HomeMy WebLinkAboutArthur Anderson & CO AuditI*
ARTHUR ANDERSEN 8: Co.
Sl'KAH STREfc"3 loU'CH "-.,II'K 3500
i KI M \HKI.r PLAZA
SAN FRANCISCO, CALIFORNIA 94105
I 11." I - K,-B'_'00
March 27, 1981
The Board of Directors
Truckee-Donner Public Utility District
P. 0. Box 309
Truckee, California 95734
We,
the financial
for the year
thereon dated
effect of any
outcome of a
million from
uncertainty a
the requireme
of notes paya
with generall
included such
auditing proc
In connection
procedures sp
that apply to
as independent public accountants,
statements of Truckee-Donner Publi
ended December 31, 1980, and have i
March 27, 1981, which was qualifie
adjustments that might have been r
legal action which seeks damages in
various defendants, including the D
s to whether or not the District ha
nts of certain covenants resulting
ble been known. Our examination wa
y accepted auditing standards and
tests of the accounting records an
edures as we considered necessary i
with our examination, we performed
ecified in REA Bulletin 185-1; 465
material amounts in the financial
have examined
c Utility District
ssued our report
d subject to the
equired had the
excess of $100
istrict, and an
s met and fulfilled
from the issuance
s made in accordance
accordingly,
d such other
n the circumstances.
the auditing
1, as amended,
stat ements.
The following comments are presented in accordance with
the requirements of REA Bulletin 185-1; 465-1, as amended:
1, As a part of
a study an
internal a
considered
by general
standards,
establish
accounting
and extent
for expres
and to ass
nation of
our exami
d evaluati
ccounting
necessary
ly accepte
the purpo
a basis fo
control i
of other
sing an op
ist us in
the financ
nation, referred to
on of the District's
control to the exten
to evaluate the sys
d auditing standards
ses of such evaluati
r reliance on the sy
n determining the na
auditing procedures
inion on the financi
planning and perform
ial statements.
above, we made
system of
t that we
tern as required
Under these
on are to
stem of internal
ture, timing,
that are necessary
al statements
ing our exami-
»»"
ARTHUR ANDERSEN & Co.
-2-
The objective of internal account
provide reasonable, but not abs
as to the safeguarding of asset
unauthorized use or disposition
of financial records for prepar
ments and maintaining accountab
The concept of reasonable assur
the cost of a system of interna
should not exceed the benefits
recognizes that the evaluation
necessarily requires estimates
management.
ing control is to
olute, assurance
s against loss from
, and the reliability
ing financial state-
ility for assets,
ance recognizes that
1 accounting control
derived and also
of these factors
and judgments by
There are inherent limitations that should be recognized
in considering the potential effectiveness of any
system of internal accounting control. In the per-
formance of most control procedures, errors can
result from misunderstanding of instructions, mistakes
of judgment, carelessness or other personal factors.
Control procedures whose effectiveness depends on
segregation of duties can be circumvented by collusion.
Similarly, control procedures can be circumvented
intentionally by management either with respect to
the execution and recording of transactions or with
respect to the estimates and judgments required in
the preparation of financial statements. Further,
projection of any evaluation of internal accounting
control to future periods is subject to the risk that
the procedures may become inadequate because of
changes in conditions, and that the degree of compli-
ance with the procedures may deteriorate.
Our examination
accordance wit
including the
system of inte
ended December
set forth abov
weaknesses in
selective test
data. However
no conditions
weaknesses.
of the financial statements made in
h generally accepted auditing standards,
study and evaluation of the District's
rnal accounting control for the year
31, 1980, that was made for the purposes
e, would not necessarily disclose all
the system because it was based on
s of accounting records and related
, such study and evaluation disclosed
that we believe to be material
The following comments are based upon our review and
tests of the system of internal accounting control
referred to above:
ARTHUR ANDERSEN & Co.
The accounting records were in satisfactory
condition; accounting and reporting pro-
cedures were operating with reasonable effec-
tiveness and our tests indicated that the
methods used were adequate to accumulate
costs of material, transportation, labor and
overhead, and to provide for a reasonable
distribution thereof to construction, retire-
ment, and maintenance or other expense accounts.
The controls over materials and supplies were
operating with reasonable effectiveness and
there were no significant discrepancies among
the physical inventory, the perpetual inventory
records, and the general ledger balances.
During the course of our examination, we made a
number of suggestions for improving the
District's procedures and for strengthening
its existing system of internal accounting
control. These suggestions, however, did not
relate to conditions that we believe to be
material weaknesses.
M
Although the sc
above paragra
purpose of di
our examinati
had not compl
provisions of
various parti
United States
See Note 3 of
statements fo
whether the D
Home Administ
ope ol the examina
ph was not designe
sclosing any event
on, we noted no in
ied with and/or ob
the documents evi
es, except for the
of America, Farme
the notes to the
r a discussion of
istrict met the re
ration indenture.
tion referred to in the
d for the specific
of default, in making
stances where the District
tained a waiver from the
dencing its loans from
note payable to the
rs Home Administration.
December 31, 1980 financial
the uncertainty as to
quirements of the Farmers
As a part of our examination,
December 31, 1980 Financial
(Form 7) for Truckee-Donner
file at the District. The f
therein are presented for el
District does not maintain s
records which clearly deline
and water services. We were
that the financial statement
are in agreement, in all mat
District's accounting record
we reviewed a copy of the
and Statistical Report
Public Utility District, on
inancial statements included
ectric operations only. The
eparate complete financial
ate between the electric
advised by the District
s included in the Form 7
erial respects, with the
s, to the extent practical.
>
ARTHUR ANDERSEN 8: Co
4. The District does not utilize or is not a party to any
management, operations or billing service contracts in
any of its operations.
5. All of the District's cash deposits at December 31, 1980,
were in institutions whose accounts were insured by an
agency of the federal government to the extent provided
by statutes.
6. We were advised by the District that insurance certifica-
tions (REA Form 55) were furnished to REA during the
year ended December 31, 1980, reflecting information
contained in the policies maintained by the District.
7. The District is organized as a nonprofit organization
under the California Public Utility District Act and,
as such, is a tax-exempt organization and is not required
to file federal or state income tax returns.
8. As the result of our examination, the following adjusting
journal entries were recorded on the District's books.
The following reclassification journal entries were
made for statement purposes only and were not recorded
in the District's books:
Adjusting Journal Entries
Account Title Debit
$55,888 Accounts receivable - Consumer
Electric revenue
To record revenue from a meter omitted
during 1980 meter readings.
Credi t
$55,888
Bad debt reserve
Bad debt expense
To write off delinquent standby fees.
10,255
10,255
AHIIII K Asm HSEN <$: Co
-5-
ii
Account Title
Construction work in process
Accounts oayable
Debit
9,067
Credit
9,047
To record late invoice received from
outside contractor.
Reclassification Journa1 Entries
Account Title
Long-term debt
Current maturities of long-term debt
To reclassify 1980 maturities of
long-term debt.
Debit_
$34,468
Credit
$34,468
Operating revenues 111,019
Operating expenses 111,019
To record elimination of inter-
departmental sales.
This report is submitted pursuant to the reporting
requirements of REA Bulletin 185-1; 465-1, Fart IV, Section VII,
as amended, and is to be used for no other purpose.
Very truly yours,
/£^£~t> a
p
ARTHUR ANDERSEN & Co.
SPEAR STREET TOWER, SUITE 05O0
ONE MARKET PLAZA
SAN FRANCISCO. CALIFORNIA <>4I05
(4IS) S46-B200
May 14, 1981
Board of Directors
Truckee-Donner Public Utility District
P.O. Box 309
Truckee, California 95734
Directors:
The accompanying memorandum includes suggestions
for improvement of accounting procedures and internal accounting
control measures that came to our attention as a result of
our examination of the financial statements of Truckee-Donner
Public Utility District for the year ended December 31, 1980.
The matters discussed herein were considered by us during our
examination, and they do not modify the opinion expressed in
our auditors' report dated March 27, 1981 on such financial
statements.
J
In accordance with
standards, we performed a re
internal accounting controls
basis for reliance thereon i
and extent of the audit test
examination of the District'
While certain matters which
review are presented in the
consideration of management,
for the purpose of making de
not necessarily disclose all
system.
generally accepted auditing
view and evaluation of existing
for the purpose of providing a
n determining the nature, timing
s applied in connection with our
s 1980 financial statements,
came to our attention during the
accompanying memorandum for the
such a review was not designed
tailed recommendations and would
weaknesses in the existing
The accompanying memorandum also includes comments
and suggestions with respect to other financial and administra-
tive matters which came to our attention during the course
of our examination of the financial statements. These comments
are offered as constructive suggestions for the consideration
of management as part of the ongoing process of modifying
and improving accounting control and other financial and
administrative practices and procedures.
Very truly yours,
/
INTRODUCTION
As part of our examination of the financial statements
of Truckee-Donner Public Utility District as of December 31,
1980, we reviewed the accounting procedures and internal controls
of the District. The comments and suggestions in this memorandum
are based upon observations made in the course of such review.
In submitting these suggestions, we do not intend to
criticize the work of any individual; nor do we consider these
suggestions as final recommendations as to action which should In-
taken. On the contrary, our desire is to offer suggestions which
will be constructive and will stimulate further consideration ol
the points outlined.
BILLINGS FOR UTILITY SERVICES
During our examination, we noted two separate billing
situations which disclosed areas where the District could strengthen
its controls over billings for utility services. The first was a
large commercial user which was reconnected but not billed for
eight months. The billing was not prepared, since meter reads
were not performed. Meter reads were not performed, since the
proper service installation documents were not completed. The
District became aware of this situation when the customer inquired
about an apparent low billing. The second situation involved the
billing of a commercial customer at a residential rate. This
occurred when the common area meter of a condominium project was
set up at a residential rate.
The total elimination of deviations in utility billings
is desirable but not easy to control. Unprocessed or uncompleted
service documents and rate code errors will periodically occur.
The following techniques could improve the District's controls
over billings for services to help minimize such occurrences:
1. Perform a periodic reconciliation of all District
meters, accounting for in warehouse, repair
and in service. The number of in-service
meters should then be reconciled to the
number of meters being billed.
2. Perform a reconciliation of the kilowatt hours
purchased to the kilowatt hours billed,
recognizing historical (normal) line loss,
metered and unbilled services, and purchase/
billing lags.
3. Periodic reviews of large commercial customers
to determine that the proper rate schedule
has been used. Commercial customers with
higher possibility of errors should be high-
lighted, such as the common area meter for
the condominium project.
4. Periodic checks of usage by commercial customers
to prior periods and investigation of unusual
variations.
The District should determine to what extent the above
suggestions would be of assistance in improving controls over
billings for utility services and the frequency of performance.
The cost of implementing these suggestions and the operational
impact must be considered and weighed against the benefits.
.*
UNCOLLECTIBLE CONSUMER ACCOUNTS
The current general economic conditions and rapidly
rising utility bills have recently resulted in a large increase
in uncollectible consumer accounts for most utilities. If uncol-
lectible account charges in the financial statement: are based
upon a historical basis (such as a percent of sales calculation),
then these charges may be too low under present circumstances.
The District has recently modified its policies regarding deposits,
shut-offs, write-offs and collection activities. These changes
will be of benefit in minimizing uncollectible consumer accounts.
We recommend that the District review the basis on
which the financial statement charge for uncollectible accounts
is made. The purpose of the review would be to determine if past
practice is appropriate under today's conditions. In addition,
we believe that the reserve for uncollectible accounts should be
reviewed on a quarterly basis to ensure that it is at an adequate
level. These recommendations will assist the District in main-
taining an adequate uncollectible account reserve, in addition to
ensuring that the true current cost of uncollectible accounts is
reflected in the District's financial statements.
LONG-RANGE PLANNING
In our Memorandums on Accounting Procedures, Internal
Controls and Other Matters dated August 13, 1979 and June 17,
-4- J
1980, we discussed the benefits of long-range planning and recom-
mended that an evaluation be performed as to its use at the
District. We continue to believe that this is an important area
which requires the Board of Directors and management's attention.
As a result, the following is a reiteration of the prior years'
recommendat ions.
One of the most useful tools which management of any
organization can use j assist it in meeting its goals and objec-
tives is a planning or budgeting procedure for both the short and
long range. A short-range plan or budget would generally consist
of the current year plan and/or the plan for the next immediate
year. The long-range plan would generally consist of any tine
frame beyond the short-range plan. At the present time, it is
our understanding that the District prepares a plan or budget for
the short range only.
There are numerous benefits which the District could
derive from long-range planning. Among them are:
1. Integrated graduated rate adjustments which are
based upon an extensive study and analysis of
providing utility services to each class of
customer.
2. Capital improvement programs which would provide
adequate plant facilities to meet customer
demand and quality of service goals.
3. Financial projections of financing needs for
the capital improvement program and opera-
tions which would assist the District in a
more efficient management of its resources.
Forecasts of personnel and staffing requirements
to minimize the adverse effects of over- or
understaffing, while still meeting quality of
service goals.
Improved management control over the District's
operations through the use of the plan or
budget as a device to communicate the goals
and objectives of the District and as a
yardstick of performance evaluation.
We believe that the District should evaluate the bene-
fits of the use of long-range planning for its operations. We
recommend that a five-year time frame be established for such
long-range planning and that it be integrated with the short-range
planning presently performed. Such long-range planning should
include the full scope of the District's business and be fully
integrated to include capital requirements, financing needs,
personnel requirements, rate adjustments, service goals and
objectives, etc.
COMPLIANCE WITH LOAN AGREEMENTS
The District has entered into several loan agreements
with various parties to assist the District in the financing of
capital improvement projects. The agreements have placed certain
restrictions upon the District and required the District to meet
certain covenants regarding the operation, financing, accounting
and financial reporting of Truckee-Donner Public Utility District.
As we discussed previously in our Memorandum on Accounting Pro-
cedures, Internal Controls and Other Matters dated June 17, 1980,
the District does not have a monitoring procedure in place which
evaluates the degree of compliance with such covenants.
■6-
9
In order to assist the Board of Directors and the
General Manager in meeting the District's obligation to comply
with such restrictions, we recommend that a procedure be estab-
lished by the District which would provide for a quarterly review
of the various restrictions and covenants to determine if the
District has properly complied with the loan agreements or if
future noncompliance is a probability due to current operating
policies or procedures. The quarterly review would provide the
Board of Directors and the General Manager with reasonable assur-
ance that the operating, financial and accounting restrictions
and covenants have been met.
POLICY AND PROCEDURE DOCUMENTATION
We understand that the District has begun the process
of developing standards for documentation of its policies and
procedures. As the District's growth increases the size and
complexity of operations, documentation of policies and proce-
dures in a standardized and centralized format will assist in the
transfer of the reliance from a few key individuals to the estab-
lished system. As previously indicated in our Memorandum on
Accounting Procedures, Internal Controls and Other Matters dated
June 17, 1980, we encourage the District to continue its efforts
in establishing written policy and procedures documentation. We
believe that the ultimate benefits to be obtained justify the
investment rtquired to perform the documentation.
■4
ARTHUR ANDERSEN & Co.
SAX FRANCI sco, CALIFORNIA
To the Board of Directors of
Truckee-Donner Public Utility District:
We have examined the balance sheets of Truckee-Donner
Public Utility District (a political subdivision of the State of
California) as of December 31, 1980 and 1979, and the related
statements of net revenue and funds provided for additions to utility
plant for the years then ended. Our examinations were made in
accordance with generally accepted auditing standards and,
accordingly, included such tests of the accounting records and such
other auditing procedures as we considered necessary in the
ci rcumstances.
As discussed further in Note 4 to the accompanying
financial statements, the District is a party in a legal action which
seeks damages in excess of $100 million from various defendants,
■"eluding the District. The ultimate outcome of this legal action
and the effect upon the District, if any, cannot be determined at
thi s time.
As discussed further in Note 3 to the accompanying
financial statements, the District is required to meet certain
covenants which result from the issuance of a promissory note payable
to the United States of America, Farmers' Home Administration.
During 1980 and 1979, it was uncertain whether the District met and
fulfilled the requirements of these covenants.
-2-
I
In our opinion, subject to the effect of any adjustments
that might have been required had the outcome of the matters referred
to in the preceding paragraphs been known, the financial statements
referred to above present fairly the financial position of Truckee-
Donner Public Utility District as of December 31, 1980 and 1979, and
the results of its operations and funds provided for additions to its
)
utility plant for the years then ended, in conformity with generally
accepted accounting principles applied on a consistent basis.
Our examinations have been made primarily for the purpose
of forming the opinion stated in the preceding paragraph. The data
contained in the combining statement of departmental operations,
although not considered necessary for a fair presentation of
financial position, results of operations and funds provided for
additions to utility plant are presented as supplementary information
md have been subjected to the audit procedures applied in the
examinations of the basic financial statements. In our opinion,
subject to the effect of any adjustments that might have been
required had the outcome of the legal action discussed above been
known, these data contained in the combining statement of
departmental operations are fairly stated in all material respects in
"elation to the basic financial statements, taken as a whole.
/^22^ AZv*6****~e Co.
March 27, 1981
P
ARTHUR ANDERSEN & Co-
SPEAR STREET TOWER,SUITE asoo
ONE MARKET PLAZA
SAN FRANCISCO, CALIFORNIA 94105
(415) 546-8200
May 14, 1981
Board of Directors
Truckee-Donner Public Utility District
P.O. Box 309
Truckee, California 95734
Directors:
The accompanying memorandum includes suggestions
for improvement of accounting procedures and internal accounting
control measures that came to our attention as a result of
our examination of the financial statements of Truckee-Donner
Public Utility District for the year ended December 31, 1980.
The matters discussed herein were considered by us during our
examination, and they do not modify the opinion expressed in
our auditors' report dated March 27, 1981 on such financial
statements.
In accordance wit
standards, we performed a r
internal accounting control
basis for reliance thereon
and extent of the audit tes
examination of the District
While certain matters which
review are presented in the
consideration of management
for the purpose of making d
not necessarily disclose al
system.
h generally accepted auditing
eview and evaluation of existing
s for the purpose of providing a
in determining the naf re, timing
ts applied in connect.on with our
's 1980 financial statements,
came to our attention during the
accompanying memorandum for the
such a review was not designed
etailed recommendations and would
1 weaknesses in the existing
The accompanying memorandum also includes comments
and suggestions with respect to other financial and administra-
tive matters which came to our attention during the course
of our examination of the financial statements. These comments
are offered as constructive suggestions for the consideration
of management as part of the ongoing process of modifying
and improving accounting control and other financial and
administrative practices and procedures.
Very truly yours,
i**'*? £
Ifi
ARTHUR ANDERSEN 8C CO-
SPEAR STREET TOWER. SUITE 0800
ONE MARKET PLAZA
SAN FRANCISCO, CALIFORNIA i)4l0S
(41S) S46-BUOO
May 14, 1981
Board of Directors
Truckee-Donner Public Utility District
P.O. Box 309
Truckee, California 95734
Directors:
The accompanying memorandum includes suggestions
for improvement of accounting procedures and internal accounting
control measures that came to our attention as a result of
our examination of the financial statements of Truckee-Donner
Public Utility District for the year ended December 31, 1980.
The matters discussed herein were considered by us during our
examination, and they do not modify the opinion expressed in
our auditors' report dated March 27, 1981 on such financial
statements.
In accordance wit
standards, we performed a r
internal accounting control
basis for reliance thereon
and extent of the audit tes
examination of the District
While certain matters which
review are presented in the
consideration of management
for the purpose of making d
not necessarily disclose al
system.
h generally accepted auditing
eview and evaluation of existing
s for the purpose of providing a
in determining the nature, timing
ts applied in connection with our
's 1980 financial statements,
came to our attention during the
accompanying memorandum for the
, such a review was not designed
etailed recommendations and would
1 weaknesses in the existing
The accompanying memorandum also includes comments
and suggestions with respect to other financial and administra-
tive matters which came to our attention during the course
of our examination of the financial statements. These comments
are offered as constructive suggestions for the consideration
of management as part of the ongoing process of modifying
and improving accounting control and other financial and
administrative practices and procedures.
Very truly yours,
(_JksC&tiU CstiuU*****f
/
INTRODUCTION
As part of our examination of the financial statements
of Truckee-Donner Public Utility District as of December 31 ,
1980, we reviewed the accounting procedures and internal controls
of the District. The comments and suggestions in this memorandum
are based upon observations made in the course of such review.
In submitting these suggestions, we do not intend to
criticize the work of any individual; nor do we consider these
suggestions as final recommendations as to action which should be
taken. On the contrary, our desire is to offer suggestions which
will be constructive and will stimulate further consideration of
the points outlined.
BILLINGS FOR UTILITY SERVICES
During our examination, we noted two separate billing
situations which disclosed areas where the District could strengthen
its controls over billings for utility services. The first was a
large commercial user which was reconnected but not billed for
eight months. The billing was not prepared, since meter reads
were not performed. Meter reads were not performed, since the
proper service installation documents were not completed. The
District became aware of this situation when the customer inquired
about an apparent low billing. The second situation involved the
billing of a commercial customer at a residential rate. This
occurred when the common area meter of a condominium project was
set up at a residential rate.
■2-
The total elimination of deviations in utility billings
is desirable but not easy to control. Unprocessed or uncompleted
service documents and rate code errors will periodically occur.
The following techniques could improve the District's controls
over billings for services to help minimize such occurrences:
1. Perform a periodic reconciliation of all District
meters, accounting for in warehouse, repair
and in service. The number of in-service
meters should then be reconciled to the
number of meters being billed.
2. Perform a reconciliation of the kilowatt hours
purchased to the kilowatt hours billed,
recognizing historical (normal) line loss,
metered and unbilled services, and purchase/
billing lags.
3. Periodic reviews of large commercial customers
to determine that the proper rate schedule
has been used. Commercial customers with
higher possibility of errors should be high-
lighted, such as the common area meter for
the condominium project.
4. Periodic checks of usage by commercial customers
to prior periods and investigation of unusual
variations.
The District should determine to what extent the above
suggestions would be of assistance in improving controls over
billings for utility services and the frequency of performance.
The cost of implementing these suggestions and the operational
impact must be considered and weighed against the benefits.
•3-
*
UNCOLLECTIBLE CONSUMER ACCOUNTS
The current general economic conditions and rapidly
rising utility bills have recently resulted in a large increase
in uncollectible consumer accounts for most utilities. If uncol-
lectible account charges in the financial statements are based
upon a historical basis (such as a percent of sales calculation),
then these charges may be too low under present circumstances.
The District has recently modified its policies regarding deposits,
shut-offs, write-offs and collection activities. These changes
will be of benefit in minimizing uncollectible consumer accounts.
We recommend that the District review the basis on
which the financial statement charge for uncollectible accounts
is made. The purpose of the review would be to determine if past
practice is appropriate under today's conditions. In addition,
we believe that the reserve for uncollectible accounts should be
reviewed on a quarterly basis to ensure that it is at an adequate
level. These recommendations will assist the District in main-
taining an adequate uncollectible account reserve, in addition to
ensuring that the true current cost of uncollectible accounts is
reflected in the District's financial statements.
LONG-RANGE PLANNING
In our Memorandums on Accounting Procedures, Internal
Controls and Other Matters dated August 13, 1979 and June 17,
•3-
J>
UNCOLLECTIBLE CONSUMER ACCOUNTS
The current general economic conditions and rapidly
rising utility bills have recently resulted in a large increase
in uncollectible consumer accounts for most utilities. If uncol-
lectible account charges in the financial statements are based
upon a historical basis (such as a percent of sales calculation),
then these charges may be too low under present circumstances.
The District has recently modified its policies regarding deposits,
shut-offs, write-offs and collection activities. These changes
will be of benefit in minimizing uncollectible consumer accounts.
We recommend that the District review the basis on
which the financial statement charge for uncollectible accounts
is made. The purpose of the review would be to determine if past
practice is appropriate under today's conditions. In addition,
we believe that the reserve for uncollectible accounts should be
reviewed on a quarterly basis to ensure that it is at an adequate
level. These recommendations will assist the District in main-
taining an adequate uncollectible account reserve, in addition to
ensuring that the true current cost of uncollectible accounts is
reflected in the District's financial statements.
LONG-RANGE PLANNING
In our Memorandums on Accounting Procedures, Internal
Controls and Other Matters dated August 13, 1979 and June 17,
J
1980, we discussed the benefits of long-range planning and recom-
mended that an evaluation be performed as to its use at the
District. We continue to believe that this is an important area
which requires the Board of Directors and management's attention.
As a result, the following is a reiteration of the prior years'
recommendations.
One of the most useful tools which management of any
organization can use to assist it in meeting its goals and objec-
tives is a planning or budgeting procedure for both the short and
long range. A short-range plan or budget would generally consist
of the current year plan and/or the plan for the next immediate
year. The long-range plan would generally consist of any tiae
frame beyond the short-range plan. At the present time, it is
our understanding that the District prepares a plan or budget for
the short range only.
There are numerous benefits which the District could
derive from long-range planning. Among them are:
1. Integrated graduated rate adjustments which are
based upon an extensive study and analysis of
providing utility services to each class of
customer.
2. Capital improvement programs which would provide
adequate plant facilities to meet customer
demand and quality of service goals.
3. Financial projections of financing needs for
the capital improvement program and opera-
tions which would assist the District in a
more efficient management of its resources.
■A- J
1980, we discussed the benefits of long-range planning and recom-
mended that an evaluation be performed as to its use at the
District. We continue to believe that this is an important area
which requires the Board of Directors and management's attention.
As a result, the following is a reiteration of the prior years'
recommendat ions.
One of the most useful tools which management of any
organization can use to assist it in meeting its goals and objec-
tives is a planning or budgeting procedure for both the short and
long range. A short-range plan or budget would generally consist
of the current year plan and/or the plan for the next immediate
year. The long-range plan would generally consist of any time
frame beyond the short-range plan. At the present time, it is
our understanding that the District prepares a plan or budget for
the short range only.
There are numerous benefits which the District could
derive from long-range planning. Among them are:
1. Integrated graduated rate adjustments which are
based upon an extensive study and analysis of
providing utility services to each class of
customer.
2. Capital improvement programs which would provide
adequate plant facilities to meet customer
demand and quality of service goals.
3. Financial projections of financing needs for
the capital improvement program and opera-
tions which would assist the District in a
more efficient management of its resources.
-5-
4. Forecasts of personnel and staffing requirements
to minimize the adverse effects of over- or
understaffing, while still meeting quality of
service goals.
5. Improved management control over the District's
operations through the use of the plan or
budget as a device to communicate the goals
and objectives of the District and as a
yardstick of performance evaluation.
We believe that the District should evaluate the bene-
fits of the use of long-range planning for its operations. We
recommend that a five-year time frame be established for such
long-range planning and that it be integrated with the short-range
planning presently performed. Such long-range planning should
include the full scope of the District's business and be fully
integrated to include capital requirements, financing needs,
personnel requirements, rate adjustments, service goals and
objectives, etc.
COMPLIANCE WITH LOAN AGREEMENTS
The District has entered into several loan agreements
with various parties to assist the District in the financing of
capital improvement projects. The agreements have placed certain
restrictions upon the District and required the District to meet
certain covenants regarding the operation, financing, accounting
and financial reporting of Truckee-Donner Public Utility District.
As we discussed previously in our Memorandum on Accounting Pro-
cedures, Internal Controls and Other Matters dated June 17, 1980,
the District does not have a monitoring procedure in place which
evaluates the degree of compliance with such covenants.
i*
In order to assist the Board of Directors and the
General Manager in meeting the District's obligation to comply
with such restrictions, we recommend that a procedure be estab-
lished by the District which would provide for a quarterly review
of the various restrictions and covenants to determine if the
District has properly complied with the loan agreements or if
future noncompliance is a probability due to current operating
policies or procedures. The quarterly review would provide the
Board of Directors and the General Manager with reasonable assur-
ance that the operating, financial and accounting restrictions
and covenants have been met.
POLICY AND PROCEDURE DOCUMENTATION
We understand that the District has begun the process
of developing standards for documentation of its policies and
procedures. As the District's growth increases the size and
complexity of operations, documentation of policies and proce-
dures in a standardized and centralized format will assist in the
transfer of the reliance from a few key individuals to the estab-
lished system. As previously indicated in our Memorandum on
Accounting Procedures, Internal Controls and Other Matters dated
June 17, 1980, we encourage the District to continue its efforts
in establishing written policy and procedures documentation. We
believe that the ultimate benefits to be obtained justify the
investment required to perform the documentation.
,l»
ARTHUR ANDERSEN <& CO-
S.\N FRANCISCO, CALIFORNIA
To the Board of Directors of
Truckee-Donner Public Utility District:
We have examined the balance sheets of Truckee-Donner
Public Utility District (a political subdivision of the State of
California) as of December 31, 1980 and 1979, and the related
statements of net revenue and funds provided for additions to utility
plant for the years then ended. Our examinations were made in
accordance with generally accepted auditing standards and,
accordingly, included such tests of the accounting records and such
other auditing procedures as we considered necessary in the
ci rcumstances.
As discussed further in Note 4 to the accompanying
financial statements, the District is a party in a legal action which
seeks damages in excess of $100 million from various defendants,
including the District. The ultimate outcome of this legal action
and the effect upon the District, if any, cannot be determined at
this time.
As discussed further in Note 3 to the accompanying
financial statements, the District is required to meet certain
covenants which result from the issuance of a promissory note payable
to the United States of America, Farmers' Home Administration.
During 1980 and 1979, it was uncertain whether the District met and
fulfilled the requirements of these covenants.
In our opinion, subject to the effect of any adjustments
that might have been required had the outcome of the matters referred
to in the preceding paragraphs been known, the financial statements
referred to above present fairly the financial position of Truckee-
Donner Public Utility District as of December 31, 1980 and 1979, and
the results of its operations and funds provided for additions to its
utility plant for the years then ended, in conformity with generally
accepted accounting principles applied on a consistent basis.
Our examinations have been made primarily for the purpose
of forming the opinion stated in the preceding paragraph. The data
contained in the combining statement of departmental operations,
although not considered necessary for a fair presentation of
financial position, results of operations and funds provided for
additions to utility plant are presented as supplementary information
and have been subjected to the audit procedures applied in the
examinations of the basic financial statements. In our opinion,
subject to the effect of any adjustments that might have been
required had the outcome of the legal action discussed above been
known, these data contained in the combining statement of
departmental operations are fairly stated in all material respects in
relation to the basic financial statements, taken as a whole.
/f^^O^c^ 7Zt*6***^€ Cc
March 27, 1981
TRUCKEE-DONNER PUBLIC UTILITY DISTRICT
BALANCE SHEETS -- DECEMBER 31, 1980 AND 1979
i*
I ASSETS
I
UTILITY PLANT, at cost:
PI ant in servi ce-
Electri c
Water
General
Less - Accumulated depreciation
Net plant in service
Construction work in progress
Electric acquisition adjustments
Net utility plant
RESTRICTED FUNDS (Note 2)
CURRENT ASSETS:
Cash
Accounts receivable - consumer, less
bad debt reserves of $24,563 in 1980
and $61,600 in 1979
Account receivable - purchased power
refund
Accounts receivable - standby fees and other,
less bad debt reserves of $5,343 in 1980
and $13,600 in 1979
Inventory, at average cost
Interest receivable, prepaid insurance
and other
1980 197 9
$2,331,78fa $2,236,721
1,237.1b')
514,681
951,018
509,390
$4,133,636 $3,697,129
2,15 3,20, ,02 6,83 6
$1,980,434 $l,(i70,293
914,139
1,7/4
610,740
2,537
$2,896,34/ $2,283,570
$1,026,798 $ 673,605
$ 439,917 $ 900,971
3/4,309
127,462
154,390
60,853
271,410
6,054
164,742
161,944
CONSUMERS' EQUITY AND LIABILITIES
CAPITALIZATION:
Consumers' equity employed in the business-
Balance, beginning of year
Net revenue for the year
Total consumers' equity
Long-term debt (Note 3)-
REA bonds
Note payable to Sierra Pacific Power
Company
Promissory note - United States of America
Farmers' Home Administration
Sewer assessments payable
Equipment notes payable
Tota1 1ong-term debt
Total capitalization
CURRENT LIABILITIES (Note 3 ) :
Accounts payable
Deferred income - standby fees
Consumer deposits
Accrued interest
Accrued liabilities
Current maturities of long-term debt
43,403 CONTINGENCIES (Note 4;
$1,156,931 $1,548,524 CONSTRUCTION ADVANCES (Note 2)
$5,080,076 $4,505,699
1980 1979
$2,557,531 $2,222,131
480,975 335,400
$3,038,506 $2,557,531
$ 297,595 $ 310,574
9,067
247,270
13,750
26,457
249,591
12,746
671
$ 567,682 $ 600,039
$3,606,188 $3,157,570
$ 631,070 $ 762,747
52,981
57,393
10,223
88, 120
34,468
55,423
43,053
22,318
37,652
47,327
$ 874,255 $ 968,520
$ 599,633 $ 379,609
$5,080,076 $4,505,699
Ifltttllll
The accompanying notes are an Integral part of these balance sheets,
A>
I
TRUCKEE-DONNER PUBLIC UTILITY DISTRICT
STATEMENTS OF NET REVENUE
FOR THE YEARS ENDED DECEMBER 31, 1980 AND 1979
OPERATING REVENUES
E1ectric
Water
1980
420,610
1979
$3,509,568 $2,630,562
364,609
I
OPERATING EXPENSES:
Purchased power
Transmission
Di stri bution
Consumer accounts
Administrative and general
Depreci ati on
Net operating revenue
OTHER INCOME:
Interest income
Other, net
Net revenue before interest
expense
$3,930,178 $2,995,171
73,425
194,390
191,467
365,657
131,069
151,778
(1,347)
$2,557,863 $1,959,601
68,177
159,572
153,499
283,094
128,116
$3,513,871 $2,752,059
$ 416,307 $ 243,112
129,624
17,390
$ 566,738 $ 390,126
INTEREST EXPENSE
Net revenue
85,763
:SS*BS3SS
54,726
$ 480,975 $ 335,400
I hi- n i. ■mi, ■ iiNy i M.J not ps ,ire an integral
part i) f the si" statements.
TRUCKEE-DONNER PUBLIC UTILITY DISTRICT
STATEMENTS OF NET REVENUE
FOR THE YEARS ENDED DECEMBER 31, 1980 AND 1979
#
1980 1979
OPERATING REVENUES:
Elect ri c
Water
$3,509,568 $2,630,562
420,610 364,609
OPERATING EXPENSES:
Purchased power
Transmissi on
Distri but ion
Consumer accounts
Administrative and general
Depreci ati on
Net operating revenue
$3,930,178 $2,995,171
73,425
194,390
191,467
365,657
131,069
$2,557,863 $1,959,601
68,177
159,572
153,499
283,094
128,116
$3,513,871 $2,752,059
$ 416,307 $ 243,112
OTHER INCOME:
Interest income
Other, net
Net revenue before interest
expense
151,778
(1,347)
129,624
17,390
$ 566,738 $ 390,126
INTEREST EXPENSE
Net revenue
85,763 54,726
$ 480,975 $ 335,400
The accompanying notes are an integral
part of these statements.
TRUCKEE-DONNER PUBLIC UTILITY DISTRICT
STATEMENTS OF FUNDS PROVIDED FOR ADDITIONS TO UTILITY PLANT
FOR THE YEARS ENDED DECEMBER 31, 1980 AND 1979
•rf
FUNDS PROVIDED INTERNALLY:
Operations-
Net revenue
Depreciation expense not requiring
a current use of funds
Othei
Funds provided by operations
Deduct-
Reductions in long-term debt
Additions to restricted funds
Net funds provided internally
1980
131,069
(3,939)
1979
$ 480,975 $ 335,400
128,116
14,710
$ 608,105 $ 478,226
(32,357)
:353,193)
(44,732)
117 7.481)
$ 222,555 $ 256,013
FUNDS PROVIDED FROM EXTERNAL SOURCES:
Advances utilized for construction $ 220,023 $ 85,154
FUNDS PROVIDED FROM NET CHANGE IN
WORKING CAPITAL (Note 5)
Funds provided for additions to
utility plant
$ 297,328 $ 191,650
$ 739,906 $ 532,817
The accompanying notes are an integral
part of these statements.
if
TRUCKEE-DONNER PUBLIC UTILITY DISTRICT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1980 AND 1979
1. Summary of Significant Accounting Policies
Organization -- The Truckee-Donner Public Utility
District (the District) was formed and operates under the State
of California Public Utility District Act to provide electric
and water service to a portion of Nevada County described as
Truckee and Donner Lake. The District is exempt from payment of
federal and state income taxes.
Depreci at i on -- The District provides for depreciation
on the historical cost of utility plant on a straight-line basis
at rates in accordance with the Rural Electrification
Administration Bulletin 181-1. The average annual composite
rates were 4.0% and 3.6% in 1980 and 1979, respectively.
Retirements of utility plant and the related costs of
removal and salvage are charged to accumulated depreciation.
The costs of replacement of property units are charged to
plant. Repair and maintenance costs are charged to expense.
Revenues -- Revenues consist of billings to consumers
as meters are read on a cycle basis throughout each month.
Services provided to municipal entities without charge are not
reflected in operating revenues.
Jf
Pension Plan -- The District maintains a
noncontributory, defined benefit pension plan covering
substantially all employees who have at least one year of
service. It is the District's policy to fund pension costs as
accrued, and contributions for 1980 and 1979 amounted to $34,063
and $27,312, respectively. The present value of accumulated
plan benefits and net assets available for these benefits was
determined at December 31, 1980. The weighted average assumed
rate of return used in determining the present value of
accumulated plan benefit; was 6%.
Actuarial present value of
plan benefits accumulated
as of December 31, 1980-
Vested
Nonvested
$ 39,491
4,817
$ 44,308
Net assets available for benefits $114,740
Restri cted Funds
The District has collected and restrictively deposited
funds for future uses as follows:
-3- &
December 31, 1980
Restricted Construction
Funds
Dart Industries Water Agreement -
the District has collected $40
per lot for future water source
and storage facilities in the
developers' project
REA loan proceeds - placed in trust
to be used for future electric
construction projects
Dart Industries water services
settlement - the District has
collected funds for anticipated
future repairs of water lines
constructed by Dart Industries
Facilities fees collected from
customers for future procurement
of source and storage
Portion of connection fees collected
from customers for the future
purchase of water meters
Other restricted funds-
Loan principal and interest fund -
in accordance with loan agree-
ments, principal and interest
payments are to be placed on
deposit until payment is due-
REA
Sierra Pacific Power Company
Promissory note proceeds - placed
in trust to be used for specific
water construction projects
Purchased power refund proceeds
restricted by the District to
be used for future construction
projects
FMHA Revenue Fund - water operating
margins plus depreciation held in
reserve in accordance with the
loan agreement
Consumer deposits and other
$ 254,901
45,783
157,609
104,841
71,324
$ 634,458
43,636
38,344
26,746
126,853
76,517
80,244
Advances
$254,901
163,258
108,642
72,832
$599,633
$1,026,798 $599,633
xssssass
-4- &
Long-Term Debt
REA bonds, secured by pledge of all assets, are as
fol1ows:
1980 1979
First series 2% bonds, payable in
annual amounts varying from $13,000
to $14,000, in accordance with
sinking fund requirements, balance of
$14,000 due July, 1994
Second series 2% bonds, payable in
annual amounts varying from $3,000
to $5,000, in accordance with
sinking fund requirements, balance
of $6,000 due May, 2002
Third series 2% bonds, net of undrawn
funds of $65,426, payable in annual
amounts varying from $3,000 to
$6,000, in accordance with sinking
fund requirements, balance of
$8,000 due May, 2004
Less - Current maturities
Total REA bonds
$185,000 $198,000
85,000
40,574
[12,979:
88,000
43,574
[19,000)
$297,595 $310,574
The note payable to Sierra Pacific Power Company is
due in semiannual installments of $9,213, including interest, at
a rate of 4.67%, with final payment due in March, 1983. The net
revenues (as defined) of the Donner Lake Electric System are
pledged as security.
The promissory note payable to the United States of
America, Farmers' Home Administration is due in 39 annual
installments of principal and interest of $14,800. The interest
rate is 5% per annum. The net revenues (as defined) of the
District's water system are pledged as security. The Indenture,
-5- ■A
which secures the promissory note, requires the District to
establish and maintain rates and charges to produce net revenues
(as defined) equal to not less than 1.2 times the aggregate
amount of the principal and interest due within the next 12
months. In addition, it requires the District to establish
separate special accounting funds. During 1980 and 1979, it was
uncertain whether the District met the requirements of the
Indenture as outlined above. As a result of this uncertainty,
the District may not have fulfilled the covenants of the
Indenture. In the event of a default, the holder of not less
than 66-2/3% of the aggregate principal amount shall be
entitled, upon notice in writing to the District, to declare the
principal of all the notes ($247,270) due and payable
i mnedi ately.
The sewer assessments are payable over a 20-year
period, plus interest at 7%, to Nevada County, California.
Final payment is due in 1990.
The equipment notes payable to banks are secured by
computer equipment. They are due in monthly installments,
including interest at 7%, of $334 through March, 1981.
Contingencies - Dart Industries Water
Agreement and Related Lawsuits
In 1970, an agreement was signed between the District
and Dart Industries for the purpose of providing water service
to a Dart subdivision. The agreement required Dart to construct
-6- .*
water source and storage facilities at Conner Lake. In
December, 1975, subsequent to completion of the facilities,
ownership was transferred to the District for future maintenance
and operation. The Attorney General of the State of California
has filed suit against the District and Dart to restrain them
from using Donner Lake as a water source. Since this action
claims no monetary damages, the District has no liability
resulting from this action.
In a separate action related to the Dart subdivision,
a homeowners' group filed suit against Dart, claiming amounts in
excess of $100 million, and Dart, in turn, filed suit against
the District and others, seeking indemnity for all such
claims. The outcome and potential impact on the District cannot
presently be determined.
5. Changes in Net Working Capital
The changes in accounts classified as current assets
and current liabilities are as follows:
Year Ended December 31
Working capital increase
(decrease) in-
Cash
Recei vables
Inventory
Other current assets
Accounts payable
Deferred income
Consumer deposits
Other current liabilities
1980 1979
$(461,054) $ 172,841
59,565 (56,988)
(7,554) (6,934)
17,450 8,965
131,677 (278,477)
2,442 (4,267)
(14,340) (10,051)
(25,514) (16,739)
$(297,328) $(191,650)
= = = = = = = = = SSSSSXS3X
TRUCKEE-DONNER PUBLIC UTILITY DISTRICT
COMBINING STATEMENT OF DEPARTMENTAL OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1980
Electric Water
Donner Total Tahoe Total
Total Eliminations
$ 111,019
Truckee
$3,006,997
Lake Electric
$3,620,587
Truckee
$254,566
Donner
$166,044
Water
OPERATING REVENUE $3,930,178 $613,590 $420,610
OPERATING EXPENSES:
Purchased power $2,557,863 $ $2,179,966 $377,897 $2,557,863 $ - $ - $ -
Transmission 73,425 (97,448) - - - 95,030 75,843 170,873
Distribution 194,390 (1,530) 130,944 52,853 183,797 6,798 5,325 12,123
Consumer accounts 191,467 - 115,908 44,597 160,505 13,938 6,769 20,707
Administrative and general 365,657 (1,833) 185,487 76,391 261,878 64,625 40,987 105,612
Depreciation 131,069 - 81,138 16,089 97,227 33,207 635 33,842
Other
ing
- (10,208)
$(111,019)
10,208
$567,827
10,208
$213,598 $129,559
-
$3,513,871 $2,703,651 $3,271,478 $343,157
Net operat'
revenue $ 416,307 $ $ 303,346 $ 45,763 $ 349,109 $ 40,968 $ 36,485 $ 77,453
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