Report of Independent Auditors and Financial Statements with Supplementary Information for. Tillamook People s Utility District

Transcription

1 Report of Independent Auditors and Financial Statements with Supplementary Information for Tillamook People s Utility District December 31, 2015 and 2014

2 CONTENTS BOARD OF DIRECTORS, ADMINISTRATIVE STAFF, AND REGISTERED AGENT 1 REPORT OF INDEPENDENT AUDITORS 2 4 PAGE MANAGEMENT S DISCUSSION AND ANALYSIS 5 11 FINANCIAL STATEMENTS Statements of net position Statements of revenues, expenses, and changes in net position 14 Statements of cash flows Notes to financial statements REQUIRED SUPPLEMENTARY INFORMATION Schedule of funding progress for retiree health plan 36 Schedule of proportionate share of the net pension liability as of June 30, Schedule of contributions as of June 30, SUPPLEMENTARY INFORMATION Schedule of changes in electric plant in service 39 Schedule of bonds and certificates debt service transactions 40 Schedule of future bonds and certificates debt service requirements 41 Schedule of operating expenses REPORT OF INDEPENDENT AUDITORS ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT OF INDEPENDENT AUDITORS ON COMPLIANCE AND INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH OREGON AUDIT STANDARDS 46 47

3 BOARD OF DIRECTORS, ADMINISTRATIVE STAFF, AND REGISTERED AGENT BOARD OF DIRECTORS Name Address Position Ken Phillips 4855 Sunset Drive President Tillamook, Oregon Harry E. Hewitt 1816 Ninth Street Vice President Tillamook, Oregon Barbara A. Trout Old Pacific Highway Treasurer Rockaway Beach, Oregon Doug Olson PO Box 1000 Secretary Pacific City, Oregon Edwin L. Jenkins 6996 Bewley Creek Road Director Tillamook, Oregon ADMINISTRATIVE STAFF Name Raymon Sieler Robert S. White Jim Martin Marty Holm Barbara Johnson John Luquette Position General Manager Power Services Manager Finance Manager Customer Services Manager Public Relations Manager Information Technology Manager REGISTERED AGENT Raymon Sieler 1115 Pacific Avenue Tillamook, Oregon 1

4 REPORT OF INDEPENDENT AUDITORS The Board of Directors Tillamook People s Utility District Report on the Financial Statements We have audited the accompanying financial statements of Tillamook People's Utility District (the District), which comprise the statements of net position as of December 31, 2015 and 2014, and the related statements of revenues, expenses and changes in net position, and cash flows for the years then ended, and the related notes to the financial statements. 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the 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 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 the entity'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 entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 2

5 REPORT OF INDEPENDENT AUDITORS (continued) Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tillamook People's Utility District as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that management's discussion and analysis, schedule of proportionate share of the net pension liability, schedule of contributions, and the schedule of funding progress for retiree health plan be presented to supplement the financial statements. Such information, although not a part of the financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the 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 financial statements, and other knowledge we obtained during our audits of the 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. Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the District s financial statements. The supplementary information, listed in the table of contents is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated in all material respects in relation to the financial statements as a whole. 3

6 REPORT OF INDEPENDENT AUDITORS (continued) Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 7, 2016 on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control over financial reporting and compliance. Other Reporting Required by Oregon Auditing Standards In accordance with the Minimum Standards for Audits of Oregon Municipal Corporations, we have issued our report dated April 7, 2016, on our consideration of the District s compliance with certain provisions of laws and regulations, including the provisions of Oregon Revised Statutes as specified in Oregon Administrative Rules. The purpose of that report is to describe the scope of our testing of compliance and the results of that testing and not to provide an opinion on compliance. Julie Desimone, Partner for Moss Adams LLP Portland, Oregon April 7,

7 MANAGEMENT S DISCUSSION AND ANALYSIS The Management's Discussion and Analysis section of the District's Annual Financial Report presents an analysis of the financial position and activities of Tillamook People's Utility District for the years ended December 31, 2015 and This report has been prepared by management and is a required component of an annual financial report prepared in accordance with generally accepted accounting principles. The discussion is designed to assist readers in understanding the accompanying financial statements through an objective and easily readable analysis of the District's financial activities based on currently known facts and conditions. Financial Highlights Comparison of 2015, 2014 and 2013 revenues & expenses: Change Change From 2014 From to to 2014 Revenues: Sales of electrcity $ 34,382,271 $ 33,850,825 $ 531,446 $ 34,736,010 $ (885,185) Other operating revenues 449, ,604 15, ,560 44,044 Interest and other income 94, ,791 (70,947) 62, ,475 Total revenues 34,926,989 34,451, ,769 35,188,886 (737,666) Expenses: Cost of power 17,192,295 17,785,638 (593,343) 17,293, ,683 Distribution expense: Operation 3,810,331 3,876,278 (65,947) 3,995,055 (118,777) Maintenance 3,419,660 3,291, ,486 3,390,284 (99,110) Customer accounts 1,024, ,808 89, ,498 36,310 Customer service and info 751, ,596 21, ,410 21,186 Sales 123, ,251 (2,177) 132,501 (7,250) Administrative and general 3,077,676 2,882, ,694 3,103,674 (220,692) Depreciation 2,861,370 2,676, ,211 2,668,440 7,719 Taxes 844, ,741 1, ,756 17,985 Interest on long term debt 840, ,644 (21,776) 704, ,909 Other charges 15,566 15,566 18,323 (2,757) Total expenses 33,961,596 34,023,837 (62,241) 33,739, ,206 Net income $ 965,393 $ 427,383 $ 538,010 $ 1,449,255 $ (1,021,872) Revenues The warm weather in 2015 limited revenues from sales of electricity to increase only $531,446, or up 1.6% in 2015 from This in spite of retail rate increases of 3% in August 2014, and 5% in October Total energy (kwh s) sold was down 4.1% in 2015 from Revenues from sales of electricity decreased $885,185 or 2.5% in 2014 over 2013 also due to mild weather was recording normal weather, while 2014 was mild, and 2015 was historically warm. Total energy (kwh s) was down 4.3% from 2013 to Other operating revenues increased $44,044 in 2014, mostly due to the increased rental income from pole contacts of about $30,000. 5

8 MANAGEMENT S DISCUSSION AND ANALYSIS Revenues (continued) Interest and other income decreased in 2015 by $70,947 mostly due to 2014 being the exception with $76,000 in revenue from sanctions from pole contact attachments. These sanctions are also the main reason for the increase in interest and other income being over $103,475 in 2014 over Power Supply The District s cost of power decreased $593,343 in 2015 from The decrease was due to historically warm weather of 2015 and occurred even with a 6% BPA wholesale rate that became effective October The District s cost of power increased $491,683, or 2.8% in 2014 over The increase was a combination of BPA s rate increase, countered by a decrease in total energy purchased. BPA s wholesale power increase of 8.3% for power and 9.3% for transmission effective October 2013 made power costs go up, while the energy (kwh s) purchased actually decreased 4.3%, resulting in a net increase of 2.8%. Expenses The increase of Distribution expense Maintenance of $128,486 in 2015 was due to the December 2015 Storm Damage. This storm was officially declared a disaster, and the District is working with FEMA to determine if there will be any disaster recovery available. The decrease of $220,692 in the Distribution Expense Maintenance in 2014 from 2013 was the result of payroll related costs charged to Distribution Expense Maintenance decreasing in 2014 from Administrative and General Expense decreased $220,692 or 7.1% from 2013 to This was due to a number of items but was led by Legal General Counsel, which decreased about $90,000. Also decreasing in 2014 was Maintenance of Property and Grounds by about $67,000. After the decreases in Administrative and General in 2014 as discussed above, the Legal and Maintenance costs returned to normal in 2015 resulting in an overall increase in Administrative and general of $194,694, or 6.7%. Depreciation expense increased by $185,211 in 2015 as a result of an increase in the amount of depreciation expense for substation Distribution Automation. Interest on Long term Debt increased in 2014 by $157,909 or 22.4% as a result of adding $7 million of debt in early The $7 million RUS loan locked in a rate of 3.05% over 21 years. The other RUS oneyear variable rates continued at historical low rates to bring the total weighted average cost of debt to about 2.6% in 2015, 2014, and

9 MANAGEMENT S DISCUSSION AND ANALYSIS Statement of Net Position: 2015 Percent 2014 Percent 2013 Percent ASSETS Total electric Plant $ 97,036,587 $ 94,508,951 $ 92,181,955 Accumulated provision for depreciation (30,300,669) (28,283,086) (26,613,426) Net electric plant 66,735, % 66,225, % 65,568, % Notes receivable 194, % 214, % 227, % Investments 2,561, % 2,829, % 2,556, % Current assets 18,496, % 18,817, % 14,295, % Other noncurrent assets 17,592, % 15,113, % 10,741, % Deferred outflows of resources 1,074, % 697, % 309, % Total assets and deferred outflows of resources $ 106,655, % $ 103,898, % $ 93,698, % LIABILITIES & NET POSITION Net position Net investmetn in capital assets $ 35,957, % $ 33,725, % $ 38,462, % Restricted 3,387, % 3,470, % 3,172, % Designated 3,400, % 3,400, % 3,400, % Unrestricted 9,298, % 10,481, % 5,615, % Long term debt 29,368, % 31,050, % 25,978, % Current liabilities 6,496, % 6,138, % 6,212, % Other noncurrent liabilities 6,250, % 277, % 250, % Deferred inflows of resources 12,497, % 15,355, % 10,607, % Total liabilities, net position and deferred inflows of resources $ 106,655, % $ 103,898, % $ 93,698, % The statement of net position shows an increase in net electric plant of about $500,000 in 2015 and $650,000 in Our combined Construction costs along with electric plant additions and general plant additions less our depreciation, accounts for the annual increases in net electric plant in both 2014 and Current assets increased considerably in 2014 due to the proceeds of the $7 million RUS Loan. Other noncurrent assets increased by more than $4.3 million in 2014 as a result of the new accounting required by GASB 68 for pension liability. Long term debt increased considerably in 2014 as a result of the $7 million RUS Loan. Other noncurrent liabilities increased by almost $6 million in 2015, again as a result of the new accounting required by GASB 68 for pension liability. The new accounting of GASB 68 contributed to the fluctuations in Deferred inflows of resources a decrease of about $2.9 million in 2015 and an increase $4.7 million in

10 MANAGEMENT S DISCUSSION AND ANALYSIS Capital Assets The District's investment in net electric plant as of December 31, 2015 amounted to $66,735,918, net of accumulated depreciation representing 62.6% of total assets. Investment in electric plant includes land, structures, improvements, station equipment, poles, conductor, meters and transformers. Long Term Debt As of December 31, 2015, the District had debt outstanding of $29,256,887, net of current maturities. Of this amount, $4,945,000 is from the 2008 bond sale, $4,450,000 is from the 2010 bond sale, and $19,861,887 consists of revenue certificates of indebtedness, issued in lieu of bonds for loans from the Rural Utilities Service. Next Year s Budget The 2016 budget forecasts significant increases in both Sales of electricity, and Power Supply expense compared to 2015 s audited revenue and expenses. As the result of a warm 2015, along with the October 2015 s 5% retail and 6% wholesale rate increase, 2016 (weather normalized) is budgeted to be about $2,98 million higher in Sales of Electricity, and $2.21 million higher in Power Supply expense than Major construction projects in 2016 include the Hebo Feeder Reconductor, budgeted at $1 million. Most projects will be performed by District employees, and hired contractors, with the exception being transmission projects. Additions to Long Term Debt, in the form of RUS Loans or Bond Sales, have not been budgeted for in the 2016 year. 8

11 Five Year Comparison, stated in percentage of total operating revenue TILLAMOOK PEOPLE S UTILITY DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS Operating revenues Thousands of dollars $ 34,832 $ 34,285 $ 35,127 $ 33,835 $ 32,844 Percent 100.0% 100.0% 100.0% 100.0% 100.0% Deduct: Cost of power 49.4% 51.9% 47.1% 48.9% 45.5% Other operating expenses 45.7% 44.8% 45.7% 47.4% 44.7% Net operating revenues 5.0% 3.3% 7.2% 3.7% 9.8% Interest and other income 0.3% 0.5% 0.7% 0.8% 0.2% Total net operating revenues, interest, and other income 5.2% 3.8% 7.9% 4.5% 10.0% Deduct: Interest and other charges 2.5% 2.6% 2.0% 2.1% 2.3% Net income: 2.8% 1.2% 5.9% 2.4% 7.7% Five Year Comparison of Financial Ratios Times Interest Earned Ratio (TIER): Measures the extent to which earnings are adequate to meet the annual interest costs for bonds and certificates. R.U.S. minimum is Net income $ 965,393 $ 427,383 $ 1,449,255 $ 794,303 $ 2,531,702 Add interest expense 840, , , , ,584 Rate stabilization fund (RSF) transfer 100,000 Subtotal 1,806,261 1,290,027 2,153,990 1,649,469 3,151,286 Divide by interest expense 840, , , , ,584 TIER Operating TIER: Same as TIER above, except uses Net operating revenues instead of Net income Net operating revenues (net of RSF transfers) $ 1,726,983 $ 1,139,802 $ 2,109,997 $ 1,143,720 $ 3,219,676 Divide by interest expense 840, , , , ,584 Operating TIER

12 MANAGEMENT S DISCUSSION AND ANALYSIS Five Year Comparison of Financial Ratios (continued) Debt Service Coverage (DSC): Measures the District s ability to cover its debt service for bonds and certificates. R.U.S. minimum is Net income $ 965,393 $ 427,383 $ 1,449,255 $ 794,303 $ 2,531,702 Add interest expense 840, , , , ,584 Add depreciation expense 2,861,370 2,676,159 2,668,440 2,586,228 2,497,584 RSF transfers 100,000 Subtotal 4,667,631 3,966,186 4,822,430 4,235,697 5,648,870 Divide by debt service maturities 1,737,488 1,621,105 1,313,096 1,889,773 1,744,939 DSC Operating DSC: Same as DSC above, except uses Net operating revenue instead of Net income Net operating revenues $ 1,726,983 $ 1,139,802 $ 2,109,997 $ 1,243,720 $ 3,219,676 Add depreciation expense 2,861,370 2,676,159 2,668,440 2,586,228 2,497,584 RSF transfers 100,000 Subtotal 4,588,353 3,815,961 4,778,437 3,929,948 5,717,260 Divide by debt service maturities 1,737,488 1,621,105 1,313,069 1,889,773 1,744,939 Operating TIER Equity Level: Represents how much the customer has furnished of the total assets as compared to the portion borrowed Net position $ 52,042,492 $ 51,077,099 $ 50,649,716 $ 49,200,461 $ 47,592,699 Total assets and deferred outflows of resources 106,655, ,898,972 93,698,512 93,221,079 82,224,166 Equity level 48.8% 49.2% 54.1% 52.8% 57.9% 10

13 Five Year Comparison of Financial Ratios (continued) Working Capital: The amount of current assets above current liabilities. TILLAMOOK PEOPLE S UTILITY DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS Current assets $ 18,496,346 $ 18,817,178 $ 14,295,069 $ 14,446,838 $ 11,694,331 Less current liabilities 6,496,693 6,138,806 6,212,967 5,784,455 5,560,810 Working capital $ 11,999,653 $ 12,678,372 $ 8,082,102 $ 8,662,383 $ 6,133,521 Current Ratio: Current assets compared to current liabilities Current assets $ 18,496,346 $ 18,817,178 $ 14,295,069 $ 14,446,838 $ 11,694,331 Current liabilities 6,496,693 6,138,806 6,212,967 5,784,455 5,560,810 Current ratio Rate of Return: Net income as a percentage of net utility plant Net income $ 965,393 $ 427,383 $ 1,449,255 $ 794,303 $ 2,531,702 Net utility plant 66,735,918 66,225,865 65,568,529 64,907,904 63,202,259 Rate of return 1.4% 0.6% 2.2% 1.2% 4.0% 11

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15 STATEMENTS OF NET POSITION ASSETS December 31, ELECTRIC PLANT: In service at cost $ 96,135,088 $ 93,883,268 Acquisition adjustment (126,384) (126,384) Construction work in progress 1,027, ,067 Total electric plant 97,036,587 94,508,951 Less accumulated provision for depreciation (30,300,669) (28,283,086) Net electric plant 66,735,918 66,225,865 NOTES RECEIVABLE 194, ,596 INVESTMENTS BOND RESERVE FUND 2,561,335 2,558,944 CURRENT ASSETS Cash and cash equivalents: Cash and cash equivalents 8,126,316 9,345,057 Principal redemption fund 557, ,785 Special deposits related to bond interest 65,699 74,193 Rate stabilization fund designated 3,400,000 3,400,000 Accounts receivable (net of allowance for doubtful accounts of $216,054 and $195,883, respectively) 2,934,795 2,541,624 Unbilled revenue 1,835,171 1,538,329 Materials and supplies 1,159,320 1,127,679 Prepayments 417, ,429 Total current assets 18,496,346 19,088,096 OTHER NONCURRENT ASSETS Regulatory asset contributions in aid 11,015,804 10,664,870 Regulatory asset pension debit 6,514,541 1,929,677 Net pension asset 2,350,235 Other 61, ,727 Total other noncurrent assets 17,592,163 15,113,509 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources pension 809, ,567 Unamortized loss on bond refunding 265, ,395 Total deferred outflows of resources 1,074, ,962 Total assets and deferred outflows of resources $ 106,655,364 $ 103,898, See accompanying notes.

16 STATEMENTS OF NET POSITION NET POSITION, LIABILITIES AND DEFERRED INFLOWS OF RESOURCES December 31, NET POSITION Net investment in capital assets $ 35,957,107 $ 33,725,132 Designated for rate stabilization fund 3,400,000 3,400,000 Restricted for bond debt service 3,387,376 3,470,647 Unrestricted 9,298,009 10,481,320 Total net position 52,042,492 51,077,099 LONG TERM DEBT Revenue bonds, less current maturities 9,395,000 10,060,000 RUS revenue certificates of indebtedness, less current maturities 19,878,983 20,889,782 Unamortized revenue bond premium 94, ,858 Total long term debt 29,368,157 31,050,640 CURRENT LIABILITIES Current maturities of long term debt 1,675,799 1,737,488 Accounts payable 2,390,181 2,241,982 Customer deposits 341, ,207 Accrued interest 65,699 74,193 Accrued vacation pay 823, ,307 Other accruals 1,199, ,629 Total current liabilities 6,496,693 6,138,806 OTHER NONCURRENT LIABILITIES Net pension liability 5,842,327 Other noncurrent liabilities 407, ,078 Total noncurrent liabilities 6,250, ,078 DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources pension 1,481,952 4,690,479 Regulatory liability contributions in aid 11,015,804 10,664,870 Total deferred inflows of resources 12,497,756 15,355,349 Total net position, liabilities and deferred inflows of resources $ 106,655,364 $ 103,898,972 See accompanying notes. 13

17 STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION Years Ended December 31, OPERATING REVENUES Sales of electricity: Residential: Urban and rural $ 14,417,792 $ 14,206,124 Secondary 5,218,450 5,042,477 Commericial: Small 6,184,855 5,978,471 Large 8,192,574 8,236,020 Area lighting 259, ,579 Public lighting 108, ,154 Other operating revenues 449, ,604 Total operating revenues 34,832,145 34,285,429 OPERATING EXPENSES Cost of power 17,192,295 17,785,638 Distribution expense: Operation 3,810,331 3,876,278 Maintenance 3,419,660 3,291,174 Customer accounts expense 1,024, ,808 Customer service and informational expense 751, ,596 Sales expense 123, ,251 Administrative and general expense 3,077,676 2,882,982 Depreciation 2,861,370 2,676,159 Taxes 844, ,741 Total operating expenses 33,105,162 33,145,627 NET OPERATING REVENUES 1,726,983 1,139,802 NONOPERATING REVENUES (EXPENSES) Interest and other income 83,594 89,002 Interest on long term debt (840,868) (862,644) Other income (expense) 11,250 76,789 Amortization of debt premium and loss (15,566) (15,566) Total nonoperating expenses (761,590) (712,419) CHANGE IN NET POSITION 965, ,383 NET POSITION, BEGINNING OF YEAR 51,077,099 50,649,716 NET POSITION, END OF YEAR $ 52,042,492 $ 51,077, See accompanying notes.

18 STATEMENTS OF CASH FLOWS Years Ended December 31, CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $ 34,156,318 $ 34,890,836 Cash payments for purchased power (17,143,340) (18,101,156) Cash payments to suppliers for goods and services (6,980,167) (6,998,011) Cash payments to employees for services (5,735,144) (5,794,945) Net cash provided by operating activities 4,297,667 3,996,724 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from issuance of certificates of indebtedness 7,000,000 Principal payments on bonds and certificates of indebtedness (1,737,488) (1,621,105) Interest payments on long term debt, net of amount capitalized (849,362) (862,644) Construction and acquisition of plant (4,441,990) (4,251,687) Contributions in aid of construction 1,097, ,646 Materials salvaged from retirements 130, ,911 Net cash provided by (used in) capital and financing activities (5,801,018) 1,259,121 CASH FLOWS FROM INVESTING ACTIVITIES Net decrease (increase) in: Investments reserve fund, net (2,391) (2,661) Principal redemption fund, net 83,271 (24,676) Special deposits related to bond interest 8,494 8,661 Notes receivable 19,877 12,712 Interest and other income received 83,594 89,002 Net cash (used in) provided by investing activities 192,845 83,038 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,310,506) 5,338,883 CASH AND CASH EQUIVALENTS, beginning of year 13,460,035 8,121,152 CASH AND CASH EQUIVALENTS, end of year $ 12,149,529 $ 13,460,035 See accompanying notes. 15

19 STATEMENTS OF CASH FLOWS Years Ended December 31, Reconciliation of net operating revenues to net cash provided by operating activities: Net operating revenues $ 1,726,983 $ 1,139,802 Adjustments to reconcile net operating revenues to net cash provided by operating activities: Depreciation 2,861,370 2,676,159 Decrease (increase) in: Accounts receivable (393,171) 409,698 Unbilled revenue (296,842) 161,915 Materials and supplies (31,641) (31,291) Prepayments 2,898 5,534 Increase (decrease) in: Accounts payable 148,199 (463,082) Customer depostits 14,186 33,794 Accrued vacation pay 42,641 32,219 Other accruals 223,044 31,976 Total adjustments 2,570,684 2,856,922 Net cash provded by operating activities $ 4,297,667 $ 3,996,724 Noncash investing, capital, and financing activities Unamortized loss on bond refunding $ 22,250 $ 22,250 Unamortized revenue bond premium (6,684) (6,684) Amortization of debt premium and loss (15,566) (15,566) Total noncash investing, capital, and financing activities $ $ RECONCILIATION OF CASH AND CASH EQUIVALENTS Cash and cash equivalents, current $ 8,126,316 $9,074,139 Principal redemption fund, current 557, ,785 Special deposits related to bond interest 65,699 74,193 Rate stabilization fund designated 3,400,000 3,400,000 $ 12,149,529 $ 13,189, See accompanying notes.

20 Note 1 Organization and Summary of Significant Accounting Policies TILLAMOOK PEOPLE S UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS Organization Tillamook People's Utility District (the District) is a municipal corporation organized under Oregon Revised Statutes Chapter 261. The District is a power distribution utility serving patrons in almost all of Tillamook County and small portions of Yamhill and Clatsop counties. The District's Board of Directors has the authority to set rates and charges for services furnished. Substantially all revenues are derived from the sale of electric power to residential and commercial customers. Reporting entity The financial statements of the District include all financial activities for which the Board of Directors is financially accountable. The District has no component units. Income tax status The District is a people's utility district organized under Oregon Revised Statutes Chapter 261. As a political subdivision of the State of Oregon, the District is exempt from taxation under the provisions of Section 115 of the Internal Revenue Code. Basis of accounting The District is considered an enterprise and operates as a proprietary fund. The financial statements of the District have been prepared using the economic resources measurement focus and on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the standard setting body for governmental accounting and financial reporting. Change in accounting principle Effective January 1, 2015, the District adopted GASB Statement No. 68, Accounting and Financial Reporting for Pensions and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. These statements provide accounting guidance for net pension liabilities/assets, also defining balances to be included in deferred outflows of resources and deferred inflows of resources. Affected items were previously reported under the requirements of GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers. Previous standards defined pension liabilities in terms of the Annually Required Contributions (ARC). Statement No. 68 defines the net pension liability as the portion of the actuarial present value of projected benefit payments attributed to past periods of employee service, net of the pension plan s fiduciary net position. Statement No. 68 also requires recognition of deferred outflows of resources and deferred inflows of resources related to pensions. Items related to pensions to be presented as deferred outflows of resources or deferred inflows of resources include: differences between expected and actual experience, changes of assumptions, net differences between projected and actual earnings on investments, and changes in the proportion and differences between employer contributions and proportionate share of contributions. Deferred balances are to be recognized in pension expense over a five year period or using a systematic and rational method equal to the average of the expected remaining service lives of all employees provided with pensions through the pension plan determined as of the beginning of the measurement period. 17

21 NOTES TO FINANCIAL STATEMENTS Note 1 Organization and Summary of Significant Accounting Policies (continued) In November 2013, the GASB issued Statement No. 71, amending Statement No. 68. Statements No. 71 requires contributions made by participating employers to pension plans after the measurement date for the net pension liability but before the end of the financial statement period for the employer be reported as deferred outflows of resources. Prior year net position has not been restated as a result of the change in accounting principle due to the use of regulatory accounting to defer the impact of pension expense. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue recognition Operating revenues generally result from providing electric sales and services. The District utilizes cycle billing and records revenue billed to its customers when the cycle s reads are pulled into the billing system. Meters are read daily and customer accounts are cycle billed monthly. The District also records unbilled revenue, revenues from electric power delivered but not yet billed. All revenues not meeting this definition are reported as non operating revenues. Concentration of credit risk Financial instruments that are exposed to concentrations of credit risk consist primarily of cash (see Note 3) and receivables. Credit is extended to customers generally without collateral requirements, however, deposits are obtained from certain customers and formal shut off procedures are in place. Electric plant Electric plant is recorded at original cost (see Note 2). The cost of additions, renewals and replacements of property with an estimated useful life greater than one year is added to plant, and repairs and maintenance of property is charged to expense. Property units renewed or replaced are removed from the plant at their estimated cost. The cost of plant retired, plus removal cost, less salvage value, is charged to the depreciation reserve. Provision has been made for depreciation of transmission plant at a straight line annual composite rate of 2.75 percent in 2015 and Provision has been made for depreciation of distribution plant at straight line annual composite rates of 1.8 percent in 2015 and General plant depreciation rates have been applied on a straight line basis with annual rates of 3.0 to 14.4 percent in 2015 and Cash equivalents and restricted cash The District considers short term investments with original maturities of three months or less and demand deposits to be cash equivalents (see Note 3). Fair value of financial instruments The carrying amounts of current assets, including unrestricted and restricted cash and investments, and current liabilities approximate fair value due to the short term maturity of those instruments. The fair value of the District s investments and debt are estimated based on the quoted market prices for the same or similar issues. 18

22 NOTES TO FINANCIAL STATEMENTS Note 1 Organization and Summary of Significant Accounting Policies (continued) Accounts receivable Accounts receivable are recorded when invoices are issued and are written off when they are determined to be uncollectible. The allowance for doubtful accounts is estimated based on the District s historical losses, review of specific problem accounts, the existing economic conditions, and the financial stability of its customers. Generally, the District considers accounts receivable past due after 30 days. Materials and supplies Materials and supplies consist primarily of items for construction and maintenance of the utility plant and is stated at average cost. Investments Investments are carried at fair value. Restricted investments consist of the bond reserve fund, principal redemption fund and special deposits related to bond interest. Regulatory asset and regulatory liability The District has established a regulatory asset and a regulatory liability for the following item: Contributions in aid of construction Contributions in aid of construction represent customer reimbursements received to cover the cost of certain plant additions. The regulatory liability is established to amortize the contributions at a rate equal to the District s average depreciation rate of 3.3%. In accordance with established Rural Utility Service (RUS) accounting requirements, customer reimbursements are netted against the cost of plant additions. The regulatory asset is established to recognize the impact of GASB No. 33, Accounting and Financial Reporting for Nonexchange Transactions, and amortize it over the useful life of the asset. Pension debits Pension debits represent a portion of the change in net pension items and pension expense, as defined under GASB Statement No. 68. Regulatory accounting is used to recognize pension expense in accordance with the required employer contribution rates set by the Oregon Public Employees Retirement System. Deferred outflows Deferred outflows consist of the following component: Unamortized loss on bond refunding For current and advance refunding resulting in defeasance of debt, the difference between the reacquisition price and the net carrying amount of the old debt (gain or loss) is deferred and amortized as a component of interest expense over the remaining life of the old debt or the new debt, whichever is shorter. These amounts are reported as a deferred outflow on the statements of net position. Pension Deferred outflows of resources related to pension represents deferrals of changes in net pension liability, as defined under GASB Statement No

23 NOTES TO FINANCIAL STATEMENTS Note 1 Organization and Summary of Significant Accounting Policies (continued) Deferred inflows Deferred inflows consist of the following component: Contributions in aid of construction Contributions in aid of construction represent customer reimbursements received to cover the cost of certain plant additions. The regulatory liability is established to amortize the contributions at a rate equal to the District s average depreciation rate of 3.3%. In accordance with established Rural Utility Service (RUS) accounting requirements, customer reimbursements are netted against the cost of plant additions. The regulatory asset is established to recognize the impact of GASB No. 33, Accounting and Financial Reporting for Nonexchange Transactions, and amortize it over the useful life of the asset. Pension credits Deferred inflows of resources related to pension represents deferrals of changes in net pension liability, as defined under GASB Statement No. 68. Net position Consists of the following components: Net investment in capital assets This component of net position consists of capital assets, net of accumulated depreciation and outstanding balances of any bonds or debt obligations that are attributable to the acquisition, construction, or improvement of those assets. Restricted This component of net position on which constraints are placed as to their use. Constraints include those imposed by creditors (such as through debt covenants), contributors, or laws or regulation of other governments or constraints imposed by law through constitutional provisions or through enabling legislation. Designated This component of net position on which constraints are placed as to their use. Constraints include those imposed internally by the Board of Directors. Unrestricted This component of net position consists of net position that does not meet the definition of restricted or net investment in capital assets. Reclassifications Certain accounts in the 2014 financial statements have been reclassified to conform to the presentation in the 2015 basic financial statements. Such reclassifications have no effect on net position or the changes in net position. 20

24 NOTES TO FINANCIAL STATEMENTS Note 2 Electric Plant Electric plant activity for the year ended December 31, 2015 was as follows: Balance Balance 1/1/2015 Additions Retirements 12/31/2015 Electric plant not being depreciated: Land $ 1,098,018 $ $ $ 1,098,018 Intangible plant Construction in progress 752,067 2,811,846 2,536,030 1,027,883 Total electric plant not being depreciated 1,850,641 2,811,846 2,536,030 2,126,457 Electric plant being depreciated Transmission and distribution 80,025,775 2,756, ,230 82,025,883 General 12,758, ,630 64,918 13,010,631 Acquisition adjustment (126,384) (126,384) Total electric plant being depreciated 92,658,310 3,072, ,148 94,910,130 Less accumulated depreciation 28,283,086 2,861, ,787 30,300,669 Total electric plant being depreciated, net 64,375, ,598 (22,639) 64,609,461 Electric plant, net $ 66,225,865 $ 3,023,444 $ 2,513,391 $ 66,735,918 21

25 NOTES TO FINANCIAL STATEMENTS Note 2 Electric Plant (continued) Electric plant activity for the year ended December 31, 2014 was as follows: Balance Balance 1/1/2014 Additions Retirements 12/31/2014 Electric plant not being depreciated: Land $ 1,098,018 $ $ $ 1,098,018 Intangible plant Construction in progress 2,114,489 2,607,129 3,969, ,067 Total electric plant not being depreciated 3,213,063 2,607,129 3,969,551 1,850,641 Electric plant being depreciated Transmission and distribution 76,425,544 4,659,210 1,058,979 80,025,775 General 12,669, , ,414 12,758,919 Acquisition adjustment (126,384) (126,384) Total electric plant being depreciated 88,968,892 4,925,811 1,236,393 92,658,310 Less accumulated depreciation 26,613,426 2,676,159 1,006,499 28,283,086 Total electric plant being depreciated, net 62,355,466 2,249, ,894 64,375,224 Electric plant, net $ 65,568,529 $ 4,856,781 $ 4,199,445 $ 66,225,865 Note 3 Cash and Investments Cash and investments are comprised of the following as of December 31, 2015 and 2014: Working funds $ 2,050 $ 2,050 Deposits with financial institutions 9,711,118 9,692,631 Deposits with Oregon Local Government Investment Pool 2,436,361 3,765,354 Investments 2,561,335 2,558,944 Total cash and investments $ 14,710,864 $ 16,018,979 22

26 Note 3 Cash and Investments (continued) TILLAMOOK PEOPLE S UTILITY DISTRICT NOTES TO FINANCIAL STATEMENTS Deposits Deposits with financial institutions include bank demand and time certificate deposits. The Oregon State Treasurer is responsible for monitoring public funds held by bank depositories in excess of FDIC insured amounts, and for assuring that public funds on deposit are collateralized to the extent required by Oregon Revised Statutes (ORS) Chapter 295. ORS Chapter 295 requires depository banks to place and maintain on deposit with a third party custodian bank securities having a value of 10%, 25% or 110% of public funds on deposit depending primarily on the capitalization level of the depository bank. The Oregon Local Government Investment Pool is an open ended, no load diversified portfolio pool. The fair value of the District s position in the pool is substantially the same as the value of the District s participant balance. The Oregon Local Government Investment Pool is an external investment pool which is part of the Oregon Short Term Fund (OSTF). Investment policies are governed by the Oregon Revised Statues and the Oregon Investment Council (Council). The State Treasurer is the investment officer for the Council. Investments are further governed by portfolio guidelines issued by the OSTF Board. The Governor appoints the members of the Council and OSTF Board. The fair value of the District s position in the pool is the same as the value of the pool shares. The OSTF does not receive credit quality ratings from nationally recognized statistical rating organizations. Financial statements for the OSTF may be obtained from the Oregon State Treasurer s website. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Oregon Short Term Fund manages this risk by limiting the maturity of the investments held by the fund. Custodial credit risk for deposits is the risk that in the event of a bank failure, the District s deposits may not be returned. The District does not have a policy for deposits custodial credit risk. The District created a rate stabilization fund as permitted by the District's bond resolution and is funding it from unrestricted cash and deposits. The resolution allows the District to use amounts in this fund for its debt service coverage calculation as defined in the District's bond resolution. Investments State statutes authorize the District to invest in general obligations of the U.S. Government and its agencies, certain bonded obligations of Oregon municipalities, bank repurchase agreements, bankers' acceptances, and the Oregon Local Government Investment Pool, among others. The District has no investment policy that would further limit its investment choices. 23

27 NOTES TO FINANCIAL STATEMENTS Note 3 Cash and Investments (continued) The composition of the District's investments as of December 31, 2015 and 2014 is shown below: Fair Value Percent Fair Value Percent Investment in US Treasury obligations $ 2,561, % $ 2,558, % Total investments $ 2,561, % $ 2,558, % As of December 31, 2015, all of the investments mature in less than one year. Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty, the District will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The securities underlying the District s investment in the U.S. Treasury obligations are held by the District s counterparty, not in the District s name. Cash and investments as of December 31, 2015, and 2014, are presented on the statement of net position as follows: Investments reserve fund $ 2,561,335 $ 2,558,944 Cash and cash equivalents 8,126,316 9,345,057 Principal redemption fund 557, ,785 Special deposits related to bond interest 65,699 74,193 Rate stabilization fund designated 3,400,000 3,400,000 Total cash and investments $ 14,710,864 $ 16,018,979 24

28 NOTES TO FINANCIAL STATEMENTS Note 4 Long Term Debt Bonds and Certificates Authority to issue revenue bonds is granted to the District under the provisions of Chapter 261, Oregon Revised Statutes. Revenue certificates of indebtedness have been issued in lieu of bonds for loans obtained from the Rural Utilities Service. Long term debt covenants specify that District revenues are pledged for the retirement of long term debt. The proceeds of all bonds and certificates were used for construction and acquisition of capital assets. At December 31, 2015 and 2014, bonds and certificates payable consist of the following: Electric system revenue bonds: Series 2008 $ 5,160,000 $ 5,370,000 Series 2010, refunding bonds 4,900,000 5,325,000 Total electric system revenue bonds 10,060,000 10,695,000 RUS revenue certificates of indebtedness: 2.58% 3.05% certificates 12,924,543 13,439,163 5% certificates 580, ,000 Variable rate certificates 7,385,239 7,788,107 Total RUS revenue certificates of indebtedness 20,889,782 21,992,270 Total bonds and certificates payable 30,949,782 32,687,270 Less current maturities 1,675,799 1,737,488 Long term debt $ 29,273,983 $ 30,949,782 The Electric System Revenue Bonds, Series 2008, are due annually through December 1, 2032, with interest at 4% to 4.25% per annum payable semi annually on June 1 and December 1. The Electric System Revenue Refunding Bonds, Series 2010, are due annually through December 1, 2027, with interest at 2% to 4% per annum payable semi annually on June 1 and December 1. The RUS revenue certificates of indebtedness are due semi annually or annually with interest at 2.58%, 3.05% or 5% per annum or a variable rate with a maximum rate of 7% per annum payable semiannually or quarterly on January 1 and July 1 or on March 31, June 30, September 30 and December

29 NOTES TO FINANCIAL STATEMENTS Note 4 Long Term Debt (continued) Principal and interest activity during the years 2015 and 2014 was as follows: Principal Interest Outstanding Matured Outstanding Matured 1/1/2015 Issued and Paid 12/31/2015 and Paid Revenue bonds $ 10,695,000 $ $ 635,000 $ 10,060,000 $ 401,302 Certificates of indebtedness 21,992,270 1,102,488 20,889, ,566 Total $ 32,687,270 $ $ 1,737,488 $ 30,949,782 $ 840,868 Principal Interest Outstanding Matured Outstanding Matured 1/1/2014 Issued and Paid 12/31/2014 and Paid Revenue bonds $ 11,315,000 $ $ 620,000 $ 10,695,000 $ 421,947 Certificates of indebtedness 15,993,375 7,000,000 1,001,105 21,992, ,697 Total $ 27,308,375 $ 7,000,000 $ 1,621,105 $ 32,687,270 $ 862,644 Scheduled future maturities of principal and interest are as follows: Certificates Revenue Bonds of Indebtedness Totals Year Principal Interest Principal Interest Principal Interest 2016 $ 665,000 $ 381,947 $ 1,010,799 $ 406,270 $ 1,675,799 $ 788, , ,789 1,073, ,523 1,758, , , ,918 1,104, ,271 1,814, , , ,095 1,057, ,857 1,792, , , ,101 1,088, ,000 1,843, , ,485, ,749 5,915,887 1,267,192 9,400,887 2,254, ,220, ,927 6,204, ,990 8,424,618 1,139, ,000 48,787 3,433, ,254 4,238, ,041 Totals $ 10,060,000 $ 3,135,313 $ 20,889,782 $ 3,983,357 $ 30,949,782 $ 7,118,670 Scheduled interest maturities for RUS variable rate loans are based on the maximum rate of seven percent per annum, except for the 23rd Series. The 23rd Series are equal payment loans and scheduled principal and interest maturities are based on an estimated variable rate provided by RUS. 26