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HomeMy WebLinkAbout4-1TRUCKEE DONNER PUBLIC UTILITY DISTRICT CONSOLIDATED STATEMENTS OF CASH FLOWS December 31, 2017 and 2016 CASH FLOWS FROM OPERATING ACTIVITIES Received from customers Paid to suppliers for goods and services Paid to employees for seances Net Cash Flows from Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Debt issuance costs Proceeds from refunding Principal payments on long-term debt Interest payments on long-term debt Net Cash Flows from Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital expenditures for utility plant Cost of disposal of property net of salvage Capital contributions, connection and facility fees Special assessments receipts Debt issuance costs Proceeds from refunding Principal payments on long-term debt Interest payments on long-term debt Cash Flows From Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Interest income received Cash Flows from Investing Activities Net Change in Cash and Cash Equivalents CASH AND CASH EQUIVALENTS —Beginning of Year CASH AND CASH EQUIVALENTS —END OF YEAR 2017 2016 $ 37,790,910 $ 35,177,778 (20,134, 075) (71486,250) 10,170, 585 (404, 000) (63, 590) (467, 590) (5, 381, 950) (126, 018) 1, 8051481 6871698 (2, 424, 060) (613,400) (61052,249) 477,236 477,236 4,127, 982 22, 5400 (19,476,138) (61432, 772) 9,268,868 78, 838 513531413 (61102, 838) (250, 584) (921,171) (7,421,152) (78, 431) 1,3561731 01914 66,240 3,1281760 (5,4971159) (648,788) (81422, 885) 406, 993 406, 993 22, 593, 595 $ 27,053,382 $ 22,925,400 The accompanying notes are an integral part of these consolidated financial statements Page 14 TRUCKEE DONNER PUBLIC UTILITY DISTRICT CONSOLIDATED STATEMENTS OF CASH FLOWS December 31, 2017 and 2016 RECONCILIATION OF OPERATING INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES Operating income Noncash items included in operating income Depreciation and amortization Depreciation charged to other accounts Pension expense -GASB 68 Deferred Pension Contributions - GASB 68 OPEB Changes in assets and liabilities Accounts receivable and unbilled revenues Materials and supplies Prepaid expenses and other current assets Accounts payable Customer deposits Other current liabilites NET CASH FLOWS FROM OPERATING ACTIVITES RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE BALANCE SHEET Operating Designated Restricted funds - current Restricted funds -non-current Total Cash and Investments Less: Long-term investments Mark to market adjustments TOTAL CASH AND CASH EQUIVALENTS 2017 2016 $ 21633,222 $ 215021037 6,531,640 6,237,033 344,042 264,368 2, 2691611 1,180, 590 (1,2351820) (11061,245) 397,350 719,218 (592, 348) (325, 520) (201915) (17,539) (1731927) (22, 362) (1601769) (476,588) 201027 441668 1581472 224,208 $ 10,170, 585 $ 9, 268, 868 $ 8,460,571 $ 7,852,130 13, 710, 369 10, 759, 538 418301995 41293,285 11818,513 11876,032 28,820,448 (1,698, 880) (68,186) $ 27, 053, 382 24,780,985 (1,698880) , (156,705) $ 22,925,400 The accompanying notes are an integral part of these consolidated financial statements Page 15 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. ORGANIZATION The Truckee Donner Public Utility District (the District) was formed and operates under the State of California Public Utility District Act, The District is governed by a board of directors which consists of five elected members. The District provides electric and water service to portions of Nevada and Placer Counties described as Truckee. The electric and water service operations are separately maintained and operated. These financial statements reflect the combined electric and water operations of the District. All significant transactions between electric and water operations have been eliminated. These eliminations include power purchases and rent for shared facilities. The District's blended component units consist of organizations whose respective governing boards are comprised entirely of the members of the District's Board of Directors. These organizations are reported as if they are a part of the District's operations. The entities are legally separate, however, in the case of the Truckee Donner Public Utility District Financing Corporation, financial support has been pledged and financial and operational policies may be significantly influenced by the District. The financial results of these blended component units are not included in this report. However, the District has issued an additional consolidated report that includes these component units. A copy of that report can be requested from the District. Truckee Donner Public Utility District Financing Corporation is a legal entity that was created to issue and administer Certificates of Participation on behalf of the District. (See note 5). Separate standalone financial statements are not available for the blended component units described above. Unless noted, disclosures relating to the component units are the same as for the District. 8. ACCOUNTING POLICIES The financial statements of the District have been prepared in conformity with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets and liabilities, that are a result of exchange and exchange like transactions, are recognized when the exchange takes place. Page 16 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 1 —ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. USE OF ESTIMATES Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. D. CASH AND CASH EQUIVALENTS For the purpose of the accompanying statement of cash flows, the District considers all highly liquid instruments with original maturities of three months or less when purchased to be cash equivalents and are shown in the financial statements as "Cash Funds". E. INVESTMENTS The District pools cash and investments. The District's investment policy allows for investments in instruments permitted by the California Government Code and/or the investments permitted by the trust agreements on District financing. The District's investment policy contains provisions intended to limit the District's exposure to interest rate risk, credit risk, and concentration of credit risk. Investment income from pooled investments is allocated to all funds in the pool. Interest is allocated on the basis of month end cash amounts for each fund as a percentage of the total balance. The District categorizes the fair value measurements of its investments based on the hierarchy established by generally accepted accounting principles. The fair value hierarchy, which has three levels, is based on the valuation inputs used to measure an assets fair value: Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. The District does not have any investments that are measured using Level 3 inputs. F. DESIGNATED ASSETS The board has designated certain resources for future capital projects, replacements, and operational needs. G. RESTRICTED ASSETS Restricted assets are assets restricted by the covenants of long-term financial arrangements or other third party legal restrictions. Restricted assets are used in accordance with their requirements and where both restricted and unrestricted resources are available for use, restricted resources are used first and then unrestricted as they are needed. H. ACCOUNTS RECEIVABLE AND ALLOWANCES FOR DOUBTFUL ACCOUNTS Accounts receivable are recorded at the invoiced amount and are reported net of allowances for doubtful accounts of $25,200 and $34,300 for 2017 and 2016, respectively. 1. MATERIALS AND SUPPLIES Materials and supplies are recorded at average cost. Page 17 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) J. DEBT PREMIUM, BOND ISSUANCE COSTS, AND DISCOUNTS Original issue and reacquired bond premiums and discounts relating to revenue bonds are amortized over the terms of the respective bond issues using the effective interest method. Debt issuance costs are expensed in the period incurred. K. SPECIAL ASSESSMENT RECEIVABLE Special assessment receivable represent amounts due from property owners within the Donner Lake Assessment District for improvements made by the District pursuant to an agreement with the property owners to improve their water quality as discussed in note 7. L. AMORTIZED EXPENSES In 2003, the District entered into a broadband dark fiber maintenance agreement with Sierra Pacific Communications (SPC) which is included in the line item "other non -current assets" in the accompanying Statement of Net Position. SPC subsequently assigned the agreement to AT&T. The agreement is expected to provide benefit to the District over the estimated 20-year life of the agreement. (See note 4). M. CAPITAL ASSETS Capital assets are generally defined by the District as assets with an initial, individual cost of more than $10,000 and an estimated useful We of at least two years. Capital assets of the District are stated at the lower of cost or the acquisition value at the time of contribution to the District. Major outlays for plant are capitalized as projects are constructed. Depreciation on capital assets is calculated using the straight-line method over the estimated useful lives of the assets, which are as follows: Distribution Plant Electric 23 — 35 years Water 15 — 40 years Computer software and hardware 3 — 7 years Building and improvements 20 — 33 years Equipment and furniture 4 — 10 years It is the District's policy to capitalize interest paid on debt incurred for significant construction projects while those projects are under construction, less any interest earned on related unspent debt proceeds. No new debt related to capital assets was issued in 2017 and 2016; no interest was capitalized in 2017 or in 2016. N. COMPENSATED ABSENCES Under terms of employment, employees are granted sick leave and vacations in varying amounts. Only benefits considered to be vested are disclosed in these statements. Vested vacation and sick leave pay is accrued when earned in the financial statements. The liability is liquidated from general operating revenues of the utility. Page 18 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) O. REVENUE RECOGNITION Unbilled revenues, representing estimated consumer usage for the period between the last meter reading and the end of the period, are accrued in the period of consumption. Water customers without meters are billed on a flat -rate basis, and revenues are recorded as billed. Revenues from connection fees are recognized upon completion of the connection. Income that the District has earned through investing its excess cash is reflected within income from investments when earned. P. REVENUE AND EXPENSE CLASSIFICATION The District distinguishes operating revenues and expenses from non -operating items in the preparation of its financial statements. Operating revenues and expenses generally result from providing electric and water services in connection with the District's principal ongoing operations. The principal operating revenues are sales to customers. The District's operating expenses include power purchases, labor, materials, services, and other expenses related to the delivery of electric and water services. All revenues and expenses not meeting this definition are reported as non -operating revenues and expenses, or capital contributions and other. Q. POWER PURCHASES AND TRANSMISSION In 1999, the District entered into an agreement with Sierra Pacific Power Company dba NV Energy (SPPC), whereby SPPC will provide transmission services to the District through December 31, 2027. In addition, the District purchases scheduling services from Utah Municipal Power Systems and the scheduling services are included in the monthly power billings from UAMPS. The purchase of transmission services from NV Energy represented 4.4% and 6.1 % of total purchased power costs in 2016 and 2017, respectively. In December of 2005, the District entered into an agreement with UAMPS. Subsequently, the District entered into many pooling appendices for power capacity and energy that relate to various time periods from January 2008 through March 2028. Also in 2009, the District signed an agreement with UAMPS for approximately 5 MW of the Nebo natural gas generation plant capacity. In August 2012, the Horse Butte Wind project began commercial operation and the District owns approximately 15 MW of nameplate capacity that generates about 5 MW on average. The District has also invested in the Veyo Heat Recovery project that came on line in mid-2016. The District will expect about 1.7 MW of carbon free generation from this generation source. In August of 2007, the District entered into an agreement with Western Area Power Administration (WAPA) for the delivery of Stampede Dam Hydro generation. In accordance with this agreement, the District is entitled to a portion of the power generated by the Stampede Dam Hydro generation. This generation is dependent upon the amount of water that is made available to the generator. This agreement is effective through 2024. In 2017 and 2016, the UAMPS contract, along with its appendices, and the WAPA contract for Stampede Dam Hydro comprised the majority of a diversified power portfolio that balanced risk and cost for the District. Page 19 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 1 —ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) R. CAP AND TRADE PROGRAM PROCEEDS California Assembly Bill 32 (AB32) is an effort by the State of California to seta 2020 greenhouse gas (GHG) emissions reduction goal into law. AB32 requires California to lower greenhouse gas emissions to 1990 levels by 2020. Central to this initiative is the implementation of a cap and trade program, which covers major sources of GHG emissions in the State including power plants. The California Cap and Trade Program is designed to achieve cost-effective emissions reductions across the capped sectors. The program sets maximum statewide GHG emissions for all covered sectors each year ("cap"), and allows covered entities to sell off allowances ("trade"). An allowance is a tradable permit that allows the emission of one metric ton of CO2. The California carbon price is driven by allowance trading. The District is subject to AB32 and has excess allowances due to reducing carbon -based generation in its power portfolio. In 2017 and 2016, the District sold its excess allowances in the program auctions and the proceeds were recorded as $1,140,372 and $1,172,306 operating revenue for the respective years. The auction proceeds are held in a restricted fund and are used to purchase qualified renewable power (See note 2). S. INCOME TAXES As a government agency, the District is exempt from payment of federal and state income taxes. T CONTRIBUTED CAPITAL ASSETS A portion of the District's capital assets have been obtained through amounts charged to developers for plant constructed by the District; direct contributions of capital assets from developers and other parties; as well as assessments of local property owners. These items are recognized within capital assets as construction is completed for plant constructed by the District based on the cost of the items, when received for contributed capital assets based on the actual or estimated fair value of the contributed items, or upon completion of the related project for development agreements. The District records amounts received within capital contributions when a legally enforceable claim is established. Until the District meets the criteria to record the amounts described above as capital contributions, any amounts received are recorded within unearned revenues on the Statement of Net Position. U. OTHER —PENSION SIDEFUND As a result of implementing GASB Statement No. 68, the pension side -fund payoff that occurred in 2011 and which had been reported in the financial statements as an asset was written off due to the District's participation in CaIPERS cost -sharing multi -employer retirement benefit plan. However, the liability for the payoff remains until paid in full thru 2022. The intercompany fund transfers for the principal portion of the debt service between the electric and water utility is included as "other." V. PENSION For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the District's California Public Employee's Retirement System (CaIPERS) plans (Plans) and the additions to/deductions from the Plans' fiduciary net position have been determined on the same basis as they are reported by CaIPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Page 20 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) W. RECENT ACCOUNTING PRONOUNCEMENTS IMPLEMENTED BY THE DISTRICT In March 2016, GASB issued Statement No. 82, Pension Issues, an amendment of GASB Statements No. 67, No. 68, and No. 73. The primary objective of this statement is to address issues regarding (1) presentation of payroll -related measures in required supplementary information, (2) selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. The District implemented the statement in the current year. X. DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES Consists of deferrals for changes in the net pension liability as defined under GASB Statement No. 68. Y. UNAMORTIZED LOSS ON BOND REFUNDING For current and advanced refunding results in defeasance of debt, the difference between the reacquisition price and the net carrying amount of the old debt (Gain or loss) is deferred and amortized as a component of interest expense over the remaining life of the old debt or the new debt, whichever is shorter. These amounts are reported as deferred outflow on the statements of net position. Z. ACCOUNTING PRONOUNCEMENTS TO BE IMPLEMENTED IN UPCOMING YEARS GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, addresses accounting and financial reporting for OPEB that is provided to the employees of state and local governmental employers. This Statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. This statement is effective for the District fiscal year ending December 31, 2018. The District has elected not to implement GASB Statement No. 75 early and has not determined its effect on the District's financial statements. GASB Statement No. 83, Certain Asset Retirement Obligations, addresses accounting and financial reporting for certain asset retirement obligations (ARO's). The District has not determined what impact, if any, this pronouncement will have on the financial statements. Application of this statement is effective for the District's fiscal year ending December 31, 2019. GASB Statement No, 87, Leases, addresses accounting and financial reporting for leases by governments. This Statement increases the usefulness of financials statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases by establishing a single model of lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this statement, a lessee is required to recognize a lease liability and intangible right4o-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about leasing activities. The District has not determined what impact, if any, this pronouncement will have on the financial statements. This statement is effective for the District fiscal year ending December 31, 2020, Page 21 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 2 — CASH, CASH EQUIVALENTS, AND INVESTMENTS Cash, cash equivalents and investments are recorded in accounts as either restricted or unrestricted as required by the District's certificates of participation indentures or other third -party legal restrictions. Restricted assets represent funds that are restricted by certificates of participation covenants or third party contractual agreements. Assets that are allocated by resolution of the Board of Directors are considered to be Board designated assets. Board designated assets are a component of unrestricted assets as their use may be redirected at any time by approval of the Board. Upon Board approval, assets from board designated accounts may be used to pay for selected capital projects. Such accounts have been designated by the Board for the following purposes: Electric Capital Replacement Starting in 2009, the Board set aside funds designated for future electric infrastructure replacement. Electric Vehicle Reserve Beginning in 2009, the Board set aside funds designated for future electric utility vehicle replacements. Electric Rate Reserve In compliance with Board rules, the District created an electric rate stabilization fund in anticipation oI future costs. During both 2017 and 2016, there was no utilization of these funds to offset increased power costs in lieu of raising electric rates. Reserve for Future Meters Prior to 1992, connection fees charged to applicants for water service included an amount, which was maintained in a designated fund, to offset the cost of future metering. In 2008, the Board adopted an ordinance to charge a $5 monthly surcharge to all customers of treated water beginning January 2009 through December 2013. Water meters and automated meter reading devices are being installed, and customers will be billed volumetrically in accordance with California Assembly Bill 2572. As meters are installed, these funds are used to pay for related costs. Water Vehicle Reserve Beginning in 2009, the Board set aside funds designated for future Water Utility vehicle replacements. Prepaid Connection Fees In compliance with Board rules, the District has set aside prepaid connection fees to cover installation costs of water services. Debt Service Coverage and Operating Reserve Fund Effective 2007, the Board has voluntarily set aside funds to improve the District's cash -to -debt - service ratio. In 2017, no funds were used. Page 22 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 2 — CASH, CASH EQUIVALENTS, AND INVESTMENTS (Continued) Donner Lake Assessment District Surcharge Fund The District established a monthly billing surcharge in the amount of $6.65 applicable to customers in the Donner Lake area to provide revenue to pay the remainder of the cost of reconstruction effective October 2006, Deferred Liabilities Reserve Starting in 2017, the Board established a reserve to protect the District from volatility in pension, other post -employment benefits, and worker's compensation premiums. As of December 31, Board designated accounts at fair value consisted of the following: Electric capital replacement fund Prepaid connection fees Debt service & operating reserve fund Donner Lake Assessment District surcharge fund Totals 2017 2016 $ 3,428,130 378,880 41400,251 533,777 79,181 1,847,559 91,760 $ 10,759,538 Certain assets have been restricted by bond covenants or third party contractual agreements for the following purposes: Certificates of Participation Prepayments to the Trustee from the District for upcoming debt payments. Facilities Fees The District charges facilities fees to applicants for new service to cover the costs of infrastructure needed to meet their systems demand. The use of such funds is restricted by California state law. Department of Water Resources (DWR) Prop 55 Reserve Fund Regulations relating to the Department of Water Resources loan require the accumulation of a reserve fund as security for each principal and interest payment as they come due. Annual payments into the fund were required for each of the first ten years beginning April 1, 1996. The total reserve fund equals two semi-annual payments and was fully funded during 2006. These funds are set aside for the life of the borrowed amount. All of the reserve funds are invested in the State of California Local Agency Investment Fund, Page 23 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 2 —CASH, CASH EQUIVALENTS, AND INVESTMENTS (Continued) Glenshire Escrow Account The District received cash and other assets as part of its acquisition of the Glenshire Mutual Water Company. Also, the District received a monthly water system upgrade surcharge from Glenshire residents until November 30, 2017. This cash was utilized to pay the installment loan related to the Glenshire water system improvements as specified in the terms of the acquisition agreement. In 2011, the District sold a parcel from the Glenshire Mutual Water Company assets. The net proceeds of $294,940 were transferred to the Glenshire Escrow Account and the monthly water system upgrade surcharge was reduced from $10.75 to $4.75. In 2017, the final debt payment was made and the surcharge ended. Donner Lake Special Assessment District Improvement and Reserve Fund The District established the Donner Lake Special Assessment District (DEAD) Improvement Fund to account for all funds received from the Special Assessment Receivable, which will be used to pay the debt service costs related to the Donner Lake Water System project. The DLAD Improvement Fund also has a reserve fund as required by the California — Safe Drinking Water — State Revolving Fund (SRF). This fund is required to set aside $40,043 semi-annually for ten years beginning in 2006. The reserve fund was fully funded as of December 31, 2016, A632 Cap and Trade Auction Fund The District electric utility is identified as an "Electric Distribution Utility" under the Cap and Trade regulations and is therefore eligible to receive a direct allocation of allowances that can be sold in an auction. The proceeds from quarterly allowance auctions are held in this restricted fund and are used to purchase qualified renewable power. These funds are intended to mitigate the burden on the consumer without impacting a carbon price signal. Other (Area Improvement Funds) The District received funds from the County of Nevada, which are to be used only for improvements to specific areas within the District's boundaries in Nevada County. These areas include various Nevada County assessment districts. Page 24 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 2 —CASH, CASH EQUIVALENTS, AND INVESTMENTS (Continued) As of December I cash and cash equivalents and investments at fair value consisted of the following: Certificates of Participation Equivalents and Investments 16 $ 6,649,508 $ 6,169,318 Cash and investments are comprised of the following cash and cash equivalents and investments as of December 31: Cash and cash equivalents Totals 2017 $ 27,0011935 11818,513 $ 28, 820, 448 2016 Cash and cash equivalents and investments were $28,820,448 and $24,737,083 at December 31, 2017 and 2016, respectively. Cash equivalents substantially consist of deposits in the state pooled fund, Placer County pooled fund, money market funds and investments Adjustments necessary to record investments at fair market value are recorded in the operating statement as increases or decreases in investment income. Market values may have changed significantly after year end. FAIR VALUE MEASUREMENT The District applies the provisions of Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application, which requires governmental entities, to report certain investments at fair value on the Statements of Net Position. Investments are valued at fair value at December 31. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The District categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices for identical instruments in active markets. Level 2 inputs are quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which all Page 25 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 2 — CASH, CASH EQUIVALENTS, AND INVESTMENTS (Continued) significant inputs are observable. Level 3 inputs are valuations derived from valuation techniques in which significant inputs are unobservable. The District classifies its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The District has the following fair value measurements as of December 31, 2017: • US Government bonds and cash equivalents are valued using observable inputs (Level 2 inputs). INVESTMENTS AUTHORIZED BY THE DISTRICT'S INVESTMENT POLICY The District adopted an investment policy in 2006 which allowed for investments in instruments permitted by the California Government Code and/or the investments permitted by the trust agreements on District financing, including investments in the local government investment fund pool administered by the State of California (LAIF), Placer County Treasurer's Investment Portfolio (PCTIP) pooled investment and Utah Public Treasurers' Investment Fund (UPTIF). The District's investment policy contains provisions intended to limit the District's exposure to interest rate risk, credit risk, and concentration of credit risk. At December 311 2017 and 2016 the District's deposits and investments at fair value were held as follows: Cash on hand Deposits LAIF PCTIP UPTIF Money Market Funds Government Bonds Totals DISCLOSURES RELATING TO INTEREST RATE RISK 2017 2016 $ 21400 $ 2,400 11083,310 964,122 91915,618 81006,871 71933,761 61853,226 7,446,510 61944, 706 620,336 133,628 11818,513 11876, 032 $ 28, 820, 448 $ 24, 780, 985 Interest rate risk is the risk that changes in the market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater is the sensitivity of its fair value to changes in market interest rates. Information about the sensitivity of the fair values of the District's investments to market interest rate fluctuations is provided by the following table that shows the District's investments by maturity for 2017 and 2016: Investments and Deposits Maturity LAIF 3 months or less PCTIP 3 months or less UPTIF 3 months or less Morgan Stanley Treasury 3 months or less Fidelity Money Market Government Portfolio 57 3 months or less Dreyfus Treasury Securities 3 months or less Federal Farm Credit Banks 03/02/2021 Page 26 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 2 —CASH, CASH EQUIVALENTS, AND INVESTMENTS (Continued) DISCLOSURES RELATING TO CREDIT RISK Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. LAIF, PCTIF and UPTIF do not have a rating provided by a nationally recognized statistical rating organization. The Morgan Stanley Treasury is rated AAAm by S&P and Aaa-mf by Moody's. Federal Farm Credit Banks is rated AA+ by S&P and Aaa by Moody's. The Dreyfus Treasury Securities is rated Aaa-mf by Moody's and AAAm by S&P. The Fidelity Money Market is rated AAA-mf by Moody's and AAAm by S&P. CUSTODIAL CREDIT RISK Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The District's investment policy does not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless waived by the government unit). The market value of pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. As of December 31, 2017 and 2016 all deposits were fully insured or collateralized. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker/dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the District's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for investments. With respect to investments, custodial credit risk generally applies only to direct investments in marketable securities. Custodial credit risk does not apply to a local government's indirect investment in securities through the use of mutual funds or governmental investment pools (such as LAIF). DEPOSIT IN STATE INVESTMENT POOL The District is a voluntary participant in the Local Agency Investment Fund (LAIF). This investment fund has an equity interest in the State of California's (State's) Pooled Money Investment Account (PMIA). PMIA funds are on deposit with the State's Centralized Treasury System and are managed in compliance with the California Government Code according to a statement of investment policy which sets forth permitted investment vehicles, liquidity parameters, and maximum maturity of investments. The fair value of the District's investment in this pool is reported in the accompanying financial statements at amounts based upon the District's pro-rata share of the fair value provided by the LAIF for the entire LAIF portfolio (in relation to the amortized cost of the portfolio). The balance available for withdrawal is based on the accounting records maintained by the LAIF, which are recorded on an amortized cost basis. DEPOSIT IN PLACER COUNTY TREASURER INVESTMENT POOL The District is a voluntary participant in the Placer County Investment Portfolio (PCTIP). The District is eligible to participate in PCTIP because a portion of the District's service area is in Placer County. Investments are on deposit with the Placer County Treasurer and are managed in compliance with the California Government Code according to a statement of investment policy which sets forth permitted investment vehicles, liquidity parameters, and maximum maturity of investments. The fair value of the Page 27 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 2 —CASH, CASH EQUIVALENTS, AND INVESTMENTS (Continued) District's investment in this pool is reported in the accompanying financial statements at amounts based upon the District's pro -rats share of the fair value provided by Placer County Treasurer for the entire PCTIP in relation to the amortized cost of the portfolio). The balance available for withdrawal is based on the accounting records maintained by the Placer County Treasurer, which are recorded on an amortized cost basis. DEPOSIT IN "TAP PUBLIC TREASURERS' INVESTMENT FUND The District is a voluntary participant in the Utah Public Treasurers' Investment Fund (UPTIF). The District is eligible to participate in (UPTIF) through its membership with Utah Associated Municipal Power Systems (UAMPS). Investments are on deposit with State of Utah public treasury and investments are restricted to those authorized by the Utah Money Management Act and rules of the Money Management Council of Utah. The fair value of the District's investments in this pool is reported in the accompanying financial statements at amounts based upon the District's pro-rata share of the fair value provided by UPTIF through UAMPS Member Retention Fund. NOTE 3 —CAPITAL ASSETS Capital assets consist of the following at December 31, 2017 and 2016: Electric distribution facilities Water distribution facilities General plant Less: Accumulated depreciation Construction work in progress Totals Electric distribution facilities Water distribution facilities General plant Less: Accumulated depreciation Construction work in progress Totals January 1, December 31, 2017 Additions Reductions 2017 $ 58,345,690 108,860,825 15,062,278 182,268,793 (63,372,738) $ 21191,342 4,898,966 988,813 8,079,121 (6,840,212) $ (120,111) (11163, 044) (268, 471) (1,551,626) 1,649,716 4,706,276 5,554,478 (7,379,733) $ 123,602,331 $ 6,793,387 $ (7,281,643) January 1, 2016 Additions Reductions $ 54,721,615 $ 4,391,867 $ (767,792) 107,005,578 21023,496 (168,249) 13,887,881 1,332,733 (158,336) 175,6151074 7,748,096 (11094,377) (58,042,448) (61485,285) 11154,994 41844,042 71686,181 (7,823,947) $ 1221416,668 $ 85948,992 $ (71763,330) $ 60,416,921 112596747 15,782,620 , , 188,796,288 ,, (68563235) 21881,021 123,114,074 December 31, 2016 $ 581345,690 108,860,825 15,062,278 182, 268, 793 (63,3727738) 41706,276 $ 123,602,331 As of December 31, 2017 and 2016, the plant in service included land and land rights of $3,318,346 which are not being depreciated. A portion of the plant has been contributed to the District. When replacement is needed, the District replaces the contributed plant with District -financed plant. Page 28 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 4 —TELECOMMUNICATION SERVICES In 1999, the District initiated a project to expand their basic service offerings to include Internet access, cable television and voice delivered over fiber optic networks (the broadband project). The District completed the broadband design project and obtained the necessary regulatory approvals and franchises needed to construct and launch the broadband project. A local cable television service provider filed an objection in September 2004 with the Nevada County Local Agency Formation Commission (LAFCO), the entity responsible for providing regulatory approval for the broadband project. After denying the cable television provider's request for a reconsideration of their approval of the District's project, the cable television provider filed a lawsuit against LAFCO. The District was not named in the lawsuit. A ruling on the lawsuit was received in January 2006. LAFCO prevailed on all portions of the cable television provider's claim. The cable television provider filed an appeal; however, in June of 2007, the Court ruled in favor of LAFCO, upholding the initial ruling. Since 2009, the District has been exploring options to sell or lease the existing infrastructure to provide a return on investment in the project. Expenses incurred by the District to date on the broadband project total $2,834,079, of which $496,990 was expensed in 2014 for legal fees and preliminary feasibility studies. In 2017 and 2016 there were no material expenditures for this project. In 2018, The District signed a Memorandum of Understanding with Plumas Sierra Telecommunications to offer services utilizing these four fibers from Reno to Sacramento in future years. NOTE 5 —LONG-TERM DEBT Long-term debt consisted of the following at December 31, 2017: January 1, December 31, Due within 2017 Additions Reductions 2017 one year Pension Obligation Bonds Electric, 2,47% due semi-annually to 2020 $ 50149,000 $ $ (4043000) $ 42745,000 $ 11269,000 State RewhAng Fund Loan — Water, 2.34%, due semi-annually beginning in 2006 to 2026. 6,7861402 (645,806) 611402596 661,006 Certificates of Participation — Water, 4.00% to 5.00%, due serially to 2021 refinanced in 2016 312669000 (632,000) 21634,000 644,000 Certificates of Participation — Water, 2.00% to 4.00%, due serially to 2035 (net premiums of $475,059) 131997,077 (562,018) 13,435,059 5507000 Department of Water Resources, 3,18%, due semiannually to 2021, secured by real and personal property. 11275,743 (268,092) 1,0072651 276,650 Installment loan, 4.58% due serially to 2023 374,548 (316,145) 58,403 10,658 Totals $ 30,848,770 $ $ (21828,061) $ 281020,709 $ 31411,314 Page 29 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 5 —LONG-TERM DEBT (Continued) Long-term debt consisted of the following at December 31, 2016: Pension Obligation Bonds Electric, 5% due semi-annually to 2020 refinanced in 2016 Pension Obligation Bonds Electric, 2.47% due semi-annually State Rewlung Fund Loan — Water, 2.34%, due semi-annually beginning in 2006 to 2026 Certificates of Participation — Water, 4.00°% to 5,00%, due serially to 2021 refinanced in 2016 Certificates of Participation — Water, 1.54% due serially to 2021 Certificates of Participation — Water, 2.00% to 4.00%, due serially to 2035 (net premiums of $502,077) Department of Water Resources, 3.18%, due semiannually to 2021, secured by real and personal property. Installment loans, 5.4% to 6.23%, various payment terms and due dates, secured by equipment. Totals January 1, December 31, 2016 Additions Reductions 2016 $ 515845000 $ $ (515843000) $ - 5,589,000 (440,000) 5,149,000 7,417,358 - (630,956) 6,786,402 3,765,000 - (3,765,000) - - 3,266,000 - 3,266,000 14,544,095 - (547,018) 13,997,077 1,535,448 - (259,705) 1,275,743 Due within one year 8095000 645,807 632,000 5351000 2681092 673,789 - (299,242) 374,548 316,144 $ 33,519,690 $ 8,855,000 $ (11,525,921) $ 30,848,770 $ 3,206,043 During April 2004, the District obtained financing in the form of a State Revolving Fund Loan, the proceeds of which were utilized in the replacement of the Donner Lake water system. The District submitted expenditures to the State for reimbursement of $12,732,965, The semi-annual principal and interest payments are $400,426 and commenced in 2006. In 2004, the remaining balance of $12,227,122 was used to pay off the temporary lines of credit obtained in 2001 and 2002 to fund the Donner Lake project. (See note 8). On October 12, 2006, through the Truckee Donner Public Utility District Financing Corporation on behalf of the District issued $26,570,000 of Certificates of Participation to refund 100% of the outstanding balance of Certificates issued in 1996, complete the funding of the Donner Lake Assessment District water system, and fund water system capital improvements. The refunding portion of the 2006 COP's, totaling $8,465,000, has an average interest rate of 4,10%. The refunded 1996 COP's had an average interest rate of 5.41%. The net proceeds of $7,500,557 (after payment of $63,733 in underwriting fees, insurance and other isuance costs) plus an additional $1,315,194 of reserve fund monies were used to prepay the outstanding debt service requirements on the 1996 COP's. The terms of the Certificates call for payments to be made Page 30 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 5 —LONG-TERM DEBT (Continued) only from the net revenues of the Water Division and the debt is secured by this revenue. These revenues are required to be at least equal to 125% of the debt service for each year. In 2015, a portion of the 2006 COP was refunded. Since a portion of the 2006 COP was used for advance refunding of previous COP, that portion could not be advance refunded at the time of the refunding. The new 2015 refunding did not require a reserve fund. The reserve fund was liquidated and applied towards reducing the debt principal. The estimated net present value savings were $1,600,000 or 10% over the remaining life of issuance. In 2016, the remaining portion of the 2006 COP was refunded. Due to the refunding an estimated net present value savings of $222,000 was achieved. Under the Safe Drinking Water Bond Law of 1986, the Department of Water Resources provided a $5,000,000 loan to the District in 1993. The loan was to finance capital improvements to the public water supply and to reduce water quality hazards. The terms of the loan call for payments to be made only from the net revenues of the Water Division, which are required to be sufficient to pay the debt service for each year. In June 2011, the District refunded (refinanced) an existing $7.8 million pension side fund obligation for its participation in CaIPERS. Prior to 2011, the annual side fund payments were expensed and described in the Notes to Financial Statements. The pension side fund liability was amortized through June 2022 with a 7.75% rate. This liability was not required to be reported on the District's Statement of Net Position, but the future pension expense was included in budget and rate calculations. The new refunding rate of 5% reduced the District's annual pension costs by almost $100,000 through 2022. In 2016, the District refunded the pension side fund again earning the District annual savings of $30,000 or $164,000 in total. As a normal part of its operations, the District finances the acquisition of certain assets through the use of installment loans. These loans have been used to finance the purchase of vehicles, equipment, and certain water system improvements. There were no additional installment loans in 2017 or in 2016. Scheduled payments on debt are: Principal Interest 2018 $ 3,411,314 $ 855,887 2019 3,117, 221 724,222 2020 312281784 648,447 2021 31179,833 563,954 2022 119071221 486,560 2023-2027 61221,277 11747,794 2028-2032 41255, 000 903,838 2033-2037 21225, 000 149,425 $ 27,545,650 $ 61080,127 Plus: Unamortized premiums 4751059 $ 28,020,709 Tota I $ 4,267,201 3, 841, 442 3,877,231 3, 31787 2, 3931781 7, 9691070 5,1581838 2, 3741425 $ 33,625,776 Page 31 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 6 —UNEARNED REVENUES Transactions that have not yet met revenue recognition requirements are recorded as anon -current liability and reflected in the accompanying Statement of Net Position. As of December 31, 2017 and 2016, unearned revenues consist of unearned special assessment revenues, development agreement deposits, connection fees, and other deposits. Unearned revenues consisted of the following at December 31, 2017 and 2016: Development agreement deposits Connection fees and other deposits Totals Development agreement deposits Connection fees and other deposits Totals January 1, 2017 Additions Reductions 21237,330 1,134,433 (603,342) 836,178 823,219 (7733741) $ 31073,507 $ 11957,652 $ (1,377,083) January 1, 2016 Additions Reductions 2,156,844 644,922 (564,436) 11069,865 9879611 (1,221,298) 31226,709 11632,533 (1,785,734) NOTE 7 — DONNER LAKE WATER COMPANY ACQUISITION December 31, 2017 2,768,421 885,656 $ 3,6547076 December 31, 2016 21237,330 836,178 310739507 In 2001, the District acquired the Donner Lake Water Company by initiating an eminent domain lawsuit. As a part of the takeover, the District replaced the entire water system, which cost approximately $15.6 million and was completed in 2006, The District initially estimated the replacement cost to be $13 million. The Donner Lake property owners agreed to reimburse the District for the full costs of the replacement. Therefore, an assessment was placed on each Donner Lake homeowner's property for a pro- rata share of the $13 million payable immediately or with an option to pay over 20 years. The assessment is collected by Nevada County and Placer County on behalf of the District and is secured by the Donner Lake property owners. A monthly $6.65 water system upgrade surcharge is paid by the Donner Lake customers to reimburse the District for the $2.6 million cost incurred in excess of the assessment. In April 2004, the District obtained financing in the form of a State Revolving Fund Loan for $12,732,965 at a rate of 2.34%. The District is required to fund a reserve account by making semi-annual reserve payments in the amount of $40,043 for a 10-year period. The reserve fund is fully funded as of December 31, 2016. As of December 31, 2017 and 2016, the assessment receivable from the property owners was $3,005,178 and $3,692,876 respectively, of which $736,020 and $714,622 is due in the next year. These amounts are shown as Special Assessments Receivable in the Statement of Net Position. The proceeds of the assessment and surcharge are placed in the Donner Lake Special Assessment District Improvement Fund and used to pay the debt service for the water system improvements. Page 32 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 8 —EMPLOYEE BENEFIT PLANS A. PENSION PLANS Plan Description —All qualified permanent and probationary employees are eligible to participate in the District's Miscellaneous Employee Pension Plans, cost -sharing multiple employer defined benefit pension plans administered by the California Public Employees' Retirement System (CalPERS). Benefit provisions under the Plans are established by State statute and Local Government resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Benefits Provided — CaIPERS provides service retirement and disability benefits, annual costs of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non -duty disability benefits after 10 years of service. The death benefits is Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees' Retirement Law. The 2.7% at 55 Miscellaneous Plan is closed to new entrants. The plans' provisions and benefits in effect at December 31, 2017 are summarized as follows: Miscellaneous Prior to On or after Hire Date January 1, 2013 January 1, 2013 Benefit Formula 2.7% @ 55 2% @ 62 Benefit Vesting Schedule 5 years service 5 years service Benefit Payments monthly for life monthly for life Retirement Age 50 and Up 52 and Up Monthly Benefits, as a % of eligible compensation 2.0% - 2.7% 1.0% to 2.5% Required Employee Contributions Rates 8% 6.25% Required Employer Contributions Rates 11,049% 6.533% Contributions —Section 208149(c) of the California Public Employee's Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The District is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Hire Date Benefit Formula 2017 Employer Contributions 2016 Employer Contributions Miscellaneous Prior to On or after 3 January 1 January 1, 201, 2013 2.70@55 2%@62 $1,044,745 $94,014 $979,835 $69,062 Page 33 Miscellaneous Prior to On or after 3 January 1 January 1, 201, 2013 2.70@55 2%@62 $1,044,745 $94,014 $979,835 $69,062 Page 33