Audited Calculation Of Allowable Net Profit KEYSTONE URBAN RENEWAL, LIMITED PARTNERSHIP. December 31, 2016

Transcription

1 Audited Calculation Of Allowable Net Profit KEYSTONE URBAN RENEWAL, LIMITED PARTNERSHIP

2 Audited Calculation of Allowable Net Profit Independent Auditor s Report... 1 Calculation of Allowable Net Profit... 3 Notes to Calculation of Allowable Net Profit... 4

3 Firley, Moran, Freer & Eassa, CPA, P.C Campuswood Drive East Syracuse, NY p: f: INDEPENDENT AUDITOR S REPORT To the General Partner Keystone Urban Renewal, Limited Partnership: We have audited the accompanying calculation of allowable net profit (the calculation ) of Keystone Urban Renewal, Limited Partnership ( Keystone ), as described in the Financial Agreement between Keystone and the Township of Logan, a municipal corporation in the County of Gloucester and the State of New Jersey (the Township ), for the year ended. Management s Responsibility Management is responsible for the preparation and fair presentation of the calculation in accordance with the Financial Agreement between Keystone and the Township; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the calculation that is free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on the calculation based on our audit. We conducted our audit 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 calculation is free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures related to the calculation. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the calculation, 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 calculation 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 calculation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. An Independently Owned Member, RSM US Alliance RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. -1-

4 Opinion In our opinion, the calculation of allowable net profit referred to above presents fairly, in all material respects, the allowable net profit of Keystone for the year ended, in accordance with the Financial Agreement between Keystone and the Township. East Syracuse, New York March 27, 2017 sign -2-

5 CALCULATION OF ALLOWABLE NET PROFIT For the year ended Allowable net profit Total project costs $ 509,535,568 Allowable profit rate 12.00% ALLOWABLE NET PROFIT $ 61,144,268 Gross revenues Lease income $ 6,500,000 TOTAL INCOME 6,500,000 Allowable deductions Annual service charge 650,000 Amortized project costs 16,984,519 Debt service 1,523,756 TOTAL ALLOWABLE DEDUCTIONS 19,158,275 TOTAL NET PROFIT (LOSS) (12,658,275) NET PROFIT (LOSS) (12,658,275) Allowable net profit 61,144,268 ANNUAL EXCESS PROFIT (73,802,543) ACCUMULATED EXCESS PROFIT AT BEGINNING OF YEAR (395,858,329) ACCUMULATED EXCESS PROFIT AT END OF YEAR $ (469,660,872) See notes to calculation of allowable net profit. -3-

6 NOTES TO CALCULATION OF ALLOWABLE NET PROFIT NOTE A--CALCULATION OF ALLOWABLE NET PROFIT On December 31, 2009 Keystone entered into a Financial Agreement (the Financial Agreement ) with the Township whereby Keystone agrees to make payments in lieu of taxes to the Township in a sum equal to the Annual Service Charge as defined in Section 4.1 of the Financial Agreement. In accordance with Section 7.2 of the Financial Agreement, Keystone is required to pay excess net profits, as defined in the Financial Agreement, as an additional annual service charge. In accordance with Section 6.2 of the Financial Agreement, Keystone is required to provide an auditor s report which shall include, but not be limited to, a computation of the net profit, as defined. In February 2016, Keystone served notice to the Township that it was relinquishing its status under the Long Term Tax Exemption Law pursuant to N.J.S.A. 40A:20-13 and in accordance with Section 11.2 of the Financial Agreement. However, instead of Keystone relinquishing its status, Keystone and the Township successfully renegotiated and amended the Financial Agreement (the Amended Agreement ) with an effective date of March The Amended Agreement reduces the annual payments to the Township to a level commensurate with current real estate taxes that would otherwise be due on the property. NOTE B--COMPONENTS OF ALLOWABLE NET PROFIT CALCULATION Total Project Costs: Keystone, together with Logan Generating Company, L.P. ( Logan ), was formed to develop, construct, own and operate a 225-megawatt pulverized coal-fired cogeneration station (the Facility ) in the Township. Keystone holds title to the land upon which the Facility is situated, as well as the Facility itself. Logan leases the Facility from Keystone pursuant to a facilities lease agreement. The lease commenced on the first funding date of the Facility s construction. Total project costs are $509,535,568. Allowable Profit Rate: Pursuant to the Financial Agreement between Keystone and the Township, Keystone s allowable profit rate is the greater of 12.00% or the percentage per annum arrived at by adding 1.25% to the annual interest percentage rate payable on Keystone s and Logan s initial permanent mortgage financing. For the year ended, the weighted average interest rate on the initial permanent mortgage financing is 4.99%. Therefore, Keystone s allowable profit rate at is 12.00%. -4-

7 NOTES TO CALCULATION OF ALLOWABLE NET PROFIT--Continued NOTE B--COMPONENTS OF ALLOWABLE NET PROFIT CALCULATION--Continued Lease Income: Pursuant to Exhibit A of the Amended Agreement, the lease income for the year ended is $6,500,000. Annual Service Charge: Pursuant to Exhibit A of the Amended Agreement, the annual service charge for the year ended is $650,000. Amortized Project Costs: Amortized project costs represent the amortization of the project costs over a 30 year period. The 30 year period consists of two 15 year periods, the first being 1995 through 2009 (initial financing agreement between Keystone and the Township dated November 8, 1991) and the second being 2010 through 2024 (the term for the financing agreement between Keystone and the Township dated December 31, 2009). Amortized project costs for the year ended are $16,984,519. Debt Service: Debt service represents total principal and interest paid in conjunction with the Pollution Control Financing Authority of Gloucester County (Gloucester) bonds. Both Keystone and Logan are jointly and severally liable for payment and performance under the Gloucester bonds, discussed below. The Gloucester bonds consist of two issuances, the Series 2014A (the 2014A Bonds) and the Series 2014B (the 2014B Bonds). The 2014A Bonds are tax-exempt bonds and have a stated value of $63,263,000, inclusive of a bond premium of $4,968,000. The 2014A Bonds bear a fixed rate of interest at 5.00% and have semi-annual principal payments due beginning on December 1, 2019, with final maturity due on December 1, The 2014B Bonds are taxable bonds and have a stated value of $2,795,000. The 2014B Bonds bear a fixed rate of interest at 4.75% and have one balloon payment due, for all unpaid principal and interest under this issuance on December 1, Keystone s debt service for the year ended, under the Gloucester bonds is $1,523,756. NOTE C--EVENTS OCCURRING AFTER REPORT DATE Management has evaluated events and transactions that occurred between and March 27, 2017, which is the date the audited calculation of allowable net profit was available to be issued, for possible disclosure and recognition in the audited calculation of allowable net profit. There were no such events or transactions identified by management. -5-