laws, regulations, contracts, and grants. However, the objective of our audit of the financial statements was not to provide an opinion on overall compliance with such provisions. Accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported herein under Government Auditing Standards. This report is intended for the information of the board of directors, management, and the Rural Utilities Service and supplemental lenders. However, this report is a matter of public record and its distribution is not limited. AE February 23, 1996 Deloitte Touche Tohmatsu International 18 Deloitte & Touche Lip 550 West 7th Avenue Facsimile: (907) 264-3181 IN Suite 1500 Telephone: (907) 272-8462 _— Anchorage, Alaska 99501 INDEPENDENT AUDITORS' MANAGEMENT LETTER REPORT Board of Directors Copper Valley Electric Association, Inc. Glennallen, Alaska We have audited the financial statements of Copper Valley Electric Association, Inc. for the year ended December 31, 1995, and have issued our report thereon dated February 23, 1996. We conducted our audit in accordance with generally accepted auditing standards, Government Auditing Standards issued by the Comptroller General of the United States, and 7 CFR Part 1773, Policy on Audits of Rural Utilities Service (RUS) Borrowers. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. In planning and performing our audit of the financial statements of Copper Valley Electric Association, Inc. for the year ended December 31, 1995, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing an opinion on the financial statements and not to provide assurance on the internal control structure. A description of the responsibility of management for establishing and maintaining the internal control structure and the objectives of and inherent limitations in such a structure, is set forth in our independent auditors' report on the internal control structure based on the audit of the financial statements dated February 23, 1996, and should be read in conjunction with this report. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a condition in which the design or operation of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control structure and its operations that we consider to be material weaknesses as defined above. 7 CFR Part 1773.34 requires comments on specific aspects of the internal control structure, compliance with specific RUS loan and security instrument provisions, and other additional matters. We have grouped our comments accordingly. In addition to obtaining reasonable assurance about whether the financial statements are free from material misstatements, at your request, we performed tests of specific aspects of the internal control structure, of compliance with specific RUS loan and security instrument provisions, and of additional matters. The specific aspects of the internal control structure, compliance with specific RUS loan and security instrument provisions, and other additional matters include, among other things, the accounting procedures and records, materials control, compliance with specific RUS loan and security instrument provisions set forth in 7 CFR Part 1773.34(e)(1), related party transactions, and depreciation Deloitte Touche Tohmatsu International 19 rates. The additional matters tested also include a schedule of deferred debit and credits, upon which we express an opinion. In addition, our audit of the financial statements also included the procedures specified in 7 CFR Part 1773.38-.45. Our objective was not to provide an opinion on these specific aspects of the internal control structure, compliance with specific RUS loan and security instrument provisions, or additional matters, and accordingly, we express no opinion thereon. No reports (other than our independent auditors’ report on the financial statements, our independent auditors’ report on compliance, and our independent auditors’ report on internal control structure, all dated February 23, 1996) or summary of recommendations related to our audit have been furnished to management. Our comments on specific aspects of the internal control structure, compliance with specific RUS loan and security instrument provisions, and other additional matters as required by 7 CFR Part 1773.34 are presented below. COMMENTS ON CERTAIN SPECIFIC ASPECTS OF THE INTERNAL CONTROL STRUCTURE We noted no matters regarding Copper Valley Electric Association, Inc.'s internal control structure and its operation that we consider to be a material weakness as previously defined with respect to: » The accounting procedures and records; « The process for accumulating and recording labor, material, and overhead costs, and the distribution of these costs to construction, retirement, and maintenance or other expense accounts; and, = The materials control. COMMENTS ON COMPLIANCE WITH SPECIFIC RUS LOAN AND SECURITY INSTRUMENT PROVISIONS Management's responsibility for compliance with laws, regulations, contracts, and grants is set forth in our independent auditors' report on compliance based on the audit of the financial statements dated February 23, 1996, and should be read in conjunction with this report. At your request, we have performed the procedures enumerated below with respect to compliance with certain provisions of laws, regulations, and contracts. The procedures we performed are summarized as follows: « Procedure performed with respect to the requirement to maintain all funds in institutions whose accounts are insured by an agency of the federal government: «= Obtained information from financial institutions with which Copper Valley Electric Association, Inc. maintains funds that indicated that the institutions are insured by an agency of the federal government. 20 Procedures performed with respect to the requirement for Copper Valley Electric Association, Inc. to obtain written approval of the mortgagee to enter into any contract for the operation or maintenance of its property, or for the use of its mortgaged property by others for the year ended December 31, 1995: «= Obtained and read a borrower-prepared schedule of new written contracts entered into during the year for the operation or maintenance of its property, or for the use of its property by others as defined in 7 CFR Part 1773.34(e)(1)(ii). «= Reviewed Board of Directors minutes to ascertain whether board-approved written contracts are included in the borrower-prepared schedule. «= Noted the existence of written RUS (and other mortgagee) approval of each contract listed by the borrower. Procedure performed with respect to the requirement to submit RUS Form 7 or Form 12 to the RUS: «= Agreed amounts reported in Form 7 or Form 12 to Copper Valley Electric Association, Inc.'s records. The results of our tests indicate that, with respect to the items tested, Copper Valley Electric Association, Inc. complied, except as noted below, in all material respects, with the specific RUS loan and security instrument provisions referred to below. With respect to items not tested, nothing came to our attention that caused us to believe that Copper Valley Electric Association, Inc. had not complied, in all material respects, with those provisions. The specific provisions tested, as well as any exceptions noted, include the requirements that: The borrower maintains all funds in institutions whose accounts are insured by an agency of the federal government; The borrower has obtained written approval of the RUS to enter into any contract for the operation or maintenance of all or any part of its property, or for the use of mortgaged property by others as defined in 1773.34(e)(1)(ii);and The borrower has submitted RUS Form 7 or Form 12 to the RUS and the Form 7 or Form 12, Financial and Statistical Report as of December 31, 1995, represented by Copper Valley Electric Association, Inc. as having been submitted to RUS, is in agreement with the Copper Valley Electric Association, Inc.'s audited records in all material respects. COMMENTS ON OTHER ADDITIONAL MATTERS In connection with our audit of the financial statements of Copper Valley Electric Association, Inc., nothing came to our attention that caused us to believe that Copper Valley Electric Association, Inc. failed to comply with respect to: The reconciliation of subsidiary plant records to the controlling general ledger plant accounts addressed at 7 CFR Part 1773.34(c)(1); The clearing of the construction accounts and the accrual of depreciation on completed construction addressed at 7 CFR Part 1773.34(c)(2); The retirement of plant addressed at 7 CFR Part 1773.34(c)(3) and (4); 21 » Sales of plant material, or scrap addressed at 7 CFR Part 1773.34(c)(5); » The disclosure of material related party transactions, in accordance with Statement of Financial Accounting Standards No. 57 (SFAS 57), Related Party Transactions, for the year ended December 31, 1995 in the financial statements referenced in the first paragraph of this report addressed at 7 CFR Part 1773.34(f); and « Depreciation rates addressed at 7 CFR Part 1773.34(g). DETAILED SCHEDULE OF DEFERRED DEBITS Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The detailed scheduled of deferred debits required by 7 CFR Part 1773.34(h) and provided below is presented for purposes of additional analysis and is not a required part of the basic financial statements. This schedule is the responsibility of Copper Valley Electric Association, Inc.’s management. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole. Intertie feasibility study $ 701,265 Work plan 14,664 $715,929 | This report is intended solely for the information and use of the board of directors, management, and the Rural Utilities Service and supplemental lenders. However, this report is a matter of public record and its distribution is not limited. Label { Toweta t-? February 23, 1996 22 ADDITIONAL INFORMATION ’ COPPER VALLEY ELECTRIC ASSOCIATION, INC. SCHEDULE OF OPERATIONS AND PATRONAGE CAPITAL BY DISTRICT YEAR ENDED DECEMBER 31, 1995 OPERATING REVENUES OPERATING EXPENSES: Purchased power Power production Administrative and general Depreciation and amortization Distribution - maintenance Distribution - operations Consumer accounts Customer service and information Taxes Other deductions Total operating expenses INTEREST EXPENSE Net operating margins NONOPERATING MARGINS: Patronage capital from associated organizations Interest income NET MARGINS PATRONAGE CAPITAL: Beginning of year Less retirement of patronage capital credits End of year Copper Basin $ 3,573,480 861,541 949,621 274,397 396,513 149,361 184,466 115,024 34,746 10,159 32,331 3,008,159 278,070 287,251 22,044 41,782 351,077 3,138,243 114,962 $ 3,374,358 Valdez $ 6,969,068 2,215,392 2,442,998 692,437 439,733 278,086 385,432 231,908 44,640 25,760 53,282 6,809,668 199,750 (40,350) 56,683 80,974 97,307 5,418,624 61,113 $ 5,454,818 Total $ 10,542,548 3,076,933 3,392,619 966,834 836,246 427,447 569,898 346,932 79,386 35,919 85,613 9,817,827 477,820 246,901 78,727 122,756 448,384 8,556,867 176,075 $8,829,176 23 = COPPER VALLEY ELECTRIC ASSOCIATION, INC. SCHEDULE OF OPERATIONS AND PATRONAGE CAPITAL BY DISTRICT YEAR ENDED DECEMBER 31, 1994 OPERATING REVENUES OPERATING EXPENSES: Purchased power Power production Administrative and general Depreciation and amortization Distribution - maintenance Distribution - operations Consumer accounts Customer service and information Taxes Other deductions Total operating expenses INTEREST EXPENSE Net operating margins NONOPERATING MARGINS: Patronage capital from associated organizations Interest income NET MARGINS PATRONAGE CAPITAL: Beginning of year Less retirement of patronage capital credits End of year Copper Basin $ $ 3,458,790 888,286 836,025 240,242 398,932 180,022 165,317 91,579 22,004 9,591 32,270 2,864,268 286,338 308,184 49,423 31,550 389,157 2,794,944 45,858 3,138,243 Valdez $ 6,971,077 2,284,166 2,149,782 622,569 413,414 190,538 322,757 262,442 62,476 24,962 76,545 6,409,651 198,669 362,757 128,655 63,902 555,314 4,938,461 79,151 $5,418,624 Total $ 10,429,867 3,172,452 2,985,807 862,811 812,346 370,560 488,074 354,021 84,480 34,553 108,815 9,273,919 485,007 670,941 178,078 95,452 944,471 7,733,405 121,009 $_8,556,867_