Vermont Energy Investment Corporation and Subsidiary

Transcription

1 Consolidated Audited Financial Statements, Other Financial Information, and Uniform Guidance Supplemental Reports Years Ended December 31, 2016 and 2015 with Report of Independent Auditors

2 Consolidated Audited Financial Statements, Other Financial Information, and Uniform Guidance Supplemental Reports Years Ended December 31, 2016 and 2015 Contents Report of Independent Auditors Audited Consolidated Financial Statements Consolidated Statements of Financial Position...3 Consolidated Statements of Activities and Changes in Net Assets...4 Consolidated Statements of Cash Flows...5 Notes to the Consolidated Financial Statements Other Financial Information Schedule of Expenditures of Federal Awards...18 Notes to the Schedule of Expenditures of Federal Awards...19 Uniform Guidance Supplemental Reports Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Costs...24

3 Report of Independent Auditors To the Board Directors of Vermont Energy Investment Corporation and Subsidiary Report on the Financial Statements We have audited the accompanying consolidated financial statements of Vermont Energy Investment Corporation and Subsidiary (VEIC) which comprise the consolidated statements of financial position as of December 31, 2016 and 2015, and the related consolidated statements of activities and changes in net assets and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of VEIC and Subsidiary as of December 31, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The accompanying schedule of expenditures of federal awards for the year ended December 31, 2016 is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain other procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole. Reporting on Other Legal and Regulatory Requirements In accordance with Government Auditing Standards, we have also issued our report dated June 30, 2017 on our consideration of VEIC's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Burlington, Vermont June 30, 2017 Firm Registration:

5 Consolidated Statements of Financial Position As of December 31, 2016 and Assets Current Assets Cash and cash equivalents $ 702,327 $ 1,336,933 Certificates of deposit 1,777,186 2,027,022 Accounts receivable, net of allowance for doubtful accounts of $10,000 in 2016 and ,691,301 11,819,483 Current portion of other receivable 1,123,052 1,342,347 Prepaid expenses and inventory 824,990 1,092,992 Total Current Assets 21,118,856 17,618,777 Property and Equipment, net 1,044,133 1,445,507 Notes Receivable 96,109 50,000 Other receivable, net of current portion 2,771,306 1,588,142 Total Assets $ 25,030,404 $ 20,702,426 Liabilities and Net Assets Current Liabilities Current portion of capital lease and loan obligations $ 70,684 $ 107,053 Accounts payable 10,973,806 6,342,330 Accrued expenses 3,004,745 2,870,827 Contract and grant advances 276, ,487 Total Current Liabilities 14,326,028 9,618,697 Capital Lease and Loan Obligations, net of current portion 2,887,963 3,108,633 Total Liabilities 17,213,991 12,727,330 Net Assets Unrestricted net assets: Operating 6,880,926 6,745,275 Property and equipment 935,487 1,229,821 Total Unrestricted Net Assets 7,816,413 7,975,096 Total Liabilities and Net Assets $ 25,030,404 $ 20,702,426 The accompanying notes are an integral part of these consolidated financial statements. 3

6 Consolidated Statements of Activities and Changes in Net Assets For the Years Ended December 31, 2016 and Operating Revenue Energy efficiency utilities $ 80,668,301 $ 78,353,435 Programs 2,999,015 3,756,616 Government contracts and grants 1,698,605 1,417,219 Total Operating Revenue 85,365,921 83,527,270 Operating Expense Program Services: Labor 18,708,706 17,971,003 Subcontractors 14,594,852 17,785,486 Incentives 27,764,620 25,748,389 Other direct costs 7,931,899 8,127,444 Total Program Services 69,000,077 69,632,322 Total General & Administrative 16,537,958 14,951,867 Total Operating Expense 85,538,035 84,584,189 Change in net assets from operations (172,114) (1,056,919) Non-Operating Revenue Net other income 13, ,122 Total Net Non-Operating Revenue 13, ,122 Total change in net assets (158,683) (443,797) BEGINNING NET ASSETS 7,975,096 8,418,893 ENDING NET ASSETS $ 7,816,413 $ 7,975,096 The accompanying notes are an integral part of these consolidated financial statements. 4

7 Consolidated Statements of Cash Flows For the Years Ended December 31, 2016 and Cash Flows From Operating Activities Changes in net assets $ (158,683) $ (443,797) Adjustments to reconcile changes in unrestricted net assets from operations to net cash provided/(used in) operating activities: Depreciation 658, ,910 Other (70) Change in operating assets and liabilities: Accounts receivable (5,835,687) 1,944,344 Prepaid expenses and inventory 268, ,096 Accounts payable 4,631,476 (937,047) Accrued expenses 133,918 (1,548,970) Contract and grant advances (21,694) 54,474 Net cash (used in) provided by operating activities (324,045) 260,940 Cash Flows From Investing Activities Net decrease (increase) of certificates of deposit 249,836 (1,999,163) Increase in note receivable (46,109) Acquisition of property and equipment (257,249) (828,113) Net cash used in investing activities (53,522) (2,827,276) Cash Flows From Financing Activities Principal payments on capital lease and loan obligations (107,039) (83,203) (Decrease) increase in notes payable (150,000) 3,000,000 Net cash (used in) provided by financing activities (257,039) 2,916,797 Net (decrease) increase in cash and cash equivalents (634,606) 350,461 Cash and cash equivalents, beginning of year 1,336, ,472 Cash and cash equivalents, end of year $ 702,327 $ 1,336,933 Supplemental disclosure of cash flow information Cash paid for interest $ 78,213 $ 75,430 Equipment acquired under capital lease and loan obligations $ 0 $ 56,616 The accompanying notes are an integral part of these consolidated financial statements. 5

8 Notes to the Financial Statements Note A - OPERATIONS, NONPROFIT STATUS AND SIGNIFICANT ACCOUNTING POLICIES Vermont Energy Investment Corporation and Subsidiary (VEIC) is a not-for-profit Vermont corporation formed in VEIC's mission is to reduce the economic, social and environmental costs of energy consumption through the promotion of cost effective energy efficiency and renewable energy technologies. Commons Energy, L3C (Commons Energy) is a Vermont low-profit limited liability corporation formed on January 1, 2014 and is wholly owned by VEIC. Commons Energy's mission is to reduce the economic, social and environmental costs of energy consumption through the promotion of cost effective energy efficiency and renewable energy technologies. Commons Energy is formed for the object and purpose of providing energy improvement services to underserved buildings serving a public purpose. Commons Energy has suffered recurring losses from operations since inception, has a net capital deficiency as well as uncertainties concerning future revenues. Commons Energy may cease to operate in the near future. VEIC is exempt from Federal income taxes as an organization (not a private foundation) formed for charitable purposes under section 501(c)(3) of the Internal Revenue Code. VEIC is also exempt from state income taxes. Commons Energy is treated as an LLC where any profits/losses will rollup to the parent company, VEIC, and be reported on VEIC's Form 990. Donors may deduct contributions made to VEIC but not to Commons Energy, within Internal Revenue Code requirements. Program services offered by VEIC are as follows: Comprehensive Implementation VEIC operates and administers three large scale energy efficiency utility (EEU) programs in Vermont, Ohio, and the District of Columbia. Through contracts with the Vermont Public Service Board (Efficiency Vermont), American Municipal Power (Efficiency Smart), and the Department of Energy and Environment (DC SEU), VEIC has developed a proven track record of delivering energy efficiencies, local job creation, and return on investment. The EEU model developed by VEIC is an industry blueprint being studied and investigated nationwide and internationally. Targeted Implementation VEIC provides energy efficiency implementation services on a smaller scale to private organizations and public municipalities to meet needs of residents, businesses and agencies interested in pursuing energy efficiency initiatives. These services include energy audits, diagnostic assessments, training, contract management, financing assistance, program design or initiation. 6

9 Notes to the Financial Statements (continued) Note A - OPERATIONS, NONPROFIT STATUS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Consultative Services VEIC provides national and international consulting services to consumer and environmental organizations, electric and gas utilities and other clients for energy efficiency and renewable energy activities. Program services offered by Commons Energy are as follows: Commons Energy provides energy efficiency implementation services as a Public Purpose Energy Service Company to private organizations, public municipalities, school systems, hospitals and low-income housing units in order to meet the needs of residents, businesses and agencies interested in pursuing energy efficiency initiatives. These services include energy audits, diagnostic assessments and financing assistance. Basis of Accounting The consolidated financial statements have been prepared in accordance with generally accepted accounting standards and principles established by the Financial Accounting Standards Board (FASB). References to U.S. GAAP in these notes are to the FASB Accounting Standards Codification. VEIC and Commons Energy are required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. As of December 31, 2016 and 2015, there were no temporarily or permanently restricted net assets. Principles of Consolidation The consolidated financial statements include the accounts of VEIC and Commons Energy (collectively referred as the Companies). All significant intercompany accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents For purposes of the statements of cash flows, management considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. 7

10 Notes to the Financial Statements (continued) Note A - OPERATIONS, NONPROFIT STATUS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) The Federal Deposit Insurance Corporation (FDIC) insures amounts on deposit with each financial institution up to limits as prescribed by law. The Companies may hold funds with financial institutions in excess of the FDIC insured amount, however, the Companies have not experienced any losses in such accounts, and management believes it is not exposed to any significant credit risk on cash and cash equivalents. Certificates of Deposit The Companies hold certificates of deposit. The certificates of deposit have maturity dates of one year or less. The securities are reported at their estimated fair values with interest and unrealized holding gains and losses reported as a component of non-operating other income. Property and Equipment Purchased property and equipment are recorded at cost (see Note B). Renewals and betterments are capitalized while repairs and maintenance are charged to expense as they are incurred. Depreciation is computed using the straight-line method over the following estimated useful lives: Estimated Useful Lives Computers and software 3-7 years Leasehold improvements Life of the lease Furniture, fixtures and office equipment 3-5 years Vehicles 3-5 years Depreciation expenses for the years ended December 31, 2016 and 2015 was $658,623 and $514,910 respectively. Contributions of long lived assets (or cash to acquire) are reported as unrestricted assets. At the completion of a contract, these assets could revert to the funder. Allowance for Doubtful Accounts The allowance for doubtful accounts is based on management's collection experience with their customers. Amounts are charged-off as uncollectible when management determines that the receivable will not be collected. 8

11 Notes to the Financial Statements (continued) Note A - OPERATIONS, NONPROFIT STATUS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Estimates The preparation of the consolidated financial statements in accordance with U.S. GAAP 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. Unrestricted Net Assets Unrestricted net assets are those net resources that bear no external restrictions and are generally available for use by the Companies. The Companies have grouped its unrestricted net assets into the following categories: Operating net assets consist of amounts which are available for use in the Companies' operating activities. Property, equipment and write-down net assets consist of the net book value of VEIC's property and equipment, net of related debt and debt write-down. Uncertainty in Income Taxes The Companies follow the Accounting for Uncertainty in Income Taxes standard which requires the reporting of uncertain tax positions, related interest and penalties, and to record liabilities related to uncertain tax positions and accrued interest and penalties accordingly. As of December 31, 2016 and 2015, management determined that there are no material uncertain tax positions to report. Revenue Recognition EEU contract income and program services revenue are recognized as income as services are provided. Contract and grant advances consist of amounts received in advance of services being provided under the terms of the contracts. The related revenue is then recognized as it is earned. Energy Efficiency Utility incentive income is estimated and subject to change based on the achievement of specific performance. Unrestricted grants are recorded as revenue when received or unconditionally committed. Restricted grants are recorded as income as the obligations are fulfilled. Interest and other revenue is recorded as earned. 9

12 Notes to the Financial Statements (continued) Note A - OPERATIONS, NONPROFIT STATUS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Incentive Payments and Rebates As part of VEIC's work through Energy Efficiency Utilities (EEUs) in Vermont, Ohio, and Washington DC, VEIC will assist businesses, households and farms that make an initiative to try to reduce their energy use with energy efficient lighting, appliances, equipment and buildings. By doing so, VEIC will provide rebates and incentive payments to those that qualify and successfully implement energy efficient products. All incentive payments and rebates are recognized as expenses upon implementation of energy efficient products. Expense Allocations and Classifications Expenses related directly to a program are distributed to that program. Administrative expenses are allocated based upon an indirect allocation rate determined during VEIC's annual budget process. Note B - PROPERTY AND EQUIPMENT Property and equipment consist of the following: Computers and software $ 3,590,012 $ 3,400,647 Leasehold improvements 2,183,611 2,131,125 Furniture, fixtures and office equipment 702, ,487 Vehicles 405, ,507 Intangible assets 5,315 5,315 6,887,124 6,653,081 Less accumulated depreciation (5,842,991) (5,207,574) Property and equipment, net $ 1,044,133 $ 1,445,507 Note C - ACCOUNTS RECEIVABLE Accounts receivable consists of amounts to be received from clients for services rendered. Management has determined that an allowance for doubtful accounts of $10,000 is necessary as of both December 31, 2016 and Other receivables as of December 31, 2016 and 2015 consists primarily of $3,684,261 and $2,190,944 respectively in accrued EEU performance incentives, $81,076 and $176,076, respectively due from VEIC's landlord in connection with its main facility lease and $120,369 and $560,168, respectively due from health insurance carrier for claims in excess of policy cap. 10

13 Notes to the Financial Statements (continued) Note C - ACCOUNTS RECEIVABLE (cont d) Receipts under the facility lease agreement are expected as follows: 2017 $ 95,000 Less - discount (13,924) $ 81,076 Note D - NOTES RECEIVABLE Notes receivable consist of the following: Five $10,000 notes to the Vermont Community Loan Fund. All notes have been, and continue to be, extended as they come due. The notes bear interest at rates ranging from.85% to 2.5% annually. On April 1, 2016, Commons Energy entered into a Loan Participation Agreement with National Housing Trust Community Development Fund (National Housing) whereby Commons Energy agreed to purchase from National Housing a 75% undivided participation interest in a previous loan made to Cathedral Square Commons, and all guarantees and collateral security therefore, for the amount of $54,305. The loan bears a 3% interest rate less a monthly processing fee. VEIC has guaranteed the loan for non-payment by the original borrower and in the event Commons Energy is unable to pay National Housing for their portion of the guarantee. The loan is receivable in monthly installments of $535.91, with a maturity date of January Future loan receipts over the next five years are as follows: Note E - LEASES Interest Principal 2017 $ 1,464 $ 4, $ 1,313 $ 5, $ 1,158 $ 5, $ 997 $ 5, $ 832 $ 5,598 Thereafter $ 1,573 $ 24,686 Total $ 51,076 VEIC leases office space in Vermont, Ohio, and Washington DC under various non-cancelable leases that expire at various dates through Additionally, VEIC holds various equipment and data center leases that expire at various dates through Total lease expense under these leases for 2016 and 2015 was $2,360,003 and $2,561,099 respectively. 11

14 Note E LEASES (cont d) Vermont Energy Investment Corporation and Subsidiary Notes to the Financial Statements (continued) Future minimum lease payments over the next five years are as follows: 2017 $ 2,077, $ 1,439, $ 1,438, $ 1,455, $ 368,737 Thereafter $ 0 Total $ 6,779,993 During 2016 and 2015, VEIC leased office equipment under a capital lease obligations. There are no interest payments under the agreements. Depreciation expense on assets purchased under capital lease agreements was $127,983 for 2016 and $149,812 for Additionally, VEIC held four vehicle loans at December 31, 2016, and eleven vehicle loans at December 31, Total payments on vehicle loans in 2016 and 2015 was $38,167 and $66,411, respectively. Future minimum lease and loan payments for the remainder of the agreements are as follows: 2017 $ 73, $ 23, $ 14, $ 6,423 Total $ 51,153 Note F - LOAN OBLIGATIONS VEIC has available a revolving line of credit with a bank. The amount available under the line is the lesser of 80% of Efficiency Vermont's accounts receivable aged 90 days or less with a maximum principal amount varying between $5 and $7 million. Borrowings on the line are due on demand and interest is payable monthly at the Wall Street Journal Prime Rate (3.75% and 3.5% at December 31, 2016 and 2015 respectively), with a floor of 4%. The amount outstanding under the line of credit at December 31, 2016 and 2015 was $0. The line is secured by all of VEIC s assets and expires in July The revolving line of credit agreement has certain covenants with which VEIC must comply. In connection with the EEU forward capacity markets commitment (see Note H), VEIC has entered into a standby letter of credit agreement with a bank for up to $500,000 and $700,000 as of December 31, 2016 and 2015, respectively. This letter of credit expired in December 2016, and was renewed through December

15 Note F - LOAN OBLIGATIONS (cont d) Notes to the Financial Statements (continued) In 2015, Commons Energy signed a $250,000, five year, two percent (2%) loan from The John D. and Catherine T. MacArthur Foundation. This loan is restricted in use to provide an initial cash reserve fund solely to support the Energy Savings Guaranties for energy efficient retrofits and upgrades for small and medium-sized multifamily buildings. Interest payments of $1,250 are payable quarterly with the principal due April 1, The terms of this loan are backed by a financial guarantee from VEIC as part of the promissory note agreement. Future minimum loan payments for the remainder of the agreement are as follows: Interest Principal 2017 $ 5,000 $ $ 5,000 $ $ 5,000 $ $ 1,250 $ 250,000 Total $ 250,000 In 2015, Commons Energy signed a $4,750,000, fifteen year, one percent (1%) loan from The John D. and Catherine T. MacArthur Foundation, of which $2,500,000 was drawn down. This loan is restricted to support unmet energy efficiency improvement needs in the affordable multifamily market. Quarterly interest payments of $6,250 started in April, Principal due in the last three years of the loan term, $1,000,000 on 04/01/2028, $1,000,000 on 04/01/2029 and $2,750,000 on 04/01/2030 (based on full draw down of funds). The terms of this loan are backed by a financial guarantee from VEIC as part of the promissory note agreement. Future minimum loan payments over the next five years are as follows: Interest Principal 2017 $ 25,000 $ $ 25,000 $ $ 25,000 $ $ 25,000 $ $ 25,000 $ - Thereafter TBD $ 2,500,000 Total $ 2,500,000 In 2015, Commons Energy signed a $250,000, fifteen year loan from The High Meadows Fund and drew down $125,000. During 2016, Commons Energy paid down $75,000 on the loan. The balance of this loan is $50,000 at December 31, This loan is restricted in use to provide comprehensive, one-stop clean energy services to buildings that serve a public purpose. Principal payments on the note are deferred until year three of the term. The interest rate is 4% per annum paid quarterly. Beginning in November, 2017 the loan will be amortized over the remaining 13 years with payments of $1, due quarterly through August, The terms of this loan are backed by a financial guarantee from VEIC as part of the promissory note agreement. 13

16 Notes to the Financial Statements (Continued) Note F - LOAN OBLIGATIONS (cont d) Future minimum loan payments over the next five years are as follows: Interest Principal 2018 $ 1,925 $ 3, $ 1,803 $ 3, $ 1,675 $ 3, $ 1,542 $ 3,409 Thereafter $ 6,921 $ 36,403 Total $ 50,000 In 2015, Commons Energy signed a $250,000, fifteen year loan from The Vermont Community Foundation and drew down $125,000. During 2016, Commons Energy paid down $75,000 on the loan. The balance of this loan is $50,000 at December 31, This loan is restricted in use to provide comprehensive, one-stop clean energy services to buildings that serve a public purpose. Principal payments on the note are deferred until year three of the term. The interest rate is 4% per annum paid quarterly. Beginning in November, 2017 the loan will be amortized over the remaining 13 years with payments of $1, due quarterly through August, The terms of this loan are backed by a financial guarantee from VEIC as part of the promissory note agreement. Future minimum loan payments over the next five years are as follows: Interest Principal 2017 $ 1,833 $ $ 1,925 $ 3, $ 1,803 $ 3, $ 1,675 $ 3, $ 1,542 $ 3,409 Thereafter $ 6,921 $ 36,403 Total $ 50,000 Note G - PENSION PLAN VEIC maintains a tax-sheltered annuity pension plan that qualifies under Section 403(b) of the Internal Revenue Code. The plan covers substantially all employees. There is no minimum age or service requirements for employees to make contributions to the plan. For full-time employees who have completed a minimum 1,000 hours per year, VEIC makes employer contributions between 2% and 6% of the employee's compensation depending on length of service. Pension expense for the year ended December 31, 2016 and 2015 was $1,272,134 and $1,188,364 respectively. 14

17 Notes to the Consolidated Financial Statements (Continued) Note H - CONTINGENCIES AND COMMITMENTS Efficiency Vermont Financing for Farms As part of VEIC's role as Vermont's EEU, VEIC has agreed to pay the origination fees and guarantee loans made to Vermont farmers for the purchase of energy efficiency improvements. The loans are underwritten and serviced by a Vermont credit union, and subject to final approval by VEIC. As guarantor, VEIC maintains a loan loss reserve in escrow. Outstanding loans are for no longer than 48 months. Some feature interest rate buy downs, these vary by program. All funds used to maintain the loss reserve are provided through EEU budgeted funds. As of December 31, 2016 and 2015, the balance held in escrow by Opportunities Credit Union was $44,236 and $41,020 respectively, which is included in cash and cash equivalents on the accompanying consolidated statements of financial position. The required loss reserve balance at December 31, 2016 and 2015 was $5,864 and $24,851. Forward Capacity Markets As part of the Efficiency Vermont contract (see Note A), VEIC has made commitments to deliver specified units of energy efficiency to a regional capacity market at a fixed price per unit. If VEIC fails to deliver its committed energy efficiency units (due on various future dates) in accordance with the contract terms, it could face a financial assurance obligation. As of December 31, 2016, VEIC has fulfilled enough of its commitment such that the potential total financial assurance obligation is approximately $15,222 ($389,021 as of December 31, 2015). Should VEIC be permanently unable to meet the capacity market commitments, an irrevocable standby letter of credit will be drawn on to pay any financial assurance obligations due to the regional capacity market (see Note F). Energy Performance Contracts As of December 31, 2016, Commons Energy has entered into contracts that guarantee specific annual energy savings to customers who implement certain energy improvement recommendations based on individual energy performance audits. These energy savings are recognized on an annual basis for an agreed upon period. Commons Energy entered into certain guaranty agreements with the Kresge Foundation and MacArthur Foundation whereby the foundations guarantee certain energy performance contract guarantees entered into by Commons with their customers. In addition, the Kresge Foundation has provided certain guarantees in the event of default on loans made by Commons Energy on certain energy contracts. The MacArthur Foundation provides available funds (loans) in case of loan defaults on certain energy contracts. Management doesn t believe that any liability resulting from Commons Energy s guarantees is considered necessary as of December 31,

18 Note I - RELATED PARTIES Notes to the Financial Statements (Continued) A member of VEIC's Board of Directors is an employee at Northeast Energy Efficiency Partnerships (NEEP), an organization in which VEIC has contracted for consulting services. VEIC is also retained by this organization to provide consulting services. VEIC paid $132,660 and $203,262 to this organization in 2016 and 2015, respectively. Another member of VEIC's Board of Directors is an employee at Vermont Housing and Conservation Board (VHCB), an organization with which VEIC and Commons Energy have contracted work. VEIC and Commons Energy paid amounts totaling $3,645 and $80,500 to VHCB in 2016 and 2015 respectively. Note J - CONCENTRATIONS The Efficiency Vermont contract and incentive income (see Note A) represented approximately 67% and 68% of VEIC's unrestricted operating revenue for 2016 and 2015, respectively. The Efficiency Vermont contract receivable represented approximately 81% and 47% of total receivables at December 31, 2016 and The DC SEU contract and incentive income (see Note A) represented approximately 22% and 21% of VEIC's unrestricted operating revenue for 2016 and 2015, respectively. The DC SEU contract receivable represented approximately 9% and 30% of total receivables at December 31, 2016 and The Efficiency Smart contract and incentive income (see Note A) represented approximately 4% of VEIC's unrestricted operating revenue for both 2016 and 2015, respectively. The Efficiency Smart contract receivable represented approximately 6% of total receivables at both December 31, 2016 and Payments to VEIC are subject to audit and possible adjustment by funding sources. In the opinion of management, the results of such audits, if any, will not have a material effect on the financial position of VEIC or on its changes in net assets. Note K - SUBSEQUENT EVENTS On June 29, 2015 VEIC formed a wholly owned domestic limited liability company, Sun Shares, LLC. Sun Shares was formed to engage in the business of developing, managing, and operating solar powered electricity generation facilities, and providing consulting and administrative services to entities that wish to develop such facilities. Sun Shares began operations in January of In February, 2017 VEIC loaned Sun Shares $75,000, to be repaid in 15 annual installments of $5,000 beginning December In February 2017, Sun Shares purchased a 1% share in Lakeside Solar LLC, a Vermont limited liability company whose purpose is to develop and operate one or more solar powered electricity generation facilities. Subsequent events have been evaluated through June 30, 2017, which is the date the consolidated financial statements were available to be issued. No additional material subsequent events were identified for recognition or disclosure. 16

19 Schedule of Expenditures of Federal Awards As of December 31, 2016 Federal Grantor Pass - Through Grantor Program Title Federal CFDA Number Grant or Other Identifying Numbers Federal Expenditures U.S. Department of Energy Passed through State of Vermont Department of Public Service State Energy Program Special Projects DE-EE $ 208,454 Passed through National Association of State Energy Officials Conservation Research and Development DE-EE ,830 Conservation Research and Development DE-EE ,280 Passed through Institute for Market Transformation Conservation Research and Development DE-EE ,711 Subtotal 120,820 Passed through State of Vermont Department of Public Service State Energy Program FY15-ARRA-02 1,544 Passed through Energetics Incorporated Drive Electric Vermont 81.Unknown DE-4043-P004 8,255 Smart Thermostats 81.Unknown DE-3802-P042 39,819 Subtotal 48,074 Renewable Energy Research and Development DE-EE ,630 Total U.S. Department of Energy 583,522 U.S. Department of Transportation Highway Planning and Construction Cluster: Highway Planning and Construction N/A 161,887 Passed through The Cadmus Group Clean Fuels ODOT-VEIC-1 22,936 Total U.S. Department of Transportation 184,823 17

20 Schedule of Expenditures of Federal Awards (Continued) As of December 31, 2016 Federal Grantor Pass - Through Grantor Program Title Federal CFDA Number Grant or Other Identifying Numbers Federal Expenditures U.S. Department of Agriculture Passed through Vermont Department of Forests, Parks & Recreation Wood Utilization Assistance CA ,970 Wood Utilization Assistance CA ,512 Subtotal 76,482 Passed through Northeastern Area, State and Private Forestry Wood Utilization Assistance DG ,007 Passed through American Municipal Power, Inc. Rural Energy for America Program MAS 19,205 Total U.S. Department of Agriculture 117,694 U.S. Environmental Protection Agency Passed through The Clark Group LLC Improvement of Energy Efficiency in the U.S. Industrial Sector 66-Unknown EP-B15-H ,547 Energy Star Training 66-Unknown EP-BPA-12-H ,899 Total U.S. Environmental Protection Agency 13,446 Total Expenditures of Federal Awards $ 899,485 18

21 Notes to the Schedule of Expenditures of Federal Awards As of December 31, 2016 Note 1 - Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of VEIC and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administration Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Note 2 - Indirect Cost Rate VEIC has not adopted the de minimis indirect cost rate of 10%. 19

22 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Consolidated Financial Statements Performed in Accordance with Government Auditing Standards Report of Independent Auditors To the Board of Directors Vermont Energy Investment Corporation and Subsidiary We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the consolidated financial statements of Vermont Energy Investment Corporation and Subsidiary (VEIC), which comprise the consolidated statements of financial position as of December 31, 2016 and the related consolidated statements of activities and changes in net assets and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated June 30, Internal Control Over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered VEIC's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing an opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of VEIC s internal control. Accordingly, we do not express an opinion on the effectiveness of VEIC s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 20

23 Compliance and Other Matters As part of obtaining reasonable assurance about whether VEIC's consolidated financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of VEIC s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering VEIC s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Burlington, Vermont June 30, 2017 Firm Registration:

24 Report on Compliance For Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance Report of Independent Auditors To the Board of Directors Vermont Energy Investment Corporation and Subsidiary Report on Compliance for Each Major Federal Program We have audited Vermont Energy Investment Corporation s and Subsidiary (VEIC) compliance with the types of compliance requirements described in the OMB Compliance Supplemen that could have a direct and material effect on its major federal program for the year ended December 31, VEIC's major federal program is identified in the summary of auditor's results section of the accompanying Schedule of Findings and Questioned Costs. Management's Responsibility Management is responsible for compliance with federal statutes, regulations and the terms and conditions of its federal awards applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for VEIC s major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about VEIC s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of VEIC s compliance. 22

25 Opinion on Major Federal Program In our opinion, VEIC complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended December 31, Report on Internal Control Over Compliance Management of VEIC is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered VEIC s internal control over compliance with the types of requirements that could have a direct and material effect on the major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for the major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of VEIC s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Burlington, Vermont June 30, 2017 Firm Registration:

26 VERMONT ENERGY INVESTMENT CORPORATION AND SUBSIDIARY SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED DECEMBER 31, 2016 Section I Summary of Auditor s Results Financial Statements Type of auditor s report issued: Internal control over financial reporting: Material weakness identified? Significant deficiency identified not considered to be material weakness? Noncompliance material to financial statements noted? Federal Awards Type of auditor s report issued on compliance for the major program: Internal control over the major program compliance: Material weakness identified? Significant deficiency identified not considered to be a material weakness? Any audit findings disclosed that are required to be reported in accordance with 2 CFR (a)? Unmodified No None reported No Unmodified No None reported No Identification of major programs CFDA Number Name of Federal Program State Energy Program Special Projects Dollar threshold used to distinguish between Type A and Type B programs: $750,000 Auditee qualified as low-risk auditee? Yes Section II Financial Statement Findings No matters were reported. Section III Federal Award Findings and Questioned Costs No matters were reported. 24