2012 Annual Report Annual Report 1

Transcription

1 2012 Annual Report 2012 Annual Report 1

2 Table of Contents To Our Readers Board of Directors... Financial Highlights... Energy Market Statistics Highlights... Glossary of Terms... Report of Management... Financial Statements Platte River s headquarters is in Fort Collins, Colorado. The building was dedicated in 1978.

3 From the Chairman of the Board and General Manager To our Readers Tom Roiniotis and Jackie Sargent In this, Platte River Power Authority s 40th year of providing safe, reliable, cost-effective, and environmentally responsible electricity and services to our owner communities Estes Park, Fort Collins, Longmont, and Loveland we reflect on the enduring strength of our founders efforts. Our continuing ability to build on this strong foundation is enhanced by their forwardthinking actions. Capable leadership, mutually beneficial partnerships, and employee dedication over four decades have made Platte River the strong organization it is today. We continue to respond to customer needs and expectations in an energy environment that is continually evolving. Through innovation and responsiveness, we will help ensure the longterm sustainability of our communities and our organization. The year 2012 was eventful for Platte River. Among the highlights were the under-budget completion of the Rawhide Unit 1 spring maintenance outage, the completion of a new 230 kv transmission line to ensure a continued high level of electrical reliability in Loveland and Fort Collins, and the issuance of over $65 million in power revenue bonds for the purposes of lowering financing costs and funding construction projects. These accomplishments were the result of an unwavering focus on Platte River s vision, mission and strategic business objectives that seek to provide value to customers, improve quality of life, support our communities, create development opportunities for our employees, and maintain a strong financial position. While the need to apply these fundamentals remains consistent over time, the methods used do not. Changing regulations, evolving customer expectations, and advances in best practices and technologies often demand new approaches or allow new opportunities Annual Report 3

4 As we look ahead in 2013, the Platte River Senior Management Team will be focusing on strategic planning to identify opportunities to improve and expand the value and services we provide. In an environment of renewed interest in climate change, energy efficiency/demand side management, and renewable energy, we will evaluate our resource portfolio and carefully determine where best to make investments. Keeping electricity affordable and reliable are key considerations, as are sustainability, innovation, and stakeholder involvement. To help build on the strong foundation that Platte River has established, we emphasize the following goals: The safety of our employees and contractors will always be a top priority. Accordingly, we are expanding an organizational safety team to continue to foster a culture of safety, update our emergency response plan, and establish new proactive safety practices. Al Hamilton, Platte River s first General Manager (standing right), and Stan Case, Platte River Chairman of the Board (sitting right), with bond underwriters. While compliance with regulatory and policy requirements is mandatory, we continue to follow the spirit as well as the letter of the law. We regularly review and update policies to enhance operations, create efficiencies, and ensure that appropriate controls are in place. When feasible, we implement new technologies even before requirements are imposed. Good stewardship of the environment remains our guiding principle and supports our commitment to improve the quality of life in our owner communities. 4

5 Financial integrity is crucial for maintaining access to capital and managing debt expense, especially in a political environment that challenges the tax-free status of municipal bonds. Jacqueline Sargent Named New General Manager Operational excellence helps us optimize the value of Platte River s assets. Providing exceptional customer service remains an over-arching goal. We are responsive to changing customer needs and expectations. We continue to provide value-added services, such as demand side management programs, and will identify opportunities to enhance communication and coordination to improve integration of wholesale and retail planning efforts. Reaching our objectives is possible only with engaged employees. It is important to use best practices for hiring, training, motivating, and retaining a talented workforce in today s competitive market. Employee development, knowledge transfer, and succession planning are both crucial and ongoing. Platte River s vision, mission, and strategic objectives focus on providing excellent service and value to our municipalities. As your leadership team, we vow to do everything in our power to make the next 40 years the energy future our customers deserve. Tom J. Roiniotis Chairman of the Board Jacqueline A. Sargent General Manager Platte River Power Authority s Board of Directors hired Jacqueline Sargent to succeed retired general manager Brian Moeck on August 27, Ms. Sargent has over 24 years of experience in the energy industry including electric and gas utility operations, power generation, energy marketing, rates and regulatory affairs, strategic planning, renewable energy development, and project management. Immediately prior to coming to Platte River, Ms. Sargent held the position of Senior Vice President of Power Supply and Market Operations for Austin Energy, one of the nation s largest municipal utilities located in Austin, Texas Annual Report 5

6 Platte River Power Authority is a Colorado political subdivision established to provide wholesale electric generation and transmission. Platte River delivers reliable, competitively priced and environmentally responsible electricity to the municipal utilities of its owner communities Estes Park, Fort Collins, Longmont, and Loveland. WYOMIN G COLORADO Fort Collins Loveland Estes Park Longmont Denver 66

7 MUNICIPAL SYSTEM PEAK Megawatts Record Heat Pushes System Peak Higher The summer of 2012 was warmer than normal in northern Colorado seven record daily high temperatures and a record monthly high temperature were experienced in June. Smoke from nearby forest fires added to residents discomfort and prevented them from opening windows to cool their homes at night. As a result, air conditioners ran harder and demand for electricity in Platte River s four municipalities reached an alltime high of 653 megawatts on June 25, Annual Report 7

8 Platte River Power Authority s Board of Directors ESTES PARK, CO Bill Pinkham Mayor, Vice Chairman of the Board REUBEN BERGSTEN Utilities Director FORT COLLINS, CO KAREN WEITKUNAT Mayor gerry horak Councilmember 8

9 LONGMONT, CO DENNIS COOMBS Mayor LOVELAND, CO TOM ROINIOTIS Director of Power & Communications, Chairman of the Board CECIL GUTIERREZ Mayor, Secretary of the Board STEVE ADAMS Director, Water and Power 2012 Annual Report 9

10 Financial Highlights Years Ended December Revenues/Expenses ($000) Operating revenues Operating expenses Nonoperating expenses, net Income before contributions $182, ,918 (10,313) $11,404 $181, ,284 (8,750) $11,409 $176, ,644 (8,155) $5,423 Power Operations Demand-municipalities (MW) Energy-municipalities (GWh) Energy-others (GWh) 653 3, , ,112 1,024 Selected Other Data Gross utility plant ($000) Long-term debt, net ($000) Debt to equity ratio Total revenue bond coverage $1,285,308 $265,285 36/ x $1,269,785 $256,554 36/ x $1,239,522 $275,535 38/ x Energy Deliveries 4,000 3, ,119 4, ,024 GWh 3,000 2,000 3,192 3,182 3,112 To Others To Municipalities 1,000 Western Area Power Administration supplies Platte River with power from facilities such 10 as this hydroelectric plant near Estes Park

11 Platte River s Medicine Bow Wind Project began operations in Revenues, expenses, income $150,000 $100,000 $182,635 $181,443 $176,222 ($000) $50,000 $0 ($50,000) -$10,313 $11,404 -$8,750 $11,409 -$8,155 $5,423 ($100,000) ($150,000) -$160,918 -$161,284 -$162, Operating Revenues Operating Expenses Net Nonoperating Expenses Income Before Contributions 2012 Annual Report 11

12 Energy Market Statistics Combined Retail Sales for Four Municipalities Number of Customers (average) Residential 131, , ,474 Commercial & Industrial 18,383 18,028 17,823 Other TOTAL 149, , ,609 Megawatt-hour Sales Residential 1,114,372 1,114,846 1,117,079 Commercial & Industrial 1,970,721 1,945,153 1,917,818 Other 3,577 3,630 3,680 TOTAL 3,088,670 3,063,629 3,038,577 Revenue Residential $98,063,760 $91,822,238 $85,238,419 Commercial & Industrial 128,805, ,780, ,224,494 Other 494, , ,376 TOTAL $227,363,165 $211,109,296 $197,141,290 Residential Averages (annual) kwh per Customer 8,495 8,591 8,695 Revenue per kwh (cents) Revenue per Customer $ $ $

13 Wholesale Power Requirements Peak Demand (kw) Estes Park 24,394 26,971 26,695 Fort Collins 302, , ,492 Longmont 181, , ,380 Loveland 157, , ,522 Sum of Municipalities Peaks 665, , ,089 Coincident Demand 652, , ,787 Energy (MWh) Estes Park 126, , ,839 Fort Collins 1,508,735 1,493,417 1,472,941 Longmont 813, , ,535 Loveland 742, , ,481 Sum of Municipalities Energy 3,192,218 3,182,106 3,111,796 Sales to Others and Miscellaneous 2 820,993 1,051,491 1,117,762 Energy-TOTAL SYSTEM 4,013,211 4,233,597 4,229, Compiled from preliminary sales and other reports of the municipalities supplied with electric energy by Platte River. System 2- Includes energy Reliability imbalance and exchange agreement settlements Annual Report 13

14 2012 Highlights Platte River Power Authority provides reliable, competitively priced, and environmentally responsible electricity to its owner municipalities of Estes Park, Fort Collins, Longmont, and Loveland, Colorado. The activities and achievements of 2012 reflect a dedication to the fundamentals necessary for carrying out this objective. Compliance Confirmed Under a 2005 revision to the Federal Power Act, Platte River must meet mandatory and enforceable standards for ensuring electric system reliability. The standards applicable to Platte River include 1,280 requirements and sub-requirements. A designated enforcement authority performs audits of Platte River s compliance with the reliability standards every three years. The most recent audit was completed in March During a four-day process carried out at Platte River s headquarters, the auditors found no areas of concern and no violation of any standard or requirement. 14

15 Environmental Protections in Place Since its inception, Platte River has demonstrated a strong commitment to environmental stewardship. In May 2011, Colorado Governor John Hickenlooper signed legislation accepting the Regional Haze Rule State Implementation Plan (SIP) approved by the Colorado Air Quality Control Commission. The Regional Haze SIP requires nitrogen oxide (NOx) emission reductions at Rawhide Unit 1 as well as NOx and sulfur dioxide (SO 2 ) reductions at other coal-fired units. The Regional Haze SIP received preliminary approval from the EPA in March Following a period for public comment, the EPA issued its final approval on September 11, The SIP was published in the Federal Register on December 31, 2012, triggering implementation provisions. Compliance with the regional haze limits must be achieved as expeditiously as practicable but no later than Annual Report 15

16 An advanced combustion control system that reduces NOx emissions has been in use at Rawhide Unit 1 since 2005 when a Platte River-initiated Voluntary Emissions Reduction Agreement (VERA) with the Colorado Air Pollution Control Division was implemented. The Regional Haze SIP requires additional reductions beyond Rawhide s VERA NOx emission rates. During a five-week maintenance project carried out in March 2012, elements of Rawhide s boiler combustion control equipment and computer control systems were redesigned and enhanced to further reduce NOx emissions. These actions, along with subsequent boiler combustion tuning and control system optimization efforts, lowered NOx emission rates by about 30 percent from the VERA limit, thus achieving the SIP s NOx reduction requirement. NOx Emissions Reduced additional 30% The VERA also addressed SO 2 reduction. These VERA SO 2 scrubber improvements resulted in enhanced removal capability that also ensures compliance with the SIP s Rawhide SO 2 limit. The 2012 SO 2 emission rate met the SIP s reduction requirement for Rawhide Unit 1. The 2008 Colorado Utility Mercury Reduction Rule requires significant emission reductions from coal-fired power plants. A state-of-theart brominated powdered activated carbon injection system was installed on Rawhide Unit 1 in October Operational tests of the mercury control system were conducted during 2010 and The system was placed into full-time use in January 2012 and successfully reduced mercury emissions to less than the limit of pounds per gigawatthour (lb/gwh) of electricity generated. The 12-month rolling average emissions limit 16

17 The opportunity to observe the harmony that can exist between buffalo, which once inhabited the Rawhide site, and Platte River s modern facility that will produce energy there, will provide an invaluable lesson in the way a coal-fired power plant can be operated without environmental degradation. Albert J. Hamilton, Platte River s general manager, The original Rawhide Bison herd was purchased in November 1983 from a ranch in Wray, Colorado. was achieved during the rule s first compliance period ending December 31, The rule contains emissions monitoring, recordkeeping, and reporting requirements that are fully implemented and also specifies that beginning in 2018 the 12-month rolling average limit will drop from lb/gwh to lb/gwh. The EPA Mercury and Air Toxics Standard (MATS) regulation was published in the Federal Register on February 16, 2012 and became effective on April 16, MATS regulates mercury, non-mercury metals, acid gases, and organic emissions from oil and coal-fired electric utility boilers. Rawhide s compliance with the MATS emission limits must be achieved by April Operational impacts of this federal rule at Rawhide are anticipated to be minor, primarily consisting of additional monitoring, recordkeeping and reporting, and new continuous particulate matter monitoring and/or stack testing. This is due to the fact that Platte River installed mercury monitoring and mitigation equipment earlier than required (as part of the Colorado state mercury program), and already operates a state-of-the-art SO 2 scrubber and baghouse particulate control system that also control MATSregulated acid gas and non-mercury metal emissions Annual Report 17

18 Factors Impact Electric Rates The Power Supply Agreements with the municipalities require that rates be sufficient to cover all operating and maintenance expenses, purchase power costs, and debt service expenses. Rates must also provide for the establishment of reasonable reserves and adequate earnings margins so that Platte River may obtain favorable debt financing. The Power Supply Agreements also require Platte River s Board of Directors to review rates at least once each calendar year. At its October 2012 meeting, the Board approved a 5.1 percent increase in the firm resale power service rate, effective January 1, Factors contributing to the need for a rate increase included increasing costs for coal to supply Rawhide Unit 1, reduced surplus sales revenues and slower than anticipated load growth. Platte River has worked aggressively to control costs by optimizing generation efficiency, managing operating and maintenance expenses for generation and transmission facilities, and maintaining low debt service. While the U.S. Consumer Price Index rose 130 percent in the past 30 years, the price Platte River charges to its municipalities for electricity is only 37 percent higher than it was in Customers served by Platte River s owner municipalities will continue to benefit from electric rates that are significantly lower than those of neighboring utilities. RESIDENTIAL ELECTRIC BILLS $ Averages for 716 kwh/month $89.43 $91.15 $92.91 $93.84 $60.41 $61.45 $63.60 $65.14 $71.13 $78.84 $79.66 $79.70 Loveland (winter) Longmont Fort Collins (winter) Loveland (summer) Fort Collins (summer) Estes Park Xcel (winter) Colorado Springs Cheyenne Xcel (summer) PVREA United Power Black Hills 18

19 Low-sulfur coal from Wyoming is delivered to the Rawhide Energy Station. Bonds Issued Platte River issued its Series II bonds in March 2012 using $42 million of the proceeds to refund a portion of the outstanding Series EE bonds. The true interest cost of the Series II bonds is 3.16 percent, and the net present value savings for the refunded bonds exceeds $4.6 million. The remaining $30 million of the proceeds from the Series II bonds will be used to reimburse and fund transmission facility additions and upgrades. Platte River s strong credit rating was a key to obtaining a low interest rate for the Series II bonds. Prior to the sale, all three national bond rating agencies rated the bonds double-a with a stable outlook. The agencies also affirmed Platte River s double-a ratings on all outstanding Power Revenue Bonds. Rationale behind the ratings included strong historical and projected debt service coverage, prudent risk management procedures, the creditworthiness of Platte River s four owner municipalities, strength of the local economy, and a continued commitment of the Board to raise rates when necessary to sustain strong financial performance Annual Report 19

20 Improvements Made at Rawhide Energy Station Platte River maintains an aggressive plan for preventative maintenance and improvements at its facilities. Implementation of the plan is crucial for optimizing the value of Platte River s assets and maintaining optimal efficiency and reliability. As part of the plan, Rawhide Unit 1 was offline March 3, 2012 through April 3, 2012 for a scheduled maintenance outage. Several projects were completed during the outage at a total cost of $9.5 million: Installation of new boiler air dampers and coal and air nozzle tips to reduce NOx emissions. Installation of new equipment to reduce wear on coal conveyor belts, prevent coal spillage, and improve dust containment. Installation of a new turbine overspeed protection control system. This system can be tested without taking the turbine rotors to an overspeed condition that has recently caused catastrophic failures of turbine generator rotors at other units across the country. Replacement of aging equipment within the SO 2 removal system to ensure that the system continues to operate at the highest level of efficiency. Chemical cleaning of the boiler tubes to remove iron deposits and increase the efficiency of the boiler. Inspection of low pressure turbine blades, steam pipes, and valves. As a testament to the effectiveness of Platte River s maintenance practices, Rawhide Unit 1 was included in a list of the best-utilized U.S. coal-fired power plants based on the latest data available from the Energy Information Administration published in the November/ December 2012 edition of Electric Light & Power (EL&P) magazine. According to EL&P, Rawhide s 2011 capacity factor of 93.9 percent was the eighth highest in the nation. The average 12-month capacity factor for all 520 U.S. coalfired power plants in the analysis was 62.8 percent. Capacity factor is a measure of power plant utilization calculated as the ratio of the actual output of the plant over a period of time to its output if it had operated at full capacity over the same period of time. Rawhide Unit 1 is the only plant EL&P has ranked in its top 10 in each of the last three years. 20

21 Water Resources Remain a High Priority Water is essential for the steam generation process at Rawhide Unit 1. In light of frequent drought conditions in the western United States, managing water resources is a priority for Platte River. To help ensure an adequate water supply, Platte River owns rights to 160 Units from the Windy Gap Project located near Granby, Colorado. The Windy Gap Project diverts water from the Colorado River to Colorado s Front Range. Due to storage limitations and other factors, Platte River and other Windy Gap owners have had some difficulty in the past relying on Windy Gap deliveries to meet their water needs. The proposed Windy Gap Firming Project (WGFP) involves the construction of a reservoir approximately nine miles southwest of Loveland, Colorado, to store Windy Gap water in order to firm the reliability of future water deliveries. Platte River is a participant in the WGFP, along with regional water districts and cities, including Longmont and Loveland. The U.S. Bureau of Reclamation published the Final Environmental Impact Statement for the WGFP in November 2011, and currently plans to issue a Record of Decision (ROD) in late The ROD has been delayed pending completion of a U.S. Army Corps of Engineers permit, an Intergovernmental Agreement with Grand County and other western Colorado entities addressing issues associated with water diversions on the Colorado River, and a revision of the contract with the Bureau for the storage, transport and delivery of Windy Gap water. All agreements and permits described above are expected to be completed in Design of the WGFP could start by late 2013 or early 2014 and construction in late 2015 or early 2016, with a goal of having the project ready to fill in the spring of Hamilton Reservoir provides cooling water for the Rawhide Energy Station as well as a sanctuary for waterfowl Annual Report 21

22 Completion of a new transmission line in 2012 enhanced electrical reliability for Fort Collins and Loveland residents.

23 Major Transmission Project Completed As part of a long-term plan to ensure a continued high level of electrical reliability in the owner municipalities, Platte River completed the 9.4-mile Dixon Creek-Horseshoe transmission project one month ahead of schedule on April 30, The project was completed in three phases over four years at a cost of $36 million. It involved rebuilding 115 kilovolt transmission lines owned by Tri-State Generation and Transmission Association, Inc. and Western Area Power Administration, and construction of a new Platte River 230 kilovolt line between Fort Collins and Loveland. Additionally, new 115 kilovolt and 230 kilovolt facilities were constructed at the Horseshoe Substation in Loveland. Completion of the project provides a second 230 kilovolt transmission source to Loveland, offering enhanced electrical reliability to the community. It also alleviates potential situations on Platte River s and neighboring transmission systems that could have led to outages in Fort Collins, Loveland, and surrounding areas. Platte River s environmental staff worked closely with the City of Fort Collins Natural Resources Department throughout the project to mitigate impacts on public lands. Restoration of construction areas began immediately upon the completion of the project and will continue until vegetative recovery is complete. Installation of additional equipment at the Timberline Substation was also completed in April 2012 to accommodate future development on the east side of Fort Collins Annual Report 23

24 Planning Addresses Future Growth Long-term electrical reliability requires continual planning. Platte River s Integrated Resource Plan (IRP) provides criteria and a methodology for estimating the future electricity requirements of the municipalities. The 2012 edition of the IRP focuses primarily on the five-year period from 2012 to 2016, but also includes consideration of longer term planning issues. As the economy continues to improve and the populations of Platte River s municipalities grow, demand for electricity is expected to increase. The IRP estimates that additional sources of firm capacity will be needed in approximately HISTORICAL AND PROJECTED FUTURE POPULATION Platte River s Four Municipalities 250, , , , , Sources: Colorado State Demography Office (Historical) and Platte River Power Authority (Future) 24

25 AVERAGE MONTHLY EMPLOYMENT 170,000 Persons Employed 168, , , , , Source: Colorado Dept. of Labor and Employment, Fort Collins-Loveland Metropolitan Statistical Area (includes Estes Park) HOME PRICE INDEX Home Price Index (1st Quarter 1995=100) Source: Federal Housing Finance Agency, Fort Collins-Loveland Metropolitan Statistical Area (includes Estes Park) 2012 Annual Report 25

26 Customers Save Energy and Money The customers of Platte River s owner municipal utilities have a demonstrated desire for services that help them save energy. Accordingly, Platte River works together with the utilities to offer a number of common demand side management programs programs offered to customers in all the municipalities with coordination and some or all of the funding provided by Platte River. In 2012, Platte River and the municipalities invested over $2.5 million in these programs to help participating customers reduce electricity consumption by approximately 16.3 million kilowatthours (equivalent to the annual energy use of about 1,900 average homes) and lower their combined electric bills by more than $1 million per year. To help customers save even more energy, each of the four owner municipalities offers programs in addition to the common programs. Energy Efficiency - Investments and Savings 20,000 $3.0 Annual Energy Savings (MWh) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, $2.7 $2.4 $2.1 $1.8 $1.5 $1.2 $0.9 $0.6 $0.3 $0.0 Yearly Investment (millions) 26

27 In 2012, Platte River, Poudre Valley REA (PVREA), and Northern Colorado ENERGY STAR Homes sponsored a nonprofit organization called Energy Select Contractors, Inc. Energy Select Contractors has been approved by the U.S. Environmental Protection Agency (EPA) as a heating, ventilation, and air conditioning (HVAC) Quality Installation Training and Oversight Organization (H-QUITO), an independent third-party organization that will provide the required training and oversight activities for HVAC contractors who wish to perform installations in new ENERGY STAR homes. Energy Select Contractors will serve as an H-QUITO in Platte River s four municipalities and in PVREA s territory for a 30-month period while the EPA seeks a longer-term, national solution to meet the training needs of HVAC contractors. Efforts Produce a Stronger Workforce Attracting and retaining employees with the right skills and qualifications to meet operational needs and developing employees for the future are critical to the ongoing success of Platte River. As a result of turnover and promotions, 21 positions were filled during In 2012, employee development activities included the design and implementation of a new senior leadership development program to enhance leadership abilities of current and new senior level managers. A monthly leadership training series was implemented for all supervisors, which covered key topics such as problem solving, managing change, delegating, and other core skill areas. An updated apprenticeship program document was filed with the Colorado Department of Labor for four key craft jobs in both substations and power production. To support those efforts, an industry-leading, online training delivery system was implemented to provide modularbased training in these areas. Platte River also sponsored 20 interns from Front Range Community College for one week job shadowing programs at Rawhide. A new performance management process was implemented in 2012, which expanded the evaluation categories to include both jobrelated results as well as key competencies expected of all employees. Throughout the year, areas of emphasis included internal customer service, continuous improvement, and compliance with a myriad of employment laws and regulations Annual Report 27

28 Key to engaging the workforce is being able to listen and respond to employee issues and concerns, recognizing personal milestones and accomplishments, and communicating business decisions in a timely and effective manner. The monthly Power Source employee newsletter serves to help deliver information, as do monthly business meetings. Focus on Health and Safety Benefits Employees Platte River considers the health, safety, and well-being of its employees to be of utmost importance. A comprehensive health screening fair was offered to employees, as well as flu shots and health information. The goal is to help employees identify any health issues they may not be aware of. Classes on cardiopulmonary resuscitation (CPR) and use of automated external defibrillators are provided to all employees annually. One-hundred percent of Rawhide employees received this first aid training in A focus on safety is an important part of Platte River s culture, and employee training sessions are a regular occurrence. In 2012 Platte River s Safety Department conducted 22 training sessions on topics such as confined space entry procedures, fall protection, inspection of safety equipment, bucket truck rescue, and controlled energy (e.g., lockout/tagout) procedures. Additionally, over 140 employees participated in annual fire extinguisher training. Safety also provided a variety of training specific to hazards employees face in their normal job assignments. 28

29 In addition to training, the Safety Department s 2012 accomplishments included the acquisition of specialized safety equipment. A controlled descent system was purchased to enable substation technicians to self-rescue out of aerial lifts in an emergency. An engineered fall protection system was acquired and used by employees working in the baghouse ductwork during the spring maintenance outage at Rawhide. Also during the outage, aging fire suppression system valves were replaced with new self-resetting automatic deluge valves to improve operability and reliability. All of these systems were selected specifically to ensure safe work practices and prevent injury. Proactive safety procedures such as lockout/tagout keep workers safe Annual Report 29

30 Glossary of Terms Baghouse: A structure that houses tubular-shaped fabric bags used to filter and collect particulates from the gases created during combustion. Circuit: A pathway through which electricity moves. Consumer Price Index: A measure of the cost of goods purchased by average U.S. households. It is calculated by the U.S. government s Bureau of Labor Statistics. Demand Side Management: Activities designed to encourage consumers to modify patterns of electricity usage, including the level and timing of electricity demand (see Electricity Demand). Electric System: Physically interconnected generating plants, transmission lines, and related equipment operated as an integrated unit. Electricity Demand: The amount of electricity used by consumers at a given point of time. Greenhouse Gas: A gaseous component of the atmosphere that traps some of the heat coming from the sun near the Earth s surface. Greenhouse gases include water vapor, carbon dioxide, methane, nitrous oxide, and chlorofluorocarbons. Gigawatt hour (GWh): One billion watt-hours (see Watt-hour). Integrated Resource Plan (IRP): A plan for meeting customers future electricity needs through acquisitions of generation resources (including renewable) and implementation of demand side management programs. As a customer of Western Area Power Administration, Platte River is required to submit an IRP every five years (see Demand Side Management and Western Area Power Administration). Kilovolt (kv): One thousand volts (see Volt). Kilowatt (kw): One thousand watts (see Watt). Kilowatt hour (kwh): One thousand watt-hours (see Watt-hour). Load: The amount of electric power delivered or required at any specific point or points on an electric system. The requirement originates at the electricity-consuming equipment of customers (see Electric System). Lockout/Tagout: Refers to specific practices and procedures to safeguard employees from the unexpected energization or startup of machinery and equipment, or the release of hazardous energy during service or maintenance activities. Megawatt (MW): One million watts (see Watt). 30

31 Megawatt hour (MWh): One million watt-hours (see Watt-hour). Mercury: A chemical element that can be deposited into bodies of water by natural sources such as soil and rock erosion, volcanoes and forest fires, and by human activities such as mining, manufacturing, and coal burning. Mercury contained in certain types of fish eaten by pregnant women or children is a health concern. Nitrogen Oxide (NOx): A by-product of combustion. If not handled properly, NOx can combine with water, oxygen, and other chemicals in the atmosphere to create haze and ozone. Substation: An electric system facility used to change voltage from one level to another and/or switch circuits or lines in- and out-of-service (see Circuit, Electric System, and Voltage). Sulfur Dioxide (SO 2 ): A by-product of combustion. If not handled properly, SO 2 can combine with water, oxygen, and other chemicals in the atmosphere to create acid rain. Surplus Sales: Sales of energy and power generated in excess of the amount needed by Platte River s owner municipalities. Transformer: A device used to raise or lower voltage. For example, electricity is transported over long distances in highvoltage power lines and then transformers lower the voltage so that the electricity can be used by household appliances (see Voltage). Transmission Lines: A system of structures, wires, and associated equipment that carry electricity from one point to another in an electric system. Lines are operated at relatively high voltages varying from 69 thousand volts up to 765 thousand volts, and are capable of transmitting large quantities of electricity over long distances (see Electric System, Voltage). Volt: Unit of measure for voltage (see Voltage). Voltage: The force that causes electricity to flow through a circuit (see Circuit). Watt: A unit of electric power. Watt-hour: The amount of energy used in one hour by a device requiring one watt of electricity for operation (see Watt). Western Area Power Administration: An agency of the U.S. Department of Energy. Western s mission is to market and transmit hydroelectric power generated at federal dams to preference customers Annual Report 31

32 Report of Management Platte River Power Authority s management is responsible for the preparation, integrity, and objectivity of the financial statements and related information included in this Annual Report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and, where required, reflect amounts based on the best estimates and judgments of management. Platte River maintains a strong internal control structure designed to provide reasonable assurance that transactions are executed in accordance with management s authorization, that financial statements are prepared in conformity with generally accepted accounting principles, and that assets are safeguarded. Platte River s internal auditor evaluates internal controls for adherence to company policies and procedures on an ongoing basis and reports findings and recommendations for possible improvements to management. In addition, the independent auditors consider elements of the internal control system in determining the nature and scope of their audit procedures in performing the annual audit of Platte River s financial statements. The Board of Directors, whose members are not employees of Platte River, periodically meet with the independent auditors and management to discuss the audit scope, audit results, and any recommendations to improve the internal control structure. The Board of Directors directly engages the independent auditors. Jacqueline A. Sargent General Manager David D. Smalley Chief Financial Officer 32

33 Platte River Power Authority Independent Auditor s Report and Financial Statements December 31, 2012 and Annual Report 33

34 Contents Independent Auditor s Report on Financial Statements and Supplementary Information... Management s Discussion and Analysis (Unaudited) Financial Statements Statements of Net Position... Statements of Revenues, Expenses and Changes in Net Position... Statements of Cash Flows... Notes to Financial Statements... Other Information (Unaudited)

35 Independent Auditor s Report on Financial Statements and Supplementary Information Board of Directors Platte River Power Authority Fort Collins, Colorado We have audited the accompanying basic financial statements of Platte River Power Authority (Platte River), which are comprised of the statements of net position as of December 31, 2012 and 2011, and statements of revenues, expenses and changes in net position and of cash flows for the years then ended, and the related notes to the financial statements as listed in the table of contents, of Platte River Power Authority. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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 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 financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of 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 the auditor s 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, the auditor considers internal control relevant to Platte River 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 Platte River 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Platte River as of December 31, 2012 and 2011, and the changes in its financial position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America Annual Report 35

36 Independent Auditor s Report on Financial Statements and Supplementary Information Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis listed in the table of contents be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise Platte River s basic financial statements. The Other Information (Budgetary Comparison Schedule) listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Denver, Colorado March 11,

37 Management s Discussion and Analysis (Unaudited) (This page intentionally left blank.) 2012 Annual Report 37

38 Management s Discussion and Analysis (Unaudited) Management s Discussion and Analysis (Unaudited) December 31, 2012 and 2011 This discussion and analysis provides an overview of the financial performance of Platte River Power Authority (Platte River) for the fiscal years ended December 31, 2012 and December 31, The information presented should be read in conjunction with the basic financial statements and accompanying notes to the financial statements. Platte River operates as a utility enterprise and follows the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (FERC). Platte River has implemented all applicable Governmental Accounting Standards Board (GASB) pronouncements. The accompanying financial statements are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. 38

39 Management s Discussion and Analysis (Unaudited) Financial Highlights Platte River reported income before contributions of $11.4 million in 2012, approximately the same as An increase in operating revenues and a decrease in operating expenses were offset by an increase in nonoperating expenses, net. Municipal sales increased $9.2 million in 2012 over 2011 as the result of a 0.3% growth in energy deliveries and a 6.1% average wholesale rate increase. Surplus sales revenue (sales for resale and other) decreased $8.0 million in 2012 compared to 2011 resulting from lower contract sales and lower short-term sales. The contract sales decreased $2.5 million with the Tri-State contract ending on May 31, Short-term sales decreased $5.5 million with lower energy sales and a lower average selling price. During 2012, a scheduled four-week maintenance outage for Rawhide Unit 1 (Rawhide) was completed. The focus of the outage was on preventative maintenance and capital improvements to increase efficiency and reliability of the unit. Outage costs included $7.0 million for operations and maintenance expenses and $2.3 million for capital additions. Purchased power costs for 2012 decreased $5.7 million compared to 2011 due to favorable replacement power costs during the Rawhide outage. Estimated replacement power costs for the outage were previously accrued in prior years. Fuel expense increased $1.4 million in 2012 compared to 2011 as the result of higher coal and transportation costs partially offset by lower generation from the thermal units. Depreciation expense in 2012 increased $2.5 million over 2011 as the result of new plant placed in service during 2011 and The majority of the new plant was for the 230kV transmission expansion projects. Nonoperating expenses, net, increased $1.6 million in 2012 compared to 2011 primarily due to lower allowance for funds used during construction. Also, other income increased as a result of leasing surplus water, and lower interest income offset a lower net decrease in fair value of investments. The Series II Power Revenue Bonds were issued in 2012 for a par amount of $65.5 million. The proceeds from the bonds were used to refund the remaining Series EE Power Revenue Bonds, $42.1 million, and to provide funding of $30.3 million for transmission capital additions. Capital expenditures (budgetary basis) of $16.3 million were made in 2012 for new additions and upgrades to the electric system. The largest portion, $9.0 million, was for production projects completed during the Rawhide outage and various upgrades to the Craig Units. Transmission additions totaled $5.9 million and included expenditures for the completion of the 230kV transmission expansion project. The last portion for the Dixon Creek to Horseshoe transmission line and Horseshoe substation was placed in service in April General additions totaled $1.4 million and included communication, facility and information technology projects Annual Report 39

40 Management s Discussion and Analysis (Unaudited) Condensed Financial Statements The following condensed statements of net position and condensed statements of revenues, expenses and changes in net position summarize Platte River s financial position and changes in financial position for 2012, 2011, and Condensed Statements of Net Position December 31, (In thousands) Assets: Electric utility plant $ 604,603 $ 622,121 $ 619,731 Special funds and investments 86,039 60,685 80,639 Current and other assets 83,366 87,444 72,273 Total assets $ 774,008 $ 770,250 $ 772,643 Liabilities and net position: Liabilities Noncurrent liabilities $ 267,298 $ 259,537 $ 286,159 Current liabilities 37,386 52,638 39,663 Total liabilities 304, , ,822 Net position Net investment in capital assets 331, , ,761 Restricted 24,772 24,608 23,940 Unrestricted 112,684 91,364 96,120 Total net position 469, , ,821 Total liabilities and net position $ 774,008 $ 770,250 $ 772,643 40

41 Management s Discussion and Analysis (Unaudited) Net Position Total net position at December 31, 2012 was $469.3 million, an increase of $11.2 million over In 2011, net position totaled $458.1 million, an increase of $11.3 million over Electric utility plant decreased $17.5 million during 2012 as the result of an increase in accumulated depreciation and a decrease in construction work in progress partially offset by capital expenditures. In 2011, electric utility plant increased $2.4 million as the result of substantial capital expenditures for the transmission system expansion and other capital additions. Additional details about electric utility plant can be found in Note 4 to the financial statements. Special funds and investments at December 31, 2012 increased $25.4 million over December 31, The increase was primarily the result of issuing new debt, the Series II Bonds. Special funds and investments at December 31, 2011 decreased $20.0 million from December 31, The decrease was primarily the result of transmission capital expenditures from the Series HH construction fund and dedicated funds. Current and other assets decreased $4.1 million during 2012 as the result of a decrease in cash and cash equivalents and deferred charges, partially offset by an increase in other accounts receivable, materials and supplies inventory, and prepayments. Current and other assets increased $15.2 million during 2011 as a result of an increase in cash and cash equivalents and fuel inventory, partially offset by a decrease in other accounts receivable. The primary factor for the increase in fuel inventory was lower generation at Craig Station due to a major maintenance outage and lack of demand in off-peak hours. Noncurrent liabilities increased $7.8 million in 2012 primarily as the result of the issuance of the Series II Bonds. An increase in the accrued maintenance outage liability was offset by a decrease in the capitalized lease obligation. Noncurrent liabilities decreased $26.6 million in 2011 as the result of scheduled principal debt payments, partially offset by a decrease in regulatory liabilities for the reclassification for the accrual of maintenance outage expenses to current liabilities (the outage was scheduled for spring 2012). Additional details about longterm debt can be found in Note 7 to the financial statements. Current liabilities decreased $15.3 million in 2012 due to the maintenance outage costs classified as short-term in 2011 for the Rawhide outage and a decrease in accounts payable resulting from less construction activity at the end of the year. Current liabilities increased $13.0 million in 2011 due to the maintenance outage costs reclassified to current liabilities and an increase in accounts payable Annual Report 41