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HomeMy WebLinkAboutAudited Financial Statement PGOTRUCKEE DONNER PUBLIC UTILITY DISTRICT PRIMARY GOVERNMENT ONLY FINANCIAL STATEMENTS Including Independent Auditors' Report December 31, 2011 and 2010 TABLE OF CONTENTS Independent Auditors' Report Management's Discussion and Analysis Financial Statements Consolidated Balance Sheets 1 2 8 9 Consolidated Statements of Revenue, Expenses, and Changes in Net Assets...................................12 Consolidated Statements of Cash Flows Notes to Financial Statements Supplemental Information ........... Consolidating Balance Sheets 13 15 43 44 Consolidating Statement of Revenues, Expenses, and Changes in Net Assets..................................47 Consolidating Statements of Cash Flows...........................................................................................48 Other Post Employment Benefits Plans - Required Supplementary Information .................................. 50 INDEPENDENT AUDITORS' REPORT The Board of Directors Truckee Donner Public Utility District Truckee, California We have audited the accompanying balance sheet of the Truckee Donner Public Utility District as of December 31, 2011 and 2010, and the related statements of revenues, expenses, and changes in net assets and cash flows for the year then ended, as noted in the table of contents. These financial statements are the responsibility of the Truckee Donner Public Utility District's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The financial statements referred to above include only the primary government of the Truckee Donner Public Utility District which consists of all departments that comprise the District's legal entity. The financial statements do not include financial data for the District's legally separate component units, which accounting principles generally accepted in the United States of America require to be reported with the financial data of the District's primary government. As a result, the primary government financial statements do not purport to, and do not, present fairly the financial position of the reporting entity of the Truckee Donner Public Utility District, as of December 31, 2011 and 2010, the results of operations, or its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with accounting principles generally accepted in the United States of America, the Truckee Donner Public Utility District, has issued separate reporting entity financial statements, for which we have issued our report dated In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Truckee Donner Public Utility District at December 31, 2011 and 2010 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The management's discussion and analysis on pages 2 through 6 as well as the pension and other post employment benefit plans funding schedules are not a required part of the basic financial statements, but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audits were conducted for the purpose of forming an opinion on the financial statements taken as a whole. The consolidating statements as identified in the table of contents are presented for purposes of additional analysis and are not a required part of the financial statements. The consolidating statements have been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, are fairly stated, in all material respects, in relation to the financial statements taken as a whole. Portland, Oregon .2012 TRUCKEE DONNER PUBLIC UTILITY DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2011 and 2010 MANAGEMENT'S DISCUSSION AND ANALYSIS As financial management of the Truckee Donner Public Utility District, we offer readers of these financial statements this narrative overview and analysis of the financial activities of the District for the years ended December 31, 2011 and 2010. This discussion and analysis is designed to assist the reader in focusing on the significant financial issues, provide an overview of the District's financial activity and identify changes in the District's financial position. We encourage readers to consider the information presented here in conjunction with that presented within the basic financial statements. The reader should take time to read and evaluate all sections of this report, including the footnotes and other supplementary information that is provided, in addition to this management discussion and analysis. FINANCIAL HIGHLIGHTS The District's net capital assets decreased $0.2 million (0%) from $122.1 million at December 31, 2010 to $121.9 million at December 31, 2011, mainly because of the sale of land held for sale. Electric and Water distribution assets were replaced at about the same pace as accumulated depreciation. Beginning in 2009, automated meter reading devices were installed to enable volumetric billing of water in compliance with California Assembly Bill 2572, instead of flat -rate billing. Water meters have been installed at approximately 90% of all customer locations and the remaining meters are planned to be installed by 2017. The District's total net assets increased $6.2 million (6%) from $108.9 million at December 31, 2010, to $115.1 million at December 31, 2011. The increase was due to a $2 million decrease in debt related to capital assets and a $4 million increase in unrestricted assets. The operating revenues in 2010 and 2011 were $33.5 million for each year. Electric revenues increased slightly in 2011, but the 1.75% water rate increase in 2011 was more than offset by decreased consumption attributed to the conservation programs and the effect of volumetric billing. Operating expenses of the District increased by $1.7 million (6%) from $27.6 million in 2010 to $29.3 million in 2011, substantially due to increased purchased power costs and increased depreciation. Non -operating revenues increased $0.9 million from 2010, mostly because of a gain on the sale of land. Non -operating expenses remained about the same. No new debt was issued in 2010, but $7.8 million debt was issued in 2011 to refinance an existing pension obligation. (See notes 1(J), 5, and 8(B)). OVERVIEW OF THE FINANCIAL STATEMENTS This report includes Management's Discussion and Analysis, the Independent Auditors' Report, the Basic Financial Statements, (which includes the notes to the financial statements), and Supplementary Information. See accompanying auditors' report. Page 2 TRUCKEE DONNER PUBLIC UTILITY DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2011 and 2010 REQUIRED FINANCIAL STATEMENTS The financial statements of the District are designed to provide readers with a broad overview of the District's finances similar to a private -sector business. They have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). Under this basis of accounting, revenues are recognized in the period in which they are earned and expenses are recognized in the period in which they are incurred, regardless of the timing of related cash flows. These statements offer short- and long-term financial information about the District's activities. The reporting entity consists of the primary government, which has two departments (electric operations and water operations), and the blended component units. Further details about the component units are provided in note l (A). The Balance Sheet presents information on all of the District's assets and liabilities, and provides information about the nature and amounts of investments in resources (assets) and the obligations to District creditors (liabilities). It also provides the basis for computing rate of return, evaluating the capital structure of the District and assessing the liquidity and financial flexibility of the District. All of the current year's revenues and expenses are reported in the Statement of Revenues, Expenses, and Changes in Net Assets. This statement provides a measurement of the District's operations over the past year and can be used to determine whether the District has successfully recovered all its costs through its rates and other charges. The Statement of Cash Flows provides relevant information about the District's cash receipts and cash payments during the reporting period. This statement reports cash receipts and cash payments resulting from operating, non -capital financing, capital and related financing and investing activities. When used with related disclosures and information in the other financial statements, the statement of cash flows should provide insight into (a) the District's ability to generate future net cash flows, (b) the District's ability to meet its obligations as they come due, (c) the District's needs for external financing, (d) the reasons for differences between operating income and associated cash receipts and payments and (e) the effects on the District's financial position of both its cash and its non -cash investing, capital and financing transactions during the period. The changes in cash balances are an important indicator of the District's liquidity and financial condition. The Notes to the Financial Statements provide additional information that is essential to a full understanding of the data provided in the basic financial statements. This includes but is not limited to, significant accounting policies, significant financial statement balances and activities, material risks, commitments and obligations and subsequent events, as applicable. See accompanying auditors' report. Page 3 TRUCKEE DONNER PUBLIC UTILITY DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2011 and 2010 DISTRICT HIGHLIGHTS The condensed financial statements at December 31, 2011, 2010, and 2009 are presented below. ASSETS Current assets Non -current assets: Capital assets, net Restricted assets Other long-term assets TOTAL ASSETS LIABILITIES AND NET ASSETS Current liabilities Non -current liabilities Long-term debt, net of current portion Unearned revenues Total Liabilities Net Assets Invested in capital assets, net of related debt Restricted for debt service Unrestricted Total Net Assets TOTAL LIABILITIES AND NET ASSETS CONDENSED BALANCE SHEETS Increase (Decrease) -3n44 $ :3:3,491,:3Ub $ 31,21:3,24b $ :32,114,:3bb $ 2,2(6,Ub9 121,918,394 122,071,635 118,270,925 (153,241) 2,021,017 1,884,183 3,761,627 136,834 1 R WA WA R Q70 QRR Q 71 R nn7 R Raa RaR Z� l /J,2b25,54b Z� 1b4,-14U,U4`u1 Z� 1b3,ot34,wZ� `J,-IL25,4`J1t $ 9,661,516 $ 8,830,044 $ 9,769,822 $ 831,472 45,804,404 43,629,563 48,523,596 2,174,841 2,707,318 2,818,645 2,659,562 (111,327) 58,173,238 55,278,252 60,952,980 2,894,986 86,767,445 85,181,626 82,402,592 1,585,819 12,439,666 12,038,461 12,365,973 401,205 1 F RRR 1 Q7 11 Rd1 71 n R 1 d'2 2RA d ?AR AR7 1-10,U`U10,.Juo-I ub, ou -I, t `J t -I uz, `JJ -I -I, `JJz`l b,Zoo, 5-1-1 $ 173,268,546 $ 164,140,049 $ 163,864,909 $ 9,128,497 In 2011, the District's current assets increased $2.3 million, predominantly due to increased cash reserves. (See note 2). The District's net capital assets decreased $0.2 million, primarily because of the sale of land held for sale. Electric and Water distribution assets were replaced at about the same pace as accumulated depreciation. Non -current restricted assets increased $0.1 million, mostly attributed to a market adjustment of long-term investments. Other long-term assets increased $6.9 million as a result of recording the $7.6 deferred pension obligation that was refinanced. (See notes 1(J), 5, and 8(13)). Total liabilities increased $2.9 million, mainly due to $7.8 million additional debt issued, less the annual reduction of existing debt. No new debt was issued in 2010 and 2009. The District's total net assets increased $6.2 million, substantially due to a $2.0 million decrease in debt related to capital assets and a $4.0 million increase in unrestricted assets. Net assets invested in capital assets, net of related debt, consist of capital assets, net of accumulated depreciation, reduced by the amount of outstanding indebtedness attributable to the acquisition, construction or improvement of those assets. When there are significant unspent bond proceeds, the portion of related debt is not included in the calculation of this item. Instead, that portion of the debt is included in the net assets restricted for capital projects component as an offset to the related unspent bond proceeds. See accompanying auditors' report. Page 4 TRUCKEE DONNER PUBLIC UTILITY DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2011 and 2010 Net assets restricted for debt service represents amounts restricted for payments related to outstanding revenue bonds. The District had income before capital contributions of $3.6 million, $4.4 million, and $3.7 million for the years ended December 31, 2011, 2010 and 2009, respectively. Changes in the District's net assets can be determined by reviewing the following Condensed Revenues, Expenses, and Changes in Net Assets for the years ended December 31, 2011, 2010, and 2009. CONDENSED REVENUES, EXPENSES, AND CHANGES IN NET ASSETS 2011 2010 Sales to consumers $ 31,053,129 $ 31,118,286 Other operating revenues 2,430,965 2,358,141 Total Operating Rewnues 33,484,094 33,476,427 Operating expenses 29,284,060 27,620,502 Operating Income (Loss) 4,200,034 5,855,925 Non -operating re\enues (expenses) (564,105) (1,496,191) Income (loss) before capital contributions 3,635,929 4,359,734 Capital contributions, net 2,597,582 1,590,134 Change in net assets 6,233,511 5,949,868 NET ASSETS, Beginning of Year 108,861,797 102,911,929 NET ASSETS, END OF YEAR $ 115,095,308 $ 108,861,797 Increase (Decrease) 2009 2011 -2010 $ 30,301,191 $ (65,157) 2.503.380 72.824 32,804,571 26,924,724 5,879,847 (2,154,196) 3,725,651 8,709,498 12, 435,149 90, 476, 780 $ 102,911,929 7,667 1,663,558 (1,655,891) 932,086 (723,805) 1.007.448 283,643 5,949,868 $ 6,233,511 Total Operating revenues were $33.5 million in 2011, $33.5 million in 2010 and $32.8 million in 2009. Electric revenues increased slightly in 2011, but the 1.75% water rate increase in 2011 was more than offset by decreased consumption attributed to conservation programs and the effect of volumetric billing, resulting in flat revenues, district -wide. The increase in sales to consumers of $0.7 million (2%) in 2010 was primarily because of customer demand and rate increases to fund increased operating costs and reserves. Total operating expenses were $29.3 million in 2011, $27.6 million in 2010 and $26.9 million in 2009. The increases of $1.7 million (6%) in 2011 and $0.6 million in 2010 were due to increased purchased power costs and depreciation. The net of non -operating revenues, less non -operating expenses, increased $0.9 million in 2011 substantially because of the sale of land. The increase of $0.7 million in 2010 was mostly due to increased investment income. The net capital contributions increased $1.0 million in 2011, but decreased $7.1 million in 2010 attributed to changes in construction and development activities. See accompanying auditors' report. Page 5 TRUCKEE DONNER PUBLIC UTILITY DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2011 and 2010 CAPITAL ASSETS As of December 31, 2011, 2010 and 2009, the District had $121.9 million, $122.1 million, and $118.3 million, respectively, invested in a variety of capital assets, net of accumulated depreciation. A summary of capital assets is reflected in the following schedule. CAPITAL ASSETS 2011 2010 2009 Electric distribution facilities $ 46,895,992 $ 42,895,235 $ 41,569,466 Water distribution facilities 102,184,801 91,627,643 84,674,907 General plant 11,709,868 11,751,073 10,402,163 Sub -totals 160, 790, 661 146, 273, 951 136, 646, 536 Less: Accumulated depreciation (42,699,978) (37,979,543) (34,688,094) Net of accumulated depreciation 118,090,683 108,294,408 101,958,442 Construction work in progress 3,827,711 13,488,564 16,023,820 Land held for future use - 288,663 288,663 TOTALS $ 121,918,394 $ 122,071,635 $ 118,270,925 Net capital assets (additions, less retirements and depreciation) increased $0.2 million (0%) in 2011 and $3.8 million (3%) in 2010. Water distribution facilities increased $17.5 from 2009 to 2011 as the 2006 Pipeline Replacement Project was completed and placed into service. LONG-TERM DEBT Long-term debt includes revenue bonds and notes payable. At December 31, 2011, 2010 and 2009, the District had $51.3 million, $48.5 million, and $53.2 million, respectively, in long-term debt outstanding, including current maturities. No new debt was issued in 2010 and 2009, but $7.8 million debt was issued in 2011 to refinance an existing pension obligation. (See notes 1(J), 5, and 8(B)). CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT The financial report is designed to provide readers with a general overview of the District's finances and to demonstrate the District's accountability for the money it receives. If you have questions about this report or need additional financial information, contact: Truckee Donner Public Utility District Accounting & Finance Department 11570 Donner Pass Road Truckee, CA 96161 See accompanying auditors' report. Page 6 FINANCIAL STATEMENTS TRUCKEE DONNER PUBLIC UTILITY DISTRICT CONSOLIDATED BALANCE SHEETS December 31, 2011 and 2010 ASSETS CURRENT ASSETS Funds Operating Designated Restricted Total Funds Accounts receivable, net Unbilled revenues Accrued interest receivable Materials and supplies Prepaid expenses Other Total Current Assets NON -CURRENT ASSETS Other Non -Current Assets Restricted funds Special assessments receivable Deferred charges Unamortized debt expense Other Total Other Non -Current Assets CAPITAL ASSETS Utility plant Accumulated depreciation Construction work in progress Land held for future use Total Utility Plant TOTAL ASSETS On11 OnIn $ 7,331,459 $ 8,255,100 9,500,894 6,958,539 In nn) Ono In ccn n1 1 L/,/.54,0z)1 ZZ)'01.5'0Z)U 2,236,034 1,626,848 2,508,386 2,676,662 99,420 137,425 547,150 560,298 320,059 301,540 45,605 36,823 '30 An1 OnC '31 010 ']AG 2,021,017 1,884,183 6,870,615 7,454,452 610,087 707,520 8,357,128 809,013 17, 858, 847 10, 855,168 160, 790, 661 146, 273, 951 (42,699,978) (37,979,543) 3,827,711 13, 488, 564 - 101 n10'JnA 288,663 1017 n71 n'JC $ 173,268,546 $ 164,140,049 The accompanying notes are an integral part of these consolidated financial statements. Page 9 TRUCKEE DONNER PUBLIC UTILITY DISTRICT CONSOLIDATED BALANCE SHEETS December 31, 2011 and 2010 LIABILITIES AND NET ASSETS 2011 2010 CURRENT LIABILITIES Other Liabilities Accounts payable $ 2,451,579 $ 2,337,424 Customer deposits 488,230 423,850 Other 744,161 785,959 Total Other Liabilities 3,683,970 3,547,233 Current Liabilities Payable From Restricted Assets Current portion of long-term debt 5,508,250 4,841,145 Accrued interest payable 469,296 441,666 Total Current Liabilities Payable from Restricted Assets 5,977,546 5,282,811 Total Current Liabilities 9,661,516 8,830,044 NON -CURRENT LIABILITIES Long-term debt, net of discounts, premiums and losses 44,265,786 41,802,721 Installment loans 1,538,618 1,826,842 Unearned revenues 2,707,318 2,818,645 Total Non -Current Liabilities 48,511,722 46,448,208 Total Liabilities 58,173,238 55,278,252 NET ASSETS Invested in capital assets, net of related debt 86,767,445 85,181,626 Restricted for debt service 12,439,666 12,038,461 Unrestricted 15, 888,197 11, 641, 710 Total Net Assets 115,095,308 108,861,797 TOTAL LIABILITIES AND NET ASSETS $ 173,268,546 $ 164,140,049 The accompanying notes are an integral part of these consolidated financial statements. Page 10 THIS PAGE IS INTENTIONALLY LEFT BLANK TRUCKEE DONNER PUBLIC UTILITY DISTRICT CONSOLIDATED STATEMENTS OF REVENUE, EXPENSES, AND CHANGES IN NET ASSETS For the Years Ended December 31, 2011 and 2010 2011 2010 OPERATING REVENUES Sales to customers $ 31,053,129 $ 31,118,286 Water meter surcharge 746,759 753,642 Standby fees 186,520 186,590 Other 1,497,686 1,417,909 Total Operating Revenues 33,484,094 33,476,427 OPERATING EXPENSES Purchased power 11,342,992 10,645,657 Operations and maintenance 6,548,249 6,372,644 Consumer services 2,753,561 2,577,461 Administration and general 3,422,302 3,275,605 Depreciation 5,216,956 4,749,135 Total Operating Expenses 29,284,060 27,620,502 Operating Income 4,200,034 5,855,925 NON -OPERATING REVENUE (EXPENSES) Investment income 542,025 736,066 Interest expense (1,843,899) (2,081,040) Amortization (40,039) (44,991) Gain (loss) on disposition of assets 777,808 (106,226) Total Non -Operating Expenses (564,105) (1,496,191) Income Before Contributions 3,635,929 4,359,734 CAPITAL CONTRIBUTIONS 2,597,582 1,590,134 CHANGE IN NET ASSETS 6,233,511 5,949,868 NET ASSETS - Beginning of Year 108,861,797 102,911,929 NET ASSETS - END OF YEAR $ 115,095,308 $ 108,861,797 The accompanying notes are an integral part of these consolidated financial statements. Page 12 TRUCKEE DONNER PUBLIC UTILITY DISTRICT CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2011 and 2010 2011 2010 CASH FLOWS FROM OPERATING ACTIVITIES Received from customers $ 33,103,216 $ 33,407,500 Paid to suppliers for goods and services (17,838,792) (17,178,291) Paid to employees for services (5,074,968) (5,446,586) Net Cash Flows from Operating Activities 10,189,456 10,782,623 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Principal payments on long-term debt (3,138,000) (2,805,000) Proceeds from long-term debt issued 7,816,000 - Payment of existing pension obligation (7,816,000) - Interest payments on long-term debt (648,723) (603,381) Net Cash Flows from Noncapital Financing Activities (3,786,723) (3,408,381) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital expenditures for utility plant (4,062,590) (8,725,310) Cost of disposal of property net of salvage (354,563) (168,410) Proceeds from sale of land 1,092,308 - Capital contributions, connection and facility fees 711,067 728,488 Special assessments receipts 583,837 567,671 Principal payments on long-term debt (1,607,145) (1,896,484) Interest payments on long-term debt (1,339,061) (1,533,455) Cash Flows From Capital and Related Financing Activities (4,976,147) (11,027,500) CASH FLOWS FROM INVESTING ACTIVITIES Matured long-term investment reinvested in short-term 1,912,958 - Interest income received 438,476 618,097 Cash Flows from Investing Activities 2,351,434 618,097 Net Change in Cash and Cash Equivalents 3,778,020 (3,035,161) CASH AND CASH EQUIVALENTS — Beginning of Year 23,924,777 26,959,938 CASH AND CASH EQUIVALENTS — END OF YEAR $ 27,702,797 $ 23,924,777 The accompanying notes are an integral part of these consolidated financial statements. Page 13 TRUCKEE DONNER PUBLIC UTILITY DISTRICT CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2011 and 2010 2011 2010 RECONCILIATION OF OPERATING INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES Operating income $ 4,200,034 $ 5,855,925 Noncash items included in operating income Depreciation and amortization 5,216,957 4,749,135 Amortization of deferred expenses 62,232 62,232 Depreciation charged to other accounts 353,422 225,125 Changes in assets and liabilities Accounts receivable and unbilled revenues (440,910) (237,513) Materials and supplies 13,148 99,474 Prepaid expenses and other current assets (18,519) (600) Accounts payable 579,207 (183,712) Customer deposits 60,030 168,586 Other current liabilites 163,855 43,971 NET CASH FLOWS FROM OPERATING ACTIVITIES $ 10,189,456 $ 10,782,623 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE BALANCE SHEET Operating $ 7,331,459 $ 8,255,100 Designated 9,500,894 6,958,539 Restricted bond funds - current 10,902,298 10,660,011 Restricted bond funds - non -current 2,021,017 1,884,183 Total Cash and Investments 29,755,668 27,757,833 Less: Long-term investments (1,698,881) (3,594,876) Mark to market adjustment (353,990) (238,180) TOTAL CASH AND CASH EQUIVALENTS $ 27,702,797 $ 23,924,777 The accompanying notes are an integral part of these consolidated financial statements. Page 14 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTES TO FINANCIAL STATEMENTS 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. The following is a description of the District's blended component units: 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). Truckee Donner Public Utility District Community Facilities District No. 03-1 (Old Greenwood) is a legal entity created to issue special tax bonds to finance various public improvements needed to develop property located within Old Greenwood. Truckee Donner Public Utility District Community Facilities District No. 04-1 (Gray's Crossing) is a legal entity created to issue special tax bonds to finance various public improvements needed to develop property located within Gray's Crossing. 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. B. 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. Page 15 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. The District follows all pronouncements of the GASB, and has elected not to follow Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989. 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. DESIGNATED ASSETS The board has designated certain resources for future capital projects, replacements and operational needs. E. 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. F. ACCOUNTS RECEIVABLE AND ALLOWANCES FOR DOUBTFUL ACCOUNTS Accounts receivable are recorded at the invoiced amount and are reported net of allowances of $88,845 and $124,134 for 2011 and 2010, respectively. G. MATERIALS AND SUPPLIES Materials and supplies are recorded at average cost. H. UNAMORTIZED FINANCING COSTS Certain costs related to borrowing funds are amortized over the term of the related borrowings using the effective interest method. I. SPECIAL ASSESSMENT RECEIVABLE Special assessments 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 8. Page 16 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) J. DEFERRED CHARGES In 2003, the District entered into a broadband dark fiber maintenance agreement with Sierra Pacific Communications (SPC) which is included in other deferred charges on the accompanying balance sheets. 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). In 2011, the District refinanced an existing $7.8 million pension side fund obligation for its participation in CalPERS. (See notes 5 and 8(B)). Prior to 2011, the annual side fund payments were expensed and described in the Notes to Financial Statements. The pension liability was not required to be reported on the District's Balance Sheet, but the future pension expense was included in budget and rate calculations. This pension obligation will be deferred through 2022. K. CAPITAL ASSETS Capital assets are generally defined by the District as assets with an initial, individual cost of more than $2,500 and an estimated useful life in excess of one year. Capital assets of the District are stated at the lower of cost or the fair market 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 2010 and 2011; no interest was capitalized in 2010 or in 2011. L. 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. M. REVENUE RECOGNITION The District records estimated revenues earned, but not billed to customers, as of the end of the year. Revenues are recorded as meters are read on a cycle basis throughout each month for electric and water customers. 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. Page 17 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) N. 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. O. 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 Northern California Power Agency (NCPA). These purchases of services represented 8.5% and 10.2% of total purchased power costs in 2011 and 2010, respectively. Beginning January 1, 2005, the District entered into an agreement with the Western Area Power Administration (WAPA). In accordance with this agreement, the District is entitled to an allocation of power generated by the WAPA system. Because delivery of the power from WAPA to the District is difficult, the District assigns the power from WAPA to NCPA. The scheduler then uses the value of this power to offset power purchases from the Utah Associated Municipal Power System (UAMPS) or other deliverable power purchases. 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 2011 and 2010, the UAMPS contract, along with its appendices, and the WAPA contract comprised the majority of a diversified power portfolio that balanced risk and cost for the District. P. INCOME TAXES As a government agency, the District is exempt from payment of federal and state income taxes. Q. 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 balance sheet. Page 18 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) R. RECENT ACCOUNTING PRONOUNCEMENTS IMPLEMENTED BY THE DISTRICT In June of 2007, GASB issued Statement No. 51, "Accounting and Financial Reporting for Intangible Assets." This Statement is effective for financial statements for periods beginning after June 15, 2009. Governments possess many different types of assets that may be considered intangible assets, including easements, water rights, timber rights, patents, trademarks, and computer software. The objective of this statement is to establish accounting and financial reporting requirements for intangible assets to enhance the comparability of the accounting and financial reporting of such assets among state and local governments. This statement requires that an intangible asset be recognized in the statement of net assets only if it is considered identifiable. Additionally, this statement establishes a specified -conditions approach to recognizing intangible assets that are internally generated. This statement also establishes guidance specific to intangible assets related to amortization. This statement was implemented in fiscal year 2010 with no significant impact. In December 2009, GASB issued Statement No. 57, "OPEB Measurements by Agent Employers and Agent Multiple — Employer Plans." This statement addressed issues related to the use of the alternative measurement method and the frequency and timing of measurements by employers that participate in agent multiple -employer Other Post -Employment Benefit (OPEB) plans. The statement amended previous GASB statements on OPEB plans, and improved the consistency of reporting for OPEB plans. This statement was implemented in fiscal year 2011. In June 2010, GASB issued Statement No. 59, `Financial Instruments Omnibus." This statement addresses topics relating to the reporting and disclosure of certain financial instruments and external investment pools, and includes some clarifications to GASB Statement No. 53. The District assessed the financial statement impact of adopting the new statement, and its impact was not material. This statement was implemented in fiscal year 2011. In December 2010, GASB issued Statement No. 62, "Codification of Accounting and Financial Reporting Guidance Contained in the Pre -November 30, 1989 FASB and AICPA Pronouncements." This statement incorporates into GASB's authoritative literature certain accounting and financial reporting guidance issued on or before November 30, 1989 included in: FASB Statements and Interpretations, Accounting Principles Board Opinions, and Accounting Research Bulletins of the AICPA Committee on Accounting Procedure that do not conflict with or contradict GASB pronouncements. The statement also supersedes GASB Statement No. 20, `Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting" which eliminates the election for business - type activities to apply post -November 30, 1989 FASB Statements and Interpretations that do not contradict or conflict with GASB pronouncements. The District assessed the financial statement impact of adopting the new statement, and its impact was not material. This statement was implemented in fiscal year 2011. S. ACCOUNTING PRONOUNCEMENTS TO BE IMPLEMENTED IN UPCOMING YEARS In November 2010, GASB issued Statement No. 61, "The Financial Reporting Entity - Omnibus — An Amendment of GASB Statements No. 14 and No. 34." This statement modifies GASB Statement 34 requirements for inclusion of component units and amends criteria for reporting of component units. The statement also clarifies the reporting of equity interests in legally separate organizations. This statement is effective for periods after June 15, 2012. The District has elected not to early implement GASB Statement No. 61 and has not determined its effect on the District's financial statements. Page 19 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) In June 2011, GASB issued Statement No. 63, `Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position." This statement provides guidance on reporting deferred inflows and outflows of resources. The statement will also standardize the presentation of deferred inflows and outflows of resources and their effect on a government's net position. This statement is effective for periods beginning after December 15, 2011. The District has elected not to early implement GASB Statement No.63, but the District does not believe that its impact will be material. T. RECLASSIFICATION Certain amounts in the 2010 Financial Statements have been reclassified in order to conform to the 2011 presentation. 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 has 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 has created an electric rate stabilization fund in anticipation of future costs. During both 2011 and 2010, 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. Page 20 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 2 — CASH, CASH EQUIVALENTS, AND INVESTMENTS (Continued) Water Capital Replacement Starting in 2006, the Board has set aside a portion of water revenues designated for future water infrastructure replacement. 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 Fund Effective 2007, the Board has set aside a portion of the water rates to improve the cash -to -debt - service ratio. 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. Glenshire Lease Proceeds From 2009 until 2011, the District received funds for a parcel leased in Glenshire. In 2011, the balance of the "Glenshire Lease Proceeds" fund was transferred to the restricted fund, "Glenshire Escrow Account," which is used to pay the installment loan associated with Glenshire water system improvements. As of December 31, board designated accounts consisted of the following: Electric capital replacement fund Electric vehicle reserve Electric rate reserve Reserve for future meters Water capital replacement fund Water vehicle reserve Prepaid connection fees Debt service coverage fund Donner Lake Assessment District surcharge fund Glenshire lease proceeds Totals 2011 2010 $ 11,606 $ 124,642 166,772 295,803 2,384,084 2,306,459 426,169 153,033 3,388,950 1,920,655 57,585 138,714 81,479 81,117 2,940,454 1,885,527 43,795 33,009 - 19,580 $ 9,500,894 $ 6,958,539 Page 21 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 2 — CASH, CASH EQUIVALENTS, AND INVESTMENTS (Continued) Certain assets have been restricted by bond covenants or third party contractual agreements for the following purposes: Certificates of Participation: Electric The terms of the Electric Division's Certificates of Participation require a reserve fund as security for each principal and interest payment as they come due. A reserve fund is set aside as prescribed in the loan documents. These reserve funds are held by Bank of New York Mellon Trust Company. Certificates of Participation: Water The terms of the Water Division's Certificates of Participation require a reserve fund as security for each principal and interest payment as they come due. A reserve fund is set aside as prescribed in the loan documents. These reserve funds are held by Bank of New York Mellon Trust Company. 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 will be 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. Glenshire Escrow Account The District received cash and other assets as part of its acquisition of the Glenshire Mutual Water Company. Also, the District will continue to receive a monthly water system upgrade surcharge from Glenshire residents until November 30, 2017. This cash is 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. Page 22 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 2 - CASH, CASH EQUIVALENTS, AND INVESTMENTS (Continued) Donner Lake Special Assessment District Improvement Fund The District established the Donner Lake Special Assessment District (DLAD) 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. 2006 COP Water System Project Fund During 2006, the District issued $26.6 million in water Certificates of Participation (2006 COP) (see note 5), the proceeds of which are to be used in part for future water system replacement. The District established the Water System Project Fund to account for the unspent bond proceeds. The District is allowed to draw upon such funds as valid construction costs are incurred. Solar Initiative Fund The California Solar Initiative Senate Bill 1 (SB-1) was enacted in 2006, mandating that all publicly -owned electric utilities within the State of California, prepare, adopt and implement a solar rebate program by January 2008 to encourage its customers to install solar energy systems. In 2007, the Board adopted a rebate program effective January 2008, targeting $177,400 annually over ten years to be used as rebates for the installation of solar electricity systems and to raise these funds through a customer surcharge. 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. When both restricted and unrestricted resources are available for use, it is the District's policy to use restricted resources first, then unrestricted resources as they are needed. Page 23 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 2 — CASH, CASH EQUIVALENTS, AND INVESTMENTS (Continued) As of December 31, restricted cash and cash equivalents and investments consisted of the following: Certificates of Participation Facilities fees DWR-Prop 55 reserve fund Glenshire escrow accounts Donner Lake Special Assessment District improvement Donner Lake Special Assessment District reserve fund 2006 COP Water System Project fund Solar Initiative Other (area improvement funds) Total Restricted Cash and Cash Equivalents and Investments 2011 2010 $ 7,714,106 $ 7,343,768 991,254 1,389, 369 308,346 306,946 498,719 189,168 2,556,368 2,386,587 481,130 401,304 22,023 227,425 230,028 178,825 121,341 12 0, 802 $ 12,923,315 $ 12,544,194 Cash and investments are comprised of the following cash and cash equivalents and investments as of December 31: Cash and cash equivalents Mark to market adjustment Investments — government bonds Totals 2011 2010 $ 27,702,797 $ 23,924,777 353,990 238,180 1,698,880 3,594,876 $ 29,755,667 $ 27,757,833 Cash and cash equivalents were $27,702,797 and $23,924,777 at December 31, 2011 and 2010, respectively. Cash equivalents substantially consist of investments in the state pooled fund, money market funds and government bonds. For purposes of the statements of cash flows, the District considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. Adjustments necessary to record investments at market value are recorded in the operating statement as increases or decreases in investment income. Market values may have changed significantly after year end. Page 24 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 2 — CASH, CASH EQUIVALENTS, AND INVESTMENTS (Continued) 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"). 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 31, 2011 and 2010 the District's deposits and investments were held as follows: Cash on hand Deposits LAIF Money Market Funds Government Bonds Totals DISCLOSURES RELATING TO INTEREST RATE RISK 2011 2010 1,900 $ 1,200 690,265 554,019 21,695,547 17,971,782 5,669,075 5,635,956 1,698,880 3,594,876 $ 29,755,667 $ 27,757,833 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 2011 and 2010: Investment Maturitv LAIF 3 months or less Federated U.S. Treasury Cash Reserve 3 months or less Fidelity Institutional Prime 3 months or less Fidelity Money Market 3 months or less Federal Home Loan Mortgage 09/15/2011 Federal Farm Credit Banks 03/02/2021 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 does not have a rating provided by a nationally recognized statistical rating organization. The Fidelity Money Market is also not rated. The Fidelity Institutional Prime is rated AAAm by S&P and AAA-mf by Moody's. The Federated U.S. Treasury Cash Reserve 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. Page 25 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 2 — CASH, CASH EQUIVALENTS, AND INVESTMENTS (Continued) DISCLOSURES RELATING TO CONCENTRATION OF CREDIT RISK Concentration of credit risk is the risk of loss attributed to the magnitude of investments in a single issuer. The District's investment policy requires diversification, but does not include specific limitations by issuer. As of December 31, 2011 and 2010 the portfolio included the following investment requiring disclosure: 2011 2010 Federal Home Loan Mortgage matured 5.7% Federal Farm Credit Banks 4.8% 5.1% 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, 2011 and 2010 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). INVESTMENT 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. Page 26 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 3 — CAPITAL ASSETS Capital assets consist of the following at December 31, 2011 and 2010: Electric distribution facilities Water distribution facilities General plant Less: Accumulated depreciation Construction work in progress Land held for future use Totals Electric distribution facilities Water distribution facilities General plant Less: Accumulated depreciation Construction work in progress Land held for future use Totals January 1, December 31, 2011 Additions Reductions 2011 $ 42,895,235 $ 4,064,797 $ (64,039) $ 46,895,993 91,627,643 10,573,081 (15,923) 102,184,801 11,751,073 688,712 (729,919) 11,709,866 146,273,951 15,326,590 (809,880) 160,790,661 (37,979,543) (5,453,483) 733,048 (42,699,978) 13,488,564 4,181,758 (13,842,611) 3,827,711 288,663 24,901 (313,564) - $ 122,071,635 $ 14,079,766 $ (14,233,007) $ 121,918,394 January 1, December 31, 2010 Additions Reductions 2010 $ 41,569,467 $ 1,395,129 $ (69,361) $ 42,895,235 84,674,906 8,123,963 (1,171,226) 91,627,643 10,402,163 1,729,289 (380,379) 11,751,073 136,646,536 11,248,381 (1,620,966) 146,273,951 (34,688,094) (4,912,415) 1,620,966 (37,979,543) 16,023,820 11,374,415 (13,909,671) 13,488,564 288,663 - 288,663 $ 118,270,925 $ 17,710,381 $ (13,909,671) $ 122,071,635 As of December 31, 2011 and 2010, the plant in service included land and land rights, $1,876,099 and $1,789,557, respectively, which is 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. At the end of 2011, there were open contracts with one contractor totaling $0.2 million. All completed work was paid or accrued, and recorded in construction work in progress. At the end of 2010, there were open contracts with three contractors totaling $0.4 million. All completed work was paid or accrued, and recorded in construction work in progress. Page 27 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 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 has completed the broadband design project and obtained the necessary regulatory approvals and franchises needed to construct and launch the broadband project. Expenses incurred by the District to date on the broadband project total $2,834,079 of which $496,990 is included in capital assets on the accompanying balance sheet. During 2011 and 2010, there were no material expenditures for this 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. Page 28 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 5 — LONG-TERM DEBT Long-term debt consisted of the following at December 31, 2011: January 1, December 31, Due within 2011 Additions Reductions 2011 one year Certificates of Participation — Electric, 2.5% to 5.75%, due serially to 2013 (net of unamortized premiums of $15,524). $ 9,380,741 $ - $ (2,970,214) $ 6,410,527 $ 3,110,000 Pension Obligation Bonds Electric, 5% due semi-annually - 7,816,000 (198,000) 7,618,000 428,000 State RevohAng Fund Loan — Water, 2.34%, due semi-annually beginning in 2006 to 2026. 10,081,855 - (282,469) 9,799,386 574,890 Certificates of Participation — Water, 4.00% to 5.00%, due serially to 2036 (net of unamortized discounts of $99,398, premiums of $445,295 and arbitrage of 24,182,097 (1,028,695) 23,153,402 870,000 $7,507). Department of Water Resources, 3.18%, due semiannually to 2021, secured by real and personal property. 2,718,138 (221,868) 2,496,270 228,910 Installment loans, 5.4% to 6.23%, various payment terms and due dates, secured by equipment. 2,107,875 (272,806) 1,835,069 296,450 Totals $ 48,470,706 $ 7,816,000 $ (4,974,052) $ 51,312,654 $ 5,508,250 Page 29 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 5 — LONG-TERM DEBT (Continued) Long-term debt consisted of the following at December 31, 2010: Certificates of Participation — Electric, 2.5% to 5.75%, due serially to 2013 (net of unamortized premiums of $45, 738). $ State RevohAng 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 2036 (net of unamortized discounts of $107,209, premiums of $480,286 and arbitrage of $179, 022). 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 January 1, 2010 Additions Reductions December 31, Due within 2010 one year 12, 229, 844 $ $ (2,849,103) $ 9,380,741 $ 2,940,000 10, 637, 030 (555,175) 10, 081, 855 568,242 24,996,322 (814,225) 24,182,097 830,000 2,933,120 (214,982) 2,718,138 221,867 equipment. 2,429,207 (321,332) 2,107,875 281,036 Totals $ 53,225,523 $ $ (4,754,817) $ 48,470,706 $ 4,841,145 On April 3, 2003, the District issued $26,265,000 of Certificates of Participation, the net proceeds of which were utilized to pay the amounts due to IDACORP for the purchase power contract settlement fees, as well as to cover the associated costs of issuance. The terms of the new Certificates call for debt service payments to be made only from the net revenues of the Electric Division. These revenues are required to be at least equal to 120% of the debt service for each year. 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. The District is also required to fund a reserve account by making semi-annual reserve payments in the amount of $40,043 for a 10-year period beginning 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 for additional information. Page 30 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 5 — LONG-TERM DEBT (Continued) On October 12, 2006, Truckee Donner Public Utility District Financing Corporation 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 issuance 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 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. 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 CalPERS. (See notes 1(J) and 8(B)). 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 Balance Sheet, but the future pension expense was included in budget and rate calculations. The new refunding rate of 5% reduces the District's annual pension costs by almost $100,000 through 2022. Page 31 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 5 — LONG-TERM DEBT (Continued) 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 2010 or in 2011. Scheduled payments on debt are: Principal Interest Total 2012 $ 5,508,250 $ 2,075,275 $ 7,583,525 2013 5,798,394 1,798,104 7,596,498 2014 2,594,096 1,605,552 4,199,648 2015 2,729,830 1,503,594 4,233,424 2016 2,865,919 1,395,680 4,261,599 2017-2021 15,160, 949 5,234,337 20, 395, 286 2022-2026 7,161, 288 2,838,899 10, 000,187 2027-2031 4,030,000 1,770,375 5,800,375 2032-2036 5,095,000 708,075 5,803,075 50, 943, 726 $ 18, 929, 891 $ 69, 873, 617 Plus: Unamortized premiums 460,819 Arbitrage rebate 7,507 Less: Unamortized discounts (99,398) Total carrying value $ 51,312,654 NOTE 6 — UNEARNED REVENUES For transactions that have not yet met revenue recognition requirements, revenues are deferred and reflected in the accompanying balance sheets. As of December 31, 2011 and 2010, 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, 2011 and 2010: Development agreement deposits Connection fees and other deposits Totals Development agreement deposits Connection fees and other deposits Totals January 1, December 31, 2011 Additions Reductions 2011 1,748,499 613,864 (740,552) 1,070,146 426,734 (411,374) $ 2,818,645 $ 1,040,598 $ (1,151,926) January 1, 2010 Additions Reductions 1,576,173 716,966 (544,640) 1,083,388 331,984 (345,226) $ 2,659,561 $ 1,048,950 $ (889,866) 1,621,811 1,085,506 $ 2,707,317 December 31, 2n1n 1,748,499 1,070,146 $ 2,818,645 Page 32 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 7 — DONNER LAKE WATER COMPANY AQUISITION 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. As of December 31, 2011 and 2010, the assessment receivable from the property owners was $6,870,615 and $7,454,452 respectively, of which $622,071 and $607,597 is due in the next year. These amounts are shown as Special Assessments Receivable in the Balance Sheet. 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. NOTE 8 — EMPLOYEE BENEFIT PLANS A. CALPERS MISCELLANEOUS 2.7% AT 55 RISK POOL PENSION PLAN The District and bargaining unit employees elected to participate in the Public Agency portion of California Public Employees' Retirement System (CaIPERS) "Miscellaneous 2% at 60 Risk Pool," effective August 21, 2004. On November 15, 2010, the Board of Directors adopted an amendment to the CaIPERS Miscellaneous Risk Pool Pension to increase retiree benefits from the 2% at 60 Plan to the 2.7% at 55 Plan, effective January 1, 2011. The employees pay the additional cost through increased payroll deductions and a relinquishment a 3% employer match to the deferred compensation plan. The CaIPERS Miscellaneous 2.7% at 55 Risk Pool is a cost -sharing multi -employer defined benefit plan administered by CaIPERS, which acts as a common investment and administrative agent for participating public employers within the state of California. State statutes within the Public Employees' Retirement Law establish a menu of benefit provisions, as well as other requirements. The District selects optional benefit provisions from the benefit menu by contract with CaIPERS and adopts those benefits through local ordinance or resolution. The CaIPERS plan also provides for death and disability benefits. CaIPERS issues a separate comprehensive annual financial report. Copies of the CaIPERS' comprehensive annual financial report may be obtained from: California Public Employees' Retirement System 400 Q Street P.O. Box 942701 Sacramento, CA 94229-2701 Tel. 888-225-7377 http://www.calpers.ca.gov Page 33 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 8 — EMPLOYEE BENEFIT PLANS (Continued) Prior to January 2011, active plan participants were required to contribute 7% of their annual covered salary, of which the District paid 4% on behalf of the participants. Effective January 2011, active participants are required to contribute 8% of their annual covered salary, of which the District pays 4%. The District and the employees are also required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its participants. The required employer contribution rate for fiscal years ending June 30, 2011 and 2010 was 17.086% and 17.418% of payroll. The contribution requirements of the plan participants are established by State statute and the employer contributions rate is established and may be amended by CalPERS. The District's annual pension cost (APC) for the years ended December 31, 2011, 2010, and 2009 respectively, was $1,238,501, $1,190,116, and $1,291,312, and was equal to the District's annual required contributions (ARC) as determined by the June 30, 2010, 2009 and 2008 actuarial valuations using the entry age normal actuarial cost method with the contributions determined as a percent of payroll. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. Significant actuarial assumptions and methods include: Actuarial Cost Method Amortization Method Average Remaining Period Asset Valuation Method Investment Rate of Return Projected Salary Increases Inflation Payroll Growth Entry Age Actuarial Cost Method Level Percent of Payroll 19 Years as of the Valuation Date 15 Year Smoothed Market 7.75% (Net of Administrative Expenses) 3.55% - 14.45% 3% 3.25% The plan's unfunded actuarial accrued liability is being amortized as a level percentage of projected payrolls on an open basis over a period not to exceed 30 years. Retirement plans like the District's with less than 100 active members are required to participate in a risk pool. Therefore, the funding progress for the District for the June 30, 2010 and 2009 valuation dates are for the entire pool, not just the District employees. The following are funding schedules for the current and former CalPERS pooled pension plans: Schedule of Pension Plan Funding Progress - 2.7%@ 55 (Started Participation January 1, 2011) Accrued Actuarial Unfunded Funded Annual Valuation Liabilities Value of Liabilities Ratio Covered UL as a % Date (AL) Assets (AVA) (UL) (AVA/AL) Payroll of Payroll 06/30/2008 $1,823,366,479 $1,529,548,799 $ 293,817,680 83.9% $ 414,589,514 70.9% 06/30/2009 $2,140,438,884 $1,674,260,302 $ 466,178,582 78.2% $ 440,071,499 105.9% 06/30/2010 $2,297,871,345 $1,815,671,616 $ 482,199,729 79.0% $ 434,023,381 111.1% Schedule of Pension Plan Funding Progress - 2%@ 60 (Ended participation December 31, 2010) Accrued Actuarial Unfunded Funded Annual Valuation Liabilities Value of Liabilities Ratio Covered UL as a % Date (AL) Assets (AVA) (UL) (AVA/AL) Payroll of Payroll 06/30/2007 $ 498,934,859 $ 479,520,670 $ 19,414,189 96.1% $ 171,052,819 11.3% 06/30/2008 $ 532,483,463 $ 513,147,099 $ 19,336,364 96.4% $ 183,387,608 10.5% 06/30/2009 $ 582,841,869 $ 553,953,526 $ 28,888,343 95.0% $ 184,319,666 15.7% Page 34 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 8 — EMPLOYEE BENEFIT PLANS (Continued) As of July 1, 2011, the District contribution rate changed to 14.113% of payroll. This was equivalent to the scheduled 27.616%, less 13.503% for the pension side fund that was refinanced on June 30, 2011. B. EXISTING PENSION OBLIGATION - PENSION SIDE FUND At the time of joining the CalPERS Miscellaneous Risk Pool, an employer side fund was created to account for the difference between the funded status of the pool and the funded status of the District's plan. The side fund used the actuarial assumption of a 7.75% investment return and it was amortized on a closed basis, ending in 2022. On June 30, 2011, the District refinanced the existing $7.8 million pension side fund obligation with amortized payments through 2022 and a 5% rate. (See notes 1(J) and 5). A portion of the debt service of the existing pension obligation is paid by the employees as a 3.5% payroll deduction. The remaining debt service is paid by the District and recorded as pension expense; allocated 63% to the Electric Utility and 37% to the Water Utility. The net side fund pension expense for the six months ending December 31, 2011 was $340,836. C. DEFERRED COMPENSATION PLAN The District maintains two deferred compensation plans: a 401(a) and a 457 plan, (the Plans) for certain employees. The District has no liability for losses under the Plans, but does have the duty of due care that would be required of an ordinary prudent investor. The District has not reflected the Plans' assets and corresponding liabilities (if any) on the accompanying balance sheets. D. OTHER POST EMPLOYMENT BENEFITS (OPEB) The District administers a single -employer defined benefit healthcare plan (The Retiree Health Plan). Contribution requirements and benefit provisions are established through collective bargaining agreements and may be amended only through negotiations between the District and the Union. The plan provides health insurance contributions for eligible retirees and their spouses through the District's group health insurance plan, which covers both active and retired members. Health insurance includes medical insurance, dental insurance, and prescriptions. The Retiree Health Plan does not issue a publicly available financial report. The District began providing post employment health care on January 1, 2000 to all employees, and qualified dependents, that retire from the District on or after attaining age 60 with service of at least 20 years. As of December 31, 2010, there were eleven active plan participants. The monthly amount paid by the District is capped at $475 for each participant or $375 for each participant eligible for Medicare. For participants with less than 20 years of service, the benefit is reduced by 5% for each year. For participants who retired prior to age 60, the benefit is reduced by 2% for each year. Expenditures for post employment health care benefits are recognized when premiums are paid. On November 7, 2007, the Board approved a participation agreement with CalPERS to be the plan administrator for the District's other post employment benefit (OPEB) trust. The participation agreement was submitted to CalPERS on November 8, 2007, and became effective on January 15, 2008. At that time, accumulated deposits from the prior year, plus accrued interest, were transferred to the California Employers' Retiree Benefit Trust Program (CERBT). Page 35 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 8 — EMPLOYEE BENEFIT PLANS (Continued) The funds of the Retiree Health Plan are invested in CERBT, which is a tax qualified trust organized under Internal Revenue Code (IRC) Section 115. Participation in the trust is limited to those agencies who qualify as "government" entities under that IRC section. The CERBT is an irrevocable trust established for the purpose of receiving employer contributions to prefund health and other postemployment benefits for retirees and their beneficiaries. The CERBT administrative costs are financed through investment earnings. Copies of the CaIPERS' comprehensive annual financial report, that includes CERBT investment performance, may be obtained from: California Public Employees' Retirement System 400 Q Street P.O. Box 942701 Sacramento, CA 94229-2701 Tel. 888-225-7377 http://www.calpers.ca.gov The District's annual OPEB expense is calculated based on the ARC, an amount actuarially determined in accordance within the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year. The plan's unfunded actuarial accrued liability is being amortized as a level percentage of projected payrolls on an open basis, over a period not to exceed 30 years, using the entry age normal cost method. The following table shows the components of the District's annual OPEB cost, the amount actually contributed to the plan, and changes in the net OPEB obligation to the Retiree Health Plan: Annual %of Change in OPEB Net OPEB Fiscal Required Interest Annual Annual Net OPEB Obligation Obligation Year Contribution and OPEB Actual OPEB Cost Obligation (Asset) (Asset) Ended" (ARC) Adjustments Cost Contribution Contributed (Asset) January 1 December 31 12/31/2009 $ 203,500 $ $ 203,500 $ 202,680 99.6% $ 820 $ (98,104) $ (97,284) 12/31/2010 $ 207,600 $ $ 207,600 $ 212,008 102.1% $ (4,408) $ (97,284) $ (101,692) 12/31/2011 $ 271,200 $ 1,322 $ 272,522 $ 237,501 87.1% $ 35,021 $(101,692) $ (66,671) Actuarial valuations of an ongoing plan are required at least once every two years and involve estimates for the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and historical pattern of sharing benefit costs between the employer and plan members to that point. The methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of calculations. Page 36 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 8 — EMPLOYEE BENEFIT PLANS (Continued) Significant actuarial assumptions include: Actuarial Cost Method Discount Rate General Inflation Amortization of Unfunded Liability Projected Unit Credit 7.5% 3% Annual Increase 25 Years; Level Annual Payments The following is a funding schedule for the Retiree Health Plan: Schedule of Retiree Health Plan Funding Progress Accrued Actuarial Unfunded Funded Annual Valuation Liabilities Value of Liabilities Ratio Covered UL as a % Date* (AL) Assets (AVA) (UL) (AVA/AL) Payroll of Payroll 01/01/2007 $ 1,369,600 $ 198,800 $ 1,170,800 14.5% $ 4,925,600 23.8% 01/01/2009 $ 1,748,000 $ 230,900 $ 1,517,100 13.2% $ 5,276,400 28.8% 01/01/2011 $ 2,501,800 $ 645,700 $ 1,856,100 25.8% $ 6,307,400 29.4% 07/01/2011 $ 2,657,000 $ 661,400 $ 1,995,600 24.9% $ 6,226,000 32.1% *Funding began in 2007. Valuations are required once every two years. In 2011, the vaulation date changed to July 1 in compliance with GASB Statement No. 57. NOTE 9 — SELF FUNDED INSURANCE The District has a self -funded vision insurance program and claims were processed by and on behalf of the District. The District did not maintain a claim liability; rather claims were expensed as paid. The amount of claims paid for each of the past three years have not been material. Page 37 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 10 —SEGMENT DISCLOSURE The District has issued revenue bonds to finance electric and water distribution facilities. Each project has an external requirement to be reported separately, and investors in the revenue bonds rely solely on the revenue generated by the individual projects for repayment. Summary financial information for each project is presented on the following pages for the years ending December 31, 2011 and 2010. BALANCE SHEETS ASSETS Current assets Non -current assets: Capital assets, net Restricted assets Other long-term assets Total Noncurrent Assets TOTAL ASSETS LIABILITIES AND NET ASSETS Current liabilities Non -current Liabilities Long-term debt, net of current portion Unearned re\enues Total Liabilities December 31, 2011 41,035,844 80,882,550 - 2,021,017 8,378,619 7,459,211 49,414,463 90,362,778 $ 67,005,967 $ 106,262,579 $ 6,632,745 $ 3,028,771 10, 653, 047 35,151, 357 19,442,467 38,730,771 Net Assets Invested in capital assets, net 40,978,938 45,788,507 of related debt Restricted for debt service 5,793,876 6,645,790 Unrestricted 790,686 15, 097, 511 Total Net Assets 47,563,500 67,531,808 TOTAL LIABILITIES AND NET ASSETS $ 67,005,967 $ 106,262,579 Page 38 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 10 — SEGMENT DISCLOSURE (Continued) ASSETS Current assets Non -current assets: Capital assets, net Restricted assets Other long-term assets Total Noncurrent Assets TOTAL ASSETS LIABILITIES AND NET ASSETS Current liabilities Non -current Liabilities Long-term debt, net of current portion Unearned re\enues Total Liabilities Net Assets Invested in capital assets, net of related debt Restricted for debt service Unrestricted Total Net Assets TOTAL LIABILITIES AND NET ASSETS December 31, 2010 Electric Water $ 17, 047, 683 $ 14,165, 563 40, 083, 780 81, 987, 855 - 1,884,183 872,346 8,098,639 40, 956,126 91, 970, 677 $ 58, 003, 809 $ 106,136, 240 $ 5,649,704 $ 3,180, 340 6,657,919 36,971,644 2,140, 780 677,865 14,448,403 40,829,849 40, 041, 718 45,139, 908 5,425,987 6,612,474 (1,912,299) 13,554,009 43, 555, 406 65, 306, 391 $ 58,003,809 $ 106,136,240 Page 39 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 10 — SEGMENT DISCLOSURE (Continued) STATEMENTS OF REVENUE, EXPENSES, AND CHANGES IN NET ASSETS Operating Revenues Sales to consumers Other operating re\enues Operating expenses Depreciation Non -operating re\enues (expenses) Income (loss) before capital contributions Capital contributions, net CHANGE IN NET ASSETS NET ASSETS, BEGINNING NET ASSETS, ENDING Operating Revenues Sales to consumers Other operating revenues Operating expenses Depreciation Non -operating re\enues (expenses) Income (loss) before capital contributions Capital contributions, net CHANGE IN NET ASSETS NET ASSETS, BEGINNING NET ASSETS, ENDING Year ended December 31. 2011 Electric Water $ 21,106, 358 $ 9,946,771 2,718,676 1,283,733 (18,753,199) (6,885,349) (1,659,556) (3,557,400) (446,332) (117,773) 2,965,947 669,982 1,042,147 1,555,435 4,008,094 2,225,417 $ 47, 563, 500 $ 67, 531, 808 Year ended December 31, 2010 Electric Water $ 20, 922, 276 $ 10,196, 010 2,698,466 1,371,802 (17,853,963) (6,729,531) (1,609,711) (3,139,424) (640,959) (855,232) 3,516,109 843,625 39,150,140 63, 761, 789 $ 43, 555, 406 $ 65, 306, 391 Page 40 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 10 — SEGMENT DISCLOSURE (Continued) STATEMENTS OF CASH FLOWS NET CASH PROVIDED BY (USED IN) Operating activities Noncapital financing activities Capital and related financing activities Investing activities Net increase (decrease) in cash and cash equivalents Cash and Cash Equivalents, Beginning CASH AND CASH EQUIVALENTS, ENDING NET CASH PROVIDED BY (USED IN) Operating activities Noncapital financing activities Capital and related financing activities Investing activities Net increase (decrease) in cash and cash equivalents Cash and Cash Equivalents, Beginning CASH AND CASH EQUIVALENTS, ENDING Year ended December 31, 2011 $ 5,704,742 $ 4,484,714 (3,786,723) - (1,816,493) (3,159,654) 30,744 2,320,690 132,270 3,645,750 13,447, 916 10,476, 861 $ 13,580,186 $ 14,122,611 Year ended December 31, 2010 Electric Water $ 5,848,631 $ 4,933,992 (3,408,381) - (2,394,024) (8,633,476) 43,617 574,480 89,843 (3,125,004) 13, 358, 073 13, 601, 865 $ 13,447,916 $ 10,476,861 Page 41 TRUCKEE DONNER PUBLIC UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS December 31, 2011 and 2010 NOTE 11 — MARTIS VALLEY GROUNDWATER STUDY The Martis Valley aquifer underlies about 35,000-acres in both Placer and Nevada counties, near the Town of Truckee. It is the main water supply for numerous public and private entities. This area has seen significant growth in the last few decades with more planned for the future. Maintaining an adequate water supply and protecting water quality are critical for the region's future. The Truckee Donner Public Utility District (TDPUD), Northstar Community Services District (NCSD) and Placer County Water Agency (PCWA) are the three primary public water agencies that depend on the Martis Valley Basin for their water supply. Together, the TDPUD, NCSD and PCWA (Partnership Agencies) have partnered to update a groundwater management plan and help develop a groundwater model for the Martis Valley basin. The Martis Valley Groundwater Management Plan (GMP) is being updated to reflect current water resources planning in the region and to incorporate the latest information and understandings of the underlying groundwater basin. This collaborative effort will provide the guidance necessary to align groundwater policy. In addition to updating the groundwater management plan, a computer model of the groundwater basin will be developed, which will incorporate available data and enhance understanding of the groundwater basin. A climate change modeling component will be part of the final groundwater model. Development of the GMP started in April of 2011 and is expected to take about two years to complete. The total cost of the project is approximately $1,000,000, which includes federal funding of approximately $500,000 from the U.S. Bureau of Reclamation and $250,000 from Lawrence Livermore National Laboratory; and contributions of $150,000 from TDPUD and $100,000 from the other members of the Partnership Agencies. NOTE 12 — CLAIMS AND JUDGMENTS From time to time, the utility is party to various pending claims and legal proceedings. Although the outcome of such matters cannot be forecasted with certainty, it is the opinion of management and the utility's legal counsel that the likelihood is remote that any such claims or proceedings will have a material adverse effect on the utility's financial position or results of operations. NOTE 13 — RISK MANAGEMENT The utility is exposed to various risks of loss related to torts; theft of, damage to, or destruction of assets; errors and omissions; workers compensation; and health care of its employees. These risks are covered through the purchase of commercial insurance, with minimal deductibles. Settled claims have not exceeded the commercial liability in any of the past three years. There were no significant reductions in coverage compared to the prior year. Page 42 SUPPLEMENTAL INFORMATION TRUCKEE DONNER PUBLIC UTILITY DISTRICT REQUIRED SUPPLEMENTAL INFORMATION December 31, 2011 CONSOLIDATING BALANCE SHEETS As of December 31, 2011 Electric Water Operations Operations Eliminations Totals ASSETS CURRENT ASSETS Funds Operating $ 5,045,574 $ 2,285,885 $ $ 7,331,459 Designated 2,562,462 6,938,432 9,500,894 Restricted 5,986,031 4,916,267 10, 902, 298 Total Funds 13,594,067 14,140,584 27,734,651 Accounts receivable, net 1,510,546 725,488 2,236,034 Unbilled re\enues 1,808,610 699,776 2,508,386 Accrued interest receivable 7,887 91,533 99,420 Materials and supplies 429,996 117,154 547,150 Prepaid expenses 217,131 102,928 320,059 Other 23,267 22,338 45,605 Total Current Assets 17,591,504 15,899,801 33,491,305 NON -CURRENT ASSETS Other Non -Current Assets Restricted funds - 2,021,017 2,021,017 Special assessments receivable - 6,870,615 6,870,615 Deferred charges Unamortized debt issue costs 21,491 588,596 610,087 Other 8,357,128 8,357,128 Total Other Non -Current Assets 8,378,619 9,480,228 17,858,847 CAPITAL ASSETS Utility plant 54,804,438 105,986,223 160,790,661 Accumulated depreciation (16,753,721) (25,946,257) (42,699,978) Construction work in progress 2,985,127 842,584 3,827,711 Total Utility Plant 41,035,844 80,882,550 121,918,394 TOTAL ASSETS $ 67,005,967 $ 106,262,579 $ $ 173,268,546 Page 44 TRUCKEE DONNER PUBLIC UTILITY DISTRICT REQUIRED SUPPLEMENTAL INFORMATION December 31, 2011 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Other liabilities Accounts payable Customer deposits Other Total other liabilities Current liabilities payable from restricted assets: Current portion of long-term debt Accrued interest payable Total Current Liabilities Payable from Restricted Assets Total Current Liabilities NON -CURRENT LIABILITIES Long-term debt, net of discounts, premiums and losses Installment loans Unearned revenues Total non -current liabilities Total Liabilities NET ASSETS Ingested in capital assets, net of related debt Restricted for debt service Unrestricted Total Net Assets TOTAL LIABILITIES AND NET ASSETS Electric Water Operations Operations Eliminations Totals $ 2,056,751 $ 394,828 $ $ 2,451,579 363,766 124,464 488,230 419,203 324,958 744,161 2,839,720 844,250 3,683,970 3,600,870 1,907,380 5,508,250 192,155 277,141 469,296 3,793,025 2,184, 521 5,977,546 6,632,745 3,028,771 9,661,516 10, 490, 527 33, 775, 259 44, 265, 786 162,520 1,376,098 1,538,618 2,156, 675 550,643 2,707,318 12,809,722 35,702,000 48,511,722 19,442,467 38,730,771 58,173,238 40, 978, 938 45, 788, 507 86, 767, 445 5,793,876 6,645,790 12, 439, 666 790,686 15, 097, 511 15, 888,197 47, 563, 500 67, 531, 808 115, 095, 308 $ 67, 005, 967 $ 106, 262, 579 $ - $ 173, 268, 546 Page 45 TRUCKEE DONNER PUBLIC UTILITY DISTRICT REQUIRED SUPPLEMENTAL INFORMATION December 31, 2011 THIS PAGE IS INTENTIONALLY LEFT BLANK Page 46 TRUCKEE DONNER PUBLIC UTILITY DISTRICT REQUIRED SUPPLEMENTAL INFORMATION December 31, 2011 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS For the Year Ended December 31, 2011 OPERATING REVENUES Sales to customers Water meter surcharge Interdepartmental sales Standby fees Other Total Operating Revenues OPERATING EXPENSES Purchased power Operations and maintenance Consumer services Administration and general Depreciation Total Operating Expenses Operating Income NON -OPERATING REVENUE (EXPENSES) Investment income Interest expense Amortization Gain (loss) on disposition of assets Total Non -Operating Expenses Income Before Contributions CAPITAL CONTRIBUTIONS, net CHANGE IN NET ASSETS NET ASSETS - Beginning of Year NET ASSETS - END OF YEAR Electric Water Operations Operations Eliminations Totals $ 21,106, 358 $ 9,946,771 $ $ 31, 053,129 - 746,759 746,759 1,213,270 2,318 (1,215,588) - 25,480 161,040 186,520 1,479,926 373,616 (355,856) 1,497,686 23,825,034 11,230,504 (1,571,444) 33,484,094 11,342,992 - - 11,342,992 3,330,131 4,433,706 (1,215,588) 6,548,249 1,959,336 794,225 - 2,753,561 2,120, 740 1,657,418 (355, 856) 3,422,302 1,659,556 3,557,400 5,216,956 20,412,755 10,442,749 (1,571,444) 29,284,060 3,412,279 787,755 4,200,034 35,405 506,620 542,025 (380,735) (1,463,164) (1,843,899) (11,628) (28,411) (40,039) (89,374) 867,182 777,808 (446,332) (117,773) (564,105) 2,965,947 669,982 3,635,929 1,042,147 1,555,435 2,597,582 4,008,094 2,225,417 6,233,511 43, 555, 406 65, 306, 391 108, 861, 797 $ 47, 563, 500 $ 67, 531, 808 $ $ 115, 095, 308 Page 47 TRUCKEE DONNER PUBLIC UTILITY DISTRICT REQUIRED SUPPLEMENTAL INFORMATION December 31, 2011 STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2011 Electric Water Operations Operations Eliminations Total CASH FLOWS FROM OPERATING ACTIVITIES Received from customers $ 23,485,662 $ 11,188,998 $ (1,571,444) $ 33,103,216 Paid to suppliers for goods and services (14,617,254) (4,792,982) 1,571,444 (17,838,792) Paid to employees for services (3,163,666) (1,911,302) - (5,074,968) Net Cash Flows from Operating Activities 5,704,742 4,484,714 10,189,456 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Principal payments on long-term debt (3,138,000) - (3,138,000) Proceeds from long-term debt issued 7,816,000 7,816,000 Payment of existing pension obligation (7,816,000) (7,816,000) Interest payments on long-term debt (648,723) (648,723) Net Cash Flows from Noncapital Financing Activities (3,786,723) (3,786,723) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital expenditures for utility plant (2,373,448) (1,689,142) (4,062,590) Cost of disposal of property net of salvage (129,437) (225,126) (354,563) Proceeds from sale of land - 1,092,308 1,092,308 Capital contributions, connection and facility fees 549,063 162,004 711,067 Special assessments receipts - 583,837 583,837 Principal payments on long-term debt (51,447) (1,555,698) (1,607,145) Interest payments on long-term debt 188,776 (1,527,837) (1,339,061) Cash Flows From Capital and Related Financing Activities (1,816,493) (3,159,654) (4,976,147) CASH FLOWS FROM INVESTING ACTIVITIES Matured long-term investment reinvested in short-term - 1,912,958 1,912,958 Interest income received 30,744 407,732 438,476 Cash Flows from Investing Activities 30,744 2,320,690 2,351,434 Net Change in Cash and Cash Equivalents 132,270 3,645,750 3,778,020 CASH AND CASH EQUIVALENTS — Beginning of Year 13,447,916 10,476,861 23,924,777 CASH AND CASH EQUIVALENTS — END OF YEAR $ 13,580,186 $ 14,122,611 $ $ 27,702,797 NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES During 2011: $508,979 and $1,266,210 of capital assets were contributed to the electric and water utilities, respectively, by customers and developers. $783,065 and $368,859 of prior period unearned revenues were recognized by the electric and water utilities, respectively. Page 48 TRUCKEE DONNER PUBLIC UTILITY DISTRICT REQUIRED SUPPLEMENTAL INFORMATION December 31, 2011 RECONCILIATION OF OPERATING INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES Operating income Noncash items included in operating income Depreciation and amortization Amortization of deferred expenses Depreciation charged to other accounts 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 liabilities NET CASH FLOWS FROM OPERATING ACTIVITIES RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE BALANCE SHEET Operating Designated Restricted bond funds - current Restricted bond funds - non -current Total Cash and Investments Less: Long-term investments Mark to market adjustment TOTAL CASH AND CASH EQUIVALENTS Electric Water Operations Operations Eliminations Total $ 3,412,279 $ 787,755 $ $ 4,200,034 1,659,557 3,557,400 5,216,957 62,232 - 62,232 239,536 113,886 353,422 (380,553) (60,357) (440,910) 10,025 3,123 13,148 (36,361) 17,842 (18,519) 518,073 61,134 579,207 41,180 18,850 60,030 178,774 (14, 919) 163,855 $ 5,704,742 $ 4,484,714 $ $ 10,189, 456 $ 5,045,574 $ 2,285,885 $ $ 7,331,459 2,562,462 6,938,432 9,500,894 5,986,031 4,916,267 10,902,298 - 2,021,017 2,021,017 13,594,067 16,161,601 29,755,668 - (1,698,881) (1,698,881) (13,881) (340,109) (353,990) $ 13, 580,186 $ 14,122, 611 $ $ 27, 702, 797 Page 49 TRUCKEE DONNER PUBLIC UTILITY DISTRICT REQUIRED SUPPLEMENTAL INFORMATION December 31, 2011 Pension Plan Funding History - 2.7%@ 55 (Started Participation January 1, 2011) For the Years Ended June 30, 2006 through 2010 O Accrued Actuarial Unfunded Funded Annual Valuation Liabilities Value of Liabilities Ratio Covered UL as a % Date (AL) Assets (AVA) (UL) (AVA/AL) Payroll of Payroll 06/30/2006 $1,280,157,040 $1,069,546,974 $ 210,610,066 83.5% $ 304,898,179 69.1% 06/30/2007 $1,627,025,950 $1,362,059,317 $ 264,966,633 83.7% $ 376,292,121 70.4% 06/30/2008 $1,823,366,479 $1,529,548,799 $ 293,817,680 83.9% $ 414,589,514 70.9% 06/30/2009 $2,140,438,884 $1,674,260,302 $ 466,178,582 78.2% $ 440,071,499 105.9% 06/30/2010 $2,297,871,345 $1,815,671,616 $ 482,199,729 79.0% $ 434,023,381 111.1% Pension Plan Funding History - 2%@ 60 (Ended Participation December 31, 2010) For the Years Ended June 30, 2003 through 2009 Accrued Actuarial Unfunded Funded Annual Valuation Liabilities Value of Liabilities Ratio Covered UL as a % Date (AL) Assets (AVA) (UL) (AVA/AL) Payroll of Payroll 06/30/2003 $ 430,371,544 $ 429,814,105 $ 557,439 99.9% $ 159,238,690 0.4% 06/30/2004 $ 437,494,341 $ 428,025,075 $ 9,469,266 97.8% $ 159,135,314 6.0% 06/30/2005 $ 484,351,523 $ 459,996,995 $ 24,354,528 95.0% $ 174,127,476 14.0% 06/30/2006 $ 478,122,215 $ 454,602,459 $ 23,519,756 95.1% $ 170,458,082 13.8% 06/30/2007 $ 498,934,859 $ 479,520,670 $ 19,414,189 96.1% $ 171,052,819 11.3% 06/30/2008 $ 532,483,463 $ 513,147,099 $ 19,336,364 96.4% $ 183,387,608 10.5% 06/30/2009 $ 582,841,869 $ 553,953,526 $ 28,888,343 95.0% $ 184,319,666 15.7% Retiree Health Plan Funding History For the Years Ended January 1, 2006, 2007, 2009, and 2011; and July 1, 2011* Accrued Actuarial Unfunded Funded Annual Valuation Liabilities Value of Liabilities Ratio Covered UL as a % Date* (AL) Assets (AVA) (UL) (AVA/AL) Payroll of Payroll 01/01/2006 $ 2,328,500 $ - $ 2,328,500 0.0% $ 5,542,800 42.0% 01/01/2007 $ 1,369,600 $ 198,800 $ 1,170,800 14.5% $ 4,925,600 23.8% 01/01/2009 $ 1,748,000 $ 230,900 $ 1,517,100 13.2% $ 5,276,400 28.8% 01/01/2011 $ 2,501,800 $ 645,700 $ 1,856,100 25.8% $ 6,307,400 29.4% 07/01/2011 $ 2,657,000 $ 661,400 $ 1,995,600 24.9% $ 6,226,000 32.1% *Retire Health Plan funding began in 2007. Valuations are required once eery two years. The valaution Page 50 date changed to July 1 in compliance with GASB Statement No. 57.