POWER COMMISSION OF THE CITY OF SAINT JOHN

Transcription

1 Financial Statements of POWER COMMISSION OF THE CITY OF SAINT JOHN (Expressed in thousands of dollars)

2 KPMG LLP Frederick Square One Factory Lane 77 Westmorland Street Suite 700 Place Marven s Fredericton NB E3B 6Z3 PO Box 827 Telephone (506) Moncton NB E1C 8N6 Fax (506) Telephone (506) Internet Fax (506) Harbour Building 133 Prince William Street PO Box 2388 Stn Main Saint John NB E2L 3V6 Telephone (506) Fax (506) INDEPENDENT AUDITORS' REPORT To the Board of Commissioners We have audited the accompanying financial statements of Power Commission of the City of Saint John (the Commission ), which comprise the statements of financial position as at December 31, 2015, December 31, 2014 and January 1, 2014, the statements of comprehensive income and cash flows for the years ended December 31, 2015 and December 31, 2014 and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards ( IFRS ), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform an audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Commission's preparation and fair presentation of the 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 Commission's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our qualified audit opinion. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. KPMG Canada provides services to KPMG LLP.

3 Basis for Qualified Opinion As described in note 2(a) to these financial statements, the Commission makes contributions to the SJ Energy Shared Risk Pension Plan as part of the compensation the Commission provides to its employees. IFRS does not specifically address whether sponsors should record their participation in a shared risk pension plan following the accounting prescribed for defined contribution plans or defined benefit plans. The Commission has recorded its contributions to the trust fund in accordance with the accounting for a defined contribution pension plan. Had the Commission applied accounting for defined benefit plans, it would have measured and recorded a defined benefit obligation at December 31, 2015, December 31, 2014, and January 1, 2014 and the related current service and past service costs for the years ended December 31, 2015 and December 31, 2014 based on actuarial valuations. Actuarial valuations have not been prepared. As a consequence of the uncertainty under IFRS regarding the method of accounting by sponsors for participation in shared risk pension plans as described in the preceding paragraph, we were unable to obtain sufficient appropriate audit evidence to determine whether the Commission has appropriately accounted for its contributions to the SJ Energy Shared Risk Pension Plan and whether adjustments to current service and past service costs for the years ended December 31, 2015 and December 31, 2014 or whether adjustments to record a defined benefit obligation at December 31, 2015, December 31, 2014, and January 1, 2014 were necessary. Opinion In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, the financial position of Commission as at December 31, 2015, December 31, 2014 and January 1, 2014 and its financial performance and its cash flows for the years ended December 31, 2015 and December 31, 2014 in accordance with IFRS. Chartered Professional Accountants March 24, 2016 Saint John, Canada 2

4 Statements of Financial Position December 31, December 31, January 1, Assets Current assets Cash (note 5) $ 11,401 $ 7,188 $ 4,365 Restricted cash (note 5) 301 3,307 2,189 Accounts receivable (note 6) 8,630 9,363 10,428 Unbilled revenue 2,805 3,595 4,437 Harmonized sales tax recoverable 1,185 1,122 1,078 Prepaid expenses Total current assets 24,974 25,125 23,048 Non-current assets Property, plant and equipment (note 7) 62,896 61,570 59,220 Intangible assets (note 8) 1,600 1,508 Loans receivable Restricted investments 46 Total non-current assets 64,701 63,199 59,331 Total assets $ 89,675 $ 88,324 $ 82,379 See accompanying notes to financial statements. 1

5 Statements of Financial Position December 31, December 31, January 1, Liabilities Current liabilities Payable to NB Power $ 9,946 $ 10,637 $ 11,463 Accounts payable and accrued liabilities (note 9) 6,382 3,604 2,159 Customer deposits 971 1,076 1,005 Reduce and shift demand (note 5) 301 3,307 2,189 Total current liabilities 17,600 18,624 16,816 Non-current liabilities Deferred revenue Post-employment benefits (note 10) 13,321 14,752 11,845 Total non-current liabilities 14,080 15,489 11,845 Total liabilities 31,680 34,113 28,661 Regulatory balances (note 11) 57,995 54,211 53,718 Commitments and contingencies (note 15) Total liabilities and regulatory balances $ 89,675 $ 88,324 $ 82,379 See accompanying notes to the financial statements. On behalf of the Board: Chairman President & Chief Executive Officer 2

6 Statements of Comprehensive Income, with comparative information for Electrical operations Revenue $ 106,330 $ 104,327 Energy purchased 89,495 88,604 16,835 15,723 Other income Water heater rental 2,736 2,647 Lighting rental Other (note 12) 1,152 1,504 21,673 20,803 Operating expenses Distribution, operations and maintenance 8,832 8,401 Administration, billing and collection 9,165 8,325 Water heater rental 1,186 1,012 Lighting rental 1, Income from operating activities 1,460 2,616 Finance income (note 14) Finance costs (note 14) (44) (52) Net income 1,577 2,718 Movement in regulatory balances (note 11) (1,577) (2,718) Net income after movement in regulatory balances Other comprehensive income (loss) Items that will not be reclassified to profit or loss: Actuarial gains (losses) on other post-employment benefits 2,207 (2,225) Movement in regulatory balances (note 11) (2,207) 2,225 Other comprehensive income Total comprehensive income $ $ See accompanying notes to the financial statements. 3

7 Statements of Cash Flows, with comparative information for Operating activities Net income $ 1,577 $ 2,718 Adjustments for: Depreciation of property, plant and equipment 2,566 2,718 Amortization of intangible assets 178 Amortization of deferred revenue (19) (12) Loss (gain) on disposal of property, plant and equipment 821 (5) Post-employment benefits Contributions received from customers Net finance income (117) (102) 5,823 6,748 Change in non-cash operating working capital: Accounts receivable 733 1,065 Unbilled revenue Harmonized sales tax recoverable (63) (44) Prepaid expenses (102) 1 Payable to NB Power (691) (826) Accounts payable and accrued liabilities 889 1,445 Customer deposits (105) 71 1,451 2,554 Net cash from operating activities 7,274 9,302 Investing activities Loans receivable (84) (56) Restricted investments 46 Purchase of property, plant and equipment (4,759) (5,088) Purchase of intangible assets (270) (1,508) Proceeds on disposal of property, plant and equipment Disbursements of reduce and shift demand credits (2,050) (282) Credits received for reduce and shift demand 933 1,400 Net finance income Net cash used by investing activities (6,067) (5,361) Change in cash 1,207 3,941 Cash, beginning of year (note 5) 10,495 6,554 Cash, end of year (note 5) $ 11,702 $ 10,495 See accompanying notes to the financial statements. 4

8 1. Reporting entity The Power Commission of the City of Saint John (the Commission ) is a rate regulated electricity distribution company governed by By-Laws, the Electricity Act and the Municipalities Act of the Province of New Brunswick. The Commission has no share capital. Appointments to the Board of Commissioners are made by the Mayor and Council of the City of Saint John. The Board of Commissioners acts in the best interests of rate-payers and its voting members are not employees of the Commission. The Commission s head office is located in the City of Saint John, 325 Simms Street, New Brunswick. The Commission is the principal supplier of electrical energy to the residential, general service, small industrial and municipal sectors of the City of Saint John. The majority of the electrical energy is purchased from the New Brunswick Power Corporation ( NB Power ), a Crown Corporation wholly-owned by the Government of New Brunswick. The Commission operates under the name Saint John Energy. The financial statements are for the Commission as at and for the year ended December 31, Basis of presentation (a) Statement of compliance The Commission's financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ), including accounting for the Commission s Shared Risk Pension Plan ( SRP ) as a defined contribution plan. Defined contribution plans are post-employment benefit plans under which an entity pays fixed contributions for services rendered by its employees and will have no legal or constructive obligation to make further contributions. As such, the entity recognizes the contributions payable when the employees have rendered service to the entity. An accrued liability or prepaid expense is recognized if the amount paid during the period differs from the required contributions for the period. IFRS does not specifically address the accounting for shared risk pension plans of the nature of the Commission s SRP. The Commission s SRP provides employees with retirement benefits that are based on a defined formula and the Commission is exposed to variability of possible increases and decreases in contributions, up to a maximum of 2%. As such, IAS 19 Employee Benefits could be interpreted as requiring the Commission to account for the SRP as a defined benefit plan. The Commission would, as the sponsor of a defined benefit plan, be required to recognize a post-employment benefit liability or asset to reflect the funded status of the SRP. The obligations and costs of a defined benefit plan would be actuarially determined by applying the projected unit credit method and would reflect management s best estimate of certain underlying assumptions. 5

9 2. Basis of presentation (continued) (a) Statement of compliance (continued) By agreement, effective June 1, 2013, the Commission had converted and replaced its defined benefit plan with a SRP. This agreement transferred the predecessor plan s pension liabilities and assets to an independent Board of Trustees and prescribed that the Commission make contributions to the SRP, as described in note 10 (a). At this time, management has concluded that the Commission has no financial obligation or responsibility except to make contributions at the current employee contribution rate. Management believes that the maximum variability of 2% does not create a significant constructive or legal obligation given the shared risk nature of the plan. As such, management has concluded that the SRP is a defined contribution plan. The financial effect of the uncertainty as to whether the SRP should be accounted for as a defined benefit plan is limited to: (i) the absence of the recognition of a post-employment benefit liability or asset in the statements of financial position; (ii) the recognition of any service or interest costs associated with the SRP, to the extent they differ from the required contributions, in the statements of comprehensive income; (iii) the related measurement gains or losses which are recorded in other comprehensive income; and (iv) the additional note disclosures for a defined benefit plan. Management has concluded that the financial statements, which include accounting for participation in the SRP as a defined contribution plan, present fairly the Commission s financial position, financial performance and cash flows. (b) Adoption of IFRS These are the Commission s first financial statements prepared in accordance with IFRS and IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Commission is provided in note 18. The financial statements were approved by the Board of Commissioners on March 24, (c) Basis of measurement These financial statements have been prepared on the historical cost basis, unless otherwise stated. 6

10 2. Basis of presentation (continued) (d) Functional and presentation currency These financial statements are presented in Canadian dollars, which is the Commission's functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand. (e) Use of judgments and estimates The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and liabilities. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future years affected. (i) Assumptions about judgements Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognized in the financial statements are included in the following notes: (i) Note 3(i) and 10 classification of defined benefit obligations (ii) Assumptions and estimations uncertainty Information about assumptions and estimation uncertainties that have a risk of resulting in material adjustment is included in the following notes: (i) (ii) Note 6 and 17(a) provision for impairment of accounts and loans receivable Note 3(b) measurement of unbilled revenue (iii) Notes 3(d), 3(e), 7, 8 estimation of useful lives of its property, plant and equipment ( PP&E ) and intangible assets (iv) Note 3(i), 10 measurement of defined benefit obligations: key actuarial assumptions (v) Note 3(h), 15 recognition and measurement of provisions and contingencies 7

11 2. Basis of presentation (continued) (f) Rate regulation and regulatory balances In establishing the rates that it charges its customers, the Commission must follow the economic regulatory framework set out in the Municipalities Act. The Municipalities Act requires the Commission to make such charges to the users of its services as to produce annually or quadrennially balanced budgets. Surpluses or deficits at the end of each budget period are required to be debited or credited to the second next ensuing year or spread over a four year period commencing on the second next ensuing year. The Municipalities Act also permits the Commission to establish, manage and contribute to an operating reserve fund and a capital reserve fund ( regulatory balances ) in accordance with set regulations. Pursuant to these principles, the Board of Commissioners, acting as rate regulator, approves the amount and timing of changes to rates and other charges as well as the annual capital and operating budgets. The Commission plans its operations to essentially result in an annual financial breakeven position after any appropriations to the regulatory balances. In accordance with the regulations, amounts held in the regulatory balances are to be used for no purpose other than the payment of expenses incurred by the Commission in the provision of service. Rate regulation affects the accounting for a transaction or event and results in the recognition of regulatory assets and regulatory liabilities. Regulatory assets represent future revenues associated with certain costs, incurred in the current period or in prior periods that are expected to be recovered from customers in future periods through the rate-setting process. Regulatory liabilities represent future reductions or limitations of increases in revenues associated with amounts that are expected to benefit the customers as a result of the rate-setting process. Note 11 of these financial statements details the regulatory balances and the movement in the regulatory balances. When establishing rates to be charged to customers, the rate regulator, which is the Commission s Board of Commissioners, considers the operating and capital budgets for the respective period. Rates are set so as to achieve specific and full recovery of all the Commission s operating costs. For the specific benefit of all rate-payers, the Commission is also entitled by regulatory statutes to collect funds from customers in advance of actual costs being incurred (i.e. the regulatory balances). Regulatory balances are used for no purpose other than for future payment of expenses incurred by the Commission in the provision of service. In the absence of rate regulation, the Commission s regulatory balances would not be recognized. 8

12 3. Significant accounting policies The accounting policies set out below have been applied consistently in all years presented in these financial statements and in preparing the opening IFRS statement of financial position at January 1, 2014 for the purpose of the transition to IFRS. (a) Financial instruments All financial assets are classified as loans and receivables and all financial liabilities are classified as other liabilities. These financial instruments are recognized initially at fair value plus any directly attributable transaction costs. Subsequently, they are measured at amortized cost using the effective interest method less any impairment for the financial assets as described in note 3(f). The Commission does not enter into derivative instruments. Hedge accounting has not been used in the preparation of these financial statements. (b) Revenue recognition Sale and distribution of electricity Revenue from the sale of electricity is recognized as the electricity is delivered to customers on the basis of cyclical meter readings and estimated customer usage since the last meter reading date to the end of the year. Revenue includes the cost of electricity supplied, distribution and administrative costs. The related cost of power is recorded on the basis of power used. Other revenue Revenue earned from the provision of services is recognized as the service is rendered. Certain customers and developers are required to contribute towards the capital cost of construction of distribution assets in order to provide ongoing service. Cash contributions are recorded as deferred revenue. When an asset other than cash is received as a capital contribution, the asset is initially recognized at its fair value, with a corresponding amount recognized as deferred revenue. The deferred revenue, which represents the Commission's obligation to continue to provide the customers access to the supply of electricity, is amortized to income on a straight-line basis over the useful life of the related asset. 9

13 3. Significant accounting policies (continued) (d) Property, plant and equipment Items of PP&E used in rate-regulated activities and acquired prior to January 1, 2014 are measured at deemed cost established on the transition date (see note 18(b)), less accumulated depreciation. All other items of PP&E are measured at cost or, where the item is contributed by customers, its fair value less accumulated depreciation. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes contracted services, materials and transportation costs, direct labour, overhead costs and any other costs directly attributable to bringing the asset to a working condition for its intended use. When parts of an item of PP&E have different useful lives, they are accounted for as separate items (major components) of PP&E. When items of PP&E are retired or otherwise disposed of, a gain or loss on disposal is determined by comparing the proceeds from disposal, if any, with the carrying amount of the item and is included in profit or loss. Major spare parts and standby equipment are recognized as items of PP&E. They are not depreciated until they are in use. The cost of replacing a part of an item of PP&E is recognized in the net book value of the item if it is probable that the future economic benefits embodied within the part will flow to the Commission and its cost can be measured reliably. In this event, the replaced part of PP&E is written off, and the related gain or loss is included in profit or loss. The costs of the day-to-day servicing of PP&E are recognized in profit or loss as incurred. The need to estimate the decommissioning costs at the end of the useful lives of certain assets is reviewed periodically. The Commission has concluded it does not have any material legal or constructive obligation to remove PP&E. Depreciation is calculated to write off the cost of items of PP&E using the straight-line method over their estimated useful lives, and is generally recognized in profit or loss. Depreciation methods, useful lives, and residual values are reviewed at each reporting date and adjusted prospectively if appropriate. Land is not depreciated. Construction-inprogress assets are not depreciated until the asset is available for use. 10

14 3. Significant accounting policies (continued) (d) Property, plant and equipment (continued) The estimated useful lives are as follows: Land and administration building Distribution system Buildings and structures Conduit Load control devices Lighting Metering Poles SCADA system Substation equipment Switches Transformers Voltage regulators Conductors Consumer products Other fixed assets IT equipment Tools and equipment Vehicles years years 50 years 7 years years years years 7 20 years years years years 45 years years 7 20 years 3 8 years 5 10 years 6 15 years (e) Intangible assets Computer software that is acquired or developed by the Commission after January 1, 2014, including software that is not integral to the functionality of equipment purchased which has finite useful lives, is measured at cost less accumulated amortization. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. Amortization methods and useful lives of all intangible assets are reviewed at each reporting date and adjusted prospectively if appropriate. The estimated useful lives are: Computer software 3-10 years 11

15 3. Significant accounting policies (continued) (f) Impairment (i) Financial assets measured at amortized cost A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss is calculated as the difference between an asset s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Interest on the impaired assets continues to be recognized through the unwinding of the discount. Losses are recognized in profit or loss. An impairment loss is reversed through profit or loss if the reversal can be related objectively to an event occurring after the impairment loss was recognized. (ii) Non-financial assets The carrying amounts of the Commission's non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cashgenerating unit" or CGU ). The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. For other assets, an impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. 12

16 3. Significant accounting policies (continued) (g) Customer deposits Customer deposits represent cash deposits from electricity distribution customers to guarantee the payment of energy bills. Interest is accrued on customer deposits. Deposits are refundable to customers who demonstrate an acceptable level of credit risk as determined by the Commission in accordance with policies set out by the Board of Commissioners or upon termination of their electricity distribution service. (h) Provisions A provision is recognized if, as a result of a past event, the Commission has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a rate that reflects current market assessments of the time value of money and the risks specific to the liability. (i) Post-employment benefits The Commission provides its employees with a SRP and other supplemental benefit plans providing pension, post-employment health care and life insurance benefits beyond those provided by government sponsored plans. A one-time payment is made to retiring employees based on years of service and salary levels. Certain executives will receive payments in retirement under the Supplemental Employee Retirement Plan, to ensure pension equity. The Commission has the following accounting policies with respect to these postemployment benefit plans: i) SRP: Contributions made to the SRP are recorded as an expense in the year they become due. On an annual basis, the Commission will confirm with the independent SRP Board of Trustees any increase or decrease in the contribution rate to a maximum of 2%. The revised contributions will be recognized in the period they become due beginning in the period of the triggering event. ii) Other supplemental benefits plans: The obligations for these supplemental benefit plans are actuarially determined by applying the projected unit credit method and reflect management s best estimate of certain underlying assumptions. Remeasurements of the net defined benefit obligations, including actuarial gains and losses are recognized immediately in other comprehensive income (loss). When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized immediately in profit or loss. 13

17 3. Significant accounting policies (continued) (j) Government assistance Government assistance related to current expenses are recognized in profit and loss on a systematic basis in the periods in which the expenses are recognized. Government assistance relating to PP&E is initially recorded as deferred income until the conditions are met and then they are recorded as a reduction of the cost of such assets. (k) Finance income and finance costs Finance income is recognized as it accrues in profit or loss using the effective interest method. Finance income comprises interest earned on cash and restricted cash. Finance costs comprise interest expense on borrowings, customer deposits and bank fees. Finance costs are recognized in profit or loss. (l) Taxes The Commission is exempt from income taxes. The Commission pays property and utility taxes based respectively on the value of the Commission s land and buildings and the net book value of its in service distribution assets, net of customer contributions for same. 4. Standards issued but not yet adopted Future accounting changes There are new standards, amendments to standards and interpretations which have not been applied in preparing these financial statements. The Commission is still evaluating the adoption of the following new and revised standards, described below, which the Commission anticipates might have an impact on its financial statements or note disclosures. (i) Revenues from Contracts with Customers In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers. The standard outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers. It supersedes current revenue recognition guidance including IAS 18 Revenues, IAS 11 Construction Contracts and related interpretations. The new revenue model applies to all contracts with customers except those that are within the scope of other IFRSs, such as leases, insurance contracts and financial instruments. IFRS 15 specifies how and when the entity should recognize revenue and additional disclosure requirements. The new standard is effective for annual periods beginning on or after January 1, 2018 and the Commission is currently evaluating the impact of the new standard. 14

18 4. Standards issued but not yet adopted (continued) (ii) Financial Instruments The IASB published the final version of IFRS 9 Financial Instruments in July The final version of IFRS 9 brings together the classification and measurement, impairment and hedge accounting to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 is built on a logical, single classification and measurement approach for financial assets that reflects the business model in which they are managed and their cash flow characteristics. IFRS 9 has an expected credit loss model for a timely recognition of loan losses and is a single model that is applicable to all financial instruments subject to impairment accounting. It also includes an improved hedge accounting model to better link the economics of risk management with its accounting treatment. IFRS 9 is effective for annual periods beginning on or after January 1, 2018 and the Commission is currently evaluating the impact of the new standard. (iii) Leases The IASB published IFRS 16 Leases in January It replaces the previous leases Standard, IAS 17 Leases and related Interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. It eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, onbalance sheet accounting model that is similar to current finance lease accounting. IFRS 16 is effective from 1 January A company can choose to apply IFRS 16 before that date but only if it also applies IFRS 15 Revenue from Contracts. The Commission is currently evaluating the impact of the new standard. 15

19 5. Cash and restricted cash December 31, December 31, January 1, Bank balances used for cash management purposes $ 11,401 $ 7,188 $ 4,365 Cash restricted for the reduce shift demand process 301 3,307 2,189 Cash and restricted cash in the statements of cash flows $ 11,702 $ 10,495 $ 6,554 The restricted cash represents credits received from NB Power as part of a supply agreement and are restricted from day to day use in operations of the Commission. The Commission, as per the supply agreement, is to invest the credits in a manner consistent with NB Power's Reduce and Shift Demand initiatives. The parties agreed that such investments must be cost effective and mutually beneficial to the Commission and NB Power. The credits are initially recognized as deferred income, in the reduce and shift demand liability, presented in the statements of financial position. The credits, once approved and the costs have been incurred, are recognized as a reduction of the cost of the initiative. 6. Accounts receivable December 31, December 31, January 1, Customer accounts $ 7,908 $ 8,612 $ 9,495 Sundry ,033 8,705 9,423 10,528 Less provision for impairment (75) (60) (100) $ 8,630 $ 9,363 $ 10,428 16

20 7. Property, plant and equipment Land and Distribution Consumer Other fixed Construction administration system products assets -in-progress Total building Cost or deemed cost Balance at January 1, 2015 $ 12,749 $ 40,690 $ 4,909 $ 4,366 $ 1,574 $ 64,288 Additions/transfers 44 2, ,759 Disposals/retirements - (1,108) (37) (7) - (1,152) Balance at December 31, 2015 $ 12,793 $ 42,581 $ 5,242 $ 4,948 $ 2,331 $ 67,895 Balance at January 1, 2014 $ 12,611 $ 37,277 $ 4,532 $ 3,792 $ 1,008 $ 59,220 Additions/transfers 138 3, ,088 Disposals/retirements (20) - (20) Balance at December 31, 2014 $ 12,749 $ 40,690 $ 4,909 $ 4,366 $ 1,574 $ 64,288 Accumulated depreciation Balance at January 1, 2015 $ 442 $ 1,414 $ 414 $ 448 $ - $ 2,718 Depreciation 429 1, ,566 Disposals/retirements - (278) (7) - - (285) Balance at December 31, 2015 $ 871 $ 2,483 $ 842 $ 803 $ - $ 4,999 Balance at January 1, 2014 $ - $ - $ - $ - $ - $ - Depreciation 442 1, ,718 Disposals/retirements Balance at December 31, 2014 $ 442 $ 1,414 $ 414 $ 448 $ - $ 2,718 Carrying amounts At December 31, 2015 $ 11,922 $ 40,098 $ 4,400 $ 4,145 $ 2,331 $ 62,896 At December 31, ,307 39,276 4,495 3,918 1,574 61,570 At January 1, ,611 37,277 4,532 3,792 1,008 59,220 PP&E purchase commitments outstanding as at December 31, 2015 were $1,436 (December 31, 2014 $494 and January 1, $507). The Commission has applied $3,939 (December 31, $282) of Reduce and Shift Demand Credits against the purchase of property, plant and equipment. At December 31, 2015, $1,889 (December 31, 2014 nil) of these purchases were unpaid and recorded in accounts payable. The depreciation of PP&E has been allocated to profit or loss as follows: Distribution, Administration, Water heater operations and billings and and lighting maintenance collection rental Total December 31, 2015 $ 1,457 $ 543 $ 566 $ 2,566 December 31, , ,718 17

21 8. Intangible assets Computer software Cost Balance at January 1, 2015 $ 1,508 Additions 270 Balance at December 31, ,778 Balance at January 1, Additions 1,508 Balance at December 31, 2014 $ 1,508 Accumulated amortization Balance at January 1, 2015 $ Additions (allocated to administration, billings and collection) 178 Balance at December 31, Carrying amounts At December 31, 2015 $ 1,600 At December 31, , Accounts payable and accrued liabilities December 31, December 31, January 1, Accounts payable $ 3,502 $ 971 $ 1,336 Payroll Other 2,617 2, $ 6,382 $ 3,604 $ 2,159 18

22 10. Post-employment benefits (a) SRP On June 1, 2013, The Power Commission of the City of Saint John Superannuation Fund, a defined benefit pension plan, was converted to the SJ Energy Shared Risk Plan or SRP, a shared risk plan under the Pension Benefits Act of New Brunswick. The primary purpose of the SRP is to provide retirement benefits to eligible employees in the form of periodic payments to pensioners after retirement and until death in respect of their service as employees. A further purpose of the SRP is to provide secure benefits to members without an absolute guarantee but with a risk-focused management approach delivering a high degree of certainty that base benefits will be payable in the vast majority of potential future economic scenarios. As a shared risk plan, all future cost of living adjustments for current and future retirees and other ancillary benefits under the SRP shall be provided only to the extent that funds are available for such benefits as determined by the Board of Trustees of the SRP in accordance with applicable laws and the funding policy. These financial statements account for the SRP as a defined contribution plan; they do not report the funded status of the SRP or other disclosures required in the financial statements of a sponsor of a defined benefit pension plan. The Commission and the members of the SRP agreed to the following terms to fund the SRP: Employees contribute 9% of pensionable earnings; The Commission contributes 9% of pensionable earnings; The Commission contributes an additional 8.5% of pensionable earnings on a temporary basis until 2028 or earlier if the SRP is able to meet its risk management goals under the Funding Policy; Annual actuarial reviews are the responsibility of the Board of Trustees of the SRP. Should, for two consecutive years, the SRP s accrued benefit obligation (the obligation ) exceed the pension assets (pension assets exceeds the obligation) the employee and the Commission contribution rate may each increase (decrease) up to 2%. A 2% increase (decrease) in contribution rate is the maximum cumulative change in the contribution rate for the Commission, with respect to the SRP. Due to the nature of a shared risk plan, benefits are no longer guaranteed by the Commission. For pensionable service before the conversion date, the base benefits (prior to any adjustments for adverse or better than anticipated investment returns) are equal to the member's years of pensionable service to a maximum of 35 years times 2% of the member's best three year average annual pensionable earnings. Post conversion date pension benefits are equal to 2% of the employee s annual base earnings (career average). 19

23 10. Post-employment benefits (continued) (a) SRP (continued) During the year, the Commission made employer contributions of $1,241 ( $1,204) to the SRP of which $64 ( nil) has been capitalized as part of PP&E and the remaining amount of $1,177 ( $1,204) has been recognized in profit or loss. The employees contributed $638 ( $617). The most recently available valuation for funding purposes was prepared for the Board of Trustees at January 1, The funding valuation is determined by comparing the fair value of the assets to the actuarial liabilities for funding purposes. The actuarial liabilities for funding purposes are based on the benefits earned up to the valuation date, using certain actuarial assumptions. The funding status at January 1, 2015 was an excess of assets over liabilities of $2,086 (2014 unfunded liability of $1,362). The January 1, 2015 valuation confirmed that no changes were required in the contribution rates. (b) Other supplemental benefit plans The Commission recognizes these post-employment benefits in the year in which employees services were rendered. Reconciliation of the obligation Defined benefit obligation, beginning of year $ 14,752 $11,845 Included in profit or loss Current service cost Interest cost ,888 12,826 Included in other comprehensive income (loss) Actuarial (gains) losses arising from: Changes in valuation model 70 Impact of plan experience (1,832) (78) Changes in demographic assumptions (152) Changes in economic assumptions (445) 2,455 (2,207) 2,225 Benefits paid (360) (299) Defined benefit obligation, end of year $ 13,321 $14,752 20

24 10. Post-employment benefits (continued) (b) Other supplemental benefit plans (continued) Actuarial assumptions Discount (interest) rate 4.20% 4.05% Salary levels 3.50% 3.50% Long-term health care cost inflation 5.00% 5.00% Life insurance cost inflation 2.50% 2.50% A 0.50% increase in the assumed discount rate would result in the defined benefit obligation decreasing by $1,341. A 0.50% decrease in the assumed discount rate would result in the defined benefits obligation increasing by $1,572. A 1% increase in the assumed health care cost trend would result in the defined benefit obligation increasing by $2,920. A 1% decrease in the assumed health care cost trend would result in the defined benefit obligation decreasing by $2, Regulatory balances January 1, Additions Reversal December 31, Capital reserve regulatory liabilities $ 56,436 $ 1,577 $ - $ 58,013 Actuarial gains (loss) (2,225) 2,207 - (18) Ending balances $ 54,211 $ 3,784 $ - $ 57,995 January 1, Additions Reversal December 31, Capital reserve regulatory liabilities $ 53,718 $ 2,718 $ - $ 56,436 Actuarial loss - - (2,225) (2,225) Ending balances $ 53,718 $ 2,718 $ (2,225) $ 54,211 As per note 2(f), the Commission is mandated by legislation to operate at a financial break even after any appropriations to the regulatory balances. Any comprehensive income or loss incurred is charged to the regulatory balance, with the corresponding debit or credit made to the Statements of Comprehensive Income. The vast majority of this obligation results from the timing differences between when revenue for the provision of services is recognized and the amortization of PP&E and intangible assets. 21

25 12. Other income Rendering of services $ 718 $ 1,148 Customer delinquency charges Sale of miscellaneous goods Revenue recognized from customer contributions Other 16 4 $ 1,152 $ 1, Employee salaries and benefits Salaries, wages and benefits $ 8,523 $ 8,567 CPP and EI remittances Contributions to SRP (note 10) 1,241 1,204 Other supplemental benefit plans (note 10) 1, $ 11,254 $ 11,118 Employee salaries and benefits have been allocated in profit and loss as follows: Distribution, operations and maintenance $ 4,720 $ 4,441 Administration, billing and collection 4,889 4,581 Water heater rental Lighting rental Capitalized into PP&E 944 1,467 $ 11,254 $ 11,118 22

26 14. Finance income and costs Finance income Interest income on bank deposits $ 147 $ 148 Other Finance costs Bank fees Other (1) Net finance income recognized in profit or loss $ 117 $ Commitments and contingencies Contractual obligations The majority of electrical energy sold by the Commission to its customers is purchased from NB Power under a supply agreement. During 2012, the supply agreement was amended to extend the term for a period of ten years to March 31, Thereafter, the agreement is extended from year to year unless either party provides 12 months written notice to the other party of its intention to terminate. General From time to time, the Commission is involved in various litigation matters arising in the ordinary course of its business. The Commission has no reason to believe that the disposition of any such current matter could reasonably be expected to have a materially adverse impact on the Commission s financial position, results of operations or its ability to carry on any of its business activities. 23

27 16. Related party transactions (a) Controlling party The Commission does not have any share capital. The Board of Commissioners make decisions which are in the best interest of the rate-payers. The Mayor and Council of the City of Saint John (the City ) retain the right to appoint the Commissioners to the Board. The City, uses a modified equity method to account for its interest in the Commission. The financial statements of the City are available for public use. (b) Outstanding accounts receivable balances with related parties December 31, December 31, January 1, City $ 350 $ 278 $ 222 Related entities controlled by the City $ 382 $ 326 $ 277 These balances are in the normal course of business and are due within 30 days of receipt of the invoice. No material security or provision has been taken against these balances. (c) Transactions with controlling party and related entities The Commission delivers electricity to the City throughout the year for the electricity needs of the City and its related entities. Electricity delivery charges are at prices and under terms approved by the Board of Commissioners. The Commission also provides the City with streetlight maintenance services. Revenue from the City totaled $3,511 ( $3,789) and revenue from to related entities totaled $824 ( $815). (d) Key management personnel The key management personnel of the Commission have been defined as members of its Board of Commissioners and executive management team members. The compensation paid or payable is as follows: Commissioners fees $ 28 $ 27 Salaries Other benefits Post-employment benefits Performance incentives 17 $ 530 $

28 17. Financial instruments and risk management Fair value disclosure The carrying values of cash, restricted cash, accounts receivable, unbilled revenue, payable to NB Power and accounts payable and accrued liabilities approximate fair value because of the short maturity of these instruments. The carrying value of the customer deposits approximates fair value because the amounts are payable on demand. The fair value of loans receivable approximates its carrying value. The fair value is calculated based on the present value of future principal and interest cash flows discounted at the current rate of interest at the reporting date. Financial risks The Commission understands the risks inherent in its business and defines them broadly as anything that could impact its ability to achieve its strategic objectives. The Commission s exposure to a variety of risks such as credit risk and liquidity risk, as well as related mitigation strategies, are discussed below. (a) Credit risk Financial assets carry credit risk that a counterparty will fail to discharge an obligation which could result in a financial loss. Financial assets held by the Commission, such as accounts and loans receivable, expose it to credit risk. The Commission earns its revenue from a broad base of customers located in the City of Saint John. No single customer accounts for a balance in excess of 1% of total accounts and loans receivable. The carrying amount of accounts and loans receivable is reduced through the use of an allowance for impairment and the amount of the related impairment loss is recognized in profit or loss. Subsequent recoveries of receivables previously provisioned are credited to profit or loss. The balance of the allowance for impairment at December 31, 2015 is $75 (December 31, $60, January 1, $100). An impairment loss of $300 ( $ 247) was recognized during the year. The Commission s credit risk associated with accounts receivable is primarily related to payments from distribution customers. At December 31, 2015, approximately $252 (December 31, $ 265, January 1, $213) is considered 60 days past due. The Commission has over 36 thousand customers, the majority of whom are residential. Credit risk is managed through monitoring collectability which requires ongoing assessment and corrective action and the collection of security deposits from customers. As at December 31, 2015, the Commission holds security deposits in the amount of $971 (December 31, $ 1,076, January 1, $1,005). 25

29 17. Financial instruments and risk management (continued) (b) Liquidity risk The Commission monitors its liquidity risk to ensure access to sufficient funds to meet operational and investing requirements. The Commission s objective is to ensure that sufficient liquidity is on hand to meet obligations as they fall due while minimizing interest exposure. The Commission monitors cash balances daily to ensure that a sufficient level of liquidity is on hand to meet financial commitments as they become due. The majority of the payable to NB Power and accounts payable, as reported on the statements of financial position, are due within 30 days. (c) Capital disclosures When managing capital, it is the main objectives of the Commission to ensure ongoing access to funding to maintain and improve the electricity distribution system. 18. Explanation of transition to IFRS As stated in note 2(b), these are the Commission s first financial statements prepared in accordance with IFRS. The accounting policies set out in note 3 have been applied in preparing the financial statements for the year ended December 31, 2015, the comparative information presented in these financial statements for the year ended December 31, 2014, and in the preparation of the opening IFRS Statement of Financial Position as at January 1, 2014 (the Commission s date of transition). In preparing its opening IFRS Statement of Financial Position, the Commission has adjusted the amounts reported previously in the financial statements prepared in accordance with Canadian general accepted accounting principles (CGAAP). An explanation of how the transition from CGAAP to IFRS has affected the Commission s financial position, financial performance and cash flows is set out in the following tables and the notes accompanying the tables. Regulatory accounts IFRS 14: Regulatory Deferral Accounts, permits an entity to continue to account for regulatory deferral account balances in its financial statements in accordance with its previous GAAP when it adopts IFRS. An entity is permitted to apply the requirements of this standard in its first IFRS financial statements if and only if it conducts rate-regulated activities and recognized amounts that qualify as regulatory balances in its financial statements in accordance with its previous GAAP. This standard exempts an entity from applying paragraph 11 of IAS 8: Accounting policies, changes in accounting estimates and errors, to its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances. 26