This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold, nor may offers to buy them be accepted, prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. concurrently withthedeliveryof2017ABondsbyASSUREDGUARANTYMUNICIPALCORP. subject tothetermsandconditionsofInstallmentPurchaseAgreement. Payments. TheDistrictmayincuradditionalobligationspayablefromNetElectricSystemRevenuesonaparitywiththeSeries2017AInstallment Payments, or HydroelectricSystem. not pledgedtotheSeries2017AInstallmentPaymentsandarepayablefromrevenuesofDistrict’sWater System payable fromNetElectricSystemRevenuesonaparitywiththe2017ABonds. Bonds fromDistrictreserves,asfurtherdescribedherein,thewillhaveapproximately$55,170,000aggregateprincipalamountof outstanding Revenues oftheDistrict’sElectricSystem.Afterprepayment2012SystemBondsonorbeforedateissuance the2017A The obligationoftheDistricttomakeSeries2017AInstallmentPaymentsisaspecialpayablesolelyfromNetElectric System the AuthorityfromDistrictpursuanttoanInstallmentPurchaseAgreement,datedasofJuly1,2017,byandbetween Authority. amounts ondepositinfundsandaccountsunder the Indenture.AuthorityRevenuesconsistprimarilyofSeries2017AInstallmentPaymentsreceivedby Official Statement. subsequent disbursementtoDTCParticipantswhowillremitsuchpaymentsthebeneficialownersof2017ABonds. principal amountsof$5,000andintegralmultiplesthereof.Paymentsinterestonthe2017ABondswillbepaidbyTrusteetoDTCfor Company, New York, New York. Purchasers will not receive certificates representing their interest in the 2017A Bonds. Individual purchases will be in The 2017ABondsarebeingissuedinfullyregisteredbook-entryformandinitiallythenameofCede&Co.,asnomineeDepositoryTrust Reserve Fund;and(iv)topaythecostsofissuing2017ABonds,allasmorefullydescribedherein. policy toguaranteepaymentoftheprincipalandintereston2017ABonds;(iii)purchaseadebtservicereserveinsurancefordepositin certain capitalimprovementstotheElectricSystemofMercedIrrigationDistrict,amemberAuthority;(ii)purchasemunicipalbondinsurance payable fromthesourcesdescribedherein.The2017ABondsarebeingissued:(i)toprovidefundsfinancedesign,acquisitionandconstructionof Indenture ofTrust,datedasJuly1,2017,byandbetweentheAuthorityTheBankNewYorkMellonTrustCompany,N.A.,trustee,willbe tax. Seethecaption“TAXMATTERS”withrespecttotaxconsequencesrelating2017ABonds. the furtheropinionofBondCounsel,interest(andoriginalissuediscount)on2017ABondsisexemptfromStateCaliforniapersonalincome and isnotanitemoftax preference forpurposesofcalculatingthefederalalternative minimum taximposedonindividualsandcorporations.In in thisOfficialStatement,interest(andoriginalissuediscount)onthe2017ABondsisexcludedfromgrossincomeforfederaltaxpurposes and judicialdecisions,assumingtheaccuracyofcertainrepresentationscompliancewithcovenantsrequirementsdescribed * Preliminary, subjecttochange. Dated: July__,2017 Dated: DateofDelivery NEW ISSUE–BOOK-ENTRYONLY available fordeliverythroughthefacilities ofTheDepositoryTrustCompanyonoraboutAugust8,2017. Counsel totheDistrictandAuthority, fortheInsurerbyitscounselandTrusteecounsel. Itisanticipatedthatthe2017ABondswillbe will bepasseduponfortheUnderwriters bytheircounsel,Gilmore&Bell,P.C.,fortheAuthorityand District byPhillipR.McMurray,Esq.,General of the2017ABondsbyStradlingYocca Carlson & Rauth,aProfessional Corporation,BondCounsel,andcertainotherconditions.Certainlegal matters Official Statementshallhavethemeaningsascribedtheretoherein. entire OfficialStatementtoobtaininformationessentialthemaking ofaninformedinvestmentdecision.Capitalizedtermsusedonthecoverthis OR PLEDGEDANYFORMOFTAXATION. OBLIGATION FORWHICHTHEDISTRICTISOBLIGATEDTOLEVYOR PLEDGEANYFORMOFTAXATIONORFORWHICHTHEDISTRICTHASLEVIED THEREOF INCONTRAVENTIONOFANYCONSTITUTIONALORSTATUTORY DEBTLIMITATIONORRESTRICTIONANDDOESNOTCONSTITUTEAN AGREEMENT, AND DOES NOT CONSTITUTE A DEBT OF THE DISTRICT OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION PAYABLE SOLELY FROM NET ELECTRIC SYSTEM REVENUES OF THE DISTRICT AND OTHER FUNDS DESCRIBED IN THE INSTALLMENT PURCHASE PROVISION. OR ANYMEMBEROFTHEAUTHORITYINCONTRAVENTION OFANYSTATECALIFORNIACONSTITUTIONALORSTATUTORY LIABILITY OROBLIGATIONOFTHESTATECALIFORNIAANYPUBLICAGENCYTHEREOF(OTHERTHANAUTHORITY) INTEREST ON,THE2017ABONDS.AUTHORITYHASNOTAXINGPOWERS.BONDSDONOTCONSTITUTE ADEBT, OR ANYMEMBEROFTHEAUTHORITYISPLEDGEDTOPAYMENTPRINCIPALAMOUNTREDEMPTIONPRICE OF,OR In theopinionofStradlingYoccaCarlson&Rauth,aProfessionalCorporation,BondCounsel,underexistingstatutes,regulations,rulings The scheduledpaymentoftheprincipalandintereston2017ABondswhenduewillbeguaranteedunderaninsurancepolicyto issued The DistricthascovenantednottoincuradditionalobligationspayablefromNetElectricSystemRevenuesseniortheSeries2017AInstallment The Districtowns and operatesa Water SystemandHydroelectricbut the revenues of theDistrict’sWaterSystemand Hydroelectric Systemare The 2017ABondsarelimitedobligationsoftheAuthority.payablesolelyfromAuthorityRevenuesandcertain other The 2017ABondsaresubjecttooptional,mandatorysinkingfundandextraordinaryredemptionpriormaturityasdescribedin this Interest dueonthe2017ABondsispayablesemiannuallyApril1andOctoberofeachyear,commencing1,2017,untilmaturitythereof. The MercedIrrigationDistrictFinancingAuthorityElectricSystemRevenueBonds,Series2017Aarebeingissuedbythepursuanttoan The 2017ABondsareofferedwhen, asandifissuedreceivedbytheUnderwriters,subjecttoapproval ofthevalid,legalandbindingnature This coverpagecontainscertaininformationforquickreferenceonly. Itisnotacompletesummaryofthe2017ABonds.Investorsshouldread THE OBLIGATIONOFDISTRICTTOMAKESERIES2017A INSTALLMENT PAYMENTSISASPECIALOBLIGATIONOFTHEDISTRICT NEITHER THEFAITHANDCREDITNORTAXINGPOWEROFSTATECALIFORNIAORANYPUBLICAGENCYTHEREOF
MERCED IRRIGATION DISTRICT FINANCING AUTHORITY Citigroup ELECTRIC SYSTEMREVENUEBONDS,SERIES2017A
PRELIMINARY OFFICIAL STATEMENT JULY 20, 2017
MATURITY SCHEDULE–SeeInsideCoverPage $19,990,000* Caldwell Sutter Capital,Inc. Due: October 1,asshownoninsidecover RATINGS: Seethecaption“RATINGS”
MATURITY SCHEDULE
$19,990,000* MERCED IRRIGATION DISTRICT FINANCING AUTHORITY ELECTRIC SYSTEM REVENUE BONDS, SERIES 2017A
Maturity Date Principal Interest (October 1) Amount Rate Price Yield CUSIP† $ % %
$______% Term Bonds Due October 1, 20__, Price ___, Yield ___%, CUSIP _____
* Preliminary, subject to change. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright © 2017 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by Standard & Poor’s CUSIP Service Bureau. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service Bureau. CUSIP® numbers are provided for convenience of reference only. Neither the District nor the Purchaser takes any responsibility for the accuracy of such numbers. NO DEALER, BROKER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER OR SALE OF THE 2017A BONDS, OTHER THAN AS CONTAINED IN THIS OFFICIAL STATEMENT, AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE AUTHORITY, THE DISTRICT OR THE UNDERWRITERS. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE DESCRIBED ON THE COVER PAGE OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE 2017A BONDS BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE. THE OFFICIAL STATEMENT IS NOT TO BE CONSTRUED AS A CONTRACT WITH THE PURCHASERS OF THE 2017A BONDS.
The information contained in this Official Statement has been obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness. The Underwriters have provided the following sentence for inclusion in this Official Statement:
The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of this information.
The information and expressions of opinion in this Official Statement are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Authority or the District since the date hereof.
This Official Statement contains forward-looking statements, including: (a) statements containing projections of Net Electric System Revenues, expenditures and other financial items; (b) statements of the plans and objectives of the District for future operations of the Electric System; (c) statements of future economic performance of the Electric System; and (d) statements of the assumptions underlying or relating to statements described in (a), (b) and (c) above (collectively, “Forward-Looking Statements”). All statements other than statements of historical facts included in this Official Statement regarding the District’s financial position, business strategy, capital resources and plans and objectives for future operations of the Electric System, are Forward-Looking Statements. Although such expectations reflected in such Forward-Looking Statements are reasonable, there can be no assurance that such expectations will prove to have been correct. Statements of important factors (collectively, the “Cautionary Statements”) that could cause actual results to differ materially from expectations of the District are disclosed in this Official Statement. All subsequent written and oral Forward-Looking Statements attributable to the Authority or the District or person acting on behalf of the Authority or the District are expressly qualified in their entirety by the Cautionary Statements.
This Official Statement is submitted in connection with the sale of the 2017A Bonds and may not be reproduced or be used, as a whole or in part, for any other purpose.
In connection with the offering of the 2017A Bonds, the Underwriters may overallot or effect transactions which stabilize or maintain the market price of the 2017A Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriters may offer and sell the 2017A Bonds to certain dealers and dealer banks and banks acting as agent and others at prices lower than the public offering prices stated on the cover page of this Official Statement, and the Underwriters may change those public offering prices from time to time.
THE 2017A BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), IN RELIANCE UPON AN EXEMPTION CONTAINED IN THE ACT. THE 2017A BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.
Assured Guaranty Municipal Corp. (“AGM”) makes no representation regarding the 2017A Bonds or the advisability of investing in the 2017A Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the heading “BOND INSURANCE” and Appendix G—”SPECIMEN MUNICIPAL BOND INSURANCE POLICY.” The District maintains a website. However, the information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the 2017A Bonds. BOARD OF DIRECTORS OF THE DISTRICT AND THE AUTHORITY
Dave Long, President/Chair Scott Koehn, Vice President/Vice Chair Kevin Gonzalves, Director Jeff Marchini, Director Billy Pimentel, Director
DISTRICT STAFF
John Sweigard, General Manager Hicham Eltal, Deputy General Manager, Water Supply/Rights Bryan Kelly, Deputy General Manager, Water Resources Don Ouchley, Deputy General Manager, Energy Resources Brian Stubbert, Chief Financial Officer Victor Moreno, Director of Administrative Services Mike Jensen, Public and Government Relations Officer Bret Theodozio, Director of Parks and Recreation
SPECIAL SERVICES
General Counsel to the District and the Authority
Phillip R. McMurray, Esq.
Bond Counsel
Stradling Yocca Carlson & Rauth, a Professional Corporation Sacramento, California
Municipal Advisor
Fieldman, Rolapp & Associates, Inc. Irvine, California
Trustee
The Bank of New York Mellon Trust Company, N.A. Los Angeles, California TABLE OF CONTENTS Page
INTRODUCTION ...... 1 General ...... 1 Purposes of the 2017A Bonds ...... 1 Authority for Issuance ...... 1 Sources of Payment for the 2017A Bonds ...... 1 Sources of Payment for the Series 2017A Installment Payments ...... 2 Reserve Fund ...... 3 Insurance ...... 3 Additional Parity Obligations ...... 3 Merced Irrigation District ...... 3 The Authority ...... 4 Professionals Involved in the Offering ...... 4 Other Information About this Official Statement ...... 4
THE PROJECT ...... 5
ESTIMATED SOURCES AND USES OF FUNDS ...... 6
THE 2017A BONDS ...... 6 Terms of the 2017A Bonds ...... 6 Redemption of 2017A Bonds ...... 6 Notice of Redemption ...... 7 Selection of 2017A Bonds for Redemption ...... 8 Partial Redemption of Bonds ...... 8 Effect of Redemption of Bonds ...... 8 Book-Entry Only System ...... 8 Transfers and Exchanges Upon Termination of Book-Entry Only System ...... 9 Debt Service Schedule ...... 10
SECURITY FOR THE 2017A BONDS ...... 11 General ...... 11 Revenue Pledge Securing the Series 2017A Installment Payments ...... 11 Rate Covenant Securing the Series 2017A Installment Payments ...... 12 Limitations on District Parity and Superior Obligations; Subordinate Obligations ...... 13 Reserve Fund ...... 14 Rate Stabilization Fund ...... 15
BOND INSURANCE ...... 15 Bond Insurance Policy ...... 15 Assured Guaranty Municipal Corp...... 15
THE AUTHORITY ...... 17
THE DISTRICT ...... 17
APPROVAL OF LEGAL PROCEEDINGS ...... 17
LITIGATION ...... 18 The Authority ...... 18 The District ...... 18
-i- TABLE OF CONTENTS (continued) Page
TAX MATTERS...... 18
CONTINUING DISCLOSURE ...... 20
MUNICIPAL ADVISOR ...... 21
RATINGS ...... 21
UNDERWRITING ...... 21
MISCELLANEOUS ...... 22
APPENDIX A INFORMATION RELATING TO MERCED IRRIGATION DISTRICT ...... A-1 EXHIBIT A-1 MERCED IRRIGATION DISTRICT AUDITED FINANCIAL STATEMENTS ...... A-1-1 APPENDIX B DEVELOPMENTS IN THE ELECTRIC MARKETS AND OTHER FACTORS AFFECTING THE UTILITY INDUSTRY ...... B-1 APPENDIX C DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS ...... C-1 APPENDIX D PROPOSED FORM OF LEGAL OPINION ...... D-1 APPENDIX E DTC AND BOOK-ENTRY ONLY SYSTEM ...... E-1 APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE ...... F-1 APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY ...... G-1
-ii- $19,990,000* MERCED IRRIGATION DISTRICT FINANCING AUTHORITY ELECTRIC SYSTEM REVENUE BONDS, SERIES 2017A
INTRODUCTION
General
This Official Statement provides information concerning the issuance of the Merced Irrigation District Financing Authority Electric System Revenue Bonds, Series 2017A (the “2017A Bonds”) pursuant to an Indenture of Trust, dated as of July 1, 2017 (the “Indenture”), by and between the Merced Irrigation District Financing Authority (the “Authority”) and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). See the caption “THE 2017A BONDS.”
Purposes of the 2017A Bonds
The 2017A Bonds are being issued: (i) to provide funds to finance the design, acquisition and construction of certain capital improvements to the Electric System of the Merced Irrigation District (the “District”), a member of the Authority, as described under the caption “THE PROJECT;” (ii) to purchase a municipal bond insurance policy to guarantee payment of the principal of and interest on the 2017A Bonds; (iii) to purchase a debt service reserve insurance policy for deposit in the Reserve Fund and (iv) to pay the costs of issuing the 2017A Bonds. See the caption “ESTIMATED SOURCES AND USES OF FUNDS” and “THE PROJECT.”
Authority for Issuance
The 2017A Bonds are being issued under the Indenture and the Marks-Roos Local Bond Pooling Act of 1985, as amended, constituting Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California (the “State”).
Sources of Payment for the 2017A Bonds
The 2017A Bonds are limited obligations of the Authority. The 2017A Bonds are payable solely from Authority Revenues and certain other amounts on deposit in funds and accounts under the Indenture. Authority Revenues consist primarily of payments (the “Series 2017A Installment Payments”) received from the District pursuant to an Installment Purchase Agreement, dated as of July 1, 2017 (the “Installment Purchase Agreement”), by and between the District and the Authority. See the caption “SECURITY FOR THE 2017A BONDS.”
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR ANY PUBLIC AGENCY THEREOF OR ANY MEMBER OF THE AUTHORITY IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL AMOUNT OR REDEMPTION PRICE OF, OR INTEREST ON, THE 2017A BONDS. THE AUTHORITY HAS NO TAXING POWERS. THE 2017A BONDS DO NOT CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF THE STATE OR ANY PUBLIC AGENCY THEREOF (OTHER THAN THE AUTHORITY) OR ANY MEMBER OF THE AUTHORITY IN CONTRAVENTION OF ANY STATE CONSTITUTIONAL OR STATUTORY PROVISION.
* Preliminary, subject to change.
1 Sources of Payment for the Series 2017A Installment Payments
Pursuant to the Installment Purchase Agreement, the District is obligated to pay the Series 2017A Installment Payments as the purchase price for certain capital improvements described in the Installment Purchase Agreement. The obligation of the District to make the Series 2017A Installment Payments is a special obligation of the District payable solely from the Electric System Revenues and other funds described in the Installment Purchase Agreement, and does not constitute a debt of the District or of the State or of any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction and does not constitute an obligation for which the District is obligated to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation.
In order to carry out and effectuate the pledge and lien contained in the Installment Purchase Agreement, the District has agreed and covenanted that all Electric System Revenues (as such term is defined in the Installment Purchase Agreement), will be received by the District in trust thereunder and will be deposited when and as received in the Electric System Revenue Fund, which fund the District has agreed and covenanted to maintain so long as any Series 2017A Installment Payments remain unpaid.
All amounts on deposit in the Electric System Revenue Fund have been irrevocably pledged to the payment of the Series 2017A Installment Payments as provided in the Installment Purchase Agreement. Such pledge constitutes a first lien on, subject to application of amounts on deposit therein as permitted in the Installment Purchase Agreement, the Electric System Revenue Fund for the payment of the Series 2017A Installment Payments and all other parity Contracts and Bonds (as such terms are defined in the Installment Purchase Agreement) in accordance with the terms of the Installment Purchase Agreement. See Appendix A—“INFORMATION RELATING TO MERCED IRRIGATION DISTRICT” under the caption “THE DISTRICT—Other Outstanding Obligations.”
The District will, from the moneys in the Electric System Revenue Fund, pay all Maintenance and Operation Costs of the Electric System (as such term is defined in the Installment Purchase Agreement), including amounts reasonably required to be set aside in contingency reserves for Maintenance and Operation Costs of the Electric System, the payment of which is not then immediately required. All remaining moneys in the Electric System Revenue Fund (the “Net Electric System Revenues”) will be set aside by the District as set forth in the Installment Purchase Agreement to pay the Series 2017A Installment Payments and other parity Contracts and Bonds. See the caption “SECURITY FOR THE 2017A BONDS.”
The District currently has $65,870,000 aggregate principal amount of Bonds outstanding payable from Net Electric System Revenues, consisting of the outstanding principal amount of the District’s 2012 Electric System Revenue Bonds (the “2012 Electric System Bonds”) and the Electric System Refunding Revenue Bonds, Series 2015A (the “2015A Electric System Bonds”). The District expects to prepay, from District reserves, the 2012 Electric System Bonds on or before the date of delivery of the 2017A Bonds. After such prepayment, the District will have $55,170,000 of 2015A Electric System Bonds outstanding which are payable from Net Electric System Revenues. See Appendix A—“INFORMATION RELATING TO MERCED IRRIGATION DISTRICT” under the caption “THE DISTRICT— Other Outstanding Obligations.
The District owns and operates a water system and a hydroelectric system (as more fully defined in Appendix A hereto the “Water System” and the “Hydroelectric System,” respectively). The revenues of the District’s Water System and Hydroelectric System are not pledged to the payment of principal of and interest on the 2017A Bonds and principal of and interest on the 2017A Bonds are not payable from revenues of the District’s Water System or Hydroelectric System. In addition, the District entered into an unsecured line of credit with Wells Fargo Bank National Association in a not-to-exceed amount of $25,000,000 to finance the District’s operating and capital expenditures (the “Line of Credit”). The Line of Credit is payable from all legally available funds and revenues of the District, including Net Electric System Revenues available after payment of the Series 2017A Installment Payments and other Bonds and Contracts. See Appendix A— “INFORMATION RELATING TO MERCED IRRIGATION DISTRICT” under the captions “THE
2 DISTRICT— Other Outstanding Obligations” and “—Projected Electric System Operating Results and Debt Service Coverage.” The Line of Credit is scheduled to expire on August 17, 2017. The District expects to extend the Line of Credit on or before August 17, 2017.
Reserve Fund
A Reserve Fund for the 2017A Bonds is established pursuant to the Indenture in an amount equal to the Reserve Requirement. The Reserve Requirement for the 2017A Bonds is $______. AGM has committed to issue, simultaneously with the issuance of the 2017A Bonds, a municipal bond debt service reserve insurance policy (the “Reserve Surety Policy”) in the principal amount of $______for deposit in the Reserve Fund to satisfy the Reserve Requirement. See the caption “SECURITY FOR THE 2017A BONDS— Reserve Fund.”
Insurance
Payment of principal of and interest on the 2017A Bonds will be insured by a municipal bond insurance policy (the “Policy”) to be issued by the Insurer concurrently with the issuance of the 2017A Bonds. See the caption “BOND INSURANCE.”
Additional Parity Obligations
The District has covenanted not to incur additional obligations payable from Net Electric System Revenues senior to the Series 2017A Installment Payments. The District may incur additional obligations on a parity with the Series 2017A Installment Payments, subject to the terms and conditions described under the caption “SECURITY FOR THE 2017A BONDS—Limitations on Parity and Superior Obligations; Subordinate Obligations.”
Merced Irrigation District
The District is a California irrigation district organized in 1919 under the provisions of the Irrigation District Law (codified as Division 11 of the California Water Code). The District has the powers under the Irrigation District Law to, among other things, provide water, electricity and water-related recreation services. In connection therewith, the District has the powers of eminent domain, to contract, to construct works, to fix rates and charges for commodities or services furnished and to incur indebtedness.
The District owns and operates a retail electric system which serves portions of the District. The District is not the sole provider of retail electric service within the District. Currently the District serves approximately 9,000 customers within the District while the Pacific Gas & Electric (“PG&E”), an investor owned utility serves the remaining customers within the electric service area of the District. See Appendix A— “INFORMATION RELATING TO MERCED IRRIGATION DISTRICT” under the caption “THE ELECTRIC SYSTEM—General.”
The District owns, operates and maintains a Hydroelectric System, consisting of the New Exchequer Dam, which impounds the New Exchequer Reservoir (Lake McClure) and the McSwain Dam, which impounds the McSwain Reservoir (Lake McSwain). New Exchequer Reservoir and the McSwain Reservoir have storage capacities of approximately 1,024,600 acre feet and 9,730 acre-feet, respectively. Both dams, reservoirs and related hydroelectric facilities comprise the Merced River Hydroelectric Project. The Merced River Hydroelectric Project is licensed by the Federal Energy Regulatory Commission (“FERC”).
The District owns, operates and maintains a Water System which delivers water through approximately 720 miles of earthen and concrete-lined canals, and pipelines. The District owns approximately 215 well sites. See Appendix A—“INFORMATION RELATING TO MERCED IRRIGATION DISTRICT” under the caption “THE DISTRICT—Water System and Hydroelectric System.”
3 In 1994, the District established a storm water drainage district known as the Merced Irrigation District Drainage Improvement District #1 (the “Drainage District”). The District uses portions of its irrigation distribution system for urban storm drainage by routing natural stream flows and runoff from urban developments, away from populated areas. Drainage fees are assessed annually by the District and are collected through the County of Merced (the “County”) tax rolls but are not included in Electric System Revenues. See Appendix A—“INFORMATION RELATING TO MERCED IRRIGATION DISTRICT” under the caption “THE DISTRICT—Drainage District.”
The District owns, operates and maintains five recreation areas adjacent to Lake McClure and Lake McSwain which consist of the Lake McSwain Recreation Area, located adjacent to Lake McSwain; McClure Point, Barrett Cove, Horseshoe Bend and Bagby Recreation Areas, all located adjacent to Lake McClure (collectively, the Parks and Recreation Facilities”). Revenues generated by the District’s Parks and Recreation Facilities are not included as Electric System Revenues. See Appendix A—“INFORMATION RELATING TO MERCED IRRIGATION DISTRICT” under the caption “THE DISTRICT—Parks and Recreation.”
The Authority
The Authority is a joint exercise of powers agency organized under the provisions of State law governing the joint exercise of powers, being Chapter 5, Division 7, Title 1 of the Government Code of the State (the “Act”) and a Joint Exercise of Powers Agreement, dated as of May 21, 2015 (the “Joint Powers Agreement”), by and between the District and the Modesto Irrigation District, to provide for the financing and refinancing of capital improvement projects of the District by exercising the powers referred to in the Joint Powers Agreement, and any other transaction authorized by law. Under the Act and the Joint Powers Agreement, the Authority has the power to issue bonds to pay the costs of public capital improvements. See the caption “THE AUTHORITY.” The Board of Directors of the Authority consists of the members of the Board of Directors of the District.
Professionals Involved in the Offering
The Bank of New York Mellon Trust Company, N.A. will act as Trustee with respect to the 2017A Bonds. The 2017A Bonds are offered when, as and if issued, subject to approval as to their legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Sacramento, California, Bond Counsel, and certain other conditions. Certain legal matters will be passed on for the Underwriters by their counsel, Gilmore & Bell, P.C., for the Authority and the District by Phillip R. McMurray, Esq., General Counsel to the Authority and the District, for the Insurer by its counsel and for the Trustee by its counsel. Fieldman, Rolapp & Associates, Inc. Irvine, California is acting as municipal advisor to the District. Payment of the fees of Bond Counsel, the Municipal Advisor and Underwriters’ Counsel is contingent upon issuance of the 2017A Bonds.
Other Information About this Official Statement
There follows in this Official Statement (and attached appendices) a brief description of the 2017A Bonds, the security for the 2017A Bonds, the District, the Authority and certain other information relevant to the issuance of the 2017A Bonds. The descriptions and summaries of various documents in this Official Statement do not purport to be comprehensive or definitive, and reference is made to each document for complete details of all terms and conditions. All statements in this Official Statement are qualified in their entirety by reference to each document.
All capitalized terms used herein and not normally capitalized have the meanings assigned to them in the Indenture and the Installment Purchase Agreement, the summaries of which are included in Appendix C, unless otherwise stated in this Official Statement.
4 The Appendices are integral parts of this Official Statement and must be read together with all other parts of this Official Statement.
THE PROJECT
The District expects to apply a portion of the proceeds of the 2017A Bonds and certain other District funds to finance the design and construction of certain transmission and distribution facilities for the District’s Electric System (the “Project”). The Project consists of a new substation, an interconnection with an existing Pacific Gas & Electric (PG&E)/California ISO’s (CAISO) system via an existing adjacent PG&E transmission line, and distribution lines to connect the new substation with the District’s existing Electric System. The total cost of the Project is expected to be approximately $45,000,000, of which approximately $22,000,000 is expected to be financed from a portion of the proceeds of the 2017A Bonds, as described below, and the balance is expected to be funded from District reserves.
The Project consists of two components – the distribution component and the transmission component. The District expects the costs of the distribution component to be approximately $32,000,000, of which the District expects to finance approximately $22,000,000 from the proceeds of the 2017A Bonds. The distribution component consists of approximately 15.7 miles of 21kV distribution lines to connect a new 230/21kV substation (the “Lyons Substation”) to the District’s Electric System. The majority of the new distribution lines would be located within existing right-of-ways within the City of Merced.
The District expects the costs of the transmission component to be approximately $13,000,000 which the District currently expects to fund from District reserves. The transmission component of the Project consists of the Lyons Substation and an interconnection of the Lyons Substation with PG&E/CAISO system via an existing adjacent PG&E transmission line. Such interconnection is expected to require the installation of two 230 kV poles. The new Lyons Substation site would be located on approximately 11.2 acres within the City of Merced, in a planned industrial and commercial development area. The District is currently exploring the possibility of being reimbursed for costs of the transmission component of the Project by CAISO through transmission access charges (TAC), however, the District can make no assurances that such reimbursements will occur. See the caption “THE ELECTRIC SYSTEM—Future Electric System Improvements” in Appendix A hereto for further discussion on the TAC reimbursement.
The following table sets forth the expected sources of funds for the two components of the Project.
Sources of Funds Distribution Transmission Totals Component Component 2017A Bond Proceeds $ 22,000,000 -- $ 22,000,000 District Reserves 10,000,000 $ 13,000,000 23,000,000 Totals $ 32,000,000 $ 13,000,000 $ 45,000,000
The District may substitute a component of the Project with a transmission component or add a transmission component to the Project upon delivery of an opinion of Bond Counsel stating, in substance, that such substitution or addition, as applicable will not, in and of itself, adversely affect the exclusion of interest on the 2017A Bonds from federal income taxation and from state income taxation.
A final revised environmental impact report for the Project dated September 21, 2016 was prepared and was certified by the Board of Directors on October 4, 2016. No challenges to the final revised environmental impact report have been filed. The District expects to obtain all other permits and approvals necessary to construct the Project. The District expects to commence construction of the Project in 2017 and expects that the Project will be completed in 2019.
5 ESTIMATED SOURCES AND USES OF FUNDS
The following is an estimateof the sources and uses of 2017A Bond proceeds.
Sources(1) Principal Amount of 2017A Bonds $ Plus/Less Net Original Issue Premium/Discount TOTAL $
Uses(1) Deposit to Acquisition Fund $ Underwriters’ Discount Deposit to Costs of Issuance Fund(2) TOTAL $
(1) Amounts rounded to the nearest dollar. (2) Includes fees for Trustee and Municipal Advisor, legal fees, premiums for the Policy and the Reserve Surety Policy, printing costs, rating agency fees and other costs of delivery.
THE 2017A BONDS
Terms of the 2017A Bonds
The 2017A Bonds will be issued in the aggregate principal amount of $19,990,000* and will be dated as of the date of issuance. Interest on the 2017A Bonds is payable by check or draft of the Trustee mailed by first class mail on April 1 and October 1 of each year, commencing October 1, 2017 (each an “Interest Payment Date”). Interest on the 2017A Bonds is payable on each Interest Payment Date to the person whose name appears on the Registration Books as the Owner thereof as of the Record Date immediately preceding each such Interest Payment Date, such interest to be paid by check of the Trustee sent by first class mail on the applicable Interest Payment Date to the Owner at the address of such Owner as it appears on the Registration Books (except that in the case of an Owner of $1,000,000 or more in principal amount, such payment may, at such Owner’s option, be made by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such Owner prior to the Record Date). Principal of and premium (if any) on any 2017A Bond will be paid by check of the Trustee upon presentation and surrender thereof at maturity or upon the prior redemption thereof, at the Office of the Trustee. Both the principal of and interest and premium (if any) on the 2017A Bonds will be payable in lawful money of the United States of America.
Interest on the 2017A Bonds will accrue at the rates per annum and will mature on the dates set forth on the inside front cover page of this Official Statement. Interest on the 2017A Bonds will be computed based on a year consisting of 360 days and twelve 30-day months. Individual purchases will be made in principal amounts of $5,000 and integral multiples thereof.
Principal of the 2017A Bonds is payable in lawful money of the United States of America at the Office of the Trustee in San Francisco, California.
Redemption of 2017A Bonds
Optional Redemption. The 2017A Bonds with stated maturities on or after October 1, 20__ are subject to redemption prior to their respective stated maturities, as a whole or in part on any date as directed by the Authority in a written request to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice for the sole convenience of the Trustee) prior to
* Preliminary, subject to change.
6 such date and by lot within each maturity in integral multiples of $5,000, on or after October 1, 20__, at a price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium.
Extraordinary Redemption from Insurance or Eminent Domain Proceeds. The 2017A Bonds are subject to extraordinary redemption prior to their respective stated maturities, as a whole or in part on any date in the order of maturity and within maturities as directed by the District in a written request to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice for the convenience of the Trustee) prior to such date and by lot within each maturity in integral multiples of $5,000 from Net Proceeds, upon the terms and conditions of, and as provided for in the Indenture and the Installment Purchase Agreement, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium.
Mandatory Sinking Fund Redemption. The 2017A Bonds with stated maturities on October 1, 20__ are subject to mandatory sinking fund redemption in part (by lot) on each October 1 on and after October 1, 20__, in integral multiples of $5,000 at a Redemption Price of the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule:
Redemption Date Principal (October 1) Amount $
* Final Maturity.
Notice of Redemption
Notice of redemption will be mailed by first class mail not less than 20 days before any Redemption Date, to the respective Owners of any 2017A Bonds designated for redemption at their addresses appearing on the Registration Books and to the Securities Depositories and the Information Services; provided, however, that so long as the 2017A Bonds are registered in the name of the Nominee, notices of redemption shall be provided in such manner as complies with the requirements of DTC, and, provided further, that such notice may be cancelled by the Authority upon written request delivered to the Trustee not less than 5 days prior to such Redemption Date. Each notice of redemption will state the date of notice, the redemption date, the place or places of redemption, the Redemption Price, will designate the maturities, CUSIP numbers, if any, and, if less than all 2017A Bonds of any such maturity are to be redeemed, the serial numbers of the 2017A Bonds of such maturity to be redeemed by giving the individual number of each 2017A Bond or by stating that all 2017A Bonds between two stated numbers, both inclusive, have been called for redemption and, in the case of 2017A Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice will also state that on the redemption date there will become due and payable on each of said 2017A Bonds or parts thereof designated for redemption the Redemption Price thereof or of said specified portion of the principal thereof in the case of a 2017A Bond to be redeemed in part only, together with, interest accrued thereon to the redemption date, and that (provided that moneys for redemption have been deposited with the Trustee) from and after such redemption date interest thereon will cease to accrue, and will require that such 2017A Bonds be then surrendered to the Trustee. Neither the failure to receive such notice nor any defect in the notice or the mailing thereof will affect the validity of the redemption of any 2017A Bond. Notice of redemption of 2017A Bonds will be given by the Trustee, at the expense of the Authority, for and on behalf of the Authority.
With respect to any notice of optional redemption of 2017A Bonds, such notice may state that such redemption is conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of, premium, if any, and interest on such 2017A Bonds to be redeemed
7 and that, if such moneys have not been so received, said notice will be of no force and effect and the Trustee will not be required to redeem such 2017A Bonds. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption will not be made, and the Trustee will within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such moneys were not so received.
Selection of 2017A Bonds for Redemption
Whenever provision is made in the Indenture for the redemption of less than all of the 2017A Bonds, the Trustee will select the 2017A Bonds for redemption as a whole or in part on any date as directed by the Authority and by lot within each maturity in integral multiples of $5,000 in accordance with the Indenture. The Trustee will promptly notify the Authority in writing of the numbers of the 2017A Bonds or portions thereof so selected for redemption.
Partial Redemption of Bonds
Upon surrender of any 2017A Bond redeemed in part only, the Authority will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the Authority, a new 2017A Bond or 2017A Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the 2017A Bonds surrendered and of the same series, interest rate and maturity.
Effect of Redemption of Bonds
Notice of redemption having been duly given as set forth in the Indenture, and moneys for payment of the redemption price of, together with interest accrued to the date fixed for redemption on, the 2017A Bonds (or portions thereof) so called for redemption being held by the Trustee, on the redemption date designated in such notice, the 2017A Bonds (or portions thereof) so called for redemption will become due and payable, interest on the 2017A Bonds so called for redemption will cease to accrue, said 2017A Bonds (or portions thereof) will cease to be entitled to any benefit or security under the Indenture, and the Owners of said 2017A Bonds will have no rights in respect thereof except to receive payment of the redemption price thereof. The Trustee will, upon surrender for payment of any of the 2017A Bonds to be redeemed on their Redemption Dates, pay such 2017A Bonds at the Redemption Price.
All 2017A Bonds redeemed pursuant to the provisions of the Indenture will be canceled upon surrender thereof.
Book-Entry Only System
One fully-registered 2017A Bond for each maturity will be issued in the principal amount of such 2017A Bond. Such 2017A Bonds will be registered in the name of Cede & Co. and will be deposited with DTC.
The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, the 2017A Bonds will be printed and delivered and will be governed by the provisions of the Indenture with respect to payment of principal and interest and rights of exchange and transfer.
The District cannot and does not give any assurances that DTC participants or others will distribute payments with respect to the 2017A Bonds received by DTC or its nominee as the registered Owner, or any redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or that DTC will service and act in the manner described in this Official Statement. See Appendix E hereto for additional information concerning DTC.
8 Transfers and Exchanges Upon Termination of Book-Entry Only System
Any 2017A Bond may, in accordance with its terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such 2017A Bond at the Office of the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. The Trustee is not required to register the transfer of any 2017A Bond during the period in which the Trustee is selecting 2017A Bonds for redemption and any 2017A Bond that has been selected for redemption.
Whenever any 2017A Bond or 2017A Bonds is surrendered for transfer, the Authority will execute and the Trustee will authenticate and deliver a new 2017A Bond or 2017A Bonds of authorized denomination or denominations for a like series and aggregate principal amount of the same maturity. The Trustee will require the 2017A Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. Following any transfer of 2017A Bonds, the Trustee will cancel and destroy the 2017A Bonds it has received.
The 2017A Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of other authorized denominations of the same series and maturity. The Trustee is not required to exchange any 2017A Bond during the period in which the Trustee is selecting 2017A Bonds for redemption and any 2017A Bond that has been selected for redemption. The Trustee will require the 2017A Bond Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. Following any exchange of 2017A Bonds, the Trustee will cancel and destroy the 2017A Bonds it has received.
9 Debt Service Schedule
Set forth below is a table of the annual Series 2017A Installment Payments and principal of and interest on the 2015A Electric System Bonds.
MERCED IRRIGATION DISTRICT Debt Service Schedule
2017A Bonds Outstanding Electric System March 31 Principal Interest Total Bonds(1)(2) Total 2018 $ $ $ $ 4,828,413 $ 2019 4,824,563 2020 4,820,163 2021 4,822,163 2022 4,544,663 2023 4,394,663 2024 4,391,163 2025 4,391,913 2026 4,386,413 2027 4,384,663 2028 4,376,163 2029 4,368,500 2030 4,368,750 2031 4,361,250 2032 4,356,000 2033 4,357,500 2034 4,345,000 2035 3,488,000 2036 3,484,000 2037 -- 2038 -- 2039 -- 2040 -- 2041 -- 2042 -- 2043 -- 2044 -- 2045 -- 2046 -- 2047 -- 2048 -- TOTAL $ $ $ $ 83,293,934 $
(1) Includes the principal of and interest on the 2015A Electric System Bonds. The District expects to prepay, from District reserves, the 2012 Electric System Bonds on or before the date of delivery of the 2017A Bonds. See Appendix A— “INFORMATION RELATING TO MERCED IRRIGATION DISTRICT” under the caption “THE DISTRICT—Other Outstanding Obligations.” (2) Total may not sum due to rounding. Source: District.
10 SECURITY FOR THE 2017A BONDS
General
Pursuant to the Indenture, the Authority, for good and valuable consideration, has unconditionally assigned and pledged to the Trustee without recourse all of its rights to receive the Authority Revenues and to enforce the Installment Purchase Agreement upon an event of default thereunder for the benefit of the Owners of the 2017A Bonds, for the purpose of securing: (a) the payment of the principal of and the interest and premium on the 2017A Bonds under the terms of the Indenture; and (b) all of the rights, title, and interest of the Authority in the Installment Purchase Agreement, including all rights of the Authority to receive payments thereunder and all rights of the Authority thereunder as may be necessary to enforce compliance with said provisions (including enforcement of payment obligations and rate covenants contained in the Installment Purchase Agreement) or otherwise to protect the interest of the Owners of the 2017A Bonds, subject to the terms of the Indenture, and excepting therefrom any rights to indemnification or to receive notices thereunder.
The 2017A Bonds are limited obligations of the Authority. The 2017A Bonds are payable solely from Authority Revenues and from certain other amounts on deposit in funds and accounts under the Indenture. Authority Revenues consist primarily of Series 2017A Installment Payments received from the District pursuant to the Installment Purchase Agreement. See the caption “—Revenue Pledge Securing the Series 2017A Installment Payments.”
The 2017A Bonds do not constitute a charge against the general credit of the Authority. The 2017A Bonds are not secured by a legal or equitable pledge of, or charge or lien upon, any property of the Authority or any of its income or receipts except payments under the Installment Purchase Agreement and other moneys pledged by the Authority under the Indenture. Neither the faith and credit nor the taxing power of the State or any public agency thereof or any member of the Authority is pledged to the payment of the principal amount or redemption price of, or interest on, the 2017A Bonds. The Authority has no taxing power. The 2017A Bonds do not constitute a debt, liability or obligation of the State or any public agency thereof (other than the Authority) or any member of the Authority in contravention of any State constitutional or statutory provision.
Revenue Pledge Securing the Series 2017A Installment Payments
Pursuant to the Installment Purchase Agreement, the District is obligated to pay the Series 2017A Installment Payments as the purchase price for certain capital improvements described in the Installment Purchase Agreement. THE OBLIGATION OF THE DISTRICT TO MAKE THE SERIES 2017A INSTALLMENT PAYMENTS IS A SPECIAL OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM NET ELECTRIC SYSTEM REVENUES OF THE DISTRICT AND OTHER FUNDS DESCRIBED IN THE INSTALLMENT PURCHASE AGREEMENT, AND DOES NOT CONSTITUTE A DEBT OF THE DISTRICT OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE DISTRICT IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.
In order to carry out and effectuate the pledge and lien contained in the Installment Purchase Agreement, the District has agreed and covenanted that the Electric System Revenues shall be deposited when and as received in a special fund designated as the “Electric System Revenue Fund” which fund has been established and which fund the District has agreed and covenanted to maintain and to hold separate and apart from other funds so long as the Series 2017A Installment Payments remain unpaid.
All amounts on deposit in the Electric System Revenue Fund and the Rate Stabilization Fund have been irrevocably pledged to the payment of the Series 2017A Installment Payments as provided in the Installment Purchase Agreement. Such pledge constitutes a first lien on, subject to application of amounts on
11 deposit therein as permitted in the Installment Purchase Agreement, the Electric System Revenue Fund and the Rate Stabilization Fund for the payment of the Series 2017A Installment Payments and all other parity Contracts and Bonds (as such terms are defined in the Installment Purchase Agreement) in accordance with the terms of the Installment Purchase Agreement.
The District will, from the moneys in the Electric System Revenue Fund, pay all Operation and Maintenance Costs of the Electric System (including amounts reasonably required to be set aside in contingency reserves for Operation and Maintenance Costs of the Electric System, the payment of which is not then immediately required) as such Electric System Operation and Maintenance Costs become due and payable. The Net Electric System Revenues will be set aside by the District as set forth in the Installment Purchase Agreement to pay the Series 2017A Installment Payments and parity Contracts and Bonds.
The obligation of the District to make the Series 2017A Installment Payments from Net Electric System Revenues is on a parity with the obligation of the District to pay debt service for certain bonds, which after the prepayment of the 2012 Electric System Bonds from District reserves, as described herein, will be outstanding in the approximate aggregate principal amount of $55,700,000. See Appendix A— “INFORMATION RELATING TO MERCED IRRIGATION DISTRICT” under the captions “THE DISTRICT—Other Outstanding Obligations” and “—Projected Electric System Operating Results and Debt Service Coverage.”
Electric System Revenues. Electric System Revenues are defined under the Installment Purchase Agreement to include all income, rents, rates, fees, charges and other moneys derived from or attributable the ownership or operation of the Electric System calculated in accordance with generally accepted accounting principles, including, without limiting the generality of the foregoing, all income, rents, rates, fees, charges, business interruption insurance proceeds or other moneys derived by the District from the sale, furnishing and supplying of electric generation, transmission and distribution through the facilities of or in the conduct or operation of the business of the Electric System; plus all income, rents, rates, fees, charges, business interruption insurance proceeds or other moneys derived by the District under any contract for the sale of power, energy, transmission or other services from the Electric System or any part thereof or any contractual arrangement with respect to the use of the Electric System or any part thereof or the services, output or capacity thereof; connection charges or similar charges related to the Electric System; plus payments received by the District in connection with any commodity swaps related to the Electric System, including Commodity Swaps; the earnings on and income derived from the investment of the amounts described above, and from investment of amounts in the Electric System Revenue Fund; plus the earnings on and income derived from investment of the District reserves allocated to the Electric System; plus all amounts transferred from the Rate Stabilization Fund to the Electric System Revenue Fund during any Fiscal Year in accordance with the Installment Purchase Agreement. Electric System Revenues do not include in all cases any amounts transferred from the Electric System Revenue Fund to the Rate Stabilization Fund during any Fiscal Year in accordance with the Installment Purchase Agreement, customer deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the District, any proceeds of taxes restricted by law to be used by the District to pay obligations of the District other than Bonds or Contracts and revenues of the Water System or Hydroelectric System. In addition, Electric System Revenues do not include revenues with respect to any electric generation or transmission facilities of the District which are not a part of the Electric System as determined in accordance with the Installment Purchase Agreement. See the definition of Electric System set forth in Appendix C— “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” hereto for a description of the ability of the Board of the District to elect to include or exclude generation or transmission facilities in the Electric System.
Rate Covenant Securing the Series 2017A Installment Payments
The District has covenanted in the Installment Purchase Agreement to fix and prescribe rates and charges for Energy Service which are reasonably expected to be sufficient to yield during such Fiscal Year Net Electric System Revenues (not including amounts transferred from the Rate Stabilization Fund pursuant to the
12 Installment Purchase Agreement in excess of twenty percent (20%) of Debt Service payable in such Fiscal Year) which will equal one hundred twenty percent (120%) of the Debt Service payable in such Fiscal Year.
The District may make adjustments from time to time in such rates and charges and may make such classifications thereof as it deems necessary, but will not reduce the rates and charges then in effect unless the Net Electric System from such reduced rates and charges will at all times be sufficient to meet the requirements described in the prior paragraph.
Failure to produce Net Electric System Revenues to equal one hundred twenty percent (120%) of Debt Service at the end of a Fiscal Year is not an Event of Default under the Installment Purchase Agreement so long as the District complies with the covenant described above. Such failure may, however, affect the ability of the District to issue Bonds or incur Contracts payable from Net Electric System Revenues on a parity with the Series 2017A Installment Payments.
For purposes of the covenant set forth above, any Policy Costs due and owing shall be treated as Operations and Maintenance Costs of the Electric System.
Limitations on District Parity and Superior Obligations; Subordinate Obligations
Additional Obligations Superior to Series 2017A Installment Payments. The District has covenanted in the Installment Purchase Agreement that it will not, so long as any Series 2017A Installment Payments are outstanding, issue or incur any obligations payable from the Revenues superior to the Series 2017A Installment Payments.
Additional Obligations on a Parity with Series 2017A Installment Payments. The District may at any time execute any Contract or issue any Bonds, as the case may be, in accordance with the Installment Purchase Agreement; provided:
(i) The Net Electric System Revenues for either the most recent audited Fiscal Year or any consecutive twelve calendar month period during the eighteen calendar month period preceding the date of adoption by the Board of Directors of the District of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, as evidenced by both a calculation prepared by the District and a special report prepared by an Independent Certified Public Accountant or an Independent Financial Consultant on such calculation on file with the District, shall have produced a sum equal to at least one hundred twenty percent (120%) of the Debt Service for such audited Fiscal Year or such twelve month period, as applicable; and
(ii) At the option of the District:
(1) the Net Electric System Revenues for either the most recent audited Fiscal Year or any consecutive twelve calendar month period during the eighteen calendar month period preceding the date of the execution of such Contract or the date of adoption by the Board of Directors of the District of the resolution authorizing the issuance of such Bonds, as the case may be, including adjustments to give effect as of the first day of such audited Fiscal Year or such twelve month period to increases or decreases in rates and charges for the Energy Service approved and in effect as of the date of calculation, as evidenced by a calculation prepared by the District, shall have produced a sum equal to at least one hundred twenty percent (120%) of the Debt Service for such audited Fiscal Year or such twelve month period plus the Debt Service which would have been payable on any Contracts executed or Bonds issued since the end of such audited Fiscal Year or such twelve month period assuming such Contracts had been executed or Bonds had been issued at the beginning of such audited Fiscal Year or such twelve month period, plus the Debt Service which would have been payable had such Contract been executed or Bonds been issued at the beginning of such audited Fiscal Year or such twelve month period, as applicable; or
13 (2) the estimated Net Electric System Revenues for the then current Fiscal Year and for each Fiscal Year thereafter to and including the first complete Fiscal Year after the latest Date of Operation of any uncompleted Parity Project previously financed or being financed from the proceeds of Bond or Contracts, as evidenced by an Engineer’s Report on file with the District, plus (after giving effect to the completion of all such uncompleted Parity Projects and the Net Electric System Revenues to be derived from such Parity Projects) an allowance for estimated Net Electric System Revenues for each of such Fiscal Years arising from any increase in the rates and charges estimated to be fixed and prescribed for the Energy Service and which are economically feasible and reasonably considered necessary based on projected operations for such period, as evidenced by an Engineer’s Report on file with the District, shall produce a sum equal to at least one hundred twenty percent (120%) of the estimated Debt Service for each of such Fiscal Years, after giving effect, in either case, to the execution of all Contracts and the issuance of all Bonds estimated to be required to be executed or issued to pay the costs of completing all uncompleted Parity Projects within such Fiscal Years, assuming that all such Contracts and Bonds have maturities, interest rates and proportionate principal repayment provisions similar to the Contract that was first executed or the Bonds that were first issued for the purpose of acquiring and constructing any of such uncompleted Parity Projects.
For purposes of the foregoing requirements, Electric System Revenues in any Fiscal Year do not include any amounts transferred from the Rate Stabilization Fund to the Electric System Revenue Fund in excess of 20% of the Debt Service for such Fiscal Year. See also the caption “—Rate Stabilization Fund.”
Notwithstanding the foregoing, Bonds or Contracts may be issued or incurred to refund outstanding Bonds or Contracts if, after giving effect to the application of the proceeds thereof, total Debt Service will not be increased in any Fiscal Year in which Bonds or Contracts (outstanding on the date of issuance or incurrence of such refunding Bonds or Contracts, but excluding such refunding Bonds or Contracts) not being refunded are outstanding in an amount in excess of 10%.
For purposes of calculations set forth above with respect to the issuance of Bonds or the execution of Contracts, any Policy Costs due and owing shall be treated as Operations and Maintenance Costs of the Electric System.
Subordinate Obligations. Nothing in the Installment Purchase Agreement prohibits the District from issuing bonds, notes or other obligations payable from Net Electric System Revenues subordinate to Bonds or Contracts. The Line of Credit is an unsecured obligation of the District and is not a Bond or Contract. See Appendix A—“INFORMATION RELATING TO MERCED IRRIGATION DISTRICT” under the caption “THE DISTRICT—Other Outstanding Obligations.” The District has the right to secure other District obligations with a subordinate pledge of Electric System Revenues without compliance with the financial test set forth above. See Appendix A—“INFORMATION RELATING TO MERCED IRRIGATION DISTRICT” under the caption “THE ELECTRIC SYSTEM—Future Electric System Improvements.”
Reserve Fund
The Insurer has made a commitment to issue, simultaneously with the initial issuance of the 2017A Bonds, the Reserve Surety Policy in the amount of $______(equal to the Reserve Requirement) for deposit in the Reserve Fund, effective as of the date of issuance of the 2017A Bonds. Under the terms of the Reserve Surety Policy, the Insurer will unconditionally and irrevocably guarantee to pay that portion of the scheduled payments of principal of and interest on the 2017A Bonds that becomes due for payment but shall be unpaid by reason of nonpayment by the Authority.
See Appendix B—” DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” under the caption “THE INDENTURE—REVENUES, FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST—Reserve Fund” for further information with respect to the Reserve Surety Policy.
14 Rate Stabilization Fund
There is continued under the Installment Purchase Agreement a special fund designated as the “Rate Stabilization Fund” to be held by the District in trust thereunder, which fund the District has pledged to the payment of the Series 2017A Installment Payments under the Installment Purchase Agreement and has agreed and covenanted to maintain and to hold separate and apart from other funds so long as any Series 2017A Installment Payments remain unpaid, including but not limited to the rate stabilization fund created with respect to the Water System and the Hydroelectric System. On the date of the issuance of the 2017A Bonds, approximately $1,000,000 will be on deposit in the Rate Stabilization Fund (which amount includes approximately $800,000 of monies collected in prior Fiscal Years and which are currently recorded as unrealized revenue on the District’s financial statements as described in Appendix A under the caption “ELECTRIC SYSTEM FINANCIAL AND OPERATING INFORMATION—District Reserves”). Money transferred by the District from the Electric System Revenue Fund to the Rate Stabilization Fund in accordance with the Installment Purchase Agreement will be held in the Rate Stabilization Fund and applied in accordance with the Installment Purchase Agreement.
The District may withdraw all or any portion of the amounts on deposit in the Rate Stabilization Fund and transfer such amounts to the Electric System Revenue Fund for application in accordance with the Installment Purchase Agreement or, in the event that all or a portion of the 2017A Bonds are discharged in accordance with the Installment Purchase Agreement, transfer all or any portion of such amounts for application in accordance with the Installment Purchase Agreement. Amounts transferred from the Rate Stabilization Fund to the Electric System Revenue Fund pursuant to the Installment Purchase Agreement during or within 270 days after a Fiscal Year, may be taken into account as Electric System Revenues for purposes of the calculations described under the captions “—Rate Covenant” and “—Additional Indebtedness” in such Fiscal Year.
Under certain circumstances, moneys received in one Fiscal Year may be required or permitted by GAAP to be recorded as revenue in a subsequent Fiscal Year, regardless of whether such moneys have been deposited in the Rate Stabilization Fund. See “APPENDIX A-1 – MERCED IRRIGATION DISTRICT FINANCIAL STATEMENTS.”
BOND INSURANCE
Bond Insurance Policy
Concurrently with the issuance of the 2017A Bonds, Assured Guaranty Municipal Corp. will issue its Municipal Bond Insurance Policy for the 2017A Bonds. The Policy guarantees the scheduled payment of principal of and interest on the 2017A Bonds when due as set forth in the form of the Policy included as Appendix G to this Official Statement.
The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law.
Assured Guaranty Municipal Corp.
AGM is a New York domiciled financial guaranty insurance company and an indirect subsidiary of Assured Guaranty Ltd. (“AGL”), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol “AGO.” AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. Neither AGL nor any of its shareholders or affiliates, other than AGM, is obligated to pay any debts of AGM or any claims under any insurance policy issued by AGM.
15 AGM’s financial strength is rated “AA” (stable outlook) by S&P Global Ratings, a business unit of Standard & Poor’s Financial Services LLC (“S&P”), “AA+” (stable outlook) by Kroll Bond Rating Agency, Inc. (“KBRA”) and “A2” (stable outlook) by Moody’s Investors Service, Inc. (“Moody’s”). Each rating of AGM should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of AGM in its sole discretion. In addition, the rating agencies may at any time change AGM’s long-term rating outlooks or place such ratings on a watch list for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, the assignment of a negative outlook to such ratings or the placement of such ratings on a negative watch list may have an adverse effect on the market price of any security guaranteed by AGM. AGM only guarantees scheduled principal and scheduled interest payments payable by the issuer of bonds insured by AGM on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurance policy), and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn.
Current Financial Strength Ratings. On June 26, 2017, S&P issued a research update report in which it affirmed AGM’s financial strength rating of “AA” (stable outlook). AGM can give no assurance as to any further ratings action that S&P may take.
On December 14, 2016, KBRA issued a financial guaranty surveillance report in which it affirmed AGM’s insurance financial strength rating of “AA+” (stable outlook). AGM can give no assurance as to any further ratings action that KBRA may take.
On August 8, 2016, Moody’s published a credit opinion affirming its existing insurance financial strength rating of “A2” (stable outlook) on AGM. AGM can give no assurance as to any further ratings action that Moody’s may take.
For more information regarding AGM’s financial strength ratings and the risks relating thereto, see AGL’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
Capitalization of AGM. At March 31, 2017:
The policyholders’ surplus of AGM was approximately $2,204 million.
The contingency reserves of AGM and its indirect subsidiary Municipal Assurance Corp. (“MAC”) (as described below) were approximately $1,263 million. Such amount includes 100% of AGM’s contingency reserve and 60.7% of MAC’s contingency reserve.
The net unearned premium reserves of AGM and its subsidiaries (as described below) were approximately $1,349 million. Such amount includes (i) 100% of the net unearned premium reserves of AGM and AGM’s wholly owned subsidiary Assured Guaranty (Europe) Ltd. and (ii) 60.7% of the net unearned premium reserve of MAC.
The policyholders’ surplus of AGM and the contingency reserves and net unearned premium reserves of AGM and MAC were determined in accordance with statutory accounting principles. The net unearned premium reserves of Assured Guaranty (Europe) Ltd were determined in accordance with accounting principles generally accepted in the United States of America.
Incorporation of Certain Documents by Reference. Portions of the following documents filed by AGL with the Securities and Exchange Commission (the “SEC”) that relate to AGM are incorporated by reference into this Official Statement and shall be deemed to be a part hereof:
16 (i) the Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (filed by AGL with the SEC on February 24, 2017); and
(ii) the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017 (filed by AGL with the SEC on May 5, 2017).
All consolidated financial statements of AGM and all other information relating to AGM included in, or as exhibits to, documents filed by AGL with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, excluding Current Reports or portions thereof “furnished” under Item 2.02 or Item 7.01 of Form 8-K, after the filing of the last document referred to above and before the termination of the offering of the 2017A Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC’s website at http://www.sec.gov, at AGL’s website at http://www.assuredguaranty.com, or will be provided upon request to Assured Guaranty Municipal Corp.: 1633 Broadway, New York, New York 10019, Attention: Communications Department (telephone (212) 974- 0100). Except for the information referred to above, no information available on or through AGL’s website shall be deemed to be part of or incorporated in this Official Statement.
Any information regarding AGM included herein under the caption “BOND INSURANCE – Assured Guaranty Municipal Corp.” or included in a document incorporated by reference herein (collectively, the “AGM Information”) shall be modified or superseded to the extent that any subsequently included AGM Information (either directly or through incorporation by reference) modifies or supersedes such previously included AGM Information. Any AGM Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded.
Miscellaneous Matters. AGM makes no representation regarding the 2017A Bonds or the advisability of investing in the 2017A Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under this caption “BOND INSURANCE.”
THE AUTHORITY
The Authority is a joint exercise of powers agency organized under the provisions of the Act and the Joint Powers Agreement to provide for the financing and refinancing of capital improvement projects of the District by exercising the powers referred to in the Joint Powers Agreement, and any other transaction authorized by law. The Authority was created on May 21, 2015. Under the Act and the Joint Powers Agreement, the Authority has the power to issue bonds to pay the costs of public capital improvements. The Board of Directors of the Authority consists of the members of the Board of Directors of the District.
THE DISTRICT
Appendix A hereto presents information relating to the District and the Electric System. The Series 2017A Installment Payments are payable solely from Net Electric System Revenues. No revenues of the District’s Water System and Hydroelectric System are pledged to the payment of the Series 2017A Installment Payments and no Net Electric System Revenues are pledged to the payment of obligations of the District’s Water System and Hydroelectric System.
APPROVAL OF LEGAL PROCEEDINGS
The validity of the 2017A Bonds is subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Sacramento, California, acting as Bond Counsel. The form of such legal opinion is
17 attached hereto as Appendix D and such legal opinion will be attached to each 2017A Bond. Bond Counsel expresses no opinion as to the accuracy, completeness or fairness of this Official Statement or other offering materials relating to the 2017A Bonds and expressly disclaims any duty to advise the Owners of the 2017A Bonds as to matters related to this Official Statement.
Certain legal matters will be passed on for the Underwriters by their counsel Gilmore & Bell, P.C., Salt Lake City, Utah (“Underwriters’ Counsel”), for the Authority and the District by Phillip R. McMurray, Esq., General Counsel to the Authority and the District, for the Insurer by its counsel and for the Trustee by its counsel. Payment of the fees of Bond Counsel and Underwriters’ Counsel is contingent upon issuance of the 2017A Bonds.
LITIGATION
The Authority
There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the Authority, threatened against the Authority affecting the existence of the Authority or the titles of its officers to their respective offices or seeking to restrain or to enjoin the sale or delivery of the 2017A Bonds, the application of the proceeds thereof in accordance with the Indenture, or in any way contesting or affecting the action of the Authority contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the Authority or its authority with respect to the 2017A Bonds or any action of the Authority contemplated by any of said documents.
The District
See Appendix A—“INFORMATION RELATING TO MERCED IRRIGATION DISTRICT” under the caption “LITIGATION” for information with respect to litigation affecting the District.
TAX MATTERS
In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2017A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2017A Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the 2017A Bonds may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations.
Bond Counsel’s opinion as to the exclusion from gross income of interest on the 2017A Bonds is based upon certain representations of fact and certifications made by the District and others and is subject to the condition that the District complies with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the issuance of the 2017A Bonds to assure that interest on the 2017A Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the 2017A Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2017A Bonds. The District has covenanted to comply with all such requirements.
18 The difference between the issue price of a 2017A Bond (the first price at which a substantial amount of the 2017A Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to the 2017A Bond (to the extent the redemption price at maturity is greater than the issue price) constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a 2017A Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a 2017A Bond Owner will increase the 2017A Bond Owner’s basis in the applicable 2017A Bond. In the opinion of Bond Counsel, the amount of original issue discount that accrues to the 2017A Bond Owner is excluded from gross income of such 2017A Bond Owner for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax.
The amount by which a 2017A Bond Owner’s original basis for determining loss on sale or exchange in the applicable 2017A Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Code; such amortizable bond premium reduces the 2017A Bond Owner’s basis in the applicable 2017A Bond (and the amount of tax-exempt interest received with respect to the 2017A Bonds), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a 2017A Bond Owner realizing a taxable gain when a 2017A Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2017A Bond to the Owner. Purchasers of the 2017A Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium.
The Internal Revenue Service (the “IRS”) has initiated an expanded program for auditing tax exempt bond issues, including both random and targeted audits. It is possible that the 2017A Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2017A Bonds might be affected as a result of such an audit of the 2017A Bonds (or by an audit of similar municipal obligations). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the 2017A Bonds to the extent that it adversely affects the exclusion from gross income of interest on the 2017A Bonds or their market value.
It is possible that subsequent to the issuance of the 2017A Bonds there might be federal, state, or local statutory changes (or judicial or regulatory interpretations of federal, state, or local law) that affect the federal, state, or local tax treatment of the 2017A Bonds or the market value of the 2017A Bonds. Recently, proposed legislative changes have been introduced in Congress, which, if enacted, could result in additional federal income or state tax being imposed on owners of tax-exempt state or local obligations, such as the 2017A Bonds. The introduction or enactment of any of such changes could adversely affect the market value or liquidity of the 2017A Bonds. No assurance can be given that subsequent to the issuance of the 2017A Bonds such changes (or other changes) will not be introduced or enacted or interpretations will not occur. Before purchasing any of the 2017A Bonds, all potential purchasers should consult their tax advisors regarding possible statutory changes or judicial or regulatory changes or interpretations, and their collateral tax consequences relating to the 2017A Bonds.
Bond Counsel’s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Indenture, the Installment Purchase Agreement and the Tax Certificate relating to the 2017A Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest for federal income tax purposes with respect to any 2017A Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation.
19 Although Bond Counsel has rendered an opinion that interest on the 2017A Bonds is excluded from gross income for federal income tax purposes provided that the District continues to comply with certain requirements of the Code, the ownership of the 2017A Bonds and the accrual or receipt of interest on the 2017A Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the 2017A Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the 2017A Bonds.
A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix D.
CONTINUING DISCLOSURE
The District has covenanted in a Continuing Disclosure Certificate for the benefit of the holders and beneficial owners of the 2017A Bonds to provide certain financial information and operating data relating to the District by not later than the 270 days following the end of the District’s Fiscal Year (currently its Fiscal Year ends on March 31) (the “Annual Report”), commencing with the report for Fiscal Year ending March 31, 2018, to provide notices of the occurrence of certain enumerated events, and to provide notices of the occurrence of certain other enumerated events, if material. The Annual Report and the notices of enumerated events will be filed by the District with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system. The specific nature of the information to be contained in the Annual Report and the notice of material events is set forth in Appendix F—”FORM OF CONTINUING DISCLOSURE CERTIFICATE.” These covenants have been made in order to assist the Underwriters in complying with Section (b)(5) of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934.
Over the past five years, the District has been subject to obligations under various continuing disclosure certificates (the “Prior Continuing Disclosure Undertakings”). Pursuant to the Prior Continuing Disclosure Undertakings, the District agreed to file its audited financial reports, certain operating data with respect to the Water System, the Hydroelectric System and Electric System, as well as notices of certain enumerated events.
The District filed its audited financial statements, Comprehensive Annual Financial Reports (“CAFR”) and updates to required operating data in accordance with the Prior Continuing Disclosure Undertakings in each of the past five years. In certain years, however, the audited financial statements and the CAFRs were not properly linked on EMMA to all applicable District obligations.
On June 6, 2014, the District filed supplements to its continuing disclosure reports for the last five fiscal years with respect certain obligations (since refunded) of the Electric System, the Water System and Hydroelectric System to include the balance in the reserve funds established for such obligations as of December 31 of such fiscal years. On June 12, 2014, the District filed supplemental notices with respect to certain Electric System obligations (since refunded), reflecting the then-current ratings on such obligations. Other than such ratings change notices described in the prior sentence, the District is not aware of any events in the last five years which may have required the filing of significant event notices under the Prior Continuing Disclosure Undertakings that were not filed.
The District believes that it is in compliance in all material respects with the Prior Continuing Disclosure Undertakings.
In order to ensure compliance by the District with its continuing disclosure undertakings in the future, the Board of Directors approved disclosure procedures on August 5, 2014 (the “Disclosure Procedures”). Pursuant to the Disclosure Procedures, the Chief Financial Officer is required to take steps to ensure that continuing disclosure filings are prepared and filed in a timely manner. A copy of the Disclosure Procedures has been provided to the Underwriters and is available from the Chief Financial Officer of the District at 744 West 20th Street, Merced, California Telephone: (209) 722-5761.
20 MUNICIPAL ADVISOR
The District has retained Fieldman, Rolapp & Associates, Inc., Irvine, California, as municipal advisor (the “Municipal Advisor”) in connection with the issuance of the 2017A Bonds. The Municipal Advisor has not undertaken to make an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The fees being paid to the Municipal Advisor are contingent upon the issuance of the 2017A Bonds.
The Municipal Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities.
RATINGS
The District expects that S&P will assign the 2017A Bonds the rating of “AA” (stable outlook) based upon the delivery of the Policy by AGM at the time of issuance of the 2017A Bonds. See the caption “BOND INSURANCE” for a discussion of recent rating actions taken with respect to AGM. S&P will assign the 2017A Bonds the rating of “A” (stable outlook) notwithstanding the delivery of the Policy. There is no assurance that any credit rating given to the 2017A Bonds will be maintained for any period of time or that a rating may not be lowered or withdrawn entirely by S&P, if, in the judgment of S&P, circumstances so warrant. Any downward revision or withdrawal of a rating may have an adverse effect on the market price of the 2017A Bonds. Such ratings reflect only the views of S&P, and an explanation of the significance of such ratings may be obtained from S&P.
In providing a rating on the 2017A Bonds, S&P may have performed independent calculations of coverage ratios using its own internal formulas and methodology which may not reflect the provisions of the Installment Purchase Agreement. The District makes no representations as to any such calculations, and such calculations should not be construed as a representation by the District as to past or future compliance with any bond covenants, the availability of particular revenues for the payment of Debt Service or for any other purpose.
UNDERWRITING
The 2017A Bonds will be purchased by Citigroup Global Markets Inc. (“Citigroup”), as representative of itself and Caldwell Sutter Capital, Inc. (together, the “Underwriters”), pursuant to a Purchase Contract, dated July __, 2017 (the “Purchase Contract”), by and between the District and Citigroup, as representative. Under the Purchase Contract, the Underwriters have agreed to purchase all, but not less than all, of the 2017A Bonds for an aggregate purchase price of $______(representing the principal amount of the 2017A Bonds, less an Underwriters’ discount of $______, plus/less a net original issue premium/discount of $______). The Purchase Contract provides that the Underwriters will purchase all of the 2017A Bonds if any are purchased, the obligation to make such a purchase being subject to certain terms and conditions set forth in the Purchase Contract and the approval of certain legal matters by counsel.
The initial public offering prices stated on the inside front cover of this Official Statement may be changed from time to time by the Underwriters. The Underwriters may offer and sell the 2017A Bonds to certain dealers (including dealers depositing 2017A Bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than said public offering prices.
Citigroup Global Markets Inc. has entered into a retail distribution agreement with each of TMC Bonds L.L.C. (“TMC”) and UBS Financial Services Inc. (“UBSFS”). Under these distribution agreements, Citigroup Global Markets Inc. may distribute municipal securities to retail investors through the financial advisor network of UBSFS and the electronic primary offering platform of TMC. As part of this arrangement, Citigroup Global Markets Inc. may compensate TMC (and TMC may compensate its electronic platform member firms) and UBSFS for their selling efforts with respect to the 2017A Bonds.
21 Citigroup and its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Citigroup and its affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the Authority and the District for which they received or will receive customary fees and expenses. In addition, certain affiliates of Citigroup are lenders, and in some cases agents or managers for the lenders, under credit and liquidity facilities.
In the ordinary course of their various business activities, Citigroup and its respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the Authority and the District.
MISCELLANEOUS
Insofar as any statements made in this Official Statement involve matters of opinion or of estimates, whether or not expressly stated, they are set forth as such and not as representations of fact. No representation is made that any of such statements made will be realized. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the Owners of the 2017A Bonds.
The execution and delivery of this Official Statement have been duly authorized by the Authority.
MERCED IRRIGATION DISTRICT FINANCING AUTHORITY
By: President
22 APPENDIX A
INFORMATION RELATING TO MERCED IRRIGATION DISTRICT
The following information relates to the District and the District’s Electric System. In addition, the description of the District below includes information on operations of the District that are not part of its Electric System. The Series 2017A Installment Payments are payable solely from Electric System Revenues as described in the Official Statement under the caption “SECURITY FOR THE 2017A BONDS— Revenue Pledge Securing the Series 2017A Installment Payments.”
THE DISTRICT
General
The District is a California irrigation district organized in 1919 under the provisions of the Irrigation District Law (codified as Division 11 of the California Water Code). The District has the powers under the Irrigation District Law to, among other things, provide water, electricity and water-related recreation services. In connection therewith, the District has the powers of eminent domain, to contract, to construct works, to fix rates and charges for commodities or services furnished and to incur indebtedness.
The District owns and operates a retail electric system which serves portions of the District. The District is not the sole provider of retail electric service within the District. Currently the District serves approximately 9,000 customers within the District while the Pacific Gas & Electric (“PG&E”), an investor owned utility serves the remaining customers within the electric service area of the District. See the caption “THE ELECTRIC SYSTEM—General.”
The District owns, operates and maintains a Hydroelectric System, consisting of the New Exchequer Dam, which impounds the New Exchequer Reservoir (Lake McClure) and the McSwain Dam, which impounds the McSwain Reservoir (Lake McSwain). New Exchequer Reservoir and the McSwain Reservoir have storage capacities of approximately 1,024,600 acre feet and 9,730 acre-feet, respectively. Both dams, reservoirs and related hydroelectric facilities comprise the Merced River Hydroelectric Project. The Merced River Hydroelectric Project is licensed by the Federal Energy Regulatory Commission (“FERC”).
The District owns, operates and maintains a Water System which delivers water through approximately 720 miles of earthen and concrete-lined canals, and pipelines. The District owns approximately 215 well sites. See the caption “—Water System and Hydroelectric System” below.
The revenues of the Water System and Hydroelectric System are not pledged to the payment of the Series 2017A Installment Payments and the Series 2017A Installment Payments are not payable from revenues of the District’s Water System or Hydroelectric System.
In 1994, the District established a storm water drainage district known as the Merced Irrigation District Drainage Improvement District #1 (the “Drainage District”). The District uses portions of its irrigation distribution system for urban storm drainage by routing natural stream flows and runoff from urban developments, away from populated areas. Drainage fees are assessed annually by the District and are collected through the County of Merced (the “County”) tax rolls but are not included in Electric System Revenues. See the caption “—Drainage District” below.
The District owns, operates and maintains five recreation areas adjacent to Lake McClure and Lake McSwain which consist of the Lake McSwain Recreation Area, located adjacent to Lake McSwain; McClure Point, Barrett Cove, Horseshoe Bend and Bagby Recreation Areas, all located adjacent to Lake McClure (collectively, the Parks and Recreation Facilities”). Revenues generated by the District’s Parks and Recreation Facilities are not included as Electric System Revenues. See the caption “—Parks and Recreation” below.
A-1 Service Area
The District is located in the central portion of the San Joaquin Valley and currently encompasses approximately 160,000 acres.
The District provides surface irrigation water to approximately 100,000 acres in eastern Merced County. At times, the District also provides water to lands within its sphere of influence, which among other areas, includes land within the Merced Groundwater Basin located in the eastern part of the County. In addition, the District provides water to the Stevinson Water District and to Merced National Wildlife Refuge.
The District owns and operates a retail electric system which serves portions of the District. The District is not the sole provider of retail electric service within the District. Currently the District serves approximately 9,000 customers within the District while PG&E, an investor owned utility, serves the remaining customers within the electric service area of the District. See the caption “THE ELECTRIC SYSTEM—General.”
Governance and Management
The District is governed by an elected Board of Directors (the “Board”) composed of five persons serving staggered four year terms. The current directors and their terms are set forth below:
Director Expiration of Term Occupation Dave Long, President December 2019 Businessman Scott Koehn, Vice President December 2017 Businessman Kevin Gonzalves, Director December 2017 Farmer Jeff Marchini, Director December 2019 Farmer Billy Pimental, Director December 2017 Farmer
The management of the District is under the direction of its General Manager. The District is organized functionally into ten departments. The six operating departments are: Irrigation Operations, Facilities Maintenance, Energy Resources, Hydroelectric Project, Parks and Recreation, and Storm Drainage. The four support departments are: Finance, Administrative Services, Engineering and Planning. The operating departments also manage a storm drainage district, a ground water management program, and flood control on the Merced River. The following is the background of the District’s management staff involved in water resources, retail electric services and hydroelectric generation activities.
General Manager – John Sweigard: Mr. Sweigard joined the District in 2010 as its General Manager. Prior to joining the District, Mr. Sweigard served almost 13 years as the General Manager of Patterson Irrigation District. Mr. Sweigard is an active member of the United States Committee on Irrigation and Drainage and was elected by his irrigation profession peers to their Board of Directors in 2011. Additionally, he was a longtime board member of the San Luis & Delta Mendota Water Authority (“SLDMWA”) and served on the SLDMWA Finance and Administration Committee and Operations and Maintenance Committee. Mr. Sweigard received his Bachelor of Science in Agricultural Engineering from California Polytechnic State University, San Luis Obispo.
Deputy General Manager, Water Supply/Rights – Hicham Eltal: Mr. Eltal serves as the Deputy General Manager, Water Supply/Rights and has over 26 years of experience in civil engineering work, including 22 years as a professional engineer in the California. Mr. Eltal is responsible for the compliance and protection of the District’s various water rights, including administering water resource-related activities involving water rights, supply, quality, marketing and resource development. Mr. Eltal is a Chairman of the Merced Area Groundwater Pool Interests (“MAGPI”), a member of the groundwater committee of the Association of California Water Agencies, and represents the District with respect to the Merced Integrated Regional Water Management Plan and various state and national committees for issues related to water supply
A-2 and water rights. Mr. Eltal is a member of the American Society of Civil Engineers. Mr. Eltal received a Bachelor of Science in Civil Engineering from California State University, Fullerton and is licensed as a professional civil engineer in California.
Deputy General Manager, Water Resources – Bryan Kelly: Mr. Kelly joined the District in August 2004 as a senior engineer with the Water Resources Department. Mr. Kelly is responsible for overseeing all of water resources engineering, construction, maintenance, operations and planning. In addition, Mr. Kelly is responsible for overseeing the District’s water resources related regulatory compliance. Mr. Kelly has more than 18 years of experience in planning, engineering, operations and management of irrigation and municipal infrastructure systems. Prior to joining the District, Mr. Kelly worked for ten years at a national environmental engineering firm where he served as a water resource project manager, lead engineer, staff manager and marketing lead. Mr. Kelly obtained his Bachelor of Science in Civil Engineering from the University of New Orleans.
Deputy General Manager, Energy Resources – Don Ouchley: Mr. Ouchley joined the District in September 2011 as the Manager of Engineering and Operations for Energy Resources. Mr. Ouchley provides oversight for the general planning, direction, supervision of engineering, construction, operation and maintenance related to the Energy Resources Department, which includes the New Exchequer Dam and hydroelectric facilities. Mr. Ouchley has more than 46 years of experience in the public utility industry. Prior to joining the District, he served as a director with Beaches Energy Services, a municipal electric and gas utility in Jacksonville Beach, Florida, and as General Manager of Piedmont Municipal Power Agency in Greer, South Carolina. Mr. Ouchley has a Master’s Degree in Business Administration from City University, Seattle, Washington, and a Bachelor of Science in Electrical Engineering from Louisiana Tech University.
Chief Financial Officer – Brian Stubbert: Mr. Stubbert joined the District as Chief Financial Officer in March 2011. Mr. Stubbert is responsible for planning and directing the District’s financial activities, including budgeting, payroll, customer service and billing as well as developing and improving cost controls. He has over 20 years of experience in accounting, budgeting and auditing. Prior to joining the District, Mr. Stubbert served as Vice President of Accounting and Administration at Patterson Vegetable Co. Mr. Stubbert graduated from California State University, Stanislaus and is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.
Director of Administrative Services - Victor Moreno: Mr. Moreno joined the District as its Director of Administrative Services in January 2017. He is responsible for planning, directing and coordinating all of the District’s human resource, information technology and risk management activities, as well as implementing the goals, objectives, policies and procedures of the District’s Administrative Services Department. Mr. Moreno has an extensive background in investigations, risk management, safety and human resources, with over two decades of experience as a labor relations manager and as a corporate safety manager. Mr. Moreno obtained his Bachelor’s Degree in Business Administration from California State University, Stanislaus, a Master’s Degree in Business Administration from Saint Mary's College of California and a Workplace Health and Safety Manager Certificate from the University of California, Davis. Mr. Moreno also maintains a certificate from the Human Resources Certification Institute as a Senior Professional in Human Resources.
General Counsel – Phillip R. McMurray: Prior to joining the District, Mr. McMurray served as an associate with Linneman, Burgess, Telles, Van Atta, Vierra, Rathmann, Whitehurst & Keene, with primary offices located in Los Banos and Dos Palos, California. Mr. McMurray has been General Counsel to the District since July 2011. Mr. McMurray received his Bachelor of Science in Agriculture Business and Plant Science from California State University, Fresno and his law degree from Lincoln Law School in Sacramento.
A-3 Budget Process
In approximately January of each year, District staff provides the Finance and Administration Committee with a draft budget including estimates of revenues and expenditures for operations for the upcoming Fiscal Year and holds two public meetings during which the draft budget is reviewed and adjustments are recommended. The Board typically holds meetings in February to review and consider a draft budget including estimates of revenues and expenditures for operations for the upcoming Fiscal Year and makes such revisions as it deems desirable. The Board typically adopts a final budget by the end of March or the beginning of April each year. The Board adopted its budget for Fiscal Year 2018 on February 10, 2017. The District’s Electric System rates are not subject to the requirements under Article XIIID of the California Constitution. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.”
Prior to Fiscal Year 2013, the District’s fiscal years began on January 1 and ended on December 31 of each year. On September 4, 2012, the District modified its fiscal year to begin on April 1 and end on March 31 of each year. All references herein to Fiscal Year 2013 under the captions “THE DISTRICT,” “THE ELECTRIC SYSTEM,” “FINANCIAL RESULTS OF THE ELECTRIC SYSTEM AND ELECTRIC SYSTEM FINANCIAL AND OPERATING INFORMATION” refer to the 15 month period ended March 31, 2013. All reference therein to Fiscal Years subsequent to Fiscal Year 2013 refers to the twelve month periods ending March 31 of the applicable year.
Employees and Employee Benefits
General. The District current roster shows employment of approximately 167 fulltime employees, of whom 26 work in Irrigation Operations, 41 work in Facilities/Fleet Maintenance, 15 work in Energy Resources, 7 work in Hydroelectric Project, 19 work in Parks and Recreation, 21 work in Finance and Customer Service, 12 work in Administration, and 26 work in Engineering and Planning.
The Field Operations employees are represented by the International Brotherhood of Electrical Workers, Local 1245 (“IBEW”). No other District employees are represented by a labor union. The District has not experienced any strike or other labor actions. The District’s current contract with the IBEW expires March 31, 2021.
Pension. The District contributes to the California Public Employees Retirement System (“CalPERS”), an agent multiple-employer defined benefit pension plan (the “Pension Plan”) which acts as a common investment and administrative agent for its participating member employers. CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law.
On September 12, 2012, the Governor of the State signed Assembly Bill 340 (“AB 340”), which implements pension reform in the State. Effective January 1, 2013, AB 340 provides in part as follows: (i) requires public retirement systems and their participating employers to share equally with employees by January 1, 2018 the normal cost rate (as described below) for such retirement systems; (ii) prohibits employers from paying employer-paid member contributions to such retirement systems for employees hired after January 1, 2013; (iii) establishes a compulsory maximum non safety benefit formula of 2.5% at age 67; and (iv) defines final compensation as the highest average annual pensionable compensation earned during a 36 month period. The Board adopted a resolution creating a separate tier of CalPERS pension benefits for
A-4 employees hired after January 1, 2013 to comply with AB 340’s compulsory reduced formula. Benefit provisions and all other requirements are established by State statute and the Board.
The Pension Plan’s provisions and benefits in effect at June 30, 2017, are summarized as follows:
Hired Prior to Hired on or After Hire Date January 1, 2013 January 1, 2013 Benefit formula 2.0% @ 60 2% @ 62 Benefit vesting schedule 5 years’ service 5 years’ service Benefit payments Monthly for life Monthly for life Minimum Retirement age 50 52 Monthly benefits, as a % of eligible compensation(1) 2.0% 2.0% Required employee contribution rates 7.0% 7.0% Required employer contribution rates(2) 15.837% 15.837%
Employees Covered. At March 31, 2017, the following number of employees were covered by the benefit terms of the Pension Plan:
Inactive employees or beneficiaries currently receiving benefits 192 Inactive employees entitled to but not yet receiving benefits 21 Active employees 162
Contributions. Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by an actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CalPERS’ annual actuarial valuation process. The rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the determined rate and the contribution rate of the employees. Employer contribution rates may change if plan contracts are amended.
The table below provides a recent history of the required employer contributions for the Pension Plan, as determined by the annual actuarial valuation, as well as the required employer contributions for Fiscal Year 2018. The information below does not account for prepayments or benefit changes made during a fiscal year.
Fiscal Year Employer Normal Cost Unfunded Rate Total 2012-13 5.744% 6.667% 12.411% 2013-14 6.250 6.926 13.176 2014-15 6.692 7.959 14.651 2015-16 6.647 9.190 15.837 2016-17 7.029 9.972 17.001 2017-18(1) 6.897 N/A N/A
(1) Beginning with Fiscal Year 2018, CalPERS will collect employer contributions toward the unfunded accrued liability as dollar amounts instead of a contribution rate. The District’s estimated employer contribution for its unfunded liability in Fiscal Year 2017-18 is estimated to be $1,406,203.
Net Pension Liability. The District’s net pension liability for the Pension Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. The available net pension liability of the Pension Plan was most recently measured as of June 30, 2015, using an annual actuarial valuation as of June 30, 2014 rolled forward to June 30, 2015 using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below.
A-5 Valuation date June 30, 2015 Measurement date June 30, 2016 Actuarial cost method Entry-age normal cost method Discount rate 7.65%(1) Inflation 2.75% Payroll Growth 3.00% Projected Salary Increase Varies by entry age and service Investment rate of return(2) 7.65% Mortality rate table(3) Derived using CalPERS’ membership data for all funds
(1) The discount rate, net of pension plan investment expenses (including inflation), is 7.5%. (2) Net of pension plan investment expenses, including inflation. In December 2016, CalPERS’ board voted to reduce the assumed investment rate of return to 7% by 2020. See the caption “— Discount Rate” below. (3) The mortality rate table was developed based on CalPERS’ specific data. The table includes 20 years of mortality improvements using Society of Actuarial Scale BB.
Discount Rate
General. CalPERS reviews all actuarial assumptions as part of its regular Asset Liability Management (ALM) review cycle. In December 2016, CalPERS’ board approved reductions in the assumed investment rate of return (also referred to as the discount rate) in accordance with the following schedule: 7.375% in fiscal year 2017-18, 7.25% in fiscal year 2018-19 and 7.00% in fiscal year 2019-20. Such reductions in the discount rate are expected to increase the District’s required employer contributions as well as the District’s unfunded accrued pension liability. See the caption “— Sensitivity of the Net Pension Liability to Changes in the Discount Rate” for the estimated effect of changes in the discount rate to the District’s net pension liability. The District does not expect such reductions in CalPERS’ assumed discount rate and increases in its required payments to CalPERS’ which may result therefrom to have a material adverse impact on its ability to pay the Series 2017A Installment Payments. CalPERS may adjust the discount rate in the future, which adjustments will require action by CalPERS’ board and proper stakeholder outreach.
On November 18, 2015, the CalPERS Board adopted a Funding Risk Mitigation Policy (the “Mitigation Policy”) that seeks to reduce funding risk over time. The Mitigation Policy establishes a mechanism whereby CalPERS investment performance that significantly outperforms the discount rate triggers adjustments to the discount rate, expected investment return, and strategic asset allocation targets. Reducing the volatility of investment returns is expected to increase the long-term sustainability of CalPERS pension benefits for members. In February 2017, the CalPERS Board revised the Mitigation Policy. The revisions include suspension of the policy until fiscal year 2020-21, and a decrease of the required first excess investment return threshold from 4 to 2 percent.
Changes in the Net Pension Liability. The following table shows the changes in net pension liability recognized over the measurement period.
A-6 Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Liability (a) Net Position (b) (c) = (a) – (b) Balance at June 30, 2015(1) $ 69,277,387 $ 49,733,463 $ 19,543,924 Changes Recognized for the Measurement Period: Service Cost 1,445,525 -- 1,445,525 Interest on Total Pension Liability 5,238,549 -- 5,238,549 Changes of Benefit Terms 183,194 -- 183,194 Changes in Assumptions ------Differences between Expected and Actual Experience 159,334 -- 159,334 Contribution from Employer -- 1,699,603 (1,699,603) Contribution from Employees -- 751,609 (751,609) Net Investment Income -- 244,953 (244,953) Benefit Payments, including Refunds of Employee Contribution (3,729,791) (3,729,791) -- Administrative Expense -- (30,310) 30,310 Net Changes During 2015-16 3,296,811 (1,063,936) 4,630,747 Balance at June 30, 2016(1) $ 72,574,198 $ 48,669,527 $ 23,904,671
(1) The fiduciary net position includes receivables for employee service buybacks, deficiency reserves, fiduciary self-insurance and OPEB expense.
Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the District, calculated using the current discount rate, as well as what the District’s net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate:
Current Discount Rate Current Discount Rate Current Discount Rate + – 1% 6.65% 7.65% 1% 8.65% Plan Net Pension Liability/(Assets) $33,889,036 $23,904,671 $15,719,336
Funding History. The Pension Plan’s market value and funding progress over the most recently available five years is set forth below at the actuarial valuation date of June 30. As further discussed below, the District’s Pension Plan is included within a pooled pension plan.
Annual Valuation Entry Age Accrued Market Value of Unfunded Accrued Covered Date Liability Assets(1) Liability Funded Ratio Payroll 6/30/2011 $56,533,121 $40,619,193 $15,913,928 71.90% $10,284,848 6/30/2012 58,262,912 39,666,695 18,596,217 68.10 9,869,599 6/30/2013 61,284,108 43,535,691 17,748,417 71.00 9,922,950 6/30/2014 67,609,001 49,811,025 17,797,976 73.07 10,555,622 6/30/2015 70,935,830 49,665,726 21,270,104 70.00 10,504,655 ______(1) As a result of recent pension reform adopted by CalPERS on April 17, 2013 and made effective as of June 30, 2013, CalPERS no longer uses an actuarial value of assets and instead uses a market value of assets. While this results in a change to the funded ratio, this does not reflect any change in payments made.
Pension Expenses and Deferred Outflow/Inflow of Resources. The District has deferred outflows and deferred inflows of resrouces related to pensions, as listed below. Included in the list below are subsequent contributions that were made between the measurement date of June 30, 2016 and the District’s fiscal year ended March 31, 2017.
A-7 Deferred Outflow of Deferred Inflow of Resources Resources Change of assumptions $ -- $ (578,173) Differences between actual and expected experience 396,047 -- Pension contribution subsequent to measurement date 1,963,127 -- Net differences between projected and actual earnings on plan investments 3,465,140 (1,074,680) Total $ 5,824,314 $(1,652,853)
The District has deferred outflows and deferred inflows of resources related to its Pension Plan as listed below.
Measurement Period Deferred Outflows/(Inflows) (June 30 of Resources 2017 $ 69,955 2018 279,819 2019 1,139,563 2020 718,997 Total $ 2,208,334
Pension Plan Fiduciary Net Position. Detailed information about the District’s pension plan fiduciary net position is available in the separately issued CalPERS financial reports.
Further information with respect to the Pension Plan is set forth in Note 9 and the Supplementary Information to the District’s audited financial statements for the Fiscal Year ended March 31, 2017, attached to the Official Statement as Appendix A-1.
Other Post-Employment Employee Benefits. The District administers a single employer defined benefit other post-employment healthcare (“OPEB”) plan to provide healthcare coverage to eligible retired employees and their eligible dependents. The District maintains the same medical plans for its retirees as for its active employees. Benefits are paid until the retiree, spouse or surviving spouse becomes eligible for Medicare. Employees become eligible to retire and receive healthcare benefits upon reaching age 60 with five years of service to the District.
With respect to its OPEB plan, since March 1, 2014, the District has been participating in the CalPERS California Employer’s Retiree Benefit Trust Program (“CERBT”), a prefunding plan trust fund. Employers who participate in CERBT own units of the fund’s portfolio which is invested in accordance with the approved strategic asset allocation; they do not have direct ownership of the securities in the portfolio. The CERBT is a self-funded program, in which the participating employers pay the program costs.
The following table provides a summary of the District’s fair value of assets on deposit with CERBT for Fiscal Year 2017:
Fiscal Year 2017 Fair Value – beginning of year $ 584,686 Contributions 71,085 Gain (loss) on investments 61,479 Administrative Expenses (436) Fair Value – end of year $ 716,814
A-8 The Governmental Accounting Standards Board’s Statement No. 45 (“GASB 45”) requires governmental agencies that fund post-employment benefits on a pay-as-you go basis, such as the District, to account for and report the outstanding obligations and commitments related to such post-employment benefits in essentially the same manner as for pensions. For the Fiscal Year ended March 31, 2017, the District contributed $158,070 to the plan, which represents 47% of the cost for such Fiscal Year. While requiring the District to disclose the unfunded actuarial accrued liability and the ARC in its financial statements, GASB 45 does not require the District to amortize the ARC.
The following table shows the components of the District’s annual OPEB cost for Fiscal Year 2017, the amount actually contributed to the plan, and changes in the District’s net OPEB obligation to the plan.
Fiscal Year 2017 Annual required contribution $ 350,055 Interest on net OPEB obligation 102,111 Adjustment to annual required contribution (117,554) Annual OPEB cost (expense) $ 334,612 Funded Contribution (71,085) Contributions made (158,070) Increase (decrease) in Net OPEB obligations $ 105,457 Net OPEB obligation, beginning of year $ 1,458,735 Net OPEB obligation, end of year $ 1,564,192
The following table shows the annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the fiscal years noted.
Percentage of Annual Fiscal Year Ended Annual OPEB Cost OPEB Cost Contributed Net OPEB Obligation 03/31/2015 $397,145 152.76% $1,516,407 03/31/2016 334,001 117.27 1,458,735 03/31/2017 334,612 68.48 1,564,192
As of July 1, 2015, the latest valuation date, the actuarial accrued liability for the OPEB plan was $4,879,243. In the July 1, 2015 valuation, the projected unit credit actuarial method was used. The assumptions included a 7% investment rate of return (net of administrative expenses), which is based on the District’s own investments, and a constant 3% general inflation rate increase. The annual healthcare cost trend rates are as follows: for medical premiums, 7% initially, reduced by 1% decrements to an ultimate rate of 5% after four years and 4% every year for dental and vision premiums. The unfunded accrued actuarial liability is being amortized as a level dollar on an open basis. The remaining amortization period at July 1, 2015 was 30 years.
For Fiscal Year 2018, the District has budgeted $265,820 with respect to post-employment benefits, which is equal to the expected amount of the ARC for Fiscal Year 2017. The District currently does not expect that any increased funding of post-employment benefits in the future will have a material adverse effect on the ability of the District to pay the Series 2017A Installment Payments.
Further information with respect to the District’s post-employment benefits funding status is set forth in Note 10 and the Supplementary Information to the District’s audited financial statements for Fiscal Year 2017 attached to the Official Statement as Appendix A-1.
Risk Management
The District participates in the Association of California Water Agencies Joint Powers Insurance Authority (the “JPIA”), an intergovernmental risk sharing joint powers authority created to provide
A-9 self-insurance programs for California water agencies. The JPIA arranges and administers programs of insurance for the pooling of self-insured losses, and purchases excess insurance coverage for its members. The JPIA began operations on October 1, 1979 and has continued without interruption since that time.
As of March 31, 2017, the Agency limits and deductibles for liability, property, and workers compensation programs of the JPIA are as follows:
General and auto liability, public officials and employees’ errors and omissions: The JPIA total pooled self-insurance limits is $5,000,000, per occurrence. The JPIA purchased additional excess coverage layers of $58,000,000 for general, auto and public officials liability, which increases the limits on the insurance coverage noted above.
Property losses are paid at the replacement cost for buildings, fixed equipment and personal property on file, if replaced within two years after the loss, otherwise such losses are paid on an actual cash value basis, subject to a $10,000 deductible per loss, actual cash value for mobile equipment, subject to a $5,000 deductible per loss, and licensed vehicles, subject to a $5,000 deductible per loss. Accidental machinery breakdown coverage is provided and is subject to variable deductibles. The JPIA purchased excess coverage for a combined total of $150,000,000 per occurrence.
Dam failure liability of up to $5,000,000. The deductible per loss is $250,000.
Workers compensation insurance up to State statutory limits for all work related injuries/illnesses covered by State law. The JPIA has a pooled layer of up to $2,000,000 and excess coverage has been purchased.
Settled claims have not exceeded commercial insurance coverage in any of the past three Fiscal Years.
Other Outstanding Obligations
Outstanding Electric System Bonds. In 2012, the District issued its 2012 Electric System Revenue Bonds (the “2012 Electric System Bonds”) to Rabobank, N.A. to secure the District’s obligations under a Payment Agreement, dated July 1, 2012 (which Payment Agreement was amended and restated by an Amended and Restated Payment Agreement, dated as of May 1, 2015 by and between the District and Rabobank, N.A.). The 2012 Electric System Bonds are payable from Net Electric System Revenues on a parity with the Series 2017A Installment Payments. As of March 31, 2017, the 2012 Electric System Bonds were outstanding in the aggregate principal amount of $10,170,000. The District expects to prepay, from District reserves, the 2012 Electric System Bonds on or before the date of delivery of the 2017A Bonds. The table under the caption “ELECTRIC SYSTEM FINANCIAL AND OPERATING INFORMATION— Projected Electric System Operating Results and Debt Service Coverage” reflects such prepayment of the 2012 Electric System Bonds.
In June 2015, the District issued its Electric System Refunding Revenue Bonds, Series 2015A in the aggregate principal amount of $59,010,000 (the “2015A Electric System Bonds” and together with the 2012 Electric System Bonds, the “Outstanding Electric System Bonds”), which are currently outstanding in the aggregate principal amount of $55,170,000. The 2015A Electric System Bonds are secured by an Indenture of Trust dated as of May 1, 2015, by and between the District and The Bank of New York Mellon Trust Company, N.A., as trustee. The 2015A Electric System Bonds are payable from Net Electric System Revenues on a parity with the Series 2017A Installment Payments. A portion of the proceeds of the 2015A Electric System Bonds were used to refund the District’s outstanding 2005 Electric System Refunding Revenue Bonds (the “2005 Bonds”), 2005 Revenue Certificates of Participation (2005 Electric System Project) (“2005 Certificates”) (which 2005 Certificates were secured by payments made under an Installment Purchase
A-10 Contract, dated as of October 1, 2005 (the “2005 Installment Purchase Contract”)) and Electric System 2013 Revenue Refunding Bonds (the “2013 Bonds”).
The District may incur additional obligations payable from Net Electric System Revenues on a parity with the Series 2017A Installment Payments and the Outstanding Electric System Bonds, subject to the terms and conditions described in the Official Statement under the caption “SECURITY FOR THE 2017A BONDS— Limitations on District Parity and Superior Obligations; Subordinate Obligations” and in this Appendix A under the caption “THE DISTRICT—Future Electric System Improvements.” The District may incur obligations payable from Net Electric System Revenues subordinate to the Series 2017A Installment Payments and the Outstanding Electric System Bonds without compliance with such terms and conditions.
Water System and Hydroelectric System Obligations. In 2014, the District issued its $31,410,000 aggregate principal amount of Water and Hydroelectric Refunding Revenue Bonds, Series 2014A and the Water and Hydroelectric Refunding Revenue Bonds, Series 2014B (Taxable) (collectively, the “Water and Hydroelectric System Obligations”). The Water and Hydroelectric System Obligations are payable solely from revenues of the District’s Water System and Hydroelectric System which generally include all revenues derived from charges for the delivery of water service and the from the sale of hydroelectric power generation. Revenues of the District’s Water System and Hydroelectric System are not pledged to and are not available to pay the Series 2017A Installment Payments.
Bank Credit Facility. The District entered into an unsecured line of credit with Wells Fargo Bank, National Association in a not-to-exceed amount of $25,000,000 to finance the District’s operating and capital expenditures (the “Line of Credit”). Principal of and interest on the Line of Credit is an unsecured obligation of the District payable from all legally available funds and revenues of the District, including Net Electric System Revenues available after payment of the Series 2017A Installment Payments and the Outstanding Electric System Bonds.
While the Line of Credit is an unsecured obligation of the District, under certain circumstances, including, but not limited to the downgrade of certain obligations of the Water System, the Hydroelectric System or the Electric System by one or more rating agencies or the scheduled termination of the Line of Credit, amounts due under the Line of Credit may become immediately due and payable.
As of March 31, 2017, the District had approximately $4,310,000 outstanding under the Line of Credit, none of which was applied to operating or capital expenses of the Electric System. The Line of Credit is currently scheduled to terminate on August 17, 2017. The District Board of Directors approved a three-year extension of the Line of Credit on July 18, 2017. The District expects the extension of the Line of Credit to occur on August 14, 2017. The District can make no assurances that the Line of Credit will be extended.
Water System and Hydroelectric System
Water System. The District owns and operates its Water System which consists of approximately 720 miles of water conveyance facilities, which include lined or piped and portions of natural streams, creeks, sloughs or drains that convey irrigation water during the irrigation season and storm flows during the off- season. The District’s Water System also includes 215 groundwater wells. The Merced River is the main source of the District’s surface water supply from which direct flows and stored water impounded in Lake McClure by the New Exchequer Dam are diverted by the District. The District holds pre-1914 water rights on the Merced River, local reservoirs and creeks and appropriative water rights on the Merced River issued by the State Water Resources Control Board for the direct diversion and storage of Merced River water. The District also owns small reservoirs controlled by a Supervisory Control and Data Acquisition network that are used for regulating flows and balancing the supplies and demands of the District’s Water System. The District uses its facilities to deliver water to customers within its service area. Revenues of the District’s Water System are not available to pay the Series 2017A Installment Payments and operations and maintenance costs of the Water System do not constitute Operations and Maintenance Costs of the Electric System.
A-11 Hydroelectric System. The District owns and operates its Hydroelectric System which currently consists of the New Exchequer Dam, which impounds the New Exchequer Reservoir (Lake McClure) and McSwain Dam, which impounds the McSwain Reservoir (Lake McSwain) and related hydroelectric facilities. Both dams, reservoirs and related hydroelectric facilities were completed in 1967 and comprise the Merced River Hydroelectric Project. The District is currently operating the Merced River Hydroelectric Project under a one year license from FERC, pending the issuance of a long term license. While the current FERC schedule suggests a long term license could be issued in 2015, the District cannot predict the actual date which a long term license may be received. Until the long term license is issued, the District expects to continue receiving annual licenses permitting the continued operations of the Hydroelectric System. Revenues of the District’s Hydroelectric System are not available to pay the Series 2017A Installment Payments and operations and maintenance costs of the Hydroelectric System do not constitute Operations and Maintenance Costs of the Electric System.
Drainage District
In 1994, the District formed the Merced Irrigation District, Drainage Improvement District #1 and began using portions of its irrigation distribution system for urban storm drainage. As of March 31, 2017, the District provided drainage service to approximately 15,205 parcels in certain cities and communities in the County. Drainage fees are assessed annually by the District and are collected through the County tax rolls. Drainage fees collected do not constitute Electric System Revenues pledged to the payment of the Series 2017A Installment Payments and operations and maintenance costs of the Drainage District do not constitute Operations and Maintenance Costs of the Electric System.
Parks and Recreation
The District owns, operates and maintains five recreation areas adjacent to Lake McClure and Lake McSwain which consist of the Lake McSwain Recreation Area, located adjacent to Lake McSwain; McClure Point, Barrett Cove, Horseshoe Bend and Bagby Recreation Areas, all located adjacent to Lake McClure (collectively, the “Parks and Recreation Facilities”).
Fees and charges collected by the District relating to the Parks and Recreation Facilities do not constitute Electric System Revenues pledged to the payment of the Series 2017A Installment Payments, and operations and maintenance costs of the Parks and Recreation Facilities do not constitute Operations and Maintenance Costs of the Electric System.
THE ELECTRIC SYSTEM
General
The District has the right to “provide for the acquisition, operation, leasing, and control of plants for the generation, transmission, distribution, sale and lease of electric power, including sale to municipalities, public utility districts, or persons” (California Water Code, Section 22115).
PG&E, an investor owned utility, historically was the sole provider of electric service in the District. In 1996, the District signed an interconnection agreement with Turlock Irrigation District (“TID”) to purchase power wholesale, which the District then sells to its customers on a retail basis. The District constructed the Merced-Turlock 115 kV Intertie (the “Intertie”) to provide an interconnection to TID’s system. On May 11, 1996, the District completed the Intertie along with the Pioneer Substation in Livingston and began delivering 10 megawatts (“MW”) of power to a customers within the District.
In April 1999, the District completed construction of a transmission loop line linking the cities of Livingston, Atwater, and Merced, as well as the Castle Airport. The Castle Airport is located adjacent to Atwater and is the site of the former Castle Air Force Base. The District has also built distribution main feeder
A-12 systems and substations (the Castle Airport has an existing distribution system owned and operated by the District). The District is the sole electric service provider for the Castle Airport. The District has constructed approximately 452 miles of distribution lines within its service area, approximately 85% of which are underground. The District has also constructed approximately 35 miles of 115kV overhead transmission lines.
The District serves commercial, industrial, agricultural and residential customers located in the cities and surrounding areas of Merced, Livingston, and Atwater. The District has based its five-year projections for the operations and finances of the Electric System upon current customers, customers under contract and customers deemed probable based upon recent marketing experience. See “—The District’s Customer Base” below.
The District currently provides retail electric service to approximately 9,000 customers within the electric service area of the District. Current customer information for the number of customers served by PG&E in the District electric service area is unavailable. Information published by the County in 2013 suggests that as of 2006 PG&E served approximately 68,300 residential and approximately 8,154 commercial and industrial customers within the County as a whole. The District believes most of these PG&E customers are located outside of the District electric service area and some of these customers are located outside of the boundaries of the District. The District reports that since the creation of the District Electric System, approximately 777 commercial and industrial customers have switched from PG&E to the District Electric System. During that same period the District reports that only one commercial and industrial customer has switched from the District Electric System to PG&E.
The District currently has constructed Electric System facilities within new residential developments to serve approximately 3,000 units of new residential housing. Because of the recession in the last decade as well as the slow economic recovery, growth in residential development within the District has been slower than originally anticipated. The actual rate of growth in residential customers will depend in part on the pace of economic growth within the County, new home construction activity and the sale of such new homes to residents once constructed.
The District has generated electricity through its Exchequer hydroelectric facilities since 1927 and through its McSwain hydroelectric facilities since 1967. The revenues from the District’s Hydroelectric System and Water System are not available to pay the Series 2017A Installment Payments.
Description of the Electric System
Major Electric System facilities are described below.
Transmission Line Loop. In April 1999, the District completed an approximately 35 mile 115 kilovolt (“kV”) transmission line loop that connects Pioneer Substation in Livingston to Castle Airport in Atwater, then to Merced. This transmission line provides back-up capability to all District customers, thus reducing the risk of a prolonged outage.
Substations. Connected to the transmission loop are three substations which step down voltage from 115 kV to 12 and 21 kV for local distribution. In the future, additional transmission, distribution and substation facilities may be built in the Merced area to accommodate future system growth.
Distribution Lines. The District has approximately 452 miles of distribution lines to deliver power to its customers. Most of the District’s distribution facilities and essentially all of the District’s distribution facilities within the cities of Livingston, Atwater and Merced are located underground. Underground construction results in increased capital requirements but will provide lower system maintenance costs, and improved reliability over the long term.
A-13 Power Supply
Sources of Supply. While the District owns certain hydroelectric facilities described under the caption “THE DISTRICT—Water System and Hydroelectric System,” electricity generated from such hydroelectric facilities are not supplied to customers of the Electric System. The electricity supplied to customers of the Electric System is obtained from the following power supply contracts:
(1) an all-requirements power contract with Turlock Irrigation District;
(2) a contract with the Western Area Power Administration (“WAPA”); and
(3) a contract for Renewable Energy Credits (RECs) only, with Avangrid Renewables, Inc. (formerly Iberdrola Renewables, Inc.) (“Avangrid”).
Because of the contract with TID, the District has not historically engaged in open market purchases.
Use of Supply. For the Fiscal Year ended March 31, 2017, the total number of meters in the Electric System was approximately 9,000. For the Fiscal Year ended March 31, 2017, the overall average net cost of purchased power was approximately $0.05544 cents per kilowatt-hour (“kWh”) inclusive of transmission costs.
The various power supply resources available to the Electric System during the Fiscal Year ended March 31, 2017 are described below. During the Fiscal Year ended March 31, 2017, the District purchased a total of 498,123 megawatt hours (“MWh”) of electricity for delivery to customers of the Electric System. The following table sets forth the amounts in MWh and percentages of electricity obtained by the District for customers of the Electric System during the Fiscal Year ended March 31, 2017.
ANNUAL ELECTRICITY SUPPLY(1) Fiscal Year Ended March 31, 2017
Resource Cost/kWh(2) MWh Percentage TID $0.05 487,138 98% WAPA 0.03 10,985 2 Total 100%
(1) Excludes energy purchased from Avangrid, which is immediately resold to Avangrid, and is therefore not a source of supply for the Electric System. See the caption “THE ELECTRIC SYSTEM—Power Purchase Contracts— Avangrid Purchase Agreement.” (2) Includes transmission costs. Source: District
The peak demand for the Electric System for the fiscal year ended March 31, 2017 was 95.6 MW. The historic Electric System peak demand of 97.6 MW was set on August 19, 2013. The following table sets forth the total purchases of power (MWh) and the peak demand (MW) during the last five Fiscal Years for District customers.
A-14 TOTAL ENERGY PURCHASED AND PEAK DEMAND(1)
2013(2) 2014 2015 2016 2017 TID (MWh) 557,184 464,816 484,469 484,581 487,138 WAPA (MWh) 12,843 10,985 10,985 10,985 10,985
System Native Load (MWh) 539,074 449,965 468,552 468,497 471,978 System Peak Demand (MW) 96.0 97.6 101.5 99.2 95.6
(1) Excludes energy purchased from Avangrid, which is immediately resold to Avangrid, and is therefore not a source of supply for the Electric System. See the caption “THE ELECTRIC SYSTEM—Power Purchase Contracts— Avangrid Purchase Agreement.”’ (2) Fifteen month period ended March 31, 2013. Source: District
Power Purchase Contracts
Purchases Made Under Contract with TID. While the District has had various agreements with TID since 1996, the District entered into its current all-requirements contract (with the exception of the power supplied by WAPA) with TID in May 2017. The term of this contract is through April 30, 2028 (the “TID Purchase Contract”).
The District’s purchases of power from TID under the TID Purchase Contract for the Fiscal Year ended March 31, 2017 totaled $23,792,949.
Purchases Made Under Contract With Western Area Power Administration. The District and WAPA have entered into an agreement (the “WAPA Purchase Contract”) that makes available to the District 0.52138% of WAPA’s base resource, which is power available after project requirements. As part of the U.S. Department of Energy, WAPA markets wholesale electrical power from hydroelectric facilities associated with the Central Valley Project and the Washoe Project. Transmission for the WAPA Purchase Contract is provided to the District by TID. The WAPA Purchase Contract will expire on December 31, 2024, unless extended. Under the terms of the existing WAPA Purchase Contract, the District received 21,252 MWh of electricity during the fiscal year ended March 31, 2017. The District’s composite cost of power under the WAPA Purchase Contract was $27.35 per MWh during the fiscal year ended March 31, 2017.
Renewable Resource Plan. California's Renewable Portfolio Standard (“RPS”) was established in Senate Bill (“SB”) 1078, enacted in 2002. The RPS was accelerated in 2006 by SB 107. In 2008, Governor Schwarzenegger signed Executive Order S-14-08 requiring that all retail sellers of electricity serve 33% of their load with renewable energy by 2020. Executive Order S-21-09, signed in 2009, directed the California Air Resources Board to enact regulations to achieve this goal by 2020. Under these laws and orders, publicly owned utilities (“POUs”) like the District are required to adopt an RPS that is consistent with policies encouraging procurement of renewable resources.
In April 2011, Governor Brown signed SBX1-2 that codified the requirement to serve 33% of retail sales using renewable energy resources by 2020. SBX1-2 became effective on December 10, 2011. Under SBX1-2, POUs are no longer able to set their own RPS goals, but instead are required to meet the same RPS targets that are required of the State’s Investor Owed Utilities (“IOUs”). The District intends to comply with legislative intent of SBX1-2 and has implemented an environmental charge (“EC”). The EC will allow the District to recover the regulatory costs it incurs relating to compliance with the applicable RPS.
In April 2015, Governor Brown signed Executive Order B-30-15, which establishes a new interim statewide greenhouse gas (“GHG”) emission reduction target to reduce GHG emissions to 40% below 1990 levels by 2030. In September 2016, Governor Brown signed into law Senate Bill No. 32, which among other things, adopts a 40% targeted reduction in GHG emissions below 1990 levels by 2030. The District’s current
A-15 generating units are all hydroelectric generators with no carbon emissions. The District’s GHG reporting is limited to sulfur hexafluoride (SF6) gas reporting from circuit breakers at the powerhouses as well as in the electric distribution system.
The following renewable resources have been contracted for or are being considered by the District as potential alternatives for sources of renewable energy to meet program objectives. Together, these renewable resources will meet approximately 27% of the District’s retail sales by December 31, 2017. This compares favorably with the 27% requirement in SBX1-2.
Avangrid Purchase Agreement. In 2003, the District and Avangrid (formerly Iberdrola Renewables, Inc.) entered into a 25-year power purchase agreement (the “Avangrid Purchase Agreement”) for up to five MW of wind energy generated from a project to be constructed near Solano County, California. The agreement expires in October 2028. The Avangrid Purchase Agreement is a non-firm power supply contract to purchase five MW of installed capacity, which was expected to generate 16,000 MWh of energy annually for the District at a fixed price of $54.95 per MWh. As amended in April 1, 2010, under the Avangrid Purchase Agreement the District receives a credit on their invoice for the amount of energy delivered to the California Independent System Operator (“CAISO”) times the locational marginal price applicable to the CAISO pricing node for the wind project. The District’s purchases during the Fiscal Year ended March 31, 2017 totaled $$543,615. The District’s sales back to Avangrid during the Fiscal Year ended March 31, 2017 totaled $285,646.
Small Unit Hydroelectric (less than 30 MW): The District owns five small hydroelectric units with total generation of 13.6 MW. In accordance with contracts with TID which end in 2031 and 2032, three of these units are financed, operated, and maintained by TID. Output of the units goes to TID and the expenses and benefits of their operation are equally shared by TID and the District. The units are part of the District’s Water System and the energy generated is not available for customers of the District’s Electric System. The fourth unit, at Lake McSwain, is a 9 MW unit 2 miles downstream from New Exchequer. In 2017, the District purchased its fifth small hydroelectric unit, the Merced Falls Hydroelectric Project, from PG&E, which has a capacity of 3.5MW.
Large Unit Hydroelectric (greater than 30 MW): The District’s New Exchequer hydroelectric facility has a capacity of 94.5 MW. Energy generated by the Hydroelectric System is not available for customers of the District’s Electric System.
Energy Efficiency Programs. Since 2000, the District has implemented a wide array of energy efficiency and demand reduction programs for its customers funded through the State’s Public Benefits Charge (“PBC”). The District offers customized and prescriptive commercial and residential rebate programs. The commercial energy efficiency rebate programs range from energy efficient lighting and air conditioning rebates, to cool roofs, motor replacement rebates and incentives for building retrofit projects. The rebate incentives offered by the District help reduce electricity use at peak and reduce overall utility load. Over the last three years, these combined residential and commercial programs have resulted in over 3.8 million kWh savings for customers, representing the reduced load requirement to be served by the Electric System.
Open Market Purchases
Due to the District’s TID Purchase Contract, the District has not historically purchased energy from the open market. Upon completion of the Project, the District may become more active in the open market. See, however, “—Future Power Purchase Agreements.”
A-16 Future Power Purchase Agreements
The District is exploring entering into additional power purchase contracts with other providers, including CAISO and TID. The projections under the caption “ELECTRIC SYSTEM FINANCIAL AND OPERATING INFORMATION—Projected Electric System Operating Results and Debt Service Coverage” do not reflect an additional power purchase agreement with TID. If the District enters into an additional power purchase agreement with TID, the projected costs relating to the purchase of power under the caption “ELECTRIC SYSTEM FINANCIAL AND OPERATING INFORMATION—Projected Electric System Operating Results and Debt Service Coverage” can be expected to increase. See the captions “—Transmission and Scheduling” and “—Future Electric System Improvements.”
Wholesale Power Trading Policies and Risk Management
Due to significant changes occurring within California’s electric power industry, management of power resources on a day-to-day basis has become critical to the financial stability of an electric utility. In response to these changes, the District adopted a formal policy for the administration of energy risk management activities within the Electric System. This policy defines the limits for power trading activities to mitigate and reduce risks associated with this business activity. The District also appointed an Energy Risk Manager to oversee the development, implementation, and ongoing monitoring of a formalized financial risk management program for power supply activities. The policy is reviewed on an annual basis, and recommended changes have been periodically adopted by the District Board.
Recently, the policy was updated to incorporate changes in regulatory and legislative requirements, including an amendment to authorized transactions, organizational structure and reporting requirements. The comprehensive updated policy was approved by the Board in 2014.
Swap Agreements
The District has entered into swap agreements that are designed to reduce the District’s variable price energy purchase exposure. Generally under the swap agreements, the District will pay a fixed price to the swap counterparty in exchange for a variable price from the counterparty based on the NP-15 Price Index. For fiscal year 2018, based on current load forecasts, the District expects to hedge a minimum of 60% of its market price exposure.
The District has entered swap agreements with a variety of counterparties. Currently the District has outstanding swap agreements with Morgan Stanley Capital Group, Inc. (“Morgan Stanley”), Cargill Incorporated (“Cargill”), British Petroleum (“BP”), and Avangrid Renewables. The District may enter into swap agreements with additional counterparties in the future.
The Morgan Stanley, Cargill, BP and Avangrid swap agreements (the “Swap Agreements”) provide that all payments by the District under the Swap Agreements are payable from retail electric system revenues, which the District treats as Electric System Revenues. The District treats payments under the Swap Agreements as Operation and Maintenance Costs of the Electric System.
Transmission and Scheduling
TID provides wheeling, interconnection, and ancillary services to the District under a 20-year Interconnection and Transmission Service Agreement (ITSA), which went into effect on May 1, 2017. This agreement is scheduled to expire on April 30, 2038. The District is exploring an interconnection agreement with CAISO, however, the District can make no assurances as to whether such an agreement will be entered into with CAISO.
A-17 Operations and Maintenance
To begin electric operations in 1996, the District contracted with TID for operating services. Since contract initiation, the District has added field crews and enhanced its own support services to reduce its utilization of TID. The District now provides its own support services, with the exception of control center operations as provided for in the TID Purchase Contract.
The District’s Customer Base
The District currently serves approximately 9,000 customers in the communities of Livingston, Atwater, Merced and surrounding areas with a combined peak load of about 100 MW. Since starting operations, the District has diversified its rate base to include additional food processing facilities, medical care facilities, fast food restaurants, supermarkets, service stations, educational facilities, county and city administration facilities (including courthouse, county jail and city police station), ground water wells, retirement homes, product distribution facilities, commercial printing, auto sales, and commercial and residential subdivisions.
While approximately 83% of the District’s load base is currently comprised of larger commercial and industrial accounts, the load base has evolved into a diversified system including residential subdivisions and smaller commercial customers.
The District is not the sole provider of retail electric service within the District service area. See the caption “THE ELECTRIC SYSTEM—General” and “ELECTRIC SYSTEM STRATEGIC PLAN AND OUTLOOK.”
Customers and Electric Sales
The following tables set forth the number of metered customers, total energy sold and revenues from sale of energy during the periods shown.
NUMBER OF METERED CUSTOMERS
Fiscal Year 2013(1) 2014 2015 2016 2017 Residential 6,557 6,647 6,683 6,861 7,133 Commercial 1,115 1,153 1,174 1,194 1,236 Industrial 8 8 8 8 8 Agriculture 55 60 65 77 81 Municipal 95 96 102 105 108 Public Lighting 98 96 98 98 100 Total - all classes 7,928 8,060 8,130 8,343 8,666
(1) Fifteen month period ended March 31, 2013. Source: District
A-18 ENERGY SOLD (MWh)
Fiscal Year 2013(1) 2014 2015 2016 2017 Residential 65,981 55,031 56,091 55,217 56,791 Commercial 199,495 170,952 170,769 170,606 175,166 Industrial 210,699 169,564 176,918 172,066 178,346 Agriculture 3,254 3,640 3,763 3,847 3,265 Municipal 63,381 57,795 58,167 57,884 58,702 Public Lighting 2,065 1,332 1,259 1,263 1,265 Total MWh Sold 544,875 458,314 466,965 460,883 473,536
(1) Fifteen month period ended March 31, 2013. Source: District
Customer Concentration
The Electric System’s two largest customers provided approximately 23% of Electric System Revenues for the Fiscal Year ended March 31, 2017. No other customer of the Electric System provided more than 5% of Electric System Revenues for the Fiscal Year ended March 31, 2017. The top ten customers of the Electric System provided approximately 43% of Electric System Revenue for the Fiscal Year ended March 31, 2017.
Billings and Collections
Residential and commercial customers are billed monthly. Bills are generally due on the 5th day of each month. Although the utility is not subject to the general jurisdiction of the California Public Utilities Commission (“CPUC”) or other agencies, collection activities for the District substantially conform to the requirements of the California Public Utilities Code Section 10010. After a bill is delinquent, a system generated Delinquent Notice is mailed allowing approximately seven additional days to pay. If no payment is received by the Delinquent Notice due date, a Final Disconnect Notice is mailed allowing an additional seven days to pay. If payment is not received by the Final Disconnect Notice due date, the District may disconnect electric service and charge a disconnection processing fee and a disconnection fee in accordance with the then current fee schedule. Before service is reinstated, the customer must pay the delinquent amount, disconnection processing fee, disconnection fee and a reconnection fee in accordance with the then current fee schedule, and may be required to pay a customer deposit.
A-19 Uncollectible Accounts
Over the past five Fiscal Years, an average of approximately $58,924 of the District’s total billings were uncollectible, reflecting an average annual write-off rate of approximately 0.11%. The following table shows the historical results of the Electric System’s accounts receivable and collection efforts:
HISTORY OF BILLINGS AND COLLECTIONS (Dollars in Thousands)
Write-Off as Delinquent Fiscal % of Net Receivable Year Billings Payments Billing Write-Off Balance 2017 $51,078,684 $52,785,500 0.08% $38,554 $ 33,548 2016 54,532,050 54,984,787 0.17 93,714 141,229 2015 54,690,990 55,969,360 0.03 14,767 47,637 2014 52,710,060 52,163,013 0.05 27,118 91,634 2013(1) 60,057,245 60,263,957 0.20 120,468 18,644
(1) Fifteen month period ended March 31, 2013. Source: District
Electric System Rates and Charges
The District is obligated under the Installment Purchase Agreement to establish rates and collect charges in an amount sufficient to meet Operations and Maintenance Expenses of the Electric System and Debt Service requirements, with specified requirements as to priority and coverage. Electric rates are established by the Board. Electric rates are not subject to general regulatory jurisdiction of the CPUC or by any other State agency. The State’s Public Utilities Code contains certain provisions affecting all municipal utilities such as the District, including provisions for a public benefits charge. At this time, neither the CPUC nor any regulatory authority of the State nor FERC approves the District’s retail electric rates.
Although its rates are not subject to approval by any federal agency, the District is subject to certain ratemaking provisions of the federal Public Utility Regulatory Policies Act of 1978 (“PURPA”). PURPA requires state regulatory authorities and nonregulated electric utilities, including the District, to consider certain ratemaking standards and to make certain determinations in connection therewith. To the best of its knowledge, the District is operating in compliance with PURPA.
The District collects a surcharge for public benefit programs on customer utility bills. This surcharge was mandated by State legislation (i.e., AB 1890 and subsequent legislation) and disbursement is restricted to certain types of programs and services.
At present, the Electric System has 18 rate schedules in effect. The District provides no free electric service. The 18 rate schedules are as follows:
A-20 Rate Schedule Description AG-2 Agricultural Demand General Service ED-2 Large Demand General Service ED-1P Commercial/Industrial Large Demand General Service ED-2P Large Demand Primary Service ED-3 Medium Demand General Service ED-3V Medium Demand General Service ED-4 Small Demand General Service EGS-2 Commercial & Small Industrial General Service MD-3 Municipal & Non-Profit Medium Demand General Service MD-4 Municipal & Non-Profit Small Demand General Service RES-2 Residential General Service LSC Streetlighting – Customer Owned and Maintained LSC-1 Streetlighting – District Owned and Maintained MEF Flat Rate Service NEM Net Energy Metering PCA Power Cost Adjustment EC Environmental Charge TR-1 Large Demand Transmission Service
The Electric System’s base rates have been changed periodically since the District commenced operation of the Electric System. The District’s rate structure has evolved since inception to match the growing needs of its expanding customer base. The District has not implemented any general rate increases since 2009.
In addition to the rate schedules described above, the District has contractual arrangements with two users pursuant to which power is sold on different terms and conditions. The largest Electric System customer is one of the two users which have such contractual arrangements.
Comparison of District Rates to Surrounding Providers by Customer Class
The table below sets forth a comparison of the latest District rates per kWh (in Fiscal Year 2017) to the current charges of other energy providers in the vicinity of the District, including PG&E, which serves customers within the District’s Electric System service area. The table represents the cost for each respective provider:
Residential Commercial Industrial Merced Irrigation District $0.1571 $0.1221 $0.0781 Modesto Irrigation District 0.1810 0.1225 0.1008 Turlock Irrigation District 0.1559 0.1304 0.1197 PG&E 0.1994 0.1950 0.1565
Source: District
Marketing the District’s Electric System Services
Although the District initially concentrated on obtaining service agreements with commercial and industrial customers, the District serves power to residential developers and smaller commercial users in Merced, Atwater, Livingston, and surrounding areas where feasible.
A-21 Future Electric System Improvements
As described in the Official Statement under the caption “THE PROJECT,” the District expects to finance a portion of the South Transmission Project from a portion of the proceeds of the 2017A Bonds. The distribution component consists of approximately 15.7 miles of 21kV distribution lines to connect a new 230/21kV substation (the “Lyons Substation”) to the District’s Electric System. The transmission component of the South Transmission Project consists of the Lyons Substation and an interconnection of the Lyons Substation with PG&E/CAISO system via an existing adjacent PG&E transmission line. Such interconnection is expected to require the installation of two 230 kV poles. The District is currently exploring the possibility of being reimbursed for costs of the transmission component of the Project by CAISO through transmission access charges (TAC), however, the District can make no assurances that such reimbursements will occur.
The District projects spending approximately $91,000,000 on Electric System capital improvements and additions in the current and next four Fiscal Years, including the South Transmission Project described above. Such capital improvements include upgrades to existing substations and meters, and other capital projects to improve reliability. The District anticipates paying for the cost of such improvements and additions from a combination of proceeds of the Line of Credit, Net Electric System Revenues and existing reserves dedicated to the District’s Energy Resources Department. The District can make no assurance that such additional capital improvements will be undertaken. Other than amounts associated with the South Transmission Project, a portion of which will be financed from proceeds of the 2017A Bonds, the projections under the caption “ELECTRIC SYSTEM FINANCIAL AND OPERATING INFORMATION—Projected Electric System Operating Results and Debt Service Coverage” do not reflect any costs associated with such potential capital improvements as such costs are expected to be capitalized rather than paid as Operation and Maintenance Costs of the Electric System. In addition, no TAC reimbursements are projected to be received, however, it is possible that the District will receive such reimbursements. See “ELECTRIC SYSTEM FINANCIAL AND OPERATING INFORMATION—Projected Electric System Operating Results and Debt Service Coverage” below and “THE PROJECT” in the Official Statement.
The District is reviewing the feasibility of connecting its Hydroelectric System to its Electric System, allowing the District to sell electricity generated by the Hydroelectric System directly to its current and future Electric System customers. Such review is preliminary and the District has not yet determined whether the costs of such connection will be obligations of the Electric System or the Hydroelectric System. The District also expects that certain capital improvements may be required by the terms of the new long term FERC license. Such costs are expected to be obligations of the Hydroelectric System not the Electric System. No costs for the construction of such connection or for any capital improvements required to comply with a new long term FERC license are currently reflected in the Electric System or Hydroelectric System capital improvement program.
A-22 FINANCIAL RESULTS OF THE ELECTRIC SYSTEM
Revenues
The following table sets forth such electric sales during the periods shown.
REVENUES FROM SALES OF ELECTRICITY (Dollars In Thousands With Demand Included)
Fiscal Year 2013(1) 2014 2015 2016 2017 Residential $ 10,314,276 $ 8,900,381 $ 9,275,503 $ 9,184,336 $ 8,925,434 Commercial 23,536,360 20,201,788 20,647,017 21,336,389 21,319,167 Industrial 16,643,053 13,593,940 14,706,334 14,463,986 13,404,211 Agriculture 350,888 524,459 486,489 546,073 498,589 Municipal 7,708,573 7,054,625 7,289,788 7,482,416 7,378,942 Public Lighting 290,126 188,151 181,365 184,461 180,281 Total $ 58,843,275 $ 50,463,344 $ 52,586,496 $ 53,197,842 $ 51,706,624
(1) Fifteen month period ended March 31, 2013. Source: District
Revenues from sales of electricity in Fiscal Year 2017 declined from Fiscal Year 2016 as a result of an increase in lower power costs from an increase in residential solar generation, resulting in an increase in credits returned to the customers through power cost adjustments.
The table below sets forth the average billing rate per kWh of the various customer classes during the last five fiscal years.
AVERAGE BILLING RATE (Cents Per kWh With Demand Included)
Fiscal Year 2013(1) 2014 2015 2016 2017 Residential 15.2 16.6 16.34 16.63 15.71 Commercial 12.39 12.48 12.24 12.51 12.21 Industrial 8.30 8.44 8.38 08.41 07.81 Agriculture 13.18 13.41 12.93 14.20 15.27 Municipal 12.14 12.75 12.53 12.93 12.57 Public Lighting 14.43 14.69 14.41 14.61 14.25 Average - All Classes Combined 12.60 13.06 12.80 13.21 12.97
(1) Fifteen month period ended March 31, 2013. Source: District
Operating Expenses
For the fiscal year ending March 31, 2017, the total operating expenses of the Electric System were $35,354,638, excluding depreciation.
Operating expenses (excluding depreciation) have remained stable in the last five Fiscal Years. Such expenses for Fiscal Year 2014 (the first 12-month period after the District changed its Fiscal Year end date to March 31) and Fiscal Year 2017 totaled $39,426,125 and $35,354,638, respectively. Distribution operating
A-23 expenses decreased from $7,772,591 for Fiscal Year 2014 to $6,714,098 for Fiscal Year 2017, a decrease of $1,058,493 or 13.6%. Purchased power costs decreased from $28,583,744 for Fiscal Year 2014 to $25,517,470 for Fiscal Year 2017, a decrease of $3,066,274 or 10.7%.
Significant Accounting Policies
The basic financial statements of the District have been prepared in conformity with generally accepted accounting principles (“GAAP”) as applied to government units. The Governmental Accounting Standards Board (“GASB”) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. As allowed by the GASB, the District has elected to apply to its proprietary activities Financial Accounting Standards Board (“FASB”) Statements and Interpretations, Accounting Principles Board Opinions, and Accounting Research Bulletins of the Committee of Accounting Procedures issued after November 30, 1989, where not in conflict with GASB pronouncements.
The District’s resources are allocated to and accounted for in basic financial statements as an enterprise fund type of the proprietary fund group (i.e. the Electric System). The enterprise fund is used to account for operations that are financed and operated in a manner similar to a private business enterprise, where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services on a continuing basis be financed or recovered primarily through user charges, or, where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other policies. Net position represents the amount available for future operations.
The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. The enterprise fund type is accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of the District are included on the statement of net position. Net position is segregated into net investment in capital assets; restricted; and unrestricted. Enterprise fund type operating statements present increases (i.e., revenues) and decreases (i.e., expenses) in total net position.
The District uses the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. Grant revenue is recognized when program expenditures are incurred in accordance with program guidelines. When funds are received in advance of program expenditures, they are recorded as unearned revenues until earned. Earned but unbilled electric services are accrued as revenue. Electrical infrastructure is recorded as capital contributions and the costs are capitalized and included as a part of the electric transmission and distribution system.
Operating revenues and expenses consist of revenues and expenses that result from the ongoing principal operations of the District. Operating revenues consist primarily of charges for services. Nonoperating revenues and expenses consist of those revenues and expenses that are related to financing and investing types of activities and result from nonexchange transactions or ancillary activities.
The District maintains both restricted and unrestricted cash. Restricted cash is held in reserve and is spent exclusively for the intended purpose. In the event that the restricted cash is insufficient to complete the intended purpose, unrestricted cash is utilized.
Beginning with its audited financial statements for Fiscal Year 2016, the District implemented GASB Statement No. 68. As a result of implementing GASB Statement No. 68, the District restated the beginning net position in its Statement of Net Position for Fiscal Year 2015, effectively decreasing the net position as of April 1, 2014 by $18,142,553.
In the District’s audited financial statements for Fiscal Year 2017, certain reclassifications were made to the Fiscal Year 2016 financial statements to conform to current year presentation. There were no changes to
A-24 the ending net position and/or change in net position from the Fiscal Year 2016 audited presented figures. See Note 14 to the District’s audited financial statements in Appendix A-1 attached to the Official Statement.
For accounting policies relating specifically to the Electric System, see the notes to the financial statements in Appendix A-1 attached to the Official Statement.
ELECTRIC SYSTEM STRATEGIC PLAN AND OUTLOOK
Electric Rates
Historically, electric rates for the District’s customers have been lower than rates for PG&E customers. Based on current rates in place as of January 1, 2017, the District’s industrial and commercial rates are approximately 49.90% and 62.58%, respectively, of those charged by PG&E for such user classes. The District’s single family residential customers with an average monthly summer consumption of 1,250 kWh would pay an average of approximately 53% more if served by PG&E, while single family residential customers with a winter consumption of 750 kWh would pay an average of approximately 42% more if served by PG&E. The District cannot predict future rate actions with respect to PG&E or other utilities.
Customer Growth
The District expects to continue serving current commercial, industrial, agricultural and residential customers located in the cities and surrounding areas of Merced, Livingston and Atwater, as well as serving new residential subdivisions. For planning purposes, the District has projected growth in residential customers of approximately one percent per annum for the current and next four Fiscal Years. See the caption “THE ELECTRIC SYSTEM—General.” For planning purposes, the District is projecting growth in commercial and industrial customers of approximately one percent per annum in the current and next four Fiscal Years. Such growth in commercial and industrial customers depends in part on the continued rate differential between the cost of power provided by the District as compared to PG&E and the construction of the South Transmission Line. See the caption “THE ELECTRIC SYSTEM—Future Electric System Improvements.”
Power Resource Portfolio Management
The District manages power supply risk, renewable resource procurement and compliance with State and federal environmental regulations (for example, GHG regulations) in an integrated fashion.
Congress requires WAPA and its customers, including the District, to provide an annual report of supply-side, demand-side, and renewable resource activities undertaken as a result of the National Energy Policy Act of 1992. These reports are available for review upon request from the District.
The cost of power under the current TID Power Contract is tied to the NP-15 Price Index price as calculated by the CAISO on an hourly basis. The District currently hedges a significant portion of such power cost as described under the caption “THE ELECTRIC SYSTEM—Swap Agreements.” The District expects to continue to hedge a significant portion of future power costs through swap contracts. For planning purposes, the District projects that it can enter into swap agreements for such purpose on similar terms and conditions to the District’s current swap program.
ELECTRIC SYSTEM FINANCIAL AND OPERATING INFORMATION
Financial Statements
A copy of the most recent audited financial statements of the District prepared by Hudson, Henderson and Company, Inc., Certified Public Accountants, Fresno, California (the “Auditor”) are included as Appendix A-1 to the Official Statement (the “Financial Statements”). The Financial Statements are combined with
A-25 certain unaudited statistical and supplementary information to form the District’s Comprehensive Annual Financial Report. The Auditor’s letter concludes that the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of the District, as of March 31, 2017 and the respective changes in financial position, and, where applicable, cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. The Auditor is not required to, and has not been asked to, consent to the inclusion of the Financial Statements in this Official Statement.
The summary operating results contained under the caption “—Historic Operating Results and Debt Service Coverage” are derived from the Financial Statements (excluding certain non-cash items and after certain other adjustments) and are qualified in their entirety by reference to such statements, including the notes thereto. See the Official Statement under the caption “SECURITY FOR THE 2017A BONDS— Revenue Pledge Securing the Series 2017A Installment Payments” and “—Rate Stabilization Fund” for a discussion of the recognition of certain revenues and operation and maintenance expenses under GAAP.
District Reserves
The District has established unrestricted funds to use current Electric System Revenues to satisfy future spending plans. The following table shows the District’s unrestricted funds and the respective balances as of March 31, 2017 with respect to its Electric System:
Balance as of March 31, 2017 New Customer Growth Fund $ 3,185,000 System Support and Growth Fund 28,947,988 Purchased Power Reserve Fund 13,051,000 Operating Reserve Fund 5,068,000 Catastrophe Fund 3,199,000
Source: District
Each of these reserves is funded in an amount equal to or greater than the respective targeted level under the current District reserve policy. The District currently does not have any monies which, under GAAP, would not be recognized as Electric System Revenues until the corresponding expenditure is made by the District. Such monies are currently on deposit in the Rate Stabilization Fund. The District may modify, amend or remove the use of such funds and the amounts. The District has additional reserves that are not designated but are expected to be applied toward other purposes.
A-26 Historic Electric System Operating Results and Debt Service Coverage
The following table is a summary of operating results of the District’s Electric System for the 15 month period ended March 31, 2013 and for Fiscal Years 2014 through 2017. These results have been derived from the District’s Financial Statements but exclude certain non-cash items and include certain other adjustments. The table has not been audited by the District’s Auditor.
Historic Electric System Operating Results and Debt Service Coverage
2013(1) 2014 2015 2016 2017 REVENUES Electricity Sales and Services(2) $60,790,788 $52,655,884 $56,292,342 $54,167,965 $54,243,061 Interest Income 58,906 167,631 128,960 316,761 468,504 Other Revenues(3) 222,781 -- 142,976 151,201 114,049 Transfers In 66,975 1,534 ------Total Revenues(4) $61,139,450 $52,825,049 $56,564,278 $54,635,927 $54,825,614
OPERATION AND MAINTENANCE COSTS Purchase of Power $29,989,929 $28,583,744 $30,586,822 $27,475,015 $25,517,470 Electric Transmission and Distribution 10,010,831 7,772,591 7,742,320 6,053,562 6,714,099 Administrative and General(5) 1,957,902 1,844,538 1,467,584 2,053,619 2,168,669 Transfer Out(6) 37,880 1,225,252 983,692 975,792 954,400 Total Operation and Maintenance Expenses(4) $41,996,542 $39,426,125 $40,780,418 $36,557,988 $35,354,638
NET ELECTRIC SYSTEM REVENUES(4) $19,142,906 $13,398,924 $15,783,860 $18,077,939 $19,470,976
DEBT SERVICE 2003 Electric Revenue COP $ 1,361,858 $ 637,953 ------2005 Bonds 5,735,494 4,220,469 $4,218,275 $2,214,067 -- 2005 Installment Purchase Contract 1,070,992 454,933 457,230 377,503 -- 2012 Electric Refunding Revenue Bond 268,949 469,900 459,130 463,580 462,920 2013 Bonds -- 348,596 768,394 547,576 -- 2015A Electric System Bonds ------1,870,989 4,833,513 TOTAL DEBT SERVICE(4) $8,437,292 $6,131,850 $5,903,029 $5,473,715 $5,296,433 DEBT SERVICE COVERAGE 2.27 2.19 2.67 3.30 3.68
NET ELECTRIC SYSTEM REVENUES AVAILABLE FOR OTHER DISTRICT PURPOSES(4) $10,705,616 $ 7,267,074 $9,880,831 $12,604,224 $14,174,543
(1) Includes amounts for the 15 month period ended March 31, 2013. (2) Includes revenue from Electricity Sales (see the caption “FINANCIAL RESULTS OF THE ELECTRIC SYSTEM—Revenues”) in addition to certain other revenues generated from services provided by the District to retail electric customers. Amount for Fiscal Year 2014 includes administrative fees and miscellaneous revenues. (3) Includes other income, including administrative fees and miscellaneous revenue. (4) Totals may not add due to rounding. (5) Includes allocation of administrative costs, engineering, inter-fund credits related to work or equipment charged to capital projects and other funds. (6) Includes payments to Water Fund for permission fees payable by the Electric System for use of Water System rights-of-way. Source: District
Projected Electric System Operating Results and Debt Service Coverage
The District’s projected Electric System operating results for the Fiscal Years ending March 31, 2018 to March 31, 2022 are set forth below, reflecting certain significant assumptions concerning future events and circumstances. The financial forecast represents the District’s estimate of projected financial results based on a variety of assumptions, including those described under the caption “ELECTRIC SYSTEM STRATEGIC PLAN AND OUTLOOK—Power Resource Portfolio Management” and assumptions set forth in the footnotes to the chart below. All of such assumptions are material in the development of the District’s financial projections, and variations in the assumptions may produce substantially different financial results. Actual
A-27 operating results achieved during the projection period may vary from those presented in the forecast and such variations may be material.
Projected Electric System Operating Results and Debt Service Coverage Fiscal Years ending March 31
2018(1) 2019 2020 2021 2022 REVENUES
Electricity Sales and Services(2) $ 63,478,000 $ 63,747,000 $ 64,774,000 $ 65,696,000 $ 66,324,000 Interest Income(3) 458,000 463,000 467,000 472,000 477,000 Other Revenues(4) 251,000 257,000 264,000 393,000 403,000 Transfers In(5) 0 0 0 0 0 Total Revenues $ 64,187,000 $ 64,467,000 $ 65,505,000 $ 66,561,000 $ 67,204,000
OPERATION AND MAINTENANCE COSTS Purchase of Power(6) $ 33,223,000 $ 34,507,000 $ 35,542,000 $35,819,000 $ 36,205,000 Electric Transmission and Distribution(7) 8,269,000 8,517,000 8,773,000 9,036,000 9,307,000 Administrative and General(8) 2,640,000 2,719,000 2,801,000 2,885,000 2,971,000 Transfer Out(9) 982,000 1,011,000 1,042,000 1,073,000 1,105,000 Total Operation and Maintenance Expenses $ 45,114,000 $ 46,754,000 $ 48,158,000 $ 48,813,000 $ 49,588,000
NET ELECTRIC SYSTEM REVENUES $ 19,370,000 $ 17,713,000 $ 17,347,000 $ 17,748,000 $ 17,616,000
DEBT SERVICE 2012 Electric Refunding Revenue Bond(10) $ 0 $ 0 $ 0 $ 0 $ 0 2015A Electric System Bonds 4,828,000 4,825,000 4,820,000 4,822,000 4,545,000 2017A Electric System Bonds(11) 155,00 1,549,000 1,552,000 1,549,000 1,545,000 TOTAL DEBT SERVICE $ 4,983,000 $ 6,374,000 $ 6,372,000 $ 6,371,000 $ 6,090,000 DEBT SERVICE COVERAGE 3.66 2.78 2.72 2.79 2.89
NET ELECTRIC SYSTEM REVENUES AVAILABLE FOR OTHER DISTRICT PURPOSES $ 14,090,000 $ 11,339,000 $ 10,975,000 $ 11,377,000 $ 11,526,000
(1) Fiscal Year 2018 reflects budgeted amounts. (2) Projected amounts through Fiscal Year 2022 based on NP-15 forward curve. Projections also include an additional 41K MWh in purchased power driven by new customers, environmental charge, Merced Falls energy and capacity revenue approximately $919,000. Projected to increase by approximately 1% to 1.6% per annum from Fiscal Year 2019 through Fiscal Year 2022. (3) Interest income forecasted to increase by approximately 1% to 1.5% per annum. Excludes interest on notes and bonds payable. (4) Projected to increase by approximately 2.5% per annum through Fiscal Year 2022. (5) The District does not expect any transfers to the Electric Fund through Fiscal Year 2022. (6) Increase from Fiscal Year 2017 amount primarily as a result of the NP-15 forward curve, followed by an increase in power transmission costs due to addition of a demand transmission, as well as the increase in resource adequacy rate when compare to the planning reserve rate. Projections include the environmental charge. See the caption “THE ELECTRIC SYSTEM—Power Purchase Contracts—Renewable Resource Plan.” (7) Increase from Fiscal Year 2017 amount primarily as a result of projected increase in energy rates based on NP15 curve, increase in Energy Price Adder driven by higher transmission demand for industrial customers, and increase in power transmission costs due to addition of demand transmission. Projected to increase by 3% per annum from Fiscal Year 2019 through Fiscal Year 2022 (8) Includes allocation of administrative costs, engineering, inter-fund credits related to work or equipment charged to capital projects and other funds. Projected to increase 3% per annum from Fiscal Year 2019 through Fiscal Year 2022. (9) Includes payments to Water Fund for permission fees, rental payments relating to real property owned by the District and payments for services of other District departments for services provided to the Energy System. Projected to increase by 3% per annum from budgeted amount for Fiscal Year 2018 exclusive of such rental payment. (10) The District expects to prepay the outstanding 2012 Electric System Bonds from District reserves on or before the date of issuance of the 2017A Bonds. (11) Projected at an all in true interest cost of 3.80% and an aggregate principal amount of $19,990,000. Source: District.
A-28 RISK FACTORS
The purchase of the 2017A Bonds involves investment risk. Such risk factors include, but are not limited to, the following matters.
2017A Bonds are Limited Obligations
No funds of the District other than Net Electric System Revenues are pledged for the payment of the Series 2017A Installment Payments, and the credit or taxing power of the District is not pledged for the payment of the Series 2017A Installment Payments. No owner of any 2017A Bond may compel the exercise of the taxing power by the District or the forfeiture of any of its property. The principal of and interest on the Series 2017A Installment Payments are neither a debt of the District nor a legal or equitable pledge, charge, lien or encumbrance upon any of its property or upon any of its income, receipts or revenues, except the Electric System Revenues and other funds, security or assets which are pledged to the payment of the Series 2017A Installment Payments under the Installment Purchase Agreement.
Limitations on Remedies
The enforceability of the rights and remedies of the owners of the 2017A Bonds and the Trustee, and the obligations incurred by the District, may be subject to the following: the limitations on legal remedies against public entities in California; the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect; principles of equity which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the U.S. Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the state and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the 2017A Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitations or modification of their rights. Remedies may be limited since the Electric System serves an essential public purpose.
Electric System Expenses and Collections
The District’s Electric System, timely payment of the Series 2017A Installment Payments and the financial condition of the District are dependent, in part, upon the payment by customers of the amounts billed to such customers for the energy and services they receive. There are multiple factors that might result in increased overall rates charged to such customers and, as a result, potentially have an adverse effect on collections. Many of these factors are not under the influence or control of the District or are factors over which the District has only limited influence or control. These factors include, but are not limited to, the following:
Changes in General Economic Conditions. Significant changes in general economic conditions may be caused by, among other things, fluctuating business cycles, uncharacteristic weather patterns (such as droughts) or the occurrence of natural disasters (such as earthquakes or floods). In addition, the State’s economy faces a number of risks and pressures, including the threat of recession, potential changes to federal fiscal policies and large unfunded liabilities of the State’s pension and retiree healthcare plans. Such factors could lead to significant reductions in retail energy sales, resulting in increased retail rates for electric energy to offset reduced revenues.
Energy Market-Driven Increases in Wholesale Power Costs. Wholesale power costs are affected by a number of factors, including, but not limited to, natural gas prices, availability of hydroelectric power, mandated regulatory costs, availability of generation capacity, and transmission capacity.
A-29 Market Manipulation. The CAISO, with the approval from FERC, adopted tariffs, protocols and regulations governing the conduct of energy suppliers and other entities whose activities affect the energy market and transmission system. CAISO tariffs, protocols and regulations are intended, among other things, to prevent manipulation of the CAISO’s energy market and transmission system. The CAISO monitors the activities of participants, but manipulative behavior could occur, possibly resulting in higher or substantially higher costs.
Impact of These Factors. The factors discussed above (and other factors) might result in increased retail rates for electric energy while the 2017A Bonds remain outstanding. If a combination of one or more such factors lead to increased retail rates for electric energy, such increase could lead to increased delinquencies and non-payments by customers. See “THE ELECTRIC SYSTEM—Electric System Rates and Charges” for a discussion of uncollectible accounts.
There can be no assurance that the District’s expenses for the Electric System will remain at the levels described in this Official Statement. Increases in energy costs, new environmental regulations, CAISO’s market prices or other expenses could reduce the Electric System Revenues and could require substantial increases in rates or charges. Such rate increases could increase the likelihood of nonpayment, and could also decrease demand.
Although the District has covenanted to prescribe, revise and collect rates and charges for the Electric System at certain levels as described in the Official Statement under the caption “SECURITY FOR THE 2017A BONDS— Rate Covenant Securing the Series 2017A Installment Payments,” there can be no assurance that such amounts will be collected in the amounts and at the times necessary to make timely payments with respect to the Series 2017A Installment Payments.
Utility Bankruptcy
The District has entered into, and in the future may enter into, various power purchase, transmission service and other arrangements with PG&E, TID, or others. See “THE ELECTRIC SYSTEM—Power Supply” and “—Transmission and Scheduling” above for a discussion of existing contracts and other arrangements. In the event of insolvency of PG&E or TID or other entities with which the District has, or is a beneficiary of, such contractual arrangements, in the bankruptcy proceedings PG&E or TID or other entities or their respective bankruptcy trustee must determine prior to the confirmation of its plan for reorganization, or within a shorter time period determined by the court, whether to assume or reject any of its executory contracts. The District may be subjected to payment delays pending this determination. In the event of assumption, the debtor would be required to cure any prior defaults and to provide adequate assurance of future performance under the relevant agreements. Rejection of an executory contract by the debtor would give rise to an unsecured claim of the other party or parties to the contract for contract rejection damages. In the event of rejection by the debtor in the bankruptcy proceedings of any of the contracts to which the District is a party or beneficiary, the District may be required to replace the services or power supplied under these arrangements at an increased cost, which could result in higher electric rates being charged by the District. The District is unable to determine the ultimate impact on the Electric System if PG&E or TID or other entities with which the District has, or is a beneficiary of the contractual arrangements described above, declares, or is forced into, bankruptcy.
Seismic Issues
Although the District has not experienced significant earthquake-related damage to its facilities, the Electric System and the power supplied by TID through its system could be adversely affected by a major local earthquake. See “—Casualty Risk.”
A-30 Casualty Risk
Any natural disaster or other physical calamity, including earthquake, may have the effect of reducing Net Electric System Revenues through damage to the Electric System, as well as TID’s or WAPA’s operations, and/or adversely affecting the economy of the surrounding area. In the event of material damage to Electric System facilities, there can be no assurance that insurance proceeds will be adequate to repair or replace such facilities. See “THE DISTRICT—Insurance” and “—Seismic Issues.”
LITIGATION
General. There is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the District, threatened against the District affecting the existence of the District or the titles of its directors or officers to their respective offices or seeking to restrain or to enjoin the sale or delivery of the 2017A Bonds, the application of the proceeds thereof in accordance with the Indenture, or in any way contesting or affecting the validity or enforceability of the 2017A Bonds, the Indenture or any action of the District contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the District or its authority with respect to the 2017A Bonds or any action of the District contemplated by any of said documents, nor to the knowledge of the District, is there any basis therefor.
Electric System Litigation. There exist lawsuits and claims against the District in connection with the Electric System which are incidental to the ordinary course of business of the operation of the Electric System. In the view of the District’s General Counsel, there is no such litigation present or pending, which will individually or in the aggregate materially impair the District’s ability to pay the Series 2017A Installment Payments.
Other District Litigation. There exist lawsuits and claims against the District relating to other District activities separate from the business of the Electric System. In the view of the District’s General Counsel, there is no such litigation present or pending, which will individually or in the aggregate materially impair the District’s ability to pay the Series 2017A Installment Payments from Electric System Revenues.
CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES
Article XIIIB
The State Constitution limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and population. The “base year” for establishing such appropriation limit is the 1978-79 fiscal year and the limit is to be adjusted annually to reflect changes in population and consumer prices. Adjustments in the appropriations limit of an entity may also be made if: (i) the financial responsibility for a service is transferred to another public entity or to a private entity; (ii) the financial source for the provision of services is transferred from taxes to other revenues; or (iii) the voters of the entity approve a change in the limit for a period of time not to exceed four years.
Appropriations subject to Article XIIIB generally include the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions and refunds of taxes. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to an entity of government from: (a) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation); and (b) the investment of tax revenues. Article XIIIB includes a requirement that if an entity’s revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.
A-31 Certain expenditures are excluded from the appropriations limit including payments of indebtedness existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved by the voters and payments required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the providing of existing services more costly.
The District is of the opinion that the rates imposed by the District do not exceed the costs that the District reasonably bears in providing Electric Service. The District will covenant in the Installment Purchase Agreement that, to the fullest extent permitted by law, it will prescribe rates and charges that it reasonably expects to be sufficient to provide Net Electric System Revenues for payment of the Series 2017A Installment Payments in each year.
Proposition 218
General. An initiative measure entitled the “Right to Vote on Taxes Act” (the “Initiative”) was approved by the voters of the State of California in 1996. The Initiative added Article XIIIC and Article XIIID to the California Constitution. According to the “Title and Summary” of the Initiative prepared by the California Attorney General, the Initiative limits “the authority of local governments to impose taxes and property-related assessments, fees and charges.”
Article XIIID. Article XIIID creates additional requirements for the imposition by most local agencies, including the District, of general taxes, special taxes, assessments and property-related assessments, fees and charges. By its terms, however, Article XIIID explicitly exempts fees for the provision of electric service from the provisions of such article. See the caption “THE ELECTRIC SYSTEM—Electric System Rates and Charges.
Article XIIIC. Article XIIIC provides that the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that the power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local governments. Article XIIIC does not define the terms “local tax,” “assessment,” “fee” or “charge,” so it was unclear whether the definitions set forth in Article XIIID referred to above are applicable to Article XIIIC. Moreover, the provisions of Article XIIIC are not expressly limited to local taxes, assessments, fees and charges imposed after November 6, 1996. On July 24, 2006, the Supreme Court held in Bighorn-Desert View Water Agency v. Verjil, 39 Cal.4th 205 (2006), that the provisions of Article XIIIC included rates and fees charged for domestic water use. In the decision, the Court noted that the decision did not address whether an initiative to reduce fees and charges could override statutory rate setting obligations. On August 11, 1980, the Court of Appeal held in Bock v. City Council of Lompoc, 109 Cal.App.3d. 52 (1980), that electric rates are subject to the initiative power. Therefore, rates charged for electricity service (which are expressly exempt from the provisions of Article XIIID) may be subject to the provisions of Article XIIIC, thereby subjecting such charges imposed by the District to reduction by the voters within the District. Notwithstanding the foregoing, the District does not believe that Article XIIIC grants to the voters within the District the power to repeal or reduce the charges for electricity service in a manner which would be inconsistent with the contractual obligations of the District. However, there can be no assurance of the availability of particular remedies adequate to protect the beneficial owners of the 2017A Bonds. Remedies available to beneficial owners of the 2017A Bonds in the event of a default by the District are dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time-consuming to obtain.
In addition to the specific limitations on remedies contained in the applicable documents themselves, the rights and obligations with respect to the 2017A Bonds, the Indenture and the Installment Purchase Agreement are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, and to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State. The various opinions of counsel to be delivered with respect to such
A-32 documents, including the opinion of Bond Counsel (the form of which is attached as Appendix D), will be similarly qualified.
Proposition 26
On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC to expand the definition of “tax” to include “any levy, charge, or exaction of any kind imposed by a local government” except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity. The District does not believe that the enactment of Proposition 26 affects its ability to charge for services provided by its Electric System.
A-33 [THIS PAGE INTENTIONALLY LEFT BLANK] EXHIBIT A-1
MERCED IRRIGATION DISTRICT AUDITED FINANCIAL STATEMENTS [THIS PAGE INTENTIONALLY LEFT BLANK] Comprehensive Annual Financial Report For the Fiscal Years Ended March 31, 2017 and 2016 744 W 20th Street · Merced, CA. 95340
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Merced Irrigation District of Merced, California
Comprehensive Annual Financial Report
For the Fiscal Years Ended
March 31, 2017 and 2016
Prepared by the
Finance Department
Brian Stubbert, Chief Financial Officer Kandi Ramos, Controller Melissa Bertonneau, Budget and Reporting Analyst
744 West 20th Street, Merced, California 95340 209-722-5761 www.mercedid.org
This Page Left Blank Intentionally MERCED IRRIGATION DISTRICT Comprehensive Annual Financial Report For the Fiscal Years Ended March 31, 2017 and 2016
Table of Contents Page Number INTRODUCTORY SECTION Letter of Transmittal i District Service Area Map xi District Officials xii Organization Chart xiii
FINANCIAL SECTION Independent Auditors' Report 3 Management's Discussion and Analysis 7 Basic Financial Statements: 15 Statements of Net Position 16 Statements of Revenue, Expenses and Changes in Net Position 18 Statements of Cash Flows 19 Notes to the Basic Financial Statements 21 Required Supplementary Information 61 Schedule of Funding Progress Other Post Employment Benefits (OPEB) 62 Schedule of Changes in the Net Position Liability and Related Ratios 63 Schedule of Contributions 64 Supplemental Information 65 Combining Statement of Net Position 66 Combining Statement of Revenues, Expenses and Changes in Net Position 74 Combining Statement of Cash Flows 78 Debt Service Ratio Related to Outstanding COP and Bonds Energy Resources 86 Debt Service Ratio Related to Outstanding COPS and Bonds Water Resources and Hydroelectric Project 87
STATISTICAL SECTION 89 Index to Statistical Section 91 Financial Trends: Table I Net Position by Component 93 Table II Changes in Net Position 94 Table III Cash and Investment Balance Summary 95 Revenue Capacity: Table IV Assessed Value of Taxable Property 96 Table V Property Tax Rates Direct and Overlapping Property Tax Rates 97 Table VI Principal Property Taxpayers 98 Table VII Property Tax Levies and Collected 99 Table VIII Water Rates Based on Irrigation Season for Water Resources 100 Table IX Energy Resources Electric Rate Monthly Charge per Meter 101 Table X Energy Resources Electric Service by Rate Schedules Stated per Kilowatt 102 Debt Capacity: Table XI Ratio of Outstanding Debt by Type & Per Capita 108 Table XII Debt Service Coverage Related to Outstanding COP's and Bond for Water Resources and Hydroelectric Project 109 Table XIII Debt Service Coverage Related to Outstanding COP's and Bond for Energy Resources 110 Table XIV Principal Debt Pledged Revenue 111 Demographic and Economic Information: Table XV Demographic and Economic Statistics 112 Table XVI Principal Employers 113 Operating Information: Table XVII Full Time Equivalent Employees by Function 114 Table XVIII Water Resources Water Supply, Deliveries, Irrigated Acreage, Capacity Level 115 Table XIX Energy Resources MWh Sold by Customer Type 116 Table XX Operating Indicators 117 Table XXI Capital Assets, Net of Accumulated Depreciation Detail 118
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Lake McClure, April 2017
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To the Board of Directors,
Staff is pleased to present the Merced Irrigation District’s (MID or the District) Comprehensive Annual Financial Report (Report) for the fiscal year ended March 31, 2017.
The Report was prepared primarily by the District’s Finance Department following guidelines recommended by the Governmental Accounting Standards Board (GASB) and generally accepted accounting principles (GAAP). Responsibility for both the accuracy of the data presented and the completeness and fairness of presentation, including disclosures, rests with the District. To the best of staff’s knowledge, the data used to prepare this Report is accurate in all material respects and is presented in a manner that provides a fair representation of the financial position and results of operations of the District.
Hudson Henderson & Company, Inc., Certified Public Accountants, (HHC) have issued an unmodified opinion, or the best possible opinion, on the District’s financial statements for this fiscal year. The independent auditors’ report is located at the front of the financial section of this Report.
Management’s discussion and analysis (MD&A) immediately follows the independent auditors’ report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it.
THE DISTRICT AND ITS SERVICES
The Merced Irrigation District is a special district of the State of California which was organized in 1919 under the provisions of the Irrigation District Law (codified as Division 11 of the California Water Code). The District is located in the central portion of the San Joaquin Valley and currently encompasses approximately 154,000 acres.
The District owns, operates and maintains the New Exchequer Hydroelectric Project comprised of New Exchequer Reservoir, also known as, Lake McClure and McSwain Reservoir, also known as, Lake McSwain. Lake McClure and Lake McSwain have storage capacities of 1,024,600 acre-feet and 9,730 acre- feet, respectively. The hydroelectric facilities were completed in 1967 and generally comprise the Merced River Hydroelectric Project. The Merced River Hydroelectric Project is licensed by the Federal Energy Regulatory Commission (FERC). The District diverts surface water from the Merced River downstream of the Merced River Hydroelectric Project, primarily for conjunctive District Map (209) 722-5761 744 West 20th Street P.O. Box 2288 Merced, California 95344-0288 Administration / FAX (209) 722-6421 • Finance / FAX (209) 722-1457 • Water Resources / FAX (209) 726-4176 Energy Resources / FAX (209) 726-7010 • Customer Service (209) 722-3041 / FAX (209) 722-1457 i agricultural water supplies. The District water system diverts surface water from the Merced River at two locations, the North Side and the Main Canal. These supplies are supplemented with conjunctive groundwater supplies in dry years.
Since the time of the District formation in 1919, surface water and groundwater sources have been used conjunctively to meet the District’s water demands. The District is a conjunctive use district that owns and operates approximately 215 groundwater wells. The District owns several small reservoirs that are used for regulating flows and balancing the supplies and demands of the District’s water system. These water supplies are conveyed through approximately 700 miles of conveyance facilities, consisting of canals, pipelines, pump stations, creeks and drains.
The District began providing retail electric service in 1996. The District owns and operates its retail energy system consisting of approximately 35 miles of transmission lines, three substations, and approximately 460 miles of distribution lines. The District’s Energy System serves approximately 9,000 customers in the eastern portion of Merced County, including in the communities and cities of Livingston, Merced, and Atwater. The retail electric system purchased Merced Falls, a 3.5MW generating hydroelectric facility on the Merced River, as a component of the District’s; portfolio Lineman breaker testing at Castle substation (renewable portfolio standards).
The District has generated electricity through both the original Exchequer hydroelectric facilities since 1927 and through its New Exchequer and McSwain hydroelectric facilities since 1967. Electricity generated through these hydroelectric facilities is currently sold to PG&E.
The District owns, operates and maintains five recreation areas adjacent to Lake McClure and Lake McSwain including the Lake McSwain Recreation Area, located adjacent to Lake McSwain; and the McClure Point, Barrett Cove, Horseshoe Bend, and Bagby Recreation Areas, all located adjacent to Lake McClure (collectively, the “Parks and Recreation Facilities”). A total of seven boat launch facilities are available and over 600 campsites are available to the public on a year round basis. A floating marina is located on Lake McClure for the boating public. A land-based marina is located adjacent to Lake McSwain. Recreational activities enjoyed in the recreation areas include fishing, boating, swimming, camping, hiking, and mountain biking. Campsite at Lake McSwain, February 2017
In 1994, the District established a storm water drainage district known as the Merced Irrigation District Drainage Improvement District # 1 (the Drainage District). The District allows portions of its irrigation distribution system to be used to convey urban storm drainage to the nearest natural creek or water. Drainage fees are assessed annually by the District and are collected through the County of Merced (the County) tax rolls.
ii Business Entities for the District - Separate and wholly owned, from the District and its Services
In 2011, the District formed the Twin Lakes Management Company (the TLMC), which operates and maintains buoy mooring fields for approximately 240 private houseboats around Lake McClure, the floating marina at Barrett Cove has fuel , a store/café, and houseboat graywater/wastewater dumping services. TLMC also has a full-service houseboat repair yard at McClure point. While TLMC is included in the Districts annual audit, for budgeting purposes TLMC is a separate entity and produces a separate forecast.
Governance and Management
The District is governed by a five person Board of Directors (the Board) serving staggered four year terms from comparably sized divisions based on population. The current directors are:
Director Expiration of Term Dave Long, Division 3, President December 2018 Scott Koehn, Division 2, Vice President December 2017 Jeff Marchini, Division 1 December 2018 Kevin Gonzalves, Division 4 December 2017 Billy Pimentel, Division 5 December 2017
The day-to-day management of the District is under the direction of the General Manager who reports directly to the Board of Directors. The District is organized functionally into eleven departments. The operating departments are Water Resources, Energy Resources, Hydroelectric Project, Parks and Recreation, Storm Drainage, and Sustainable Groundwater Management Act (SGMA). The two main supporting departments are: Finance and Administrative.
Economic Conditions & Outlook
The District can be affected by a wide variety of economic factors, including legislative action, regulatory requirements, and labor force skill and availability. Three major factors that affect the District are (1) the availability of surface water, (2) energy supplies and related costs of power, and (3) property tax revenues.
District Water Supply and Water Rights
The Merced River is the main source of the District’s surface water supply. The District diverts water from the Merced River, Lake McClure and other local water sources. The District holds pre-1914 water rights on the Merced River and local reservoirs and creeks that are intertwined with the District’s distribution system. The District also holds post-1914 appropriate water rights licenses issued by the State Water Resources Control Board (SWRCB).
The District’s normal operating objective is to Lake McClure spillway February 13, 2017, photo maximize surface water use subject to availability in courtesy of Brianna Calix order to preserve groundwater for use in years when surface water supplies are limited. Thus, the proportions of surface water use and groundwater use vary from year to year depending primarily on surface water availability and to some extent on cropping patterns and weather conditions.
iii Water Service Charges
The District has historically charged its irrigation customers both a per acre-foot volumetric water charge and a per acre standby fee. The District’s water rate for the 2016 water season was $66.00 per acre- foot. Standby fee was $24.00 per acre for the year. Conjunctively pumped groundwater was priced at $110.00 per acre-foot.
District Hydroelectric System and Hydroelectric Power Generation
In 1964, the District signed a 50-year Power Purchase Agreement with PG&E through which PG&E assisted in the financing of construction of the District’s New Exchequer Dam. While the PG&E Power Purchase Agreement was in effect, the District did not receive revenues from the power generated by the hydroelectric system at New Exchequer and McSwain Dams, however, all expenses including capital, operating expense, and bond debt payments were paid by PG&E. That agreement expired on June 30, 2014, and the District now receives all revenue and incurs all expenses related to the hydroelectric facility.
District Energy Resources Power Supply and Cost
The District currently provides retail electric service to approximately 9,000 customers within the electric service area of the District. The District currently has constructed Electric System facilities within new residential developments to serve approximately 2,900 units of new, yet to be built, residential housing from the District’s Electric System.
Power Supply. The electricity supplied to the District’s retail electric customers is obtained from the Turlock Irrigation District (TID).
Purchases Made Under Contract with TID. While the District has had various agreements with TID since 1996, the District entered into its current contract in May 2017 and will be in effect until 2028.
Risk Management. In order to manage its cost of power and limit its exposure to changes in market pricing, the District has entered into swap agreements. Generally under the swap agreements, the District will pay a fixed price to the swap counterparty in exchange for a variable payment by the counterparty based on the Daily Intercontinental Exchange, Linemen at Cooper substation circuit Inc. North of Path 15 Price Index (NP-15). breaker testing
Financial Hedge Instruments Agreements. The District has entered into financial hedge instruments with a variety of counterparties. Currently the District has outstanding financial hedge instruments agreements with Morgan Stanley Capital Group, Inc. (“Morgan Stanley”), Cargill Incorporated (“Cargill”), British Petroleum (“BP”), Avangrid Renewables (formerly known as Iberdrola Renewables), Constellation Energy (a subsidiary of Exelon), and Shell Energy North America (Shell). The District may enter into financial hedge instruments agreements with additional counterparties in the future.
iv Public Purpose Program. The District collects a surcharge for public benefit programs on electric customer utility bills. This surcharge is mandated by State legislation (i.e. AB 1890 and subsequent legislation) and disbursement is restricted to various socially-beneficial programs and services.
The District has 17 rate electric schedules, as follows:
AG-2 Agricultural Demand General Service ED-2 Large Demand General Service ED-2P Large Demand Primary Service ED-3 Medium Demand General Service ED-3V Medium Demand General Service Voluntary ED-4 Small Demand General Service EGS-2 Commercial & Small Industrial General Service MD-3 Municipal & Non-Profit Medium Demand General Service MD-4 Municipal & Non-Profit Small Demand General Service RES-2 Residential General Service TR-1 Large Demand Transmission Service LSC Street lighting - Customer Owned and Maintained LSC-1 Street lighting - District Owned and Maintained MEF Flat Rate Service NEM Net Energy Metering PCA Power Cost Adjustment EC Environmental Charge
The Energy Resources base rates have been changed periodically since the District commenced operation of its electric system. The District’s rate structure has evolved since inception to match the growing needs of its expanding customer base. The District has not implemented any electric rate increases since 2009.
FERC Relicensing. The District’s initial license for the Merced River Hydroelectric Project from FERC expired on February 28, 2014. The District has been in the process of renewing its license for several years and is currently operating, and expects to continue operating, under annual licenses until a new license is issued.
Power Generation. Hydroelectric power generation is largely dependent on water storage and flows.
District Property Tax Revenue. The County of Merced (County) levies a 1% ad valorem property tax on New Exchequer Dam hydroelectric facility release from Lake McClure February 13, 2017 behalf of all taxing agencies in the County, including the District (the “Property Tax”). The taxes collected are allocated to taxing agencies within the County, including the District, on the basis of a formula established by State law enacted in 1979. Under this formula, the County and all other taxing entities receive a base year allocation plus an allocation on the basis of “situs” growth in assessed value (new construction, change of ownership, and inflation) prorated among the jurisdictions which serve the tax rate areas within which the v growth occurs. Tax rate areas are specifically defined geographic areas which were developed to permit the levying of taxes for less than county-wide or less than city-wide special districts.
For the fiscal year ended March 31, 2017, the District received approximately $2.6 million as the District’s share of the County’s 1% ad valorem property tax.
Projects Completed During Fiscal Year
As the District looks to the future, major District goals include: continuing to improve service to growers while maintaining reasonable water rates and standby charges; working cooperatively to build regional and state water resource policy, including groundwater and Bay-Delta issues, and working to protect agriculture and historic water rights. Energy Resources is working diligently to expand services in eastern Merced County.
The District accomplished the following projects:
Slide Gate Refurbishment – Phase 2 Two slide gates, each 7’ wide and 10’ tall, are located within the penstock at Exchequer Dam. These slide gates are utilized as a clearance point for work on the bypass valve and turbine shutoff valve at Exchequer PH and essential for worker safety. The slide gates have not been refurbished since the project went into operation in 1967, nor has an unwatered inspection been performed on them. In order to inspect and service these slide gates, the upstream bulkhead gate, measuring 13’ wide and 23’ tall, must be inspected, then closed and the penstock dewatered.
This project is divided into 3 phases. Phase 1 was completed in fiscal year 2016 by removing and inspecting the bulkhead gate, refurbishing the operator and dogging device, and preparing designs for a replacement bulkhead gate. Phase 2 replaced the bulkhead gate based on condition and included reinstallation as required. (See details of this phase below as it was completed in fiscal year 2017). Phase 3 will use the refurbished bulkhead gate to refurbish the slide gates.
Phase 2 assumes a new gate is fabricated and the bulkhead gate, operator Slide gate refurbishment, and dogging device are reinstalled and tested. This phase was completed in New Exchequer Dam FY 2017 as reservoir levels permit. January 2017
Feeder Tie Pioneer 103/107 (System Reliability – Livingston Feeders) There are currently two feeders (Circuits 103 and 107) supplying all of Livingston. Both are radial circuits with no backup options. This project bridged the gap between circuits 103 and 107 and provided the means for these two critical circuits to back-feed each other in event of outage or system maintenance on either circuit. Approximately two-thirds of the substructure (conduits, vaults, etc.) necessary to complete this circuit tie was installed by way of various past development projects. Phase 1 of this project (“Feeder Tie Pioneer 103/107”) was approved in FY 2015 budget, but construction was delayed until FY 2016. Phase 2 of this project (“System Reliability-Livingston Feeders”) was approved for FY 2016 and was combined with Phase 1 to complete the circuit tie and significantly increase reliability to the entire Livingston region.
Barrett Cove Marina Modernization The modernization improvements made at Barrett Cove Marina was comprised of two key items: 1) replacement of the aging Marina breakwater, which involved replacing the aging breakwater system with a
vi new wave-attenuation system as well as portions of the breakwater mooring anchor system: and, 2) upgrades made to the Marina fueling system, which involved removal and replacement of the aged fuel-dispensing system (excluding fuel storage tank) including certain sections of piping, dispenser and point-of-sale equipment, and a leak detection/alarm system.
Merced Falls Powerhouse Purchase Merced Falls Powerhouse is a small run of the river hydroelectric generating facility which began operations on July 21, 1930. The powerhouse was owned by PG&E and operated by District staff. The powerhouse is comprised of one hydro turbine unit with a nameplate rating of 4 M, associated dam, bypass gates and equipment. In May 2014, the District entered into an agreement with PG&E for the purchase of Merced Falls Powerhouse. The purchase of Merced Falls Powerhouse was completed in March 2017. The Merced Falls Asset Sale and Purchase Agreement defines the terms and conditions of the purchase.
Mercy Hospital Tie line An alternate primary feed is to be provided to the Mercy Hospital facility. Engineering has installed an underground 600 Amp Feeder Circuit Tie from Cardella Road to Mercy Hospital. This will fulfill our contractual obligation with Mercy Hospital and allow for additional operating flexibility.
Business Park Way Extension Extension of the District electric facilities to twelve commercial buildings along Business Park Way in the Atwater Business Park. District electric construction involved trenching along Business Park Way to install new underground conduits, District transformers, and associated conductors.
McSwain Runner and Draft Tube Refurbishment Refurbishment of the turbine and draft tube at McSwain Powerhouse was needed to control erosion and cavitation. Voids behind the draft tube liner were discovered and filled with grout. This refurbishment will extend the useful life of this equipment by at least 10 years. Voids in draft tube must be addressed to avoid costly damage to the draft tube liner. Refurbishment of the wheel is needed to control erosion which could lead to blade failure.
Golden Valley Health Center Golden Valley Health Center (GVHC) is an existing multi-building clinic situated on a single parcel on Childs Avenue in South Merced. District electric construction involved intercepting existing underground conduits, installing District transformers and associated conductors at each main electric panel location.
Financial Policies
The District has formally adopted the following three financial policies:
Cash Reserve Policy The Cash Reserve Policy states the purpose, source and funding limits for each of its designated reserves. These reserves have been established to meet internal requirements and/or external legal requirements. These policy guidelines enable restricting funds for compliance with statutory requirements, future infrastructure needs, replacement of aging facilities, bond reserves and various operating reserves to mitigate unexpected occurrences.
vii Debt Management Policy The Debt Management Policy is designed to establish parameters for issuing debt and provide guidance to decision makers with respect to all options available to finance infrastructure and other capital projects, so that the most prudent, equitable and cost-effective method of financing can be chosen. The policy also documents the objectives to be achieved by staff both prior and subsequent to debt issuance. It promotes objectivity in the decision-making process and facilitates the financing process by establishing important policy decisions in advance.
Investment Policy The Investment Policy is intended to outline the guidelines and practices to be used in effectively managing the District’s available cash and investment portfolio. It applies to all cash and investment assets of the District except those funds maintained in pension or other post-employment benefits accounts for employees. All District monies, including those not required for immediate expenditure, are to be invested in Main Office Lobby, 744 20th Street Merced compliance with governing provisions of law (California Government Code Sections 53600 et seq.). The policy lists in detail authorized investments, as well as the percentage of portfolio limitations and required rating for each investment type.
Accounting System
The Finance Department is responsible for providing financial services for the District, including financial accounting and reporting, payroll, accounts payable and receivable, investment of funds, billing and collection of water and drainage charges, taxes and other revenues. The District accounts for its activities as an enterprise fund and prepares its financial statements on the accrual basis of accounting, under which revenues are recognized when earned and expenses are recorded when liabilities are incurred.
Internal Controls
The District operates within a system of internal accounting controls established and continually reviewed by management to provide reasonable assurance that assets are adequately safeguarded and transactions are recorded in accordance with District policies and procedures. When establishing and reviewing controls, management must consider the cost of the control and the value of the benefits derived from its utilization. Management normally maintains or implements only those controls for which its value adequately exceeds its costs. Recent audits have not noted any material weaknesses in internal controls.
Budgetary Controls
The Board approves an annual budget as a management tool. The budget is developed with input from the various department levels of the District and adopted prior to the start of each fiscal year. Quarterly comparison reports of budget to actual are prepared and presented at a summary level to the Board along with explanations of significant variances.
viii
Merced Irrigation District District Service Area Map
Communities We Serve
Merced Atwater Livingston Cressey Le Grand Winton Franklin-Beachwood Planada Tuttle El Nido
MERCED IRRIGATION DISTRICT DISTRICT OFFICIALS At March 31, 2017
ELECTED BOARD OF DIRECTORS Length of Service Dave Long, Division 3, President 6 years Scott Koehn, Division 2, Vice President, Secretary 3 years Jeff Marchini, Division 3, Director 2 years Kevin Gonzalves, Division 4, Director 3 years Billy Pimentel, Division 5, Director 3 years
DISTRICT EXECUTIVE MANAGEMENT TEAM
John Sweigard, General Manager 6 years Hicham Eltal, Deputy General Manager, Water Supply 23 years Bryan Kelly, Deputy General Manager, Water Resources 12 years Don Ouchley, Deputy General Manager, Energy Resources 5 years Brian Stubbert, Chief Financial Officer 5 years Bret Theodozio, Director of Parks & Recreation 2 year Jennifer Carter, Director of Administrative Services 6 years Mike Jensen, Public and Government Relations Officer 5 years Phillip R. McMurray, General Counsel 5 years
Organizational Chart 2017
Jeff Marchini Scott Koehn Dave Long Kevin Gonzalves Billy Pimentel Director Director/Vice President Director/President Director Director Division 1 Division 2 Division 3 Division 4 Division 5
John Sweigard General Manager General Administration
Crystal Guintini Executive Assistant to GM General Administration
Vic Moreno Bryan Kelly Director of Administrative Services Deputy GM, Water Resources Administrative Services Water Resources
Brian Stubbert Don Ouchley Chief Financial Officer Deputy GM, Energy Resources Finance Energy Resources
Phillip McMurray Michael Jensen General Counsel Manager of Public/Govt Relations General Administration General Administration
Bret Theodozio Hicham Eltal Director of Parks & Recreation Deputy GM, Water Supply/Rights Park Operations Water Resources
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Financial Section
Storm passing ~ Michael Sharps March 21, 2017
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2 INDEPENDENT AUDITORS’ REPORT
To the Board of Directors Merced Irrigation District
Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities of the Merced Irrigation District (the District) as of and for the year ended March 31, 2017, and the related notes to the financial statements, which collectively comprise the District’s financial statements as listed in the table of contents. 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. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on 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.
7473 N. INGRAM AVE., SUITE 102 ( FRESNO, CA 93711 ______P (559) 412-7576 ( F (559) 493-5325 ( WWW.HHCCPAS.COM Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of the District, as of March 31, 2017, and the respective changes in financial position, and, where applicable, cash flows for the year 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 the Management’s Discussion and Analysis, Schedules of Funding Progress – Other Post- Employment Benefits (OPEB), Schedule of Changes in the Net Pension Liability and Related Ratios, and Schedule of Contributions on pages 7-14 and 62-64 be presented to supplement the basic financial statements. Such information, although not a 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 opinions on the financial statements that collectively comprise the District’s basic financial statements. The introductory section, combining financial statements, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have 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 them. The financial statements of the District as of March 31, 2016 were audited by predecessor auditors, and they expressed an unmodified opinion on them in their report dated June 30, 2016, but they have not performed any auditing procedures since that date.
4 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 30, 2017, 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 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.
HUDSON HENDERSON & COMPANY, INC.
Fresno, California June 30, 2017
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6 MANAGEMENT’S DISCUSSION AND ANALYSIS
As management of the District, we offer readers of the Merced Irrigation District’s (District) financial statements this narrative overview and analysis of the financial activities of the District for the fiscal year ended March 31, 2017. We encourage readers to consider the information presented in conjunction with the preceding Independent Auditors’ Report, and the accompanying basic financial statements and notes to the basic financial statements.
The District’s fiscal year 2017, fiscal year 2016, and fiscal year 2015 financial results have been presented for purposes of providing comparative data. This discussion and analysis should be read in conjunction with the financial statements, including the notes to the basic financial statements that begin on page 16.
Overview
The District
The District was formed in 1919 in order to provide irrigation water to farms on the eastern side of Merced County. The District operates under the authority of the California Water Code and engages in various activities classified as “proprietary.” The primary activities of the District today include providing water, electricity and water-related recreation services within its service area. The District is comprised of five major operational enterprises: Water Resources, Parks and Recreation, Hydroelectric, Energy Resources, and Storm Drainage.
Required Financial Statements The District’s financial statements report information utilizing the full accrual basis of accounting and conform to accounting principles that are generally accepted in the United States of America. The financial statements consist of three interrelated statements designed to provide the reader with relevant, understandable data on the District’s financial condition and operating results. They are the (1) Statements of Net Position; (2) Statements of Revenues, Expenses, and Changes in Net Position; and (3) Statements of Cash Flows. The District’s financial statements report information about the District using accounting methods similar to those used by companies in the private sector. These statements offer short-term and long-term financial information about its activities. The Statements of Net Position includes a summary of all of the District’s assets and liabilities. It provides information regarding the nature and amounts of the District’s assets, as well as the District’s liabilities, and describes the difference between the District’s assets and liabilities as its ‘Net Position’. This statement also provides the basis for computing rate of return, evaluating the capital structure of the District, and assessing the liquidity and financial flexibility of the District.
All of the current year’s revenues and expenses are accounted for in the Statements of Revenues, Expenses, and Changes in Net Position. This statement measures the District’s operations over the past year and can be used to determine whether the District has successfully recovered its costs. The District’s profitability and credit worthiness can also be determined from this statement. This statement is prepared using the accrual basis of accounting, by recognizing revenues in the period they are earned and expenses in the period they are incurred without regard to the period of cash receipt or payment.
(209) 722-5761 744 West 20th Street P.O. Box 2288 Merced, California 95344-0288 Administration / FAX (209) 722-6421 • Finance / FAX (209) 722-1457 • Water Resources / FAX (209) 726-4176 Energy Resources / FAX (209) 726-7010 • Customer Service (209) 722-3041 / FAX (209) 722-1457 MERCED IRRIGATION DISTRICT
The Statements of Cash Flows provides information about the District’s cash receipts and cash payments during the year, as well as net changes in cash resulting from operation, financing, and investing activities. This statement explains where cash came from, where cash was used and the change in the District’s cash balance during the reporting year.
The Notes to the basic financial statements provide additional information that is essential to a full understanding of the financial data provided and are an integral part of the basic financial statements. The District provides a presentation of both the combined financial statements, as well as supplemental combining financial statements which portray the individualized major component funds.
Financial Highlights This year’s financial statements reflect a continued strong and stable fiscal positon for the District.
The District’s total assets and deferred outflow of resources increased by approximately $30.3 million for the year ended March 31, 2017. The total liabilities increased by approximately $3.3 million when compared to March 31, 2016 (restated). o The deferred outflow of resources has increased by approximately $1.9 million. This is a result of the implementation of GASB 68 which reflects a deferred outflow increase related to the District’s Pension Plan. o The deferred inflow of resources has decreased by approximately $589,000. This is a result of more customers utilizing the Public Purpose program provided by the District in fiscal year 2017 as compared to fiscal year 2016 (restated).
The District continued its efforts to obtain a new operating license for its Merced River Hydroelectric Project on the Merced River from the Federal Energy Regulatory Commission (FERC). Since beginning the relicensing process its hydroelectric project in approximately 2008, the District has expended a total of approximately $27.6 million. The District’s license expired on February 28, 2014; however, under applicable rules the District was granted a one-year extension of the license and will continue to receive automatic one year extensions until a new long-term operating license is issued by FERC.
The District realized operating revenue for the fiscal year ended March 31, 2017, of approximately $89 million, and operating expenses of approximately $62.4 million, which resulted in net income from operations of approximately $26.7 million. Non-operating revenues which consist primarily of property tax revenue of approximately $3.8 million as of March 31, 2017. While Non-operating expenses of approximately $5.1 million as of March 31, 2017 consisting primarily of Interest Expense of approximately $3.7 million. The Capital Contributions for the District were approximately $2.3 million as of March 31, 2017.
The District’s total cash and cash equivalents decreased by approximately $6 million for the year ended March 31, 2017 when compared to March 31, 2016 (restated). The total cash decrease is primarily due to the District increasing its short term investments. Interest rates increased to a level that made it financially prudent to invest in short-term liquidities versus retaining the cash in non-interest bearing accounts.
Summary Financial Information and Analysis
Condensed Statements of Net Position The following tables compare the various categories of assets, deferred outflow of resources, liabilities, deferred inflow of resources and net position for each of the consecutive fiscal years:
MERCED IRRIGATION DISTRICT
Condensed Statements of Net Position as of March 31, 2017, 2016, and 2015: Restated Restated March 31, 2017 March 31, 2016 March 31, 2015 Assets Capital Assets, net $ 163,744,835 $ 157,298,579 $ 152,400,614 Other non-current assets 68,614,845 56,921,650 48,063,795 Current assets 62,831,500 52,518,523 63,444,540 Total assets $ 295,191,180 $ 266,738,752 $ 263,908,949 Deferred outflows of resources 5,649,735 3,794,539 3,883,576 Total assets and deferred outflows of resources $ 300,840,915 $ 270,533,291 $ 267,792,525
Liabilities Noncurrent liabilities $ 134,923,940 $ 134,861,721 $ 146,355,338 Current liabilities 19,100,500 15,911,319 15,305,959 Total Liabilities $ 154,024,440 $ 150,773,040 $ 161,661,297 Deferred inflows of resources 4,387,662 4,977,155 4,702,494 Net position Net investment (deficit) in capital assets 87,321,044 75,221,148 67,163,402 Restricted 3,189,737 3,234,152 1,997,701 Unrestricted (deficit) 51,918,032 36,327,796 32,267,635 Total net position 142,428,813 114,783,096 101,428,738 Total liabilities, deferred inflows of resources and net position $ 300,840,915 $ 270,533,291 $ 267,792,525
Significant Net Position Activity Capital assets are not liquid nor are they available for future spending but have been acquired over time and through their utilization provide the District with revenue. The District’s assets and deferred outflow of resources exceeded liabilities and deferred inflows of resources by approximately $142.4 million at March 31, 2017, as compared to an excess of assets and deferred outflow of approximately $114.8 million and $101.4 million at March 31, 2016 and March 31, 2015 respectively.
The Net position is comprised of the District’s net investment in capital assets, which increased by approximately $12.1 million for the year ended March 31, 2017 when compared to March 31, 2016. This compares to an increase of approximately $8 million at March 31, 2016 (restated) for net investment in capital assets as compared to March 31, 2015 (restated). The Restricted portion of net position, which is subject to external restrictions of approximately $3.2 million is approximately the same as the prior year as compared to an increase of approximately $1.2 million for the year ended March 31, 2016 (restated). Lastly there is approximately $51.9 million of unrestricted net position for the year ended March 31, 2017 which is an increase of approximately $15.6 million when compared to the year ended March 31, 2016 (restated). Lastly, Net Position has increased by approximately $27.6 million for the year ended March 31, 2017 when compared to an increase of approximately $13.4 million in the year ended March 31, 2016 (restated).
Condensed Capital Assets Net of Accumulated Depreciation The following tables compare the various categories of capital assets net of accumulated depreciation for each of the consecutive fiscal years:
9 MERCED IRRIGATION DISTRICT
Condensed Capital Assets Detail, Net of Accumulated Depreciation March 31, 2017, 2016, and 2015:
March 31, 2017 March 31, 2016 March 31, 2015 Landscaping, net $ 4,010,282 $ 4,344,305 $ 4,686,329 Building and structures, net 25,042,389 24,023,950 24,742,716 Distribution system, net 86,874,613 88,112,221 89,346,013 Equipment, net 13,381,213 13,660,837 10,295,441 Vehicles, net 1,138,395 754,044 488,611 Intangible assets, net 567,168 766,384 960,796 Construction in progress 19,622,587 12,528,650 8,772,519 Land and easements 13,098,088 13,098,088 13,098,088 Goodwill 10,100 10,100 10,100 $ 163,744,835 $ 157,298,579 $ 152,400,61
Significant Capital Asset Activity Overall, capital assets increased by approximately $6.4 million as of March 31, 2017 compared to an approximate increase of $4.9 million at March 31, 2016, as compared to March 31, 2015. This is due to the completion of improvements to the District’s Slide Gate Refurbishment Phase 2, Feeder Tie Pioneer 103/107 (System Reliability – Livingston Feeders), Barrett Cove Marina Modernization, Mercy Hospital Tie Line, and the Business Park Way Extension. While some of the work spanned multiple years, these projects were closed in the fiscal year ended March 31, 2017. For additional information about the District’s capital assets, see Note 4 to the basic financial statements.
Long-Term Debt The following tables compare the various types of Long-Term Debt for each of the consecutive fiscal years:
Long-Term Debt as of March 31, 2017, 2016 and 2015: March 31, 2017 March 31, 2016 March 31, 2015 2005 Electric System Refunding Revenue Bonds $ - $ - $ 55,365,000 2005 Revenue Certificates of Participation - - 2,735,000 2012 Electric System Refunding Revenue 10,169,997 10,185,000 10,200,000 2013 Electric System Refunding Revenue Bonds - - 11,688,190 2014 Water & Hydroelectric System Refunding Revenue Bonds 28,855,000 30,220,000 31,410,000 2015 Electric System Refunding Bonds 55,700,000 57,955,000 - Line of Credit 4,310,000 4,310,000 4,342,000 Subtotal of Bonds & Line of Credit $ 99,034,997 $ 102,670,000 $ 115,740,190 Bond discount/premiums 7,456,860 8,213,052 3,966,402 Less current portion of long-term debt (3,725,000) (3,635,000) (3,434,460) Total Long Term Debt $ 102,766,857 $ 107,248,052 $ 116,272,132
Significant Long-term Debt Activity Long-term debt decreased by approximately $4.5 million in the year ended March 31, 2017 from March 31, 2016, as compared to a decrease of approximately $9 million from the prior year. At March 31, 2017, the District had long-term debt outstanding of approximately $102.8 million as compared to approximately $107.2 million at March 31, 2016, and $116.3 million at March 31, 2015.
10 MERCED IRRIGATION DISTRICT
In June 2015, the District refunded and defeased approximately $59 million of the 2005 Electric System Bonds, 2005 Electric System Revenue Certificates of Participation, 2013 GE Electric System Loan, with a NPV Savings of approximately $8,457,000 (12.12%) and an annual cash saving of approximately $585,000. For additional information about the District’s long-term debt, see Note 6 of the basic financial statements.
The District entered into a Joint Powers Agreement with Modesto Irrigation District on May 21, 2015, to form the “Merced Irrigation District Financing Authority” for the general purpose of providing the District with an option to fund public capital improvements, working capital, liability and other insurance needs, or projects. Each district is responsible for its own debt issued and there is no responsibility for debt issued by the other district. Additionally, the Marks-Roos Local Bond Pooling Act of 1985 authorizes and empowers the Authority to issue and sell bonds to public or private purchasers at public or negotiated sale.
Statement of Revenues, Expenses, and Change in Net Position The following table compares the various categories of revenues, expenses and changes in net position for each of the consecutive fiscal years:
Condensed Statements of Revenues, Expenses, and Changes in Net Position for March 31, 2017, 2016, and 2015: Restated Restated March 31, 2017 March 31, 2016 March 31, 2015 Operating revenues: Electric sales and services $ 54,243,062 $ 54,181,356 $ 56,320,094 Water sales and services 16,670,922 9,387,586 15,610,991 Hydroelectric contractual services 13,193,171 3,894,991 8,401,170 Water Transfers 2,103,419 5,661,009 7,880,905 Recreation fees 1,276,633 848,773 1,100,747 Administrative Services 122,111 106,658 - Storm drainage fees 24,648 10,323 6,480 Concessionaire revenue 1,446,134 1,136,380 1,496,512 Total Operating Revenue $ 89,080,100 $ 75,227,076 $ 90,816,899 Operating expenses: Purchase of power 25,074,816 27,377,023 32,714,176 Water distribution 11,774,432 11,556,965 15,272,068 Electric transmission and distribution 10,169,813 7,914,915 12,307,220 Recreation 2,498,234 1,942,452 2,642,197 Concessionaire 1,081,595 928,493 789,633 Storm drainage (2,332) 23,969 34,743 Administrative and general 5,534,045 4,514,101 5,067,069 Depreciation and amortization 6,246,030 7,542,216 5,809,401 Total Operating Expenses $ 62,376,633 $ 61,800,134 $ 74,636,507 Net income(loss) from operations $ 26,703,467 $ 13,426,942 $ 16,180,392 Non-operating revenues (expenses) Property taxes revenue 2,955,177 2,750,480 2,548,024 Interest Income 781,540 474,700 258,867 Administrative and general - nonoperating (912,779) (265,463) - Other non-operating income/(expense) (529,291) (230,916) (300,831) 11 MERCED IRRIGATION DISTRICT
Gain/(losses) on disposal of capital assets (7,000) (60,474) 212,470 Interest expense (3,691,356) (6,415,319) (20,351,456) Realized gain/(losses) on investment 95,746 40,257 29,634 Total Non-Operating Revenues (Expenses) $ (1,307,963) $ (3,706,735) $ (17,603,292) Net income(loss) before cap contributions $ 25,395,504 $ 9,720,207 $ (1,422,900) Capital contributions Capital contributions 2,071,299 3,467,868 707,862 Capital contributions - other 169,850 159,000 1,442,523 Capital contributions non-cash 9,064 7,283 - Total capital contributions $ 2,250,213 $ 3,634,151 $ 2,150,385 Change in net position $ 27,645,717 $ 13,354,358 $ 727,485 Net position, beginning of year 114,783,096 101,428,738 100,701,253 Net position, end of year $ 142,428,813 $ 114,783,096 $ 101,428,738
Significant Changes in Revenues, Expenses, and Net Position Activity Net income from operations was approximately $26.7 million for the year ended March 31, 2017, representing an increase of approximately $13. million over the prior year. This increase was due to a marked improvement in hydrology for the water season of October 1, 2015 through September 30, 2016. The improved hydrology experienced during fiscal year 2017 when compared to the prior fiscal year increased both Water sales and services, and Hydroelectric service operating revenues by approximately $16.6 million. There was a decrease of $10.7 million when comparing fiscal year 2016 and fiscal year 2015 for these two operating revenue categories. Net income from operations decreased by approximately $2.8 million when comparing fiscal year 2016 (restated) and fiscal year 2015 (restated) due to the hydrologic condition at the time.
The non-operating revenue are approximately $3.8 million for the fiscal year ended March 31, 2017, which consisted primarily of Property tax revenue of approximately $3 million. This is an increase of $567,000 when compared to March 31, 2016. The non-operating expenses are approximately $5.1 million for March 31, 2017 consisting primarily of Interest Expense of approximately $3.7 million. This is a decrease of approximately $1 million when compared to March 31, 2016 non-operating expense.
These factors resulted in net position before capital contributions of approximately $25.4 million for the District, which is an approximate increase of $15.7 million compared to March 31, 2016. The change in net position before capital contribution for March 31, 2016 (restated) is an increase of approximately $11.1 million increase as compared to March 31, 2015 (restated).
Capital contribution revenues of approximately $2.3 million as of March 31, 2017, is comprised of third- party cash proceeds and non-cash developer contributions used for capital projects. The majority of these capital contributions were from grants from the State of California. There is a decrease in capital contribution revenue of approximately $1.4 million for March 31, 2017 compared to the fiscal year ended March 31, 2016 (restated) due to the completion of Water Resources and Parks and Recreation infrastructure improvement projects partially funded through matching state grants in fiscal year 2016.
Economic Factors and Rates
With respect to water operations, the District’s 2016 water year (October 1, 2015 to September 30, 2016) was the fifth year of ongoing drought. However, water conditions improved by the end of water season compared to the previous year. The end of October storage in Lake McClure (October 31, 2016) was MERCED IRRIGATION DISTRICT approximately 377,758 acre-feet compared to 68,860 acre-feet on October 31, 2015, but was still below the forty-nine (49) year average storage of approximately 442,595 acre-feet. Similarly, the April-July 2015 inflow into Lake McClure was approximately 484,300 acre-feet, compared to 90,200 acre-feet during the 2015 water year. The historical average inflow during this time period is approximately 627,400 acre-feet.
Water allocations to District growers also improved compared to the previous irrigation season. During the 2015 irrigation season and due to the ongoing drought and critically low reservoir levels, no surface water was allocated to MID growers, with the exception of an emergency diversion of about 13,250 acre- feet during the early part of July. During the 2016 irrigation season, the District allocated 4 acre-feet per acre to Class I growers and 2 acre-feet per acre to Class II growers. The District did not offer its Supplemental Water Supply Pool Program during the 2016 irrigation season.
The District saw an increase in customers’ electric usage in the 2017 fiscal year, with electric kWh sales increasing by 2.7% to 473,536 MWh for fiscal year 2017 from the 2016 fiscal year usage of 460,883 MWh. District bulk electricity purchases for resale are made under contract with Turlock Irrigation District (TID) through 2028.
The District continues to sell energy generation from its Merced River Hydroelectric Project to PG&E under a short term contract which will expire on June 30, 2017. Capacity was sold to Shell Energy North America through December 31, 2016. For calendar year 2017, a contract for Exchequer capacity was entered into with Constellation Energy, a subsidiary of Exelon. An agreement to utilize the capacity of McSwain and Merced Falls for the capacity needs of the Energy Resource’s Distribution System was entered between TID and the District starting in May 2017 and will continue through April 2028. Hydroelectric will compensate the Water department at market prices for the McSwain capacity. Increased lake levels at both Lake McClure and Lake McSwain enabled the Exchequer and McSwain powerhouses to produce a combined gross generation of 324,408 MWh which is close to the historic annual average seen since the Merced River Hydroelectric project was commissioned for service in 1967.
Improving lake levels during fiscal year 2017 resulted in an increase in park visitors (202,343 visitors) compared to fiscal year 2016 (134,886 visitors). This increase was still below the previous six year average of 208,000 visitors.
The management team at TLMC, a separate entity from the District, but included in the District’s basic financial statements, has focused on improving customer services by leasing the McSwain facilities to a third-party concessionaire company. The TLMC staff was also involved in the construction of an emergency drought buoy mooring field and the relocation of houseboats from their normal mooring location to the emergency drought buoy mooring field that accommodated approximately half of the permitted houseboats. The remaining houseboats were pulled from the lake as the extremely low lake levels would not accommodate every District permitted houseboat to remain on the lake.
Request for Information
This financial report is designed to provide a general financial overview for the District’s Board of Directors, customers, ratepayers and other interested parties. Questions concerning any of the information provided in the report or requests for additional information should be addressed to Kandi Ramos, Controller, 744 W 20th Street, Merced, CA 95340.
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14 MERCED IRRIGATION DISTRICT
BASIC FINANCIAL STATEMENTS
15 MERCED IRRIGATION DISTRICT STATEMENTS OF NET POSITION MARCH 31, 2017 AND 2016
(restated) 2017 2016 ASSETS
Capital Assets: Nondepreciable $ 32,730,775 $ 25,636,838 Depreciable 131,014,060 131,661,741 Capital assets, net 163,744,835 157,298,579
Other Noncurrent Assets: Investments 40,612,815 30,141,828 Regulatory relicense costs 27,649,093 26,389,591 Debt insurance costs 352,937 390,231 Total other noncurrent assets 68,614,845 56,921,650
Current Assets: Cash and cash equivalents 18,673,465 24,689,310 Investments 22,205,588 11,103,204 Accounts receivable, net 11,467,949 4,762,248 Due from other governmental agencies 2,545,629 3,845,065 Accrued interest and taxes receivable 301,005 134,325 Inventory 3,752,771 4,192,119 Prepaid expenses and other current assets 695,356 695,207 Restricted cash and cash equivalents 3,189,737 3,097,045 Total current assets 62,831,500 52,518,523
Total Assets 295,191,180 266,738,752
DEFERRED OUTFLOWS OF RESOURCES
Deferred gas charges (174,579) (99,999) Pension plan 5,824,314 3,894,538 Total Deferred Outflows of Resources 5,649,735 3,794,539
Total Assets and Deferred Outflows of Resources$ 300,840,915 $ 270,533,291
The accompanying notes are an integral part of the financial statements.
16 MERCED IRRIGATION DISTRICT STATEMENTS OF NET POSITION (CONTINUED) MARCH 31, 2017 AND 2016
(restated) 2017 2016 LIABILITIES
Noncurrent Liabilities: Long-term debt $ 102,766,857 $ 107,248,052 Accrued compensated absences 1,588,674 1,195,539 Employee retirement 1,494,158 1,494,158 Net OPEB obligation 1,564,192 1,458,735 Collective net pension liability 23,904,671 19,543,924 Regulatory unearned revenues 3,586,413 3,826,683 Deposits - noncurrent 18,975 94,630 Total noncurrent liabilities 134,923,940 134,861,721
Current Liabilities: Accounts payable 1,604,813 2,511,566 Accrued liabilities 7,190,084 5,336,859 Unearned revenue 4,336,361 2,242,717 Accrued interest payable 1,610,204 1,643,959 Deposits - current 634,038 541,218 Current portion of long-term debt 3,725,000 3,635,000 Total current liabilities 19,100,500 15,911,319
Total Liabilities 154,024,440 150,773,040
DEFERRED INFLOWS OF RESOURCES
Public purpose revenues 1,934,809 1,418,526 Power cost reductions 800,000 800,000 Pension plan 1,652,853 2,758,629 Total Deferred Inflows of Resources 4,387,662 4,977,155
NET POSITION
Net investment in capital assets 87,321,044 75,221,148 Restricted 3,189,737 3,234,152 Unrestricted 51,918,032 36,327,796 Total Net Position 142,428,813 114,783,096
Total Liabilities, Deferred Inflows of Resources and Net Position $ 300,840,915 $ 270,533,291
The accompanying notes are an integral part of the financial statements.
17 MERCED IRRIGATION DISTRICT STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEARS ENDED MARCH 31, 2017 AND 2016
(restated) 2017 2016 OPERATING REVENUES Electric sales and services $ 54,243,062 $ 54,181,356 Water sales and services 16,670,922 9,387,586 Hydroelectric services 13,193,171 3,894,991 Water transfers 2,103,419 5,661,009 Recreation fees 1,276,633 848,773 Administrative services 122,111 106,658 Storm drainage fees 24,648 10,323 Concessionaire revenue 1,446,134 1,136,380 Total Operating Revenues 89,080,100 75,227,076
OPERATING EXPENSES Purchase of power 25,074,816 27,377,023 Water distribution 11,774,432 11,556,965 Electric transmission and distribution 10,169,813 7,914,915 Recreation 2,498,234 1,942,452 Concessionaire 1,081,595 928,493 Storm drainage (2,332) 23,969 Administrative and general 5,534,045 4,514,101 Depreciation and amortization 6,246,030 7,542,216 Total Operating Expenses 62,376,633 61,800,134
Net Income from Operations 26,703,467 13,426,942
NONOPERATING REVENUES (EXPENSES) Property taxes 2,955,177 2,750,480 Interest income 781,540 474,700 Administrative and general - nonoperating (912,779) (265,463) Other nonoperating income (expense) (529,291) (230,916) Gain (loss) on disposal of capital assets (7,000) (60,474) Interest expense (3,691,356) (6,415,319) Realized gain/(loss) on investment 95,746 40,257
Total Nonoperating Revenues (Expenses) (1,307,963) (3,706,735)
Net Income before Capital Contributions 25,395,504 9,720,207
CAPITAL CONTRIBUTIONS Capital contributions 2,071,299 3,467,868 Capital contributions - other 169,850 159,000 Capital contributions - noncash 9,064 7,283 Total Capital Contributions 2,250,213 3,634,151
Change in Net Position 27,645,717 13,354,358
Net Position, Beginning of Year 114,783,096 101,428,738
Net Position, End of Year $ 142,428,813 $ 114,783,096
The accompanying notes are an integral part of the financial statements.
18 MERCED IRRIGATION DISTRICT STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 2017 AND 2016
(restated) 2017 2016 Cash Flows from Operating Activities: Cash receipts from customers $ 85,767,479 $ 75,994,302 Cash paid to suppliers for goods and services (41,355,670) (51,032,279) Cash paid to employees for services (10,957,447) (9,243,417) Net cash provided by operating activities 33,454,362 15,718,606
Cash Flows from Non-Capital Financing Activities: Property taxes received 2,955,177 2,750,480 Relicense costs incurred (1,499,772) (858,819) Other income, net of other expenses (1,442,070) (170,069) Net cash provided by non-capital financing activities 13,335 1,721,592
Cash Flows from Capital and Related Financing Activities: Acquisition and construction of capital assets (12,819,298) (11,279,656) Proceeds from the sale of capital assets 120,012 43,181 Capital contributions from grants 2,250,213 3,626,868 Proceeds from issuance of debt - 63,405,402 Principal payments on long-term debt (4,391,195) (71,929,728) Interest payments on long-term debt (3,687,817) (5,821,444) Long-term debt refunding - 2,238,081 Net cash used by capital and related financing activities (18,528,085) (19,717,296)
Cash Flows from Investing Activities: Purchase of investment securities (21,573,371) (12,348,019) Change in restricted cash (92,692) 4,010,349 Interest received on investments 710,606 425,574 Net cash used by investing activities (20,955,457) (7,912,096)
Net increase (decrease) in cash and cash equivalents (6,015,845) (10,189,194)
Cash and cash equivalents, beginning of year 24,689,310 34,878,504
Cash and cash equivalents, end of year $ 18,673,465 $ 24,689,310
The accompanying notes are an integral part of the financial statements.
19 MERCED IRRIGATION DISTRICT STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED MARCH 31, 2017 AND 2016
(restated) 2017 2016 Reconciliation of operating income to net cash provided by operating activities: Net income from operations $ 26,703,467 $ 13,426,942 Adjustments to reconcile net income from operations to net cash provided by operating activities: Depreciation and amortization 6,246,030 7,542,216 Changes in operating assets and liabilities: Accounts receivable (6,705,701) 698,204 Due from other governmental agencies 1,299,436 (565,501) Inventory 439,348 (340,861) Prepaid expenses and other current assets (149) 65,426 Deferred outflows of resources (1,855,196) (2,424,323) Accounts payable (906,753) 316,684 Accrued liabilities 1,853,225 (295,992) Unearned revenue 2,093,644 (5,339,865) Accrued compensated absences 393,135 (11,827) Net OPEB obligation 105,457 (57,672) Collective net pension liability 4, 360,747 2,455,546 Deposits 17,165 (25,032) Deferred inflows of resources (589,493) 274,661
Net cash provided by operating activities $ 33,454,362 $ 15,718,606
Supplemental Disclosure of Cash Flow Information:
Non-cash investing, capital, and financing activities: Receipt of contributed assets $ 9,064 $ 7,283
The accompanying notes are an integral part of the financial statements.
20 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reporting Entity: The basic financial statements of the Merced Irrigation District (the District) have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the District's accounting policies are described below.
The District was organized in 1919 under the California Water Code to provide agricultural irrigation water to the farmers in the central portion of the San Joaquin Valley in and around eastern Merced County. The District owns and operates two dams and related reservoirs, hydroelectric generation facilities, recreation, and fish enhancement facilities in Merced and Mariposa Counties. The District also provides urban storm drainage and retail electric services in Merced County. The District is governed by a five- member Board of Directors elected by the voters within the District for staggered, four year terms, every two years. As required by GAAP, the accompanying basic financial statements present the District and its component units. The component units discussed below are included in the District's reporting entity because of the significance of their operational and financial relationship with the District.
The District has created the Merced Irrigation District Public Facilities Financing Corporation (MIDPFFC) to provide assistance to the District in the issuance of debt. The District also established the Merced Irrigation District Drainage Improvement District #1 (MIDDID#1) to make annual assessments against properties that drain into a District facility for storm water drainage construction and maintenance expenses. The Twin Lakes Management Company, Inc. (TLMC) was created by the District to operate the marina and lake recreation concessions on Lake McSwain and Lake McClure.
Although legally separate from the District, the MIDPFFC and the MIDDID#1 are reported as if they were part of the primary government because they share a common Board of Directors with the District and their sole purposes are to provide financing to the District under the debt issuance documents of the District and construction and maintenance of storm water drainage facilities. Debt issued by the MIDPFFC is reflected as debt of the District in these financial statements. The MIDPFFC, the MIDDID#1 and the TLMC do not issue separate financial statements. TLMC is also a legally separate entity that is owned by the District and provides concession management at Lake McSwain and Lake McClure. TLMC maintains separate bank accounts, management, and Board Meetings from the District.
Participation in Joint Power Authorities: Until 2016, the District was a member of the San Joaquin Tributaries Authority (SJTA), which was created in or about April 2012 under a joint exercise of powers agreement between the District, Modesto Irrigation District, Turlock Irrigation District, South San Joaquin Irrigation District, Oakdale Irrigation District, and the City and County of San Francisco. The purpose of the SJTA is similar to that of the San Joaquin River Group Authority (SJRGA), including the defense of common interests of the Parties, including the common defense of water rights and to develop proactive and responsive public relations approaches to issues over the long term. At March 31, 2016, the District is no longer a member of the SJTA.
21 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Participation in Joint Power Authorities (continued): On May 21, 2015, the District entered into a Joint Powers Agreement with Modesto Irrigation District to form the "Merced Irrigation District Financing Authority" for the general purpose of providing the District with an option to fund public capital improvements, working capital, liability and other insurance needs, or projects. Each district is responsible for its own debt issued and there is no responsibility for debt issued by the other district. Additionally, the Marks-Roos Local Bond Pooling Act of 1985 authorizes and empowers the Authority to issue and sell bonds to public or private purchasers at public or negotiated sale.
Measurement Focus, Basis of Accounting and Financial Statement Presentation: The District's resources are allocated to and accounted for in these basic financial statements as an enterprise fund type of the proprietary fund group. The enterprise fund is used to account for operations that are financed and operated in a manner similar to a private business enterprise, where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges, or where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/ or net income is appropriate for capital maintenance, public policy, management control, accountability, or other policies. Net position represents the amount available for future operations.
The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. The enterprise fund type is accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of the District are included on the statement of net position. Net position is segregated into net investment in capital assets; restricted; and unrestricted. Enterprise fund type operating statements present increases (i.e., revenues) and decreases (i.e., expenses) in total net position.
The District uses the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. Grant revenue is recognized when program expenditures are incurred in accordance with program guidelines. When funds are received in advance of program expenditures, they are recorded as unearned revenues until earned. Earned but unbilled electric and water services are accrued as revenue. Electrical infrastructures that are constructed by private developers are contributed to the District, which then become the responsibility of the District to maintain. These infrastructures are recorded as capital contributions when they pass inspection by the District and the estimated costs are capitalized and included as a part of the electric transmission and distribution system.
Operating revenues and expenses consist of those revenues and expenses that result from the ongoing principal operations of the District. Operating revenues consist primarily of charges for services. Nonoperating revenues and expenses consist of those revenues and expenses that are related to financing and investing types of activities and result from nonexchange transactions or ancillary activities.
The District maintains both restricted and unrestricted cash. Restricted cash is held in reserve and is spent exclusively for the intended purpose. In the event that the restricted cash is insufficient to complete the intended purpose, unrestricted cash is utilized.
22 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Regulatory Deferrals: The Board has the authority to establish the level of rates charged for all District services. As a regulated entity, the District's financial statements are prepared in accordance with FASB Accounting Standards Codification (ASC) 980, Regulated Operations (ASC 980), which requires that the effects of the rate-making process be recorded in the financial statements. Accordingly, certain expenses and credits normally reflected in the statement of revenues, expenses and changes in net position as incurred are recognized when included in rates and recovered from, or refunded to, customers.
A portion of the District's annual power supply requirement is purchased from the Western Area Power Administration (WAPA). In 2006, due to increased hydroelectric production by WAPA, the District's allotment was significantly higher than anticipated. The comparatively low cost of this power offset higher priced power, causing a reduction of the District's expected overall power supply cost in 2006. This reduction in cost resulted in excess net income that is available to offset the projected power supply cost increase in future years. The power supply cost reduction was deferred in accordance with SFAS 71 for the benefit of future customer rate stabilization and is recorded as a deferred inflow of resources power cost reductions on the statement of net position. At March 31, 2017 and 2016, the deferred power cost reductions were $800,000 as reported in deferred inflows of resources.
A portion of the District water sales is derived from water transfers to local, state and/ or federal agencies for environmental purposes based upon the District's ability to make such water resources available to meet flow objectives in the Merced River, San Joaquin River, or the Delta. At March 31, 2017 and 2016, such cumulative water sales were $3,586,413and $3,826,683, respectively, and are reported as regulatory deferred revenues, as follows:
1. In 2013, the District entered into an agreement to transfer water to a local agency on or before February 28, 2019. The transfer is currently undergoing its state required environmental review. At March 31, 2017 and 2016, the balance on deposit to be applied to the future purchase amount was $2,730,000.
2. In 2014, the District entered into and completed an agreement to transfer water to a local agency. The revenue from this transfer has been deferred to offset certain expenditures in future years. At March 31, 2017 and 2016, the remaining balance was $856,413 and $1,096,683, respectively.
Employee Retirement: In prior years, the District completed a joint project with Pacific Gas & Electric Company (PG&E) on which employees of the District were utilized. PG&E agreed to fund a portion of retirement benefits for those employees. At March 31, 2017 and 2016, the amount funded by PG&E to pay these employee retirement obligations was $1,494,158 and is reported as employee retirement on the statements of net position.
23 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Capital Assets: Capital assets are recorded at historical cost. Contributed assets are valued at estimated fair value on the date received. Depreciation is calculated using the straight-line method over the following estimated useful lives:
Landscaping: 10-40 years Buildings and structures: 10-100 years Transmission and distribution systems: 15-50 years Machinery: 30-35 years Vehicles: 3-10 years Equipment: 3-40 years Intangible plant: 10-50 years
Maintenance and repairs are charged to operations when incurred. It is the District's policy to capitalize all capital assets with a cost of more than $5,000. Costs of assets sold or retired and the related amounts of accumulated depreciation are eliminated from the accounts in the year of sale or retirement and the resulting gain or loss is included in the operating statement.
Impairment of Long-Lived Assets: The District accounts for potential impairments in accordance with GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, under which the District evaluates prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. A capital asset is considered impaired when its service utility has declined significantly and unexpectedly and when full recovery through utility rates or other means is not considered probable. There were no material impairments of long-lived assets recorded during the years ended March 31, 2017 and 2016.
Deferred Relicense Costs: The District is deferring the costs of studies, legal counsel and various consultants associated with relicensing the 1964 Merced River Development Project with the Federal Energy Regulatory Commission (FERC) until the license is renewed. The District's existing FERC license expired on February 28, 2014; however, in accordance with FERC regulations, the District will be issued annual licenses to operate under existing terms and conditions until a new license is issued. The project is expected to be relicensed in 2020, at which time these costs will be amortized to expense over the new license period.
Bond Discounts, Premiums, and Prepaid Insurance Debt Issuance Costs: Bond discounts, premiums, as well as prepaid insurance debt issuance costs, are deferred and amortized over the life of the bonds. Bond discounts and premiums are amortized using the effective interest method and are reported as a component of interest expense. Bonds payable are reported net of the applicable bond discounts and premiums. Insurance costs are reported as noncurrent assets.
Deferred Outflows: Deferred Gas Charges - The District is required to meet an annual carbon emissions obligation for the State of California's Cap-and-Trade Program. Greenhouse Gas (GHG) costs have two components, the expense side and the revenue side. The expense side consists of GHG costs billed by Turlock Irrigation District on the monthly cost of power bill. The revenue side consists of the District receiving funds for allowances sold at auction. The deferred GHG costs are the net expenses waiting to be offset by the revenue generated at auction.
24 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred Outflows (continued): Pension Plan - For purposes of measuring the net pension liability and deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Plan and additions to/ deductions from the Plans' fiduciary net position have been determined on the same basis. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms.
GASB 68 requires that the reported results must pertain to liability and asset information with certain defined timeframes. For this report, the following timeframes are used: Valuation Date: June 30, 2015 Measurement Date: June 30, 2016 Measurement Period: July 1, 2015 to June 30, 2016
Accounts Receivable, Net: Accounts receivable arise from billings to customers for water and electricity usage and include an estimate for unbilled revenues earned from the dates the customers were last billed to the end of the year. An estimate of the uncollectible amount is $44,000 and $40,500 at March 31, 2017 and 2016, respectively.
Due from Other Governmental Agencies: Due from other agencies represents reimbursements due from other agencies for services performed and for water and electricity delivered.
Inventory: Inventory is stated at average cost. Inventory consists of parts and supplies.
Compensated Absences: The District's policy allows employees to accumulate earned but unused vacation, which will be paid to employees upon separation from service to the District, subject to a vesting policy. All or a portion of unused sick leave is paid out upon retirement. The District accrues the liability for vacation and sick leave when the employee earns the right to the benefit.
Deferred Inflows: Public Purpose Revenues - The District is required by the Public Utilities Code to establish a usage-based charge of 2.85% on its electricity sales, which is collected as part of the electric billings. These revenues are to be used for energy efficiency and conservation programs, renewable energy resources, research and development and to provide assistance to low-income customers. These revenues are deferred until qualifying expenses are incurred.
Property Taxes: The District receives property taxes from Merced County. Property taxes receivable are recorded in the fiscal year for which the tax is levied based on the assessed value as of September 1 of the preceding fiscal year. They become a lien on the first day of the year they are levied. Secured property tax is levied on September 1 and due in two installments, on November 1 and March 1. They become delinquent on December 10 and April 10, respectively. Unsecured property taxes are due on July 1 and become delinquent on August 31. The District elected to receive the property taxes from the County under the Teeter Bill Program. Under this Program, the District receives 100% of the levied property taxes in periodic payments, with the County assuming responsibility for delinquencies.
25 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents: For the purpose of the statements of cash flows, the District considers all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents, along with all pooled deposits and investments in the Local Agency Investment Fund (LAIF) and California Asset Management Program (CAMP), which are available upon demand.
Budgeting Procedures: Each year management of the District prepares a proposed budget, which is presented to the District’s Board of Directors. The annual budget is then legally enacted through adoption of a budget resolution.
Governmental Accounting Standards Update: During the year ending March 31, 2017, the District implemented the following standards:
GASB Statement No. 72 – Fair Value Measurement and Application. The provisions of this statement are effective for financial statements for reporting periods beginning after June 15, 2015. This Statement establishes standards for accounting and financial reporting for fair value measurements. The Statement requires investments to be measured at fair value and permits the use of net asset value as the fair value when an investment does not have a readily determinable fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Implementation of GASB 72 resulted in additional disclosures of investments and other assets reported at fair value within the fair value hierarchy. The disclosures are presented in a table displaying the major categories of assets and liabilities measured at fair value and separated into the level of the hierarchy on which fair value is based (see Note 3).
GASB Statement No. 73 – Accounting and Financial Reporting for Pension and Related Assets That Are Not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statements No. 67 and No. 68. The objective of GASB 73 is to improve the usefulness of information about pensions included in the general-purpose external financial reports of state and local governments for making decisions and assessing accountability. GASB 73 results from a comprehensive review of the effectiveness of existing standards of account and financial reporting for all postemployment benefits with regard to providing decision-useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. The requirements of GASB 73 that address accounting and financial reporting by employers and governmental nonemployer contributing entities for pensions that are not within the scope of GASB 68 are effective for financial statements for fiscal years beginning after June 15, 2016, and the requirements of GASB 73 that address financial reporting for assets accumulated for purposes of providing those pensions are effective for fiscal years beginning after June 15, 2015. The requirements of GASB 73 for pension plans that are within the scope of GASB 67 or for pensions that are within the scope of GASB 68 are effective for fiscal years beginning after June 15, 2015. Earlier application is encouraged. The adoption of GASB 73 had no impact on the District’s financial statements.
GASB Statement No. 76 – The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of GASB 76 is to identify in the context of the current governmental financial reporting environment the hierarchy of generally accepted accounting principles (GAAP). The "GAAP hierarchy" consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. The provisions of this statement are effective for financial statements for reporting periods beginning after June 15, 2015. The adoption of GASB 76 had no impact on the District’s financial statements.
26 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Governmental Accounting Standards Update (continued): GASB Statement No. 77 – Tax Abatement Disclosures. Financial statements prepared by state and local governments in conformity with generally accepted accounting principles provide citizens and taxpayers, legislative and oversight bodies, municipal bond analysts, and others with information they need to evaluate the financial health of governments, make decisions, and assess accountability. This information is intended, among other things, to assist these users of financial statements in assessing (1) whether a government's current year revenues were sufficient to pay for current-year services (known as inter-period equity), (2) whether a government complied with finance related legal and contractual obligations, (3) where a government's financial resources come from and how it uses them, and (4) a government's financial position and economic condition and how they have changed over time. The requirements of GASB 77 are effective for reporting periods beginning after December 15, 2015. Earlier application is encouraged. The adoption of GASB 77 had no impact on the District’s financial statements.
GASB Statement No. 78 – Pensions Provided through Certain Multiple-Employer Defined Benefit Plans. The objective of GASB 78 is to address a practice issue regarding the scope and applicability of GASB 68, Accounting and Financial Reporting for Pensions. This issue is associated with pensions provided through certain multiple-employer defined benefit pension plans and to state or local governmental employers whose employees are provided with such pensions. The requirements of GASB 78 are effective for reporting periods beginning after December 15, 2015. The adoption of GASB 78 had no impact on the District’s financial statements.
GASB Statement No. 79 – Certain External Investment Pools and Pool Participants. The requirements of this statement are effective for reporting periods beginning after June 15, 2015, except for the provisions in paragraphs 18, 19, 23-26 and 40, which are effective for reporting periods beginning after December 15, 2015. GASB 79 addresses accounting and financial reporting for certain external investment pools and pool participants. Specifically, it establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. An external investment pool qualifies for that reporting if it meets all of the applicable criteria established in GASB 79. The specific criteria address (1) how the external investment pool transacts with participants; (2) requirements for portfolio maturity, quality, diversification, and liquidity; and (3) calculation and requirements of a shadow price. The adoption of GASB 79 had no impact on the District’s financial statements.
Released GASB Statements to be implemented in future financial statements are as follows:
GASB Statement No. 74 – Financial Reporting for Postemployment Benefit Plans Other than Pension Plans. The provisions of this statement are effective for financial statements for reporting periods beginning after June 15, 2016. The objective of GASB 74 is to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. GASB 74 results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. The requirements of GASB 74 are effective for fiscal years beginning after June 15, 2016. Earlier application is encouraged. The District is in the process of evaluating the impact of implementing GASB 74 for financial reporting.
27 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Governmental Accounting Standards Update (continued): GASB Statement No. 75 – Accounting and Financial Reporting for Postemployment Benefits other than Pension Plans. The primary objective of GASB 75 is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. GASB 75 results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. The requirements of GASB 75 are effective for fiscal years beginning after June 15, 2017. Earlier application is encouraged. The District is in the process of evaluating the impact of implementing GASB 75 for financial reporting.
GASB Statement No. 80 – Blending Requirements for Certain Component Units-an amendment of GASB Statement No. 14. The objective of GASB 80 is to improve financial reporting by clarifying the financial statement presentation requirements for certain component units. GASB 80 amends the blending requirements established in paragraph 53 of GASB 14, The Financial Reporting Entity, as amended. The requirements of GASB 80 are effective for reporting periods beginning after June 15, 2016. Earlier application is encouraged. The District is in the process of evaluating the impact of implementing GASB 80 for financial reporting.
GASB Statement No. 81 – Irrevocable Split-Interest Agreements. The objective of GASB 81 is to improve accounting and financial reporting for irrevocable split-interest agreements by providing recognition and measurement guidance for situations in which a government is a beneficiary of the agreement. The requirements of GASB 81 are effective for reporting periods beginning after December 15, 2016. Earlier application is encouraged. The District is in the process of evaluating the impact of implementing GASB 81 for financial reporting.
GASB Statement No. 82 – Pension Issues- an amendment of GASB Statements No. 67, No. 68, and No. 73. The objective of GASB 82 is to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Specifically, GASB 82 addresses issues regarding (1) the presentation of payroll related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. The requirements of GASB 82 are effective for reporting periods beginning after June 15, 2016, except for the requirements of paragraph 7 in a circumstance in which an employer's pension liability is measured as of a date other than the employer's most recent fiscal year-end. In that circumstance, the requirements of paragraph 7 are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, 2017. Earlier application is encouraged. The District is in the process of evaluating the impact of implementing GASB 82 for financial reporting.
28 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Governmental Accounting Standards Update (continued): GASB Statement No. 83 – Certain Asset Retirement Obligations. The objective of GASB No. 83 is to address accounting and financial reporting for certain asset retirement obligations. Under this statement, governments that have legal obligations to perform future asset retirement activities related to its tangible capital assets should recognize a liability based on this guidance. The requirements of GASB 83 are effective for reporting periods beginning after June 15, 2018. Earlier application is encouraged. The District is in the process of evaluating the impact of implementing GASB 83 for financial reporting.
GASB Statement No. 84 – Fiduciary Activities. The objective of GASB No. 84 is to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. The requirements of GASB 84 are effective for reporting periods beginning after December 15, 2018. Earlier application is encouraged. The District is in the process of evaluating the impact of implementing GASB 84 for financial reporting.
GASB Statement No. 85 – Omnibus 2017. The objective of GASB No. 85 is to address practice issues that have been identified during implementation and applicable of certain GASB statement. This Statement addresses a variety of topics including issues related to blending component units, goodwill, fair value measurement and application, and postemployment benefits The requirements of GASB 85 are effective for reporting periods beginning after June 15, 2017. Earlier application is encouraged. The District is in the process of evaluating the impact of implementing GASB 85 for financial reporting.
GASB Statement No. 86 – Certain Debt Extinguishment Issues. The objective of GASB No. 86 is to improve consistency in accounting and financial reporting for in-substance defeasance of debt by providing guidance for transactions in which cash and other monetary assets acquired with only existing resources— resources other than the proceeds of refunding debt—are placed in an irrevocable trust for the sole purpose of extinguishing debt. This Statement also improves accounting and financial reporting for prepaid insurance on debt that is extinguished and notes to financial statements for debt that is defeased in substance. The requirements of GASB 86 are effective for reporting periods beginning after June 15, 2017. Earlier application is encouraged. The District is in the process of evaluating the impact of implementing GASB 86 for financial reporting.
Subsequent Events: In compliance with accounting standards, management has evaluated events that have occurred after year-end to determine if these events are required to be disclosed in the financial statements. Management has determined that no events require disclosure in accordance with accounting standards. These subsequent events have been evaluated through June 30, 2017, which is the date the financial statements were available to be issued.
29 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2 – CASH, CASH EQUIVALENTS AND INVESTMENTS
Cash, cash equivalents and investments as of March 31, 2017 and 2016, are classified in the accompanying financial statements as follows:
2017 2016
Cash $ 11,737,802 $ 24,540,733 Cash equivalents 6,935,663 148,577 Restricted - cash equivalents 2,472,923 2,512,359 Restricted - irrevocable trust 716,814 584,686 Investments 62,818,403 41,245,032
Total cash, cash equivalents and investments $ 84,681,605 $ 69,031,387
Cash, cash equivalents and investments consisted of the following as of March 31, 2017 and 2016:
2017 2016
Cash on hand $ 6,310 $ 6,310 Deposits with financial institutions 11,731,492 24,534,423 Deposits with trust 716,814 584,686 Investments and cash equivalents 72,226,989 43,905,968
Total cash, cash equivalents and investments $ 84,681,605 $ 69,031,387
Investment Policy: California statutes authorize districts to invest idle or surplus funds in a variety of credit instruments as provided for in the California Government Code, Section 53600, Chapter 4 – Financial Affairs. The table below identifies the investment types that are authorized for the District by the California Government Code (or the District's investment policy, where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the District, rather than the general provisions of the California Government Code or the District's investment policy.
30 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2 – CASH, CASH EQUIVALENTS AND INVESTMENTS (continued)
During the years ended March 31, 2017 and 2016, the District's permissible investments included the following instruments:
Maximum Maximum Authorized Maximum Percentage Investment Investment Type Maturity of Portfolio in One Issuer
Local Agency Bonds 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None California Local Agency Debt 5 years None None Bankers' Acceptances 180 days 40% 5% Commercial Paper 270 days 25% 5% Negotiable Certificates of Deposit 5 years 30% 5% Repurchase Agreements 1 year None 5% Medium-Term Notes 5 years 30% 5% Mutual Funds N/A 20% None Money Market Mutual Funds N/A 20% None Mortgage Pass-Through Securities 5 years 20% 5% County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A $50 Million None JPA Pools (other investment pools) N/A None None Fully Insured Certificates of Deposits 5 years 25% $250,000 or Collateralization
The District complied with all other provisions of California Government Code (or the District's investment policy, where more restrictive) pertaining to the types of investments held, institutions in which deposits were made and security requirements. The District will continue to monitor compliance with applicable statutes pertaining to public deposits and investments.
31 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2 – CASH, CASH EQUIVALENTS AND INVESTMENTS (continued)
Investments Authorized by Debt Agreements: Investment of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the District's investment policy. The table below identifies certain provisions of these debt agreements that address interest risk, credit risk and concentration risk.
Maximum Maximum Authorized Maximum Percentage Investment Investment Type Maturity of Portfolio in One Issuer
Local Agency Bonds 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None California Local Agency Debt 5 years None None Bankers' Acceptances 1 year None None Commercial Paper None None None Negotiable Certificates of Deposit None None None Repurchase Agreements 30 days None None Investment Agreements None None None Money Market Mutual Funds N/A None None Mortgage Pass-Through Securities 5 years None None Local Agency Investment Fund (LAIF) N/A None None
Interest Rate Risk: Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways the District manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations.
32 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2 – CASH, CASH EQUIVALENTS AND INVESTMENTS (continued)
Interest Rate Risk (continued): Information about the sensitivity of the fair values of the District's investments (including investments held by bond trustee and cash equivalents) to market interest rate fluctuations is provided by the following table that shows the distribution of the District's investments by maturity:
March 31, 2017 Remaining Maturity (in Months) 12 Months 13 to 24 25 to 60 More than Investment Type Total or Less Months Months 60 Months
U.S Treasury Obligations $ 12,005,077 $ - $ - $ 12,005,077 $ - U.S Agency Securities 8,665,885 114,900 105,137 8,445,848 - Municipal Bonds 2,152,004 135,321 528,018 1,488,665 - Supra-National Agency Bond 857,850 - - 857,850 - Medium Term Notes 14,506,442 4,079,087 3,016,242 7,411,113 - Money Market Mutual Funds 902,640 902,640 - -- Local Agency Investment Funds 3,027,686 3,027,686 - -- California Asset Management Program 3,005,336 3,005,336 - -- Certificates of Deposit 13,303,165 9,307,002 755,127 3,241,036 - Mortgage-backed Securities 2,798,704 - - 2,798,704 - Commercial Paper 8,529,277 8,529,277 - -- Held by bond trustee: U.S Agency Securities 2,472,923 2,472,923 - - -
$ 72,226,989 $ 31,574,172 $ 4,404,524 $ 36,248,293 $ -
March 31, 2016 Remaining Maturity (in Months) 12 Months 13 to 24 25 to 60 More than Investment Type Total or Less Months Months 60 Months
U.S Treasury Obligations $ 8,105,849 -$ $ 495,743 $ 7,610,106 $ - U.S Agency Securities 7,700,190 - - 7,700,190 - Municipal Bonds 2,171,032 - - 2,171,032 - Medium Term Notes 6,054,867 - 1,298,837 4,756,030 - Money Market Mutual Funds 146,654 146,654 - -- Local Agency Investment Funds 1,923 1,923 - -- Certificates of Deposit 8,935,519 1,600,000 3,250,000 4,085,519 - Mortgage-backed Securities 1,286,730 - - 1,286,730 - Commercial Paper 6,990,845 6,990,845 - -- Held by bond trustee: U.S Agency Securities 2,512,359 2,512,359 - - -
$ 43,905,968 $ 11,251,781 $ 5,044,580 $ 27,609,607 $ -
33 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2 – CASH, CASH EQUIVALENTS AND INVESTMENTS (continued)
Credit Risk: Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the District's investment policy, or debt agreements, and the actual rating as of yearend for each investment and cash equivalent type.
Minimum March 31, 2017 Legal Investment Type Amount Rating AAA/Aaa AA/Aa A Unrated
U.S Treasury Obligations $ 12,005,077 Unrated $ - -$ $ - $ 12,005,077 U.S Agency Securities 8,665,885 Unrated - - - 8,665,885 Municipal Bonds 2,152,004 Unrated - - - 2,152,004 Supra-National Agency Bond 857,850 AAA/Aaa 857,850 - - - Medium Term Notes 14,506,442 A 769,212 4,699,972 8,451,708 585,550 Money Market Mutual Funds 902,640 AAA/Aaa 902,640 - - - Local Agency Investment Funds 3,027,686 Unrated - - - 3,027,686 California Asset Management Program 3,005,336 Unrated - - - 3,005,336 Certificates of Deposit 13,303,165 A - 1,503,554 11,799,611 - Mortgage-backed Securities 2,798,704 AA/Aa - 2,798,704 - - Commercial Paper 8,529,277 A - - 8,529,277 - Held by bond trustee: U.S Agency Securities 2,472,923 Unrated - - - 2,472,923
$ 72,226,989 $ 2,529,702 $ 9,002,230 $ 28,780,596 $ 31,914,461
Minimum March 31, 2016 Legal Investment Type Amount Rating AAA/Aaa AA/Aa A Unrated
U.S Treasury Obligations $ 8,105,849 Unrated $ - -$ $ - $ 8,105,849 U.S Agency Securities 7,700,190 Unrated - - - 7,700,190 Municipal Bonds 2,171,032 Unrated - - - 2,171,032 Medium Term Notes 6,054,867 A 510,412 1,124,080 4,420,375 - Money Market Mutual Funds 146,654 AAA/Aaa 146,654 - - - Local Agency Investment Funds 1,923 Unrated - - - 1,923 Certificates of Deposit 8,935,519 A - 2,585,519 6,350,000 - Mortgage-backed Securities 1,286,730 AA/Aa 1,286,730 - - - Commercial Paper 6,990,845 A - - 6,990,845 - Held by bond trustee: U.S Agency Securities 2,512,359 Unrated - - - 2,512,359
$ 43,905,968 $ 1,943,796 $ 3,709,599 $ 17,761,220 $ 20,491,353
34 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2 – CASH, CASH EQUIVALENTS AND INVESTMENTS (continued)
Concentration of Credit Risk: The investment policy of the District limits the amount that can be invested in any one issuer to the lesser of the amount stipulated by the California Government Code or 5% of total investments, with the exception of U.S. Treasury Obligations, U.S. Agency Securities, Money Market Mutual Funds, and LAIF. As of March 31, 2017, the District had the following investments that exceeded 5% of its total investments.
2017 Investment Reported % of Total Issuer Type Amount Investments
United State Treasury U.S. Treasuries $ 12,005,077 16.6% Fannie Mae U.S Agency Securities 5,247,321 7.3%
As of March 31, 2016, the District had no individual investment that exceeded 5% of its total investments.
Custodial Credit Risk: Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the District's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure public agency deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits.
At March 31, 2017 and 2016, the carrying amount of the District's deposits was $11,854,031 and $24,534,425, respectively, and the balance in financial institutions was $11,854,031 and $24,505,184, respectively. Of the balances in financial institutions, $500,000 was insured by the Federal Deposit Insurance Corporation. At March 31, 2017 and 2016, as required by State law (Government Code Section 53630), the amount collateralized by the pledging financial institution was $11,354,031 and $24,005,184, respectively, with assets held in a common pool for the District and other governmental agencies, but not in the name of the District.
35 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2 – CASH AND INVESTMENTS (continued)
Investment in LAIF and CAMP: As of March 31, 2017 and 2016, the District's investment in LAIF was $3,027,686 and $1,923, respectively. As of March 31, 2017 and 2016, the District's investment in CAMP was $3,005,336 and $0, respectively. The investments in CAMP and LAIF are reported at their net asset value, which approximates fair value. CAMP is a joint powers authority (JPA), a public agency whose investments are limited to those permitted by the California Government Code. The District is invested in CAMP's California Asset Management Trust Cash Reserve Portfolio which is a short-term money market portfolio. Investments in CAMP shares are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other governmental agency. LAIF has an equity interest in the State of California Pooled Money Investment Account (PMIA). PMIA funds are on deposit with the State’s Centralized Treasury System and are managed in compliance with the California Government Code, according to a statement of investment policy which sets forth permitted investment vehicles, liquidity parameters and maximum maturity of investments. The PMIA cash and investments are recorded at cost which approximates fair value. The District’s deposits with CAMP and LAIF are available for withdrawal generally on demand.
NOTE 3 – FAIR VALUE MEASUREMENT
As discussed in Note 1, the District adopted GASB 72 on January 1, 2016. GASB 72 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The District utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.
GASB 72 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy defined by GASB No. 72 are as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for an asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs that reflect the District’s own assumptions about factors that market participants would use in pricing the asset or liability.
36 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 3 – FAIR VALUE MEASUREMENT (continued)
The valuation methods of the fair value measurements are as follows: CAMP – uses the net asset value per share as determined by the portfolio manager multiplied by the number of shares held. The portfolio includes investments exclusively in the following authorized investments: U.S. government and agency obligations, repurchase agreements collateralized by U.S. government and agency obligations, negotiable certificates of deposit, bankers’ acceptances and commercial paper. The fair values of the securities are generally based on quoted market prices.
LAIF – uses the fair value of the pool’s share price multiplied by the number of shares held. This pool can include a variety of investments such as U.S. government securities, federal agency securities, negotiable certificates of deposit, bankers’ acceptances, commercial paper, corporate bonds, bank notes, and other investments. The fair values of the securities are generally based on quoted market prices.
Government Sponsored Enterprises – uses a market based approach which considers yield, price of comparable securities, coupon rate, maturity, credit quality and dealer-provided prices.
U.S. Treasury Notes – uses prices quoted in active markets for those securities.
Corporate Notes – uses a market based approach. Evaluations are based on various market and industry inputs.
Municipal Notes – uses a market approach based on institutional note quotes. Evaluations are based on various market and industry inputs.
Certificates of deposit – uses a market approach based on institutional note quotes. Evaluations are based on various market and industry inputs.
Money Market Mutual Fund – uses a net asset value as determined by the fund manager. Money market mutual fund may include several different underlying obligations, of which at least 80% of the net assets are invested in U.S. Government obligations including, U.S. Treasury obligations and obligations of U.S. Government Agencies, authorities, instrumentalities, or sponsored enterprises obligations, and municipal securities.
37 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 3 – FAIR VALUE MEASUREMENT (continued)
The following table identifies the level within the fair value hierarchy that the District’s financial assets and liabilities were accounted for on a recurring basis as of March 31, 2017 and 2016 , respectively. As required by GASB 72, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The District’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of liabilities and their placement within the fair value hierarchy levels.
March 31, 2017 Fair Value Measurements on a Recurring Basis
Investment Type Total Level 1 Level 2 Level 3
U.S Treasury Obligations $ 12,005,077 $ 12,005,077 $ - $ - U.S Agency Securities 8,665,885 8,665,885 - - Municipal Bonds 2,152,004 - 2,152,004 - Supra-National Agency Bond 857,850 - 857,850 - Medium Term Notes 14,506,442 - 14,506,442 - Money Market Mutual Funds 902,640 - 902,640 - Local Agency Investment Funds 3,027,686 - 3,027,686 - California Asset Management Program 3,005,336 - 3,005,336 - Certificates of Deposit 13,303,165 - 13,303,165 - Mortgage-backed Securities 2,798,704 - 2,798,704 - Commercial Paper 8,529,277 - 8,529,277 - Held by bond trustee: U.S Agency Securities 2,472,923 2,472,923 - -
$ 72,226,989 $ 23,143,885 $ 49,083,104 $ -
March 31, 2016 Fair Value Measurements on a Recurring Basis
Investment Type Total Level 1 Level 2 Level 3
U.S Treasury Obligations $ 8,105,849 $ 8,105,849 $ - $ - U.S Agency Securities 7,700,190 7,700,190 - - Municipal Bonds 2,171,032 - 2,171,032 - Medium Term Notes 6,054,867 - 6,054,867 - Money Market Mutual Funds 146,654 - 146,654 - Local Agency Investment Funds 1,923 - 1,923 - Certificates of Deposit 8,935,519 - 8,935,519 - Mortgage-backed Securities 1,286,730 - 1,286,730 - Commercial Paper 6,990,845 - 6,990,845 - Held by bond trustee: U.S Agency Securities 2,512,359 2,512,359 - -
$ 43,905,968 $ 18,318,398 $ 25,587,570 $ -
38 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4 – CAPITAL ASSETS
Capital Assets: Capital asset activity for the year ended March 31, 2017 is as follows:
Transfers Beginning Additions/ and Ending Balance Completions Disposals Adjustments Balance Capital assets not being depreciated: Land $ 13,098,088 $ - $ - $ - $ 13,098,088 Construction in progress 12,528,650 11,600,423 - (4,506,486) 19,622,587 Goodwill 10,100 - - - 10,100
Total capital assets not being depreciated 25,636,838 11,600,423 - (4,506,486) 32,730,775
Capital assets being depreciated: Landscaping 11,987,208 - - - 11,987,208 Buildings and structures 51,619,760 - - 1,940,674 53,560,434 Distribution systems 130,842,629 - - 2,235,973 133,078,602 Machinery and equipment 24,935,131 640,267 (136,076) 267,879 25,707,201 Vehicles 4,079,218 603,274 - - 4,682,492 Intangible plant 8,735,770 - - - 8,735,770
Total capital assets being depreciated 232,199,716 1,243,541 (136,076) 4,444,526 237,751,707
Less accumulated depreciation: Landscaping (7,642,903) (334,023) - - (7,976,926) Buildings and structures (27,595,810) (922,235) - - (28,518,045) Distribution systems (42,730,408) (3,473,581) - - (46,203,989) Machinery and equipment (11,274,294) (1,060,758) 9,064 - (12,325,988) Vehicles (3,325,174) (218,923) - - (3,544,097) Intangible plant (7,969,386) (199,216) - - (8,168,602)
Total accumulated depreciation (100,537,975) (6,208,736) 9,064 - (106,737,647)
Total capital assets being depreciated, net 131,661,741 (4,965,195) (127,012) 4,444,526 131,014,060
Total capital assets, net $ 157,298,579 $ 6,635,228 $ (127,012) $ (61,960) $ 163,744,835
Depreciation expense for the year ended March 31, 2017, was $6,208,736.
39 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4 – CAPITAL ASSETS (continued)
Capital Assets (continued): Capital asset activity for the year ended March 31, 2016 is as follows:
Transfers Beginning Additions/ and Ending Balance Completions Disposals Adjustments Balance Capital assets not being depreciated: Land $ 13,098,088 $ - $ - $ - $ 13,098,088 Construction in progress 8,772,519 11,211,064 - (7,454,933) 12,528,650 Goodwill 10,100 - - - 10,100
Total capital assets not being depreciated 21,880,707 11,211,064 - (7,454,933) 25,636,838
Capital assets being depreciated: Landscaping 11,987,208 - - - 11,987,208 Buildings and structures 51,414,515 - - 205,245 51,619,760 Distribution systems 128,644,143 - - 2,198,486 130,842,629 Machinery and equipment 20,866,560 188,658 (218,906) 4,098,819 24,935,131 Vehicles 3,637,331 282,658 (7,908) 167,137 4,079,218 Intangible plant 8,723,870 11,900 - - 8,735,770
Total capital assets being depreciated 225,273,627 483,216 (226,814) 6,669,687 232,199,716
Less accumulated depreciation: Landscaping (7,300,879) (360,745) - 18,721 (7,642,903) Buildings and structures (26,671,799) (924,011) - - (27,595,810) Distribution systems (39,298,130) (3,432,278) - - (42,730,408) Machinery and equipment (10,571,119) (826,321) 123,146 - (11,274,294) Vehicles (3,148,720) (176,467) 13 - (3,325,174) Intangible plant (7,763,074) (206,312) - - (7,969,386)
Total accumulated depreciation (94,753,721) (5,926,134) 123,159 18,721 (100,537,975)
Total capital assets being depreciated, net 130,519,906 (5,442,918) (103,655) 6,688,408 131,661,741
Total capital assets, net $ 152,400,613 $ 5,768,146 $ (103,655) $ (766,525) $ 157,298,579
Depreciation expense for the year ended March 31, 2016, was $5,926,134.
40 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 5 – ACCRUED LIABILITIES
The balance of the District's accrued liabilities is as follows at March 31:
2017 2016
Accrued NMDL settlement $ 29,987 $ 10,287 Accrued permission fees 180,587 186,082 Accrued power purchase expense 1,811,184 1,707,644 Accrued salaries and wages 452,157 276,787 Other accrued liabilities 4,716,169 3,156,059
Total accrued liabilities $ 7,190,084 $ 5,336,859
NOTE 6 – LONG-TERM DEBT
Long-term debt activity for the years ended March 31, 2017and 2016 is as follows:
2017 2017 Beginning Ending Due Within Balance Additions Reductions Balance One Year Long-term debt: 2012 Electric System $ 10,185,000 $ - $ (15,000) $ 10,170,000 $ 15,000 Refunding Revenue Bonds 2014 Water & Hydroelectric 30,220,000 - (1,365,000) 28,855,000 1,415,000 System Refunding Revenue Bonds 2015 Electric System 57,955,000 - (2,255,000) 55,700,000 2,295,000 Refunding Revenue Bonds 98,360,000 - (3,635,000) 94,725,000 3,725,000
Line of Credit 4,310,000 - - 4,310,000 -
Total 102,670,000 - (3,635,000) 99,035,000 $ 3,725,000
Add: Bond premiums 8,213,052 - (756,195) 7,456,857 Less: current portion of long-term debt (3,635,000) (3,725,000) 3,635,000 (3,725,000)
Total long-term debt$ 107,248,052 $ (3,725,000) $ (756,195) $ 102,766,857
41 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 6 – LONG-TERM DEBT (continued)
2016 2016 Beginning Ending Due Within Balance Additions Reductions Balance One Year Long-term debt: 2005 Electric System $ 55,365,000 $ - $ (55,365,000) $ - $ - Refunding Revenue Bonds 2005 Revenue Certificates 2,735,000 - (2,735,000) - - of Participation 2012 Electric System 10,200,000 - (15,000) 10,185,000 15,000 Refunding Revenue Bonds 2013 Electric System 11,688,190 - (11,688,190) - - Refunding Revenue Bonds 2014 Water & Hydroelectric 31,410,000 - (1,190,000) 30,220,000 1,365,000 System Refunding Revenue Bonds 2015 Electric System - 59,010,000 (1,055,000) 57,955,000 2,255,000 Refunding Revenue Bonds 111,398,190 59,010,000 (72,048,190) 98,360,000 3,635,000
Line of Credit 4,342,000 - (32,000) 4,310,000 -
Total 115,740,190 59,010,000 (72,080,190) 102,670,000 $ 3,635,000
Add: Bond premiums 3,966,402 5,680,396 (1,433,746) 8,213,052 Less: current portion of long-term debt (3,434,460) (3,635,000) 3,434,460 (3,635,000)
Total long-term debt$ 116,272,132 $ 61,055,396 $ (70,079,476) $ 107,248,052
Long-term debt consists of the following at March 31, 2017 and 2016:
2005 Electric System Refunding Revenue Bonds: On November 10, 2005, the District issued 2005 Electric System Refunding Revenue Bonds in the amount of $63,050,000. Proceeds from these bonds were used to advance refund the District's 2001 Electric System Refunding Revenue Bonds and the 2002 Revenue Certificate of Participation. The Bonds are secured by a lien on the District's electric system net revenues. Interest rates range from 3.25% to 5.75%. Principal payments ranging from $300,000 to $4,045,000 are due annually on September 1 through September 1, 2036. Interest payments ranging from $106,181 to $1 ,576,706, are due semi-annually on March 1 and September 1, through September 1, 2036. The District is required to maintain a ratio of electric system net revenues to debt service of at least 125%. This bond, with a balance of $55,365,000 was defeased in 2015-16 by the 2015 Electric System Refunding Revenue Bonds.
42 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 6 – LONG-TERM DEBT (continued)
2005 Revenue Certificates of Participation (2005 Electric System Project): On November 10, 2005, the District issued 2005 Revenue Certificates of Participation in the amount of $15,000,000. The proceeds are to be used to finance the cost of certain improvements to the electric system of the District. The Bonds are secured by a lien on the District's electric system net revenues. Interest rates range from 3.25% to 5.25%. Principal payments ranging from $260,000 to $950,000 are due annually on September 1, through September 1, 2036. Interest payments ranging from $24,938 to $365,476 are due semi-annually on March 1 and September 1, through September 1, 2036. In July 2012, a payment of $10,200,000 was made for a partial refunding of these bonds. The District is required to maintain a ratio of electric system net revenues to debt service of at least 125%. This bond, with a balance of $2,735,000 was defeased in 2015-16 by the 2015 Electric System Refunding Revenue Bonds.
2012 Electric System Refunding Revenue Bonds: On July 31, 2012, the District issued 2012 Electric System Refunding Revenue Bonds in the amount of $10,235,000. Proceeds from these bonds were used to currently refund a portion of the District's 2005 Revenue Certificates of Participation (2005 Electric System Project). The Bonds are secured by a lien on the District's electric system net revenues. The interest rate is 4.4% per annum. Principal payments ranging from $5,000 to $450,000 are due semi-annually on March 1 and September 1, through September 1, 2036. Interest payments ranging from $9,900 to $263,949, are due semi-annually on March 1 and September 1, through September 1, 2036. The District is required to maintain a ratio of electric system net revenues to debt service of at least 125%.
2013 Electric System Refunding Revenue Bonds: On June 6, 2013, the District issued 2013 Electric System Refunding Revenue Bonds in the amount of $11,988,960. Proceeds from these bonds were used to defease the District's 2003 Revenue Certificates of Participation. The Bonds are secured by a lien on the District's electric system net revenues. The interest rate is 3.95% per annum. Principal payments ranging from $300,770 to $852,470 are due semi-annually on March 1 and September 1, through September 1, 2033. Interest payments ranging from $16,836 to $348,596, are due semi-annually on March 1 and September 1, through September 1, 2033. The District is required to maintain a ratio of electric system net revenues to debt service of at least 125%. This bond, with a balance of $11,688,190 was defeased in 2015-16 by the 2015 Electric System Refunding Revenue Bonds.
2014 Water and Hydroelectric System Refunding Revenue Bonds: On August 13, 2014, the District issued 2014 Water and Hydroelectric System Refunding Revenue Bonds in two series, Series 2014A in the amount of $30,685,000 and Series 2014B, taxable, in the amount of $725,000. Proceeds from these bonds were used to defease the District's 2008 A Refunding Revenue Certificates of Participation and 2008 B Capital Appreciation Revenue Certificates of Participation. The interest rate ranges from 3% to 5% for Series A and from 0.50% to 1.40% for Series B. Principal payments, in total, ranging from $855,000 to $1,875,000 are due annually on October 1, 2015 through October 2038. Interest payments ranging from $99,394 to $120,623, are due semi-annually on April 1 and October 1, through October 1, 2038. The District is required to maintain a ratio of Water Operations and Hydroelectric net revenue to debt service of at least 125%. The District reduced its aggregate debt service payments by approximately $22.4 million over the next 25 years and obtained an economic gain (difference between the present values of the old and new debt service payments) of approximately $7 .1 million.
43 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 6 – LONG-TERM DEBT (continued)
2015 Electric System Refunding Revenue Bonds: On June 8, 2015, the District issued 2015A Electric System Refunding Revenue Bonds in the amount of $59,010,000. Proceeds from these bonds were used to defease the 2005 Electric System Refunding Revenue Bonds, to defease the 2005 Revenue Certificates of Participation and to prepay the 2013 Electric System Refunding Revenue Bonds. The Bonds are secured by a lien on the District's electric system net revenues. The interest rate ranges from 3% to 5%. Principal payments ranging from $1,055,000 to $3,750,000 are due annually on October 1, through September 1, 2036. Interest payments ranging from $134,000 to $2,578,513, are due semi-annually on April 1 and October 1, through September 1, 2036. The District is required to maintain a ratio of electric system net revenues to debt service of at least 120%. The District reduced its aggregate debt service payments by approximately $24 million over the next 25 years and obtained an economic gain (difference between the present values of the old and new debt service payments) of approximately $8.9 million.
The annual debt service requirements of long-term debt is as follows:
Year Ended March 31, Principal Interest Total
2018 $ 3,725,000 $ 4,311,753 $ 8,036,753 2019 3,570,000 4,192,013 7,762,013 2020 3,725,000 4,049,153 7,774,153 2021 3,890,000 3,887,493 7,777,493 2022 3,510,000 3,693,113 7,203,113 2023-2027 20,750,000 15,621,423 36,371,423 2028-2032 26,035,000 10,216,883 36,251,883 2033-2037 25,855,000 3,770,030 29,625,030 2038-2041 3,665,000 251,600 3,916,600
$ 94,725,000 $ 49,993,461 $ 144,718,461
44 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 6 – LONG-TERM DEBT (continued)
Pledged Revenues: The District has pledged future electric customer revenues, net of specified operating expenses, to repay $63,050,000 of Electric System Refunding Revenue Bonds issued in November 2005, $15,000,000 of Revenue Certificates of Participation issued in November 2005, $10,235,000 of Electric System Refunding Revenue Bonds issued in July 2012, $11,988,960 of Electric System Refunding Revenue bonds issued in June 2013 and $59,010,000 of Electric System Refunding Revenue bonds issued in June 2015. Proceeds from the bonds provided financing for improvements to the electric system. The 2015 bonds full defeased the 2005 and 2013 bonds and 2005 certificates. The bonds are payable solely from electric customer net revenues and are payable through September 2036. The total principal and interest remaining to be paid on the bonds as of March 31, 2017 and 2016 is $99,270,728 and $104,567,160, respectively. For the year ended March 31, 2017, principal and interest paid and total electric customer net revenues were $5,296,433 and $19,470,977 respectively. For the year ended March 31, 2016, principal and interest paid and total electric customer net revenues (restated) were $5,473,715 and $18,598,313, respectively.
The District has pledged future Water Operations and Hydroelectric system revenues, net of specified operating expenses, to repay $6,335,000 of Revenue Refunding Certificates of Participation issued in June 2008, $22,718,863 of Capital Appreciation Revenue Certificates of Participation issued in June 2008 and $31,410,000 of Water and Hydroelectric System Refunding Revenue Bonds issued in August 2014. Proceeds from the Certificates provided financing for improvements to the water system and relicensing of the hydroelectric facility. The Certificates are payable solely from Water Operations and Hydroelectric net revenues and are payable through October 2038. The 2014 bonds fully defeased the 2008 certificates. The total principal and interest remaining to be paid on the bonds as of March 31, 2017 and 2016, is $45,447,730 and $48,179,720, respectively. For the year ended March 31, 2017, principal and interest paid and total water customer net revenues were $2,819,875 and $20,387,388, respectively. For the year ended March 31, 2016, principal and interest paid and total water customer net revenues (restated) were $2,821,431 and $9,671,443, respectively.
Arbitrage: The Tax Reform Act of 1986 instituted certain arbitrage restrictions with respect to the issuance of tax exempt bonds after August 31, 1986. Arbitrage regulations deal with investments of all tax-exempt bond proceeds at an interest yield greater than the interest paid to the bondholders. Generally, all interest paid to bond holders can be retroactive if applicable rebates are not reported and paid to the Internal Revenue Service at least every five years. At March 31, 2017 and 2016, the District had no arbitrage liability.
Line of Credit: The District has a $25,000,000 unsecured line of credit that will mature in August 2017. There was $4,310,000 outstanding on this line of credit at March 31, 2017 and 2016.
NOTE 7 – ENERGY SUPPLY PURCHASES AND AGREEMENTS
Power Supply Agreements: The District relies on various power supply agreements to serve its customers' electricity requirements. The District has power supply agreements with the Turlock Irrigation District (TID), Western Area Power Administration (WAPA), and Avangrid (formerly known as Iberdrola Renewables, Inc.). Furthermore, TID provides wheeling, interconnection and ancillary services to the District under an interconnection agreement. The major agreements are described as follows:
45 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 7 – ENERGY SUPPLY PURCHASES AND AGREEMENTS (continued)
Turlock Irrigation District: In 2011, the District amended and extended its current power supply agreement with TID through April 30, 2017. The amendment contained several changes effective February 1, 2011, including a calculation of the energy prices based on the Daily Intercontinental Exchange, Inc. NP-15 Firm Index (ICE NP-15 Index) in dollars per megawatt-hour plus any congestion and loss charges. In addition, the energy prices adder was redefined to be the product of the ICE NP-15 Index applicable to the delivery period, and six percent plus $4.50 per megawatt-hour for the period from January 1, 2012 through December 31, 2012; $4.75 per megawatt-hour for the period from January 1, 2013 through December 31, 2013; and $5.00 per megawatt-hour for the period from January 1, 2014 through April 30, 2017. This partial requirements power supply agreement provides power for all of the District's power requirements with the exception of the power supplied by WAPA. The price of this power supply is tied to the ICE NP- 15 Index times 106% plus $4.50-$4.75 per megawatt-hour, effective January 1, 2012. The District's purchases of power from TID for the years ended March 31, 2017 and 2016 totaled $18,077,220 and $18,600,434, respectively.
The District is also a party to a small hydroelectric project development agreement with TID, under which the District owns the project plant and equipment and TID operates and maintains the three small hydroelectric projects which are part of the overall agreement. The agreement provides for TID to receive all revenues from the sale of project power and the District to share in any profits earned by the project per the agreement formula. The agreements for each of the small hydroelectric projects expire beginning in 2031 through 2032.
Western Area Power Administration: WAPA markets power from the Central Valley Project (CVP) and Washoe Project. The District began operating under the base resource contract on January 1, 2005. This contract provides for the District to receive 0.41309% of WAPA's base resource, which is power available for marketing after project power requirements. The current contract is scheduled to expire December 31, 2024. The District's composite price for power was approximately $27.35 and $58.21 per megawatt hour during the years ended March 31, 2017 and 2016, respectively. The District's purchases for the years ended March 31, 2017 and 2016 totaled $581,213 and $531,300, respectively.
Avangrid Renewables (formerly known as Iberdrola Renewables, Inc.): The District entered into a 25-year power supply agreement with Avangrid in 2003 for energy generated by a wind energy project. This is a non-firm power supply contract to purchase 5 megawatts of installed capacity, which is expected to generate 16,000 megawatt-hours of energy annually for the District at a fixed price of $54.95 per megawatt-hour. Effective April 1, 2010 through the remaining life of the power supply agreement, under the new amendment, the District receives a credit on their invoice for the amount of energy delivered to the California Independent System Operator (CAISO) times the locational marginal price applicable to the CAISO pricing node for the wind project. The District's purchases during the year ended March 31, 2017 and 2016 totaled $543,615 and $595,658, respectively. The District's sales back to Iberdrola during the years ended March 31, 2017 and 2016 totaled $257,969 and $285,820, respectively.
46 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 7 – ENERGY SUPPLY PURCHASES AND AGREEMENTS (continued)
Financial Hedging Instruments: The District follows GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments (GASB 53). Subject to certain exceptions, GASB 53 requires that every derivative instrument be recorded on the statement of net position as an asset or liability measured at its fair value, and that changes in the derivative's fair value be recognized currently in earnings unless such derivatives meet specific hedge accounting criteria to be determined as effective. Effective hedges qualify for hedge accounting and such changes in fair values are deferred. It is the District's policy to document and apply as appropriate the normal purchase and normal sales exception under GASB 53. The District has reviewed its various contractual arrangements to determine applicability of these standards. Purchases and sales of forward electricity, natural gas and option contracts that require physical delivery and which are expected to be used or sold by the reporting entity in the normal course of business are generally considered "normal purchases and normal sales." These transactions are excluded under GASB 53 and, therefore, are not required to be recorded at fair value in the financial statements.
NOTE 8 – NET POSITION
Net position represents the residual interest in the District’s assets after liabilities are deducted. The Statements of Net Position report total net position and presents it in three broad components: net investment in capital assets, restricted, and unrestricted. Net position, net investment in capital assets includes capital assets net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction, or improvement of those assets. Net position is restricted when constraints are imposed by third parties or by law through constitutional provisions or enabling legislation. All other net position is unrestricted. Amounts included as unrestricted net assets are available for designation for specific purposes established by the District’s Board of Directors. The District’s policy is to first apply restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available.
Restricted: The restricted component of net position consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets. Restricted assets include the following at March 31:
(restated) 2017 2016
2012 Electric Refunding Revenue Bond $ 540,684 $ 539,604 2015A Electric System Refunding 1, 266,706 1,289,256 2014 Water Hydro Refunding Bond (FERC) 665,533 683,499 OPEB - Retiree Medical Insurance 716,814 584,686 Mariposa County Water Rights - 137,107 Total $ 3,189,737 $ 3,234,152
47 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 8 – NET POSITION (continued)
Restricted (continued): The restrictions are for the following: • Restricted for cash and cash equivalents as held with fiscal agents for the future repayment of bond principle upon maturity. • Restricted for Mariposa County water rights settlement represents unspent State of California grant proceeds restricted for the remaining unpaid Mariposa County water rights commitment. • Restricted irrevocable trust represents pre-funded retiree medical costs payable under the postemployment health care benefits.
Unrestricted: The Board of Directors has taken action to use current unrestricted resources to satisfy future spending plans. There is no external restriction on these amounts and the future use of these funds may be modified, amended or removed by Board action. These designations relate to the electric and water services funds of the District. The total unrestricted net position for electric and water resource funds available as of March 31, 2017 and 2016, as restated, amount to $72,289,474 and $59,235,943, respectively. Amounts set aside for future spending plans included the following at March 31:
(restated) 2017 2016
Water resources - capital fund $ 6,843,116 $ 3,593,165 Water resources - unanticipated infrastructure 3,000,000 2,000,000 Water resources - operating reserve 6,575,000 3,959,502 Water resources - catastrophe fund 1,525,000 419,158 Water transfer 856,413 1,096,683 Subtotal - water resources 18,799,529 11,068,508
Energy resources - new customer growth 3,185,000 3,185,000 Energy resources - system support and growth 28,947,988 25,992,181 Energy resources - purchased power reserve 13,051,000 12,211,477 Energy resources - operating reserve 5,068,000 4,564,869 Energy resources - catastrophe fund 3,199,000 2,174,896 Energy refunding bond payment 38,957 39,012 Subtotal - water resources 53,489,945 48,167,435
Total $ 72,289,474 $ 59,235,943
48 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 8 – NET POSITION (continued)
The unrestricted net position set aside for future spending plans are for the following: • Designated for water resources - capital fund: The Capital Fund is used for the funding of new capital assets or the replacement of capitalized assets when they reach the end of their useful lives. • Designated for water resources - unanticipated infrastructure: this fund is established to provide funds to pay for unanticipated capital expenditures related to existing Water Resources facilities and infrastructure. • Designated for water resources - operating reserve: The Operating Reserve Fund is used for unanticipated operating expenses and to ensure prudent levels of general liquidity. This fund is designated by the Board to maintain a reserve for current operations and to meet routine cash flow needs. • Designated for water resources - catastrophe fund: The Catastrophe Fund is used to begin repairs of capital facilities after a catastrophic event, such as a severe earthquake or fire, while long-term financing is being arranged or insurance claims are being processed. The District may use funds herein for either capital or operating purposes. • Designated for energy resources - new customer growth: this fund is designed to set aside funding for future capital projects that will enable the District to strategically add customers in a competitive environment. • Designated for energy resources - system support and growth: this fund is used for the funding of new capital assets or the replacement of capitalized assets when they reach the end of their useful lives. • Designated for energy resources - purchased power reserve: this sub-fund is established to provide flexibility to the Board when setting rates to allow for absorbing temporary rate fluctuations in energy expenses in connection with ICE NP-15 Index driven costs. • Designated for energy resources - operating reserve: The Operating Reserve Fund is used for unanticipated operating expenses. This fund is designated by the Board to maintain a reserve for current operations and to meet routine cash flow needs. • Designated for energy resources - catastrophe fund: The Catastrophe Fund can be used (i) to begin repair of the electric system after a catastrophic event, such as a severe earthquake or fire, while long-term financing is being arranged or insurance claims are being processed or (ii) for any operating or capital purpose in the event of severe financial events that impact the financial soundness of the District. The District may use funds herein for either capital or operating purposes.
NOTE 9 – EMPLOYEES’ RETIREMENT PLAN
Plan Description: The Plan is an agent multiple-employer defined benefit pension plan administered by the California Public Employees' Retirement System (CalPERS). A full description of the pension plan regarding number of employees covered, benefit provisions, assumptions (for funding, but not accounting purposes), and membership information are listed in the plan's June 30, 2014 Annual Actuarial Valuation Report (funding valuation). Details of the benefits provided can be obtained in Appendix B of the actuarial valuation report. This report and CalPERS' audited financial statements are publicly available reports that can be obtained at CalPERS' website.
49 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 9 – EMPLOYEES’ RETIREMENT PLAN (continued)
Benefits Provided: CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for nonduty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees' Retirement Law.
The Plans' provisions and benefits in effect are summarized as follows:
Hired prior to Hired on or after January 1, 2013 January 1, 2013 Benefit formula 2.0% @ 60 2.0% @ 62 Benefit vesting schedule 5 years of service 5 years of service Benefit payments monthly for life monthly for life Retirement age 50 52 Monthly benefits as a % of eligible compensation 2.0% 2.0% Required employee contribution rates 7.0% 7.0% Required employer contribution rates 15.837% 15.837%
The following employees were covered by the benefit terms:
Inactive employees or beneficiaries currently receiving benefits 192 Inactive employees entitled to but not yet receiving benefits 21 Active employees 162 Total 375
Contributions: Section 20814(c) of the California Public Employees' Retirement Law (PERL) requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CalPERS' annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Employer contribution rates may change if plan contracts are amended. It is the responsibility of the employer to make necessary accounting adjustments to reflect the impact due to any Employer Paid Member Contributions or situations where members are paying a portion of the employer contribution.
50 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 9 – EMPLOYEES’ RETIREMENT PLAN (continued)
Net Pension Liability: The District's net pension liability is measured as the total pension liability, less the pension plan's fiduciary net position. The net pension liability is measured as of June 30, 2016, using an annual actuarial valuation as of June 30, 2015 rolled forward to June 30, 2016 using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below.
The total pension liabilities in the actuarial valuations were determined using the following actuarial assumptions: Valuation date June 30, 2015 Measurement date June 30, 2016 Actuarial cost method Entry Age Normal Actuarial assumptions: Discount rate 7.65% Inflation 2.75% Payroll growth 3.00% Projected salary increase Varies by entry age and service Investment rate of return 7.65%, net of pension plan investment expenses, includes inflation Mortality Derived using CalPERS' membership data for all funds
The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2015 valuation were based on the results of a January 2014 actuarial experience study for the period 1997 to 2011. Further details of the Experience Study can be found on the CalPERS website.
Discount Rate: The discount rate used to measure the total pension liability was 7.65%. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing of the plans, the tests revealed the assets would not run out. Therefore, the current 7.65% discount rate is appropriate and the use of the municipal bond rate calculation is not deemed necessary. The long-term expected discount rate of 7.65% is applied to all plans in the Public Employees Retirement Fund. The stress test results are presented in a detailed report called "GASB Crossover Testing Report" that can be obtained at CalPERS' website under the GASB 68 section.
The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, staff took into account both short-term and long term market return expectations as well as the expected pension fund (Public Employees' Retirement Fund) cash flows. Such cash flows were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. Using historical returns of all the funds' asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent.
51 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 9 – EMPLOYEES’ RETIREMENT PLAN (continued)
The table below reflects long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. The target allocation shown was adopted by the Board effective on July 1, 2014.
New Strategic Real Return Real Return Asset Class Allocation Years 1-10* Years 11+** Global Equity 51.00% 5.25% 5.71% Global Fixed Income 19.00 0.99 2.43 Inflation Sensitive 6.00 0.45 3.36 Private Equity 10.00 6.83 6.95 Real Estate 10.00 4.50 5.13 Infrastructure and Forestland 2.00 4.50 5.09 Liquidity 2.00 (0.55) (1.05) Total 100.00% * An expected inflation of 2.5% used for this period ** An expected inflation of 3.0% used for this period
Changes in the Net Pension Liability: The changes in the net pension liability is as follows: Increase (Decrease) Total Plan Net Pension Pension Fiduciary Liability Liability Net Position (Asset) (a) (b) c = (a)-(b) Balance at June 30, 2015 $ 69,277,387 $ 49,733,463 $ 19,543,924
Changes in the year: Service cost 1,445,525 - 1,445,525 Interest on the total pension liability 5,238,549 - 5,238,549 Changes of benefit terms 183,194 - 183,194 Differences between expected and actual experience 159,334 - 159,334 Changes in assumptions - - - Plan to plan resource movement - - - Contributions from the employer - 1,699,603 (1,699,603) Contributions from employees - 751,609 (751,609) Net investment income - 244,953 (244,953) Benefit Payments, including Refunds of Employee Contributions (3,729,791) (3,729,791) - Administrative expense - (30,310) 30,310
Net change 3,296,811 (1,063,936) 4,360,747
Balance at June 30, 2016 $ 72,574,198 $ 48,669,527 $ 23,904,671
52 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 9 – EMPLOYEES’ RETIREMENT PLAN (continued)
Sensitivity of the Net Pension Liability to Changes in the Discount Rate: The following presents the net pension liability of the District, calculated using the discount rate as well as what the District's net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1- percentage point higher than the current rate:
Current Discount Rate Discount Rate Discount Rate - 1% (6.65%) 7.65% + 1% (8.65%) Net Pension Liability $ 33,889,036 $ 23,904,671 $ 15,719,336
Deferred Outflows and Deferred Inflows of Resources Related to Pensions: The District has deferred outflows and deferred inflows of resources related to pensions, as listed below. Included in this list is subsequent contributions that were made between the measurement date of June 30, 2016 and the District's fiscal year end of March 31, 2017.
Deferred Deferred Outflows of Inflows of Resources Resources Changes in assumptions $ - $ (578,173) Differences between expected and actual experiences 396,047 - Pension contributions subsequent to measurement date 1,963,127 - Net differences between projected and actual earnings 3,465,140 (1,074,680) Total $ 5,824,314 $ (1,652,853)
At March 31, 2017, amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in future pension expense as follows:
Measurement Period Ending June 30, Amount
2017 $ 69,955 2018 279,819 2019 1,139,563 2020 718,997
Total $ 2,208,334
Pension Plan Fiduciary Net Position: Detailed information about each pension plan's fiduciary net position is available in the separately issued CalPERS financial reports.
53 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 10 – POSTEMPLOYMENT HEALTH CARE BENEFITS
Plan Description: The District administers a single employer defined benefit other postemployment healthcare (OPEB) plan providing health plan coverage to eligible retired employees and their eligible dependents. The District maintains the same medical plans for its retirees as for its active employees. Benefits are paid until the retiree, spouse or surviving spouse, becomes eligible for Medicare. Employees become eligible to retire and receive healthcare benefits upon reaching the age of 60 with 5 years of service to the District. The OPEB Plan does not issue a publicly available financial report.
Effective March 1, 2014, the District decided to join the California Employers' Retiree Benefit Trust (CERBT) in order to pre-fund the retiree medical costs. The objective of the CERBT is to seek favorable returns that reflect the broad investment performance through asset allocation. The employers who participate in CERBT own units of the fund's portfolio which is invested in accordance with the approved strategic asset allocation; they do not have direct ownership of the securities in the portfolio. The unit value changes with market conditions. The CERBT is a self-funded program, in which the participating employers pay the program costs. The cost charged to participating employers is based on the average daily balance of assets. CalPERS issues a separate Comprehensive Annual Financial Report. Copies of CERBT's annual financial report may be obtained from its Affiliate Program Services Division at 400 Q Street, Sacramento, California 95811.
The following is a summary of the District's fair value assets on deposit with its CalPERS CERBT account for the fiscal years ended March 31: 2017 2016
Fair value - beginning of year $ 584,686 $ 398,537 Contributions 71,085 203,342 Gain (loss) on investments 61,479 (16,702) Administrative expenses (436) (491)
Total $ 716,814 $ 584,686
Funding Policy: The contribution requirements of plan members and the District are established and may be amended by the Board of Directors. The required contribution is based on projected pay-as-you-go financing requirements. For the year ended March 31, 2017, the District contributed $158,070 to the plan, which represents 47% of the cost for the year then ended. For the year ended March 31, 2016, the District contributed $188,331 to the plan, which represents 56% of the cost for the year then ended. During the years ended March 31, 2017 and 2016, plan members receiving benefits contributed $7,940 (or approximately 5%) and $27,509 (or approximately 15%), respectively, of the total premiums, through their required contribution.
54 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 10 – POSTEMPLOYMENT HEALTH CARE BENEFITS (continued)
Annual OPEB Cost and Net OPEB Obligation: The District's annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years.
For the years ended March 31, 2017 and 2016, the following table shows the components of the District's annual OPEB cost, the amount actually contributed to the plan, and changes in the District's net OPEB obligation to the OPEB plan:
2017 2016
Annual required contribution (ARC) $ 350,055 $ 350,055 Interest on net OPEB obligation 102,111 106,148 Annual required contribution adjustment (117,554) (122,202) Annual OPEB Cost 334,612 334,001
Funded contribution (71,085) (203,342) Contributions made (premium payment made) (158,070) (188,331) Change in net OPEB obligation 105,457 (57,672)
Net OPEB obligation, beginning of year 1,458,735 1,516,407
Net OPEB obligation, end of year $ 1,564,192 $ 1,458,735
The ARC of $350,055 for March 31, 2017 and 2016 above is based on the latest valuation available as of that date, which is July 1, 2015.
The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the years ended March 31, 2017, 2016 and 2015 were as follows: Percentage of Net Year Annual Annual OPEB OPEB Ended OPEB Cost Contributed Obligation/(Asset)
3/31/2015$ 397,145 152.76% $ 1,516,407 3/31/2016 334,001 117.27% 1,458,735 3/31/2017 334,612 68.48% 1,564,192
Funded Status and Funding Progress: As of July 1, 2015, the most recent actuarial valuation date, the actuarial accrued liability for benefits is $4,879,243.
55 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 10 – POSTEMPLOYMENT HEALTH CARE BENEFITS (continued)
Funded Status and Funding Progress (continued): Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future.
The schedule of funding progress, presented as Required Supplementary Information, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.
Actuarial Methods and Assumptions: Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets consistent with the long-term perspective of the calculations.
In the July 1, 2015 actuarial valuation, the projected unit credit actuarial method was used. The actuarial assumptions included a 7% investment rate of return (net of administrative expenses), which is based on the employer's own investments and a constant 3% general inflation rate increase. The annual healthcare cost trend rates are as follows: for medical premiums, 7% initially, reduced by 1% decrements to an ultimate rate of 5% after four years and 4% every year for dental and vision premiums. The UAAL is being amortized as a level dollar on an open basis. The remaining amortization period at July 1, 2015 was 30 years.
56 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 11 – INSURANCE
The District participates in the Association of California Water Agencies Joint Powers Insurance Authority (ACWA/JPIA) a public entity risk pool of California water agencies, for general and auto liability, public officials' liability, property damage, fidelity, dam failure and workers' compensation insurance. ACWA/JPIA provides insurance through the pool up to a certain level, beyond which group-purchased commercial excess insurance is obtained.
The District pays an annual premium to ACWA/JPIA that includes its pro-rata share of excess insurance premiums, charges for the pooled risk, claims adjusting and legal costs, and administrative and other costs to operate the ACWA/JPIA. The District's deductibles and maximum coverage's are as follows: Commercial Coverage ACWA/JPIA Insurance Deductible
General and Auto Liability (Includes public officials liability) $ 2, 000,000 $ 58,000,000 None Property Damage (Includes crime) 100,000 150,000,000 Various Workers' Compensation Liability 2, 000,000 Statutory None Dam Failure Liability (retention) 50,000 5,000,000 $ 250,000
The District continues to carry commercial insurance for all other risks of loss to which the District is exposed. During the fiscal year ended March 31, 2017 and 2016, there were no reductions in insurance coverage from the prior year. Settlement amounts have not exceeded insurance coverage for the current year or the three prior years.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Mariposa County Water Rights Commitment: On March 1, 1960, the District entered into an agreement with Mariposa County regarding stream flow from the Merced River. In 1968, the District agreed to pay $5,000,000 over 50 years in annual installments of not less than $100,000, which are due annually on March 1. The agreement is secured by a lien on interest earned on certain accounts held in trust.
Litigation: The District is party to various claims, legal actions and complaints that arise in the normal operation of business. Management and the District's legal counsel believe that there are no material loss contingencies that would have a materially adverse impact on the financial position of the District.
Federal and State Regulatory Issues: The Merced River Hydroelectric Project is licensed by the Federal Energy Regulatory Commission (FERC). The District's FERC license expired on February 28, 2014; however, the District will continue to operate the Project on an annual license basis until FERC issues a new license. Section 15(a) of the FPA requires FERC to issue from year to year an annual license to the then licensee under the terms and conditions of the existing license until the property is taken over (by the federal government) or a new license is issued.
57 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 12 – COMMITMENTS AND CONTINGENCIES (continued)
Contract Commitments: At March 31, 2017 and 2016, the District had contract commitments of $5,630,159 and $2,716,421, respectively, for construction, design, engineering, planning and administrative costs. The District has unexpended approved allocations from existing sources, as well as committed revenues in its funding plan to cover the costs of these contract commitments.
NOTE 13 – DISCLOSURE OF SEGMENT INFORMATION
The District has issued separate revenue bonds to finance its electric and water operations. These operations are accounted for within the District, but investors in those bonds rely solely on the revenue generated by the individual activities for repayment. Summary financial information for each segment is presented below. Energy Resources operates the retail electric system. Water Resources operates the District's irrigation water supply system.
Condensed Statements of Net Position (restated) March 31, 2017 March 31, 2016 Energy Water Energy Water Resources Resources Resources Resources
Assets: Capital assets, net $ 71,444,743 $ 45,009,136 $ 67,476,644 $ 44,178,986 Debt insurance costs 309,423 3,829 342,851 4,169 Interfund receivables 56,992,416 48,289,503 49,994,649 41,130,217 Current assets 9,728,672 6,700,214 9,875,964 4,372,345 Total assets 138,475,254 100,002,682 127,690,108 89,685,717
Deferred outflow of resources 2,293,602 2,502,540 676,220 1,702,846
Liabilities: Long-term and other liabilities 74,160,315 18,508,018 75,770,828 16,659,374 Interfund payables - - 222,619 379,359 Other current liabilities 6,913,482 5,771,524 6,431,148 3,547,333 Total liabilities 81,073,797 24,279,542 82,424,595 20,586,066
Deferred inflow of resources 3,049,808 747,951 2,768,347 1,206,182
Net position: Net investment (deficit) in capital assets 2,499,720 41,810,095 (4,244,400) 40,893,670 Restricted 1,807,390 665,533 1,828,860 820,606 Unrestricted 52,338,141 35,002,101 45,588,926 27,882,039
Total net position $ 56,645,251 $ 77,477,729 $ 43,173,386 $ 69,596,315
58 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 13 – DISCLOSURE OF SEGMENT INFORMATION (continued)
Condensed Statements of Revenues, Expenses and Changes in Net Position (restated) March 31, 2017 March 31, 2016 Energy Water Energy Water Resources Resources Resources Resources
Operating revenues (pledged against bonds) $ 54,243,062 $ 18,774,341 $ 54,181,356 $ 15,048,595 Depreciation and amortization (2,721,866) (1,687,938) (4,206,581) (1,682,668) Other operating expenses (34,400,238) (13,273,416) (35,542,689) (12,990,521) Operating income 17,120,958 3,812,987 14,432,086 375,406
Nonoperating revenues (expenses): Property taxes - 2,699,900 - 2,486,236 Other nonoperating revenues 534,569 211,425 467,962 227,166 Other nonoperating expenses (797,070) (852,288) (52,910) (116,929) Interest expense (2,480,176) (106,584) (5,199,612) (106,982) Nonoperating revenues (expenses), net (2,742,677) 1,952,453 (4,784,560) 2,489,491
Income (loss) before transfers and capital contributions 14,378,281 5,765,440 9,647,526 2,864,897
Capital contributions 47,984 1,131,915 51,481 2,532,694 Transfers in - 984,059 - 1,022,398 Transfers out (954,400) - (975,793) -
Changes in net position 13,471,865 7,881,414 8,723,214 6,419,989
Beginning net position 43,173,386 69,596,315 34,450,172 63,176,326
Ending net position $ 56,645,251 $ 77,477,729 $ 43,173,386 $ 69,596,315
59 MERCED IRRIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 13 – DISCLOSURE OF SEGMENT INFORMATION (continued)
Condensed Statements of Cash Flows (restated) March 31, 2017 March 31, 2016 Energy Water Energy Water Resources Resources Resources Resources
Net cash provided by (used in): Operating activities $ 12,071,437 $ (184,481) $ 8,505,630 $ (3,365,144) Noncapital financing activities (797,070) 1,607,342 151,201 2,730,006 Capital and related financing activities (11,830,406) (1,633,980) (13,000,020) (1,661,986) Investing activities 556,039 213,329 4,343,189 227,550 Net increase (decrease) - 2,210 - (2,069,574)
Cash and cash equivalents, beginning of year - 1,023,865 - 3,093,439
Cash and cash equivalents, end of year $ - $ 1,026,075 $ - $ 1,023,865
Cash is used within the District by different funds for various operations and this use of another fund's cash is recorded on the statement of net position as due to other funds and due from other funds. As of March 31, 2017 and 2016, the amounts of unrestricted cash balances available to the District's segments, in addition to those amounts specifically reported as cash on the fund statements of net position, can be calculated from the condensed statements of net position above by subtracting the interfund payable amount from the interfund receivable amounts.
NOTE 14 – PRIOR PERIOD RESTATEMENTS
Certain reclassifications have been made to the prior year financial statements to conform to current year presentation. There were no changes to the ending net position and/or change in net position from the prior year audited presented figures.
60 MERCED IRRIGATION DISTRICT
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) MERCED IRRIGATION DISTRICT REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) SCHEDULE OF FUNDING PROGRESS – OTHER POST-EMPLOYMENT BENEFITS (OPEB) MARCH 31, 2017
Actuarial Unfunded Accrued Unfunded Liability as Actuarial Liability (AAL)- AAL Percentage Actuarial Value of Simplified (UAAL) Funded Covered of Covered Valuation Assets Entry Age Liability Ratio Payroll Payroll Date (a) (b) (b-a) (a/b) (c) ((b-a)/c)
1/1/2011$ - $ 2,971,500 $ 2,971,500 0%$ 10,785,022 28% 4/1/2014 - 3,153,781 3,153,781 0% 10,437,322 30% 7/1/2015 593,673 2,658,281 2,064,608 22% 10,768,916 19%
62 MERCED IRRIGATION DISTRICT REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS MARCH 31, 2017
Last 10 Fiscal Years* 2017 2016 2015 Total Pension Liability Service cost $ 1,445,525 $ 1,475,369 $ 1,417,603 Interest on total pension liability 5, 238,549 4,996,783 4,739,687 Change of benefit terms 183,194 - - Differences between expected and actual experience 159,334 637,217 - Changes in assumptions - (1,254,761) - Benefit payments, including refunds of employee contributions (3,729,791) (3,549,005) (3,345,061) Net change in total pension liability 3,296,811 2,305,603 2,812,229 Total pension liability- beginning 69, 277,387 66,971,784 64,159,555 Total pension liability- ending (a) $ 72,574,198 $ 69,277,387 $ 66,971,784
Plan Fiduciary Net Position Contributions- employer $ 1,699,603 $ 1,567,686 $ 1,366,237 Contributions- employees 751,609 752,306 726,473 Plan to plan resource movement - - - Net investment income 244,953 1,135,034 7,522,312 Administrative expense (30,310) (55,964) - Benefit payments (3,729,791) (3,549,005) (3,345,061) Net change in plan fiduciary net position (1,063,936) (149,943) 6,269,961 Total plan fiduciary net position- beginning 49,733,463 49,883,406 43,613,445 Total plan fiduciary net position- ending (b) $ 48,669,527 $ 49,733,463 $ 49,883,406
Net pension liability- ending (a)-(b) $ 23,904,671 $ 19,543,924 $ 17,088,378
Plan fiduciary net position as a percentage of the total pension liability 67.06% 71.79% 74.48%
Commission's covered-employee payroll 10,819,795 10,872,291 10,220,639
Net pension liability as a percentage of covered-employee payroll 220.93% 179.76% 167.19%
NOTES TO SCHEDULE:
Changes in assumptions:
The discount rate was changed from 7.5% (net of administrative expenses) to 7.65% in fiscal year 2016.
*Fiscal Year 2015 was the first year of retroactive implementation; therefore, only three available years are shown as of March 31, 2017.
63 MERCED IRRIGATION DISTRICT REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) SCHEDULE OF CONTRIBUTIONS MARCH 31, 2017
Last 10 Fiscal Years* 2017 2016 2015 Actuarially determined contribution $ 1,699,603 $ 1,567,686 $ 1,366,237 Contributions in relation to the actuarially determined contribution (1,699,603) (1,567,686) (1,366,237) Contribution deficiency (excess) $ - -$ -$
Commission's covered-employee payroll $ 10,819,795 $ 10,872,291 $ 10,220,639
Contributions as a percentage of covered-employee payroll 15.71% 14.42% 13.37%
NOTES TO SCHEDULE:
Valuation Date: June 30, 2016
Methods and assumptions used to determine contributions rates:
Actuarial cost method Entry age normal Amortization method Level percentage of payroll Asset valuation method 15 year smooth market Inflation 2.75% Salary increases Varies by age and service Payroll growth 3.00% Investment rate of return 7.65% Retirement age Based on 2010 CalPERS study From 1997-2007 Mortality Based on 2010 CalPERS study From 1997-2007
*Fiscal Year 2015 was the first year of retroactive implementation; therefore, only three available years are shown as of March 31, 2017.
64 MERCED IRRIGATION DISTRICT
SUPPLEMENTARY INFORMATION MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF NET POSITION MARCH 31, 2017
Energy Water Resources Resources Hydroelectric Parks ASSETS
Capital Assets: Nondepreciable $ 10,256,999 $ 9,246,365 $ 9,136,542 $ 3,515,314 Depreciable 61,187,744 35,762,771 29,199,356 2,899,535 Capital assets, net 71,444,743 45,009,136 38,335,898 6,414,849
Other Noncurrent Assets: Investments - - - - Regulatory relicense costs - - - - Debt insurance costs 309,423 3,829 - - Total other noncurrent assets 309,423 3,829 - -
Current Assets: Cash and cash equivalents - 1,026,075 - 1,460 Investments - - - - Accounts receivable, net 4,477,303 3,182,611 3,591,734 104,214 Due from other governmental agencies - 2,019,841 - 363,133 Accrued interest and taxes receivable - - - - Inventory 3,383,027 343,137 - - Prepaid expenses and other current assets 60,952 128,550 166,414 22,970 Due from other funds 56, 992,416 48,289,503 6,963,584 - Restricted cash and cash equivalents 1,807,390 - - - Total current assets 66,721,088 54,989,717 10,721,732 491,777
Total Assets 138,475,254 100,002,682 49,057,630 6,906,626
DEFERRED OUTFLOWS OF RESOURCES
Deferred gas charges (174,579) - - - Renewable portfolio standards 1,282,156 - - - Pension plan 1,186,025 2,502,540 374,489 559,480 Total Deferred Outflows of Resources 2,293,602 2,502,540 374,489 559,480
Total Assets and Deferred Outflows of Resources $ 140,768,856 $ 102,505,222 $ 49,432,119 $ 7,466,106
66 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF NET POSITION (CONTINUED) MARCH 31, 2017
Federal Energy Drainage Regulatory Improvement Commission General Twin Eliminating District #1 Fund SGMA Operations Lakes Entries Total
$ - $ - $ 176,359 $ 194,204 $ 204,992 $ - $ 32,730,775 747,594 - - 994,616 222,444 - 131,014,060 747,594 - 176,359 1,188,820 427,436 - 163,744,835
- -- 40,612,815 - - 40,612,815 - 27,649,093 - - -- 27,649,093 - 39,685 - - -- 352,937 - 27,688,778 - 40,612,815 - - 68,614,845
- -- 17,571,972 73,958 - 18,673,465 - -- 22,205,588 - - 22,205,588 - -- 17,377 94,710 - 11,467,949 74,476 - 88,179 - -- 2,545,629 - -- 301,005 - - 301,005 - -- -26,607 - 3,752,771 - -- 294,584 21,886 - 695,356 992,109 - - 22,606,913 1,533,936 (137,378,461) - - 665,533 - 716,814 - - 3,189,737 1,066,585 665,533 88,179 63,714,253 1,751,097 (137,378,461) 62,831,500
1,814,179 28,354,311 264,538 105,515,888 2,178,533 (137,378,461) 295,191,180
------(174,579) - -- - - (1,282,156) - - -- 1,201,780 - - 5,824,314 - -- 1,201,780 - (1,282,156) 5,649,735
$ 1,814,179 $ 28,354,311 $ 264,538 $ 106,717,668 $ 2,178,533 $ (138,660,617) $ 300,840,915
67 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF NET POSITION (CONTINUED) MARCH 31, 2017
Energy Water Resources Resources Hydroelectric Parks LIABILITIES
Noncurrent Liabilities: Long-term debt $ 68,442,434 $ 3,020,549 $ - -$ Accrued compensated absences 344,096 659,236 131,195 145,195 Employee retirement - - 1,494,158 - Net OPEB obligation 552,447 870,388 285,142 353,584 Collective net pension liability 4, 821,338 10,352,457 1,501,173 2,261,363 Regulatory unearned revenues - 3,586,413 - - Deposits - noncurrent - 18,975 - - Total noncurrent liabilities 74,160,315 18,508,018 3,411,668 2,760,142
Current Liabilities: Accounts payable 655,411 597,295 76,241 69,319 Accrued liabilities 2, 475,032 1,048,871 2,945,461 178,876 Unearned revenue - 3,952,032 250 183,675 Accrued interest payable 1,055,591 48,806 - - Due to other funds - - 1,665,101 14,561,841 Deposits - current 417,448 - - 200,574 Current portion of long-term debt 2,310,000 124,520 - - Total current liabilities 6, 913,482 5,771,524 4,687,053 15,194,285
Total Liabilities 81,073,797 24,279,542 8,098,721 17,954,427
DEFERRED INFLOWS OF RESOURCES
Public purpose revenues 1,934,809 - - - Power cost reductions 800,000 - - - Renewable portfolio standards - - 1,282,156 - Pension plan 314,999 747,951 89,627 142,559 Total Deferred Inflows of Resources 3,049,808 747,951 1,371,783 142,559
NET POSITION
Net investment in capital assets 2,499,720 41,810,095 38,335,898 6,414,849 Restricted 1,807,390 665,533 - - Unrestricted 52,338,141 35,002,101 1,625,717 (17,045,729) Total Net Position 56,645,251 77,477,729 39,961,615 (10,630,880)
Total Liabilities, Deferred Inflows of Resources and Net Position $ 140,768,856 $ 102,505,222 $ 49,432,119 $ 7,466,106
68 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF NET POSITION (CONTINUED) MARCH 31, 2017
Federal Energy Drainage Regulatory Improvement Commission General Twin Eliminating District #1 Fund SGMA Operations Lakes Entries Total
$ - $ 31,303,874 $ - -$ $ - $ - $ 102,766,857 - - - 293,024 15,928 - 1,588,674 ------1,494,158 4,177 20 - (501,566) - - 1,564,192 - - - 4,968,340 - - 23,904,671 ------3,586,413 ------18,975 4,177 31,303,894 - 4,759,798 15,928 - 134,923,940
- 46,000 30,521 106,949 23,077 - 1,604,813 - 205,565 61,478 252,817 21,984 - 7,190,084 6,079 - - - 194,325 - 4,336,361 - 505,807 - - -- 1,610,204 - 12,458,277 85,332 105,628,239 2,979,671 (137,378,461) - - - - 3,870 12,146 - 634,038 - 1,290,480 - - -- 3,725,000 6,079 14,506,129 177,331 105,991,875 3,231,203 (137,378,461) 19,100,500
10,256 45,810,023 177,331 110,751,673 3,247,131 (137,378,461) 154,024,440
------1,934,809 ------800,000 - - - - - (1,282,156) - - - - 357,717 - - 1,652,853 - - - 357,717 - (1,282,156) 4,387,662
747,594 (4,279,727) 176,359 1,188,820 427,436 - 87,321,044 - - - 716,814 - - 3,189,737 1,056,329 (13,175,985) (89,152) (6,297,356) (1,496,034) - 51,918,032 1,803,923 (17,455,712) 87,207 (4,391,722) (1,068,598) - 142,428,813
$ 1,814,179 $ 28,354,311 $ 264,538 $ 106,717,668 $ 2,178,533 $ (138,660,617) $ 300,840,915
69 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF NET POSITION (CONTINUED) MARCH 31, 2016 (restated)
Energy Water Resources Resources Hydroelectric Parks ASSETS
Capital Assets: Nondepreciable $ 6,820,712 $ 6,907,025 $ 9,233,434 $ 2,438,376 Depreciable 60,655,932 37,271,961 29,152,931 2,453,612 Capital assets, net 67,476,644 44,178,986 38,386,365 4,891,988
Other Noncurrent Assets: Investments - -- - Regulatory relicense costs - -- - Debt insurance costs 342,851 4,169 - - Total other noncurrent assets 342,851 4,169 - -
Current Assets: Cash and cash equivalents - 1,023,865 - 1,460 Investments - -- - Accounts receivable, net 4,130,509 208,735 200,272 119,014 Due from other governmental agencies - 2,725,532 - 1,042,693 Accrued interest and taxes receivable - 1,904 - - Inventory 3,847,065 296,838 - - Prepaid expenses and other current assets 69,530 115,471 145,839 20,703 Due from other funds 49, 994,649 41,130,217 - - Restricted cash and cash equivalents 1,828,860 - - - Total current assets 59,870,613 45,502,562 346,111 1,183,870
Total Assets 127,690,108 89,685,717 38,732,476 6,075,858
DEFERRED OUTFLOWS OF RESOURCES
Deferred gas charges (99,999) - - - Pension plan 776,219 1,702,846 237,417 361,454 Total Deferred Outflows of Resources 676,220 1,702,846 237,417 361,454
Total Assets and Deferred Outflows of Resources$ 128,366,328 $ 91,388,563 $ 38,969,893 $ 6,437,312
70 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF NET POSITION (CONTINUED) MARCH 31, 2016 (restated)
Federal Energy Drainage Regulatory Improvement Commission General Twin Eliminating District #1 Fund SGMA Operations Lakes Entries Total
$ - $ - $ - $ 114,740 $ 122,551 $ - $ 25,636,838 796,579 - - 1,107,843 222,883 - 131,661,741 796,579 - - 1,222,583 345,434 - 157,298,579
- -- 30,141,828 - - 30,141,828 - 26,389,591 - - -- 26,389,591 - 43,211 - - -- 390,231 - 26,432,802 - 30,141,828 - - 56,921,650
- -- 23,637,413 26,572 - 24,689,310 - -- 11,103,204 - - 11,103,204 805 -- 10,925 91,988 - 4,762,248 76,840 - - - -- 3,845,065 - -- 132,421 - - 134,325 - -- -48,216 - 4,192,119 - -- 327,880 15,784 - 695,207 964,525 - - 17,832,109 2,672,031 (112,593,531) - - 683,499 - 584,686 - - 3,097,045 1,042,170 683,499 - 53,628,638 2,854,591 (112,593,531) 52,518,523
1,838,749 27,116,301 - 84,993,049 3,200,025 (112,593,531) 266,738,752
------(99,999) - -- 816,602 - - 3,894,538 - -- 816,602 - - 3,794,539
$ 1,838,749 $ 27,116,301 $ - $ 85,809,651 $ 3,200,025 $ (112,593,531) $ 270,533,291
71 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF NET POSITION (CONTINUED) MARCH 31, 2016 (restated)
Energy Water Resources Resources Hydroelectric Parks LIABILITIES
Noncurrent Liabilities: Long-term debt $ 71,279,902 $ 3,165,195 $ - -$ Accrued compensated absences 249,834 497,232 97,713 116,397 Employee retirement - - 1,494,158 - Net OPEB obligation 332,105 608,688 234,735 279,010 Collective net pension liability 3, 895,291 8,545,376 1,191,429 1,813,879 Regulatory unearned revenues - 3,826,683 - - Deposits - noncurrent 13,696 16,200 -47,870 Total noncurrent liabilities 75,770,828 16,659,374 3,018,035 2,257,156
Current Liabilities: Accounts payable 556,204 687,285 346,186 740,120 Accrued liabilities 2,088,331 830,622 1,779,505 405,701 Unearned revenue - 1,859,183 250 184,450 Accrued interest payable 1,074,380 50,123 - - Due to other funds 222,619 379,359 2,075,642 12,005,553 Deposits - current 442,233 - - 98,648 Current portion of long-term debt 2,270,000 120,120 - - Total current liabilities 6,653,767 3,926,692 4,201,583 13,434,472
Total Liabilities 82,424,595 20,586,066 7,219,618 15,691,628
DEFERRED INFLOWS OF RESOURCES
Public purpose revenues 1,418,526 - - - Power cost reductions 800,000 - - - Pension plan 549,821 1,206,182 168,170 256,029 Total Deferred Inflows of Resources 2,768,347 1,206,182 168,170 256,029
NET POSITION
Net investment in capital assets (4,244,400) 40,893,670 38,386,365 4,891,988 Restricted 1,828,860 820,606 - - Unrestricted 45,588,926 27,882,039 (6,804,260) (14,402,333) Total Net Position 43,173,386 69,596,315 31,582,105 (9,510,345)
Total Liabilities, Deferred Inflows of Resources and Net Position $ 128,366,328 $ 91,388,563 $ 38,969,893 $ 6,437,312
72 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF NET POSITION (CONTINUED) MARCH 31, 2016 (restated)
Federal Energy Drainage Regulatory Improvement Commission General Twin Eliminating District #1 Fund SGMA Operations Lakes Entries Total
$ - $ 32,802,955 $ - -$ $ - $ - $ 107,248,052 - - - 223,736 10,627 - 1,195,539 ------1,494,158 4,177 20 - - -- 1,458,735 - - - 4,097,949 - - 19,543,924 ------3,826,683 - - - - 16,864 - 94,630 4,177 32,802,975 - 4,321,685 27,491 - 134,861,721
- 33,582 - 122,468 25,721 - 2,511,566 17,000 41,080 - 165,435 9,185 - 5,336,859 6,571 - - - 192,263 - 2,242,717 - 519,456 - - -- 1,643,959 - 8,651,167 - 85,013,021 4,246,170 (112,593,531) - - - -337 - - 541,218 - 1,244,880 - - -- 3,635,000 23,571 10,490,165 - 85,301,261 4,473,339 (112,593,531) 15,911,319
27,748 43,293,140 - 89,622,946 4,500,830 (112,593,531) 150,773,040
------1,418,526 ------800,000 - - - 578,427 - - 2,758,629 - - - 578,427 - - 4,977,155
796,579 (6,974,746) - 1,222,583 249,109 - 75,221,148 - - - 584,686 - - 3,234,152 1,014,422 (9,202,093) - (6,198,991) (1,549,914) - 36,327,796 1,811,001 (16,176,839) - (4,391,722) (1,300,805) - 114,783,096
$ 1,838,749 $ 27,116,301 $ - $ 85,809,651 $ 3,200,025 $ (112,593,531) $ 270,533,291
73 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEAR ENDED MARCH 31, 2017
Energy Water Resources Resources Hydroelectric Parks OPERATING REVENUES Electric sales and services $ 54,243,062 $ - $ - $ - Water sales and services - 16,670,922 - - Hydroelectric services - - 13,635,825 - Water transfers - 2,103,419 - - Recreation fees - - - 1,276,633 Administrative services - - - - Storm drainage fees - - - - Concessionaire revenue - - - - Total Operating Revenues 54,243,062 18,774,341 13,635,825 1,276,633
OPERATING EXPENSES Purchase of power 25,517,470 - - - Water distribution - 11,774,432 - - Electric transmission and distribution 6,714,099 - 3,455,714 - Recreation - - - 2,498,234 Concessionaire - - - - Storm drainage - - - - Administrative and general 2,168,669 1,498,984 310,242 464,104 Depreciation and amortization 2,721,866 1,687,938 1,362,655 230,452 Total Operating Expenses 37,122,104 14,961,354 5,128,611 3,192,790
Net Income from Operations 17,120,958 3,812,987 8,507,214 (1,916,157)
NONOPERATING REVENUES (EXPENSES) Property taxes - 2,699,900 - - Interest income 468,504 181,744 - - Administrative and general - nonoperating (433,581) (688,982) (126,063) (185,137) Other nonoperating income (expense) (363,489) (163,306) - - Gain (loss) on disposal of capital assets - - - - Interest expense (2,480,176) (106,584) - - Realized gain/(loss) on investment 66,065 29,681 - - Transfer in - 984,059 - - Transfer out (954,400) - (1,641) (1,376)
Total Nonoperating Revenues (Expenses) (3,697,077) 2,936,512 (127,704) (186,513)
Net Income before Capital Contributions 13,423,881 6,749,499 8,379,510 (2,102,670)
CAPITAL CONTRIBUTIONS Capital contributions - 1,089,164 - 982,135 Capital contributions - other 47,984 33,687 - - Capital contributions - noncash - 9,064 - -
Total Capital Contributions 47,984 1,131,915 - 982,135
Change in Net Position 13,471,865 7,881,414 8,379,510 (1,120,535)
Net Position (Deficit), Beginning of Year 43,173,386 69,596,315 31,582,105 (9,510,345)
Net Position (Deficit), End of Year $ 56,645,251 $ 77,477,729 $ 39,961,615 $ (10,630,880)
74 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION (CONTINUED) FOR THE YEAR ENDED MARCH 31, 2017
Federal Energy Drainage Regulatory Improvement Commission General Twin Eliminating District #1 Fund SGMA Operations Lakes Entries Total
$ - $ - $ - $ - $ - $ - $ 54,243,062 ------16,670,922 - - - - - (442,654) 13,193,171 ------2,103,419 ------1,276,633 - - -4,910,878 - (4,788,767) 122,111 24,648 - - - - -24,648 - - - - 1,446,134 - 1,446,134 24,648 - - 4,910,878 1,446,134 (5,231,421) 89,080,100
- - - - - (442,654) 25,074,816 ------11,774,432 ------10,169,813 ------2,498,234 - - - - 1,081,595 - 1,081,595 (2,332) - - - - - (2,332) 193,296 154,638 972 5,120,656 - (4,377,516) 5,534,045 48,985 3,526 - 146,747 43,861 -6,246,030 239,949 158,164 972 5,267,403 1,125,456 (4,820,170) 62,376,633
(215,301) (158,164) (972) (356,525) 320,678 (411,251) 26,703,467
255,277 - - - - -2,955,177 151 337 - 212,275 1,544 (83,015) 781,540 (20,563) (16,450) -146,746 - 411,251 (912,779) - - - (2,496) - - (529,291) - - - - (7,000) - (7,000) - (1,104,596) - - (83,015) 83,015 (3,691,356) ------95,746 - - - - - (984,059) - (26,642) - - - - 984,059 -
208,223 (1,120,709) - 356,525 (88,471) 411,251 (1,307,963)
(7,078) (1,278,873) (972) - 232,207 - 25,395,504
------2,071,299 - - 88,179 - - - 169,850 ------9,064
- - 88,179 - - 2,250,213
(7,078) (1,278,873) 87,207 - 232,207 - 27,645,717
1,811,001 (16,176,839) - (4,391,722) (1,300,805) - 114,783,096
$ 1,803,923 $ (17,455,712) $ 87,207 $ (4,391,722) $ (1,068,598) $ - $ 142,428,813
75 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION (CONTINUED) FOR THE YEAR ENDED MARCH 31, 2016 (restated)
Energy Water Resources Resources Hydroelectric Parks OPERATING REVENUES Electric sales and services $ 54,181,356 $ - $ - $ - Water sales and services - 9,387,586 - - Hydroelectric services - - 3,992,983 - Water transfers - 5,661,009 - - Recreation fees - - - 848,773 Administrative services - - - - Storm drainage fees - - - - Concessionaire revenue - - - - Total Operating Revenues 54,181,356 15,048,595 3,992,983 848,773
OPERATING EXPENSES Purchase of power 27,475,015 - - - Water distribution - 11,556,965 - - Electric transmission and distribution 5,630,547 - 2,284,368 - Recreation - - - 1,942,452 Concessionaire - - - - Storm drainage - - - - Administrative and general 2,021,144 1,433,556 300,047 450,070 Depreciation and amortization 4,206,581 1,682,668 1,183,598 247,681 Total Operating Expenses 39,333,287 14,673,189 3,768,013 2,640,203
Net Income from Operations 14,848,069 375,406 224,970 (1,791,430)
NONOPERATING REVENUES (EXPENSES) Property taxes - 2,486,236 - - Interest income 316,761 153,043 - - Administrative and general - nonoperating (52,910) (116,070) (16,183) (24,638) Other nonoperating income (expense) (290,320) 59,404 - - Gain (loss) on disposal of capital assets - (859) - - Interest expense (5,199,612) (106,982) - - Realized gain/(loss) on investment 25,538 14,719 - - Transfer in - 1,022,398 - - Transfer out (975,793) - (4,279) (18,250)
Total Nonoperating Revenues (Expenses) (6,176,336) 3,511,889 (20,462) (42,888)
Net Income before Capital Contributions 8,671,733 3,887,295 204,508 (1,834,318)
CAPITAL CONTRIBUTIONS Capital contributions - 2,425,175 - 1,042,693 Capital contributions - other 51,481 107,519 - - Capital contributions - noncash - - - -
Total Capital Contributions 51,481 2,532,694 - 1,042,693
Change in Net Position 8,723,214 6,419,989 204,508 (791,625)
Net Position (Deficit), Beginning of Year 34,450,172 63,176,326 31,377,597 (8,718,720)
Net Position (Deficit), End of Year $ 43,173,386 $ 69,596,315 $ 31,582,105 $ (9,510,345)
76 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION (CONTINUED) FOR THE YEAR ENDED MARCH 31, 2016 (restated)
Federal Energy Drainage Regulatory Improvement Commission General Twin Eliminating District #1 Fund SGMA Operations Lakes Entries Total
$ - $ - $ - $ - $ - $ - $ 54,181,356 ------9,387,586 - - - - - (97,992) 3,894,991 ------5,661,009 ------848,773 - - -4,649,029 - (4,542,371) 106,658 10,323 - - - - -10,323 - - - - 1,136,380 - 1,136,380 10,323 - - 4,649,029 1,136,380 (4,640,363) 75,227,076
- - - - - (97,992) 27,377,023 ------11,556,965 ------7,914,915 ------1,942,452 - - - - 928,493 -928,493 23,969 - - - - - 23,969 187,530 150,023 - 4,514,102 - (4,542,371) 4,514,101 49,255 3,676 - 120,280 48,477 7,542,216 260,754 153,699 - 4,634,382 976,970 (4,640,363) 61,800,134
(250,431) (153,699) - 14,647 159,410 - 13,426,942
264,244 - - - - -2,750,480 236 83 - 41,017 1,538 (37,978) 474,700 - - - (55,662) - - (265,463) ------(230,916) - - - - (59,615) - (60,474) - (1,108,725) - - (37,978) 37,978 (6,415,319) ------40,257 - - - - - (1,022,398) - (24,076) - - - - 1,022,398 -
240,404 (1,108,642) - (14,645) (96,055) - (3,706,735)
(10,027) (1,262,341) - 2 63,355 - 9,720,207
------3,467,868 ------159,000 - - - - 7,283 - 7,283
- - - - 7,283 3,634,151
(10,027) (1,262,341) - 2 70,638 - 13,354,358
1,821,028 (14,914,498) - (4,391,724) (1,371,443) - 101,428,738
$ 1,811,001 $ (16,176,839) $ - $ (4,391,722) $ (1,300,805) $ - $ 114,783,096
77 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MARCH 31, 2017
Energy Water Resources Resources Hydroelectric Parks Cash Flows from Operating Activities: Cash receipts from customers $ 53,896,268 $ 18,599,005 $ 9,801,709 $ 1,970,218 Cash paid to suppliers for goods and services (29,014,167) (6,638,502) (394,341) (2,106,842) Cash paid to employees for services (1,949,975) (4,091,414) (725,763) (997,869) Cash receipts/(payments) to other funds (10, 786,109) (8,053,570) (7,243,354) 2,090,808 Net cash provided by (used for) operating activities 12,146,017 (184,481) 1,438,251 956,315
Cash Flows from Non-Capital Financing Activities: Property taxes received - 2,699,900 - - Relicense costs incurred - (240,270) - - Other income, net of other expenses (797,070) (852,288) (126,063) (185,137) Net cash provided by (used for) non-capital financing activities (797,070) 1,607,342 (126,063) (185,137)
Cash Flows from Capital and Related Financing Activities: Acquisition and construction of capital assets (6,689,965) (2,518,088) (1,312,188) (1,753,313) Proceeds from the sale of capital assets - - - - Capital contributions from grants 47,984 1,131,915 - 982,135 Proceeds from issuance of debt - - - - Principal payments on long-term debt (2,797,468) (140,246) - - Interest payments on long-term debt (2,465,537) (107,561) - - Long-term debt refunding - - - - Net cash used by capital and related financing activities (11,904,986) (1,633,980) (1,312,188) (771,178)
Cash Flows from Investing Activities: Purchase of investment securities - - - - Change in restricted cash 21,470 - - - Interest received on investments 534,569 213,329 - - Net cash provided by (used by) investing activities 556,039 213,329 - -
Net increase (decrease) in cash and cash equivalents - 2,210 - -
Cash and cash equivalents, beginning of year - 1,023,865 - 1,460
Cash and cash equivalents, end of year $ - $ 1,026,075 $ - $ 1,460
78 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED MARCH 31, 2017
Federal Energy Drainage Regulatory Improvement Commission General Twin Eliminating District #1 Fund SGMA Operations Lakes Entries Total
$ 27,325 $ - $ (88,179) $ 115,659 $ 1,445,474 $ - $ 85,767,479 (14,668) 176,903 91,999 (2,470,944) (573,857) (411,251) (41,355,670) - - - (2,710,933) (481,493) - (10,957,447) (247,522) 3,652,472 84,360 20,631,319 (128,404) - -
(234,865) 3,829,375 88,180 15,565,101 261,720 (411,251) 33,454,362
255,277 - - - - - 2,955,177 - (1,259,502) - - - - (1,499,772) (20,563) (16,450) - 144,250 - 411,251 (1,442,070)
234,714 (1,275,952) - 144,250 - 411,251 13,335
- (3,526) (176,359) (112,984) (252,875) - (12,819,298) - - - - 120,012 - 120,012 - - 88,179 - - - 2,250,213 ------(1,453,481) - - - - (4,391,195) - (1,114,719) - - (83,015) 83,015 (3,687,817) ------(2,571,726) (88,180) (112,984) (215,878) 83,015 (18,528,085)
- - - (21,573,371) - - (21,573,371) - 17,966 - (132,128) - - (92,692) 151 337 - 43,691 1,544 (83,015) 710,606
151 18,303 - (21,661,808) 1,544 (83,015) (20,955,457)
- - - (6,065,441) 47,386 - (6,015,845)
- - - 23,637,413 26,572 - 24,689,310
$ - $ - $ - $ 17,571,972 $ 73,958 $ - $ 18,673,465
79 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED MARCH 31, 2017
Energy Water Resources Resources Hydroelectric Parks Reconciliation of operating income to net cash provided (used) by operating activities: Net income (loss) from operations $ 17,120,958 $ 3,812,987 $ 8,507,214 $ (1,916,157) Adjustments to reconcile net income (loss) from operations to net cash provided (used) by operating activities: Depreciation and amortization 2,721,866 1,687,938 1,362,655 230,452 Transfers to/from other funds ( 954,400) 984,059 (1,641) (1,376) Changes in operating assets and liabilities: Accounts receivable (346,794) (2,973,876) (3,391,462) 14,800 Due from other governmental agencies - 705,691 - 679,560 Inventory 464,038 (46,299) - - Prepaid expenses and other current assets 8,578 (13,079) (20,575) (2,267) Due to/from other funds (7,220,386) (7,538,645) (7,374,125) 2,556,288 Deferred outflows of resources (1,617,382) (799,694) (137,072) (198,026) Accounts payable 99,207 (89,990) (269,945) (670,801) Accrued liabilities 386,701 218,249 1,165,956 (226,825) Unearned revenue - 2,092,849 - (775) Accrued compensated absences 94,262 162,004 33,482 28,798 Net OPEB obligation 220,342 261,700 50,407 74,574 Collective net pension liability 926,047 1,807,081 309,744 447,484 Deposits (38,481) 2,775 -54,056 Deferred inflows of resources 281,461 (458,231) 1,203,613 (113,470)
Net cash provided (used) by operating activities $ 12,146,017 $ (184,481) $ 1,438,251 $ 956,315
Supplemental Disclosure of Cash Flow Information:
Non-cash investing, capital, and financing activities: Receipt of contributed assets $ - $ 9,064 $ - $ -
80 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED MARCH 31, 2017
Federal Energy Drainage Regulatory Improvement Commission General Twin Eliminating District #1 Fund SGMA Operations Lakes Entries Total
$ (215,301) $ (158,164) $ (972) $ (356,525) $ 320,678 $ (411,251) $ 26,703,467
48,985 3,526 - 146,747 43,861 - 6,246,030 (26,642) ------
805 - - (6,452) (2,722) - (6,705,701) 2,364 - (88,179) - - - 1,299,436 - - - -21,609 - 439,348 - - - 33,296 (6,102) - (149) (27,584) 3,807,110 85,332 15,840,414 (128,404) - - - - - (385,178) - - (3,137,352) - 12,418 30,521 (15,519) (2,644) - (906,753) (17,000) 164,485 61,478 87,382 12,799 - 1,853,225 (492) - - - 2,062 - 2,093,644 - - - 69,288 5,301 - 393,135 - - - (501,566) - - 105,457 - - - 870,391 - - 4,360,747 - - - 3,533 (4,718) - 17,165 - - - (220,710) - - 692,663
$ (234,865) $ 3,829,375 $ 88,180 $ 15,565,101 $ 261,720 $ (411,251) $ 33,454,362
$ - $ - $ - $ - $ - $ - $ 9,064
81 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED MARCH 31, 2016 (restated)
Energy Water Resources Resources Hydroelectric Parks Cash Flows from Operating Activities: Cash receipts from customers $ 55,400,770 $ 9,963,594 $ 3,785,669 $ 927,940 Cash paid to suppliers for goods and services (33,979,378) (11,272,126) (3,226,408) (1,898,637) Cash paid to employees for services (2,125,730) (1,568,277) (284,004) (435,581) Cash receipts/(payments) to other funds (10, 374,049) (488,335) 1,392,215 1,783,059 Net cash provided by (used for) operating activities 8,921,613 (3,365,144) 1,667,472 376,781
Cash Flows from Non-Capital Financing Activities: Property taxes received - 2,486,236 - - Relicense costs incurred - - - - Other income, net of other expenses (264,782) 243,770 (83,863) - Net cash provided by (used for) non-capital financing activities (264,782) 2,730,006 (83,863) -
Cash Flows from Capital and Related Financing Activities: Acquisition and construction of capital assets (3,801,274) (3,946,039) (1,583,609) (1,419,474) Proceeds from the sale of capital assets - - - - Capital contributions from grants 51,481 2,532,694 - 1,042,693 Proceeds from issuance of debt 63,405,402 - - - Principal payments on long-term debt (70,707,728) (104,720) - - Interest payments on long-term debt (4,185,982) (143,921) - - Long-term debt refunding 2, 238,081 - - - Net cash used by capital and related financing activities (13,000,020) (1,661,986) (1,583,609) (376,781)
Cash Flows from Investing Activities: Purchase of investment securities - - - - Change in restricted cash 4,026,428 75,111 - - Interest received on investments 316,761 152,439 - - Net cash provided by (used by) investing activities 4,343,189 227,550 - -
Net increase (decrease) in cash and cash equivalents - (2,069,574) - -
Cash and cash equivalents, beginning of year - 3,093,439 - 1,460
Cash and cash equivalents, end of year $ - $ 1,023,865 $ - $ 1,460
82 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED MARCH 31, 2016 (restated)
Federal Energy Drainage Regulatory Improvement Commission General Twin Eliminating District #1 Fund SGMA Operations Lakes Entries Total
$ 10,342 $ - $ - $ 4,735,306 $ 1,170,681 $ - $ 75,994,302 (23,858) - - (41,065) (590,807) - (51,032,279) (187,530) (143,565) - (4,260,538) (238,192) - (9,243,417) (63,433) 3,484,163 - 4,535,798 (269,418) - -
(264,479) 3,340,598 - 4,969,501 72,264 - 15,718,606
264,244 - - - - - 2,750,480 - (858,819) - - - - (858,819) - - - (92,642) 27,448 - (170,069)
264,244 (858,819) - (92,642) 27,448 - 1,721,592
- - - (411,387) (117,873) - (11,279,656) - - - -43,181 - 43,181 ------3,626,868 ------63,405,402 - (1,085,280) - (32,000) - - (71,929,728) - (1,491,541) - - (37,978) 37,978 (5,821,444) ------2,238,081 - (2,576,821) - (443,387) (112,670) 37,978 (19,717,296)
- - - (12,348,019) - - (12,348,019) - 94,959 - (186,149) - - 4,010,349 235 83 - (5,966) - (37,978) 425,574
235 95,042 - (12,540,134) - (37,978) (7,912,096)
- - - (8,106,662) (12,958) - (10,189,194)
- - - 31,744,075 39,530 - 34,878,504
$ - $ - $ - $ 23,637,413 $ 26,572 $ - $ 24,689,310
83 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED MARCH 31, 2016 (restated)
Energy Water Resources Resources Hydroelectric Parks Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Net income (loss) from operations $ 14,848,069 $ 375,406 $ 224,970 $ (1,791,430) Adjustments to reconcile net income (loss) from operations to net cash provided (used) by operating activities: Depreciation and amortization 4,206,581 1,682,668 1,183,598 247,681 Transfers to/from other funds (1,028,690) 736,669 49,293 (42,879) Changes in operating assets and liabilities: Accounts receivable 506,620 499,699 (178,640) (105,286) Due from other governmental agencies - 406,377 - (970,488) Inventory (401,385) (32,285) - - Prepaid expenses and other current assets 24,376 12,835 20,280 7,872 Due to/from other funds (9,300,265) (1,510,732) 1,298,502 1,801,309 Deferred outflows of resources (423,922) (942,052) (131,344) (199,964) Accounts payable 228,455 58,265 (723,296) 698,666 Accrued liabilities ( 447,950) 44,574 (195,209) 354,190 Unearned revenue - (5,579,177) 250 184,450 Accrued compensated absences 53,464 (87,708) (4,778) 13,110 Net OPEB obligation (139,050) (94,907) (23,681) (35,341) Collective net pension liability 489,413 1,073,662 149,694 227,900 Deposits 2,781 7,098 - (9,712) Deferred inflows of resources 303,116 (15,536) (2,167) (3,297)
Net cash provided (used) by operating activities $ 8,921,613 $ (3,365,144) $ 1,667,472 $ 376,781
Supplemental Disclosure of Cash Flow Information:
Non-cash investing, capital, and financing activities: Receipt of contributed assets $ - $ - $ - $ -
84 MERCED IRRIGATION DISTRICT COMBINING STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED MARCH 31, 2016 (restated)
Federal Energy Drainage Regulatory Improvement Commission General Twin Eliminating District #1 Fund SGMA Operations Lakes Entries Total
$ (250,431) $ (153,699) $ - $ 14,647 $ 159,410 $ - $ 13,426,942
49,255 3,676 - 120,280 48,477 - 7,542,216 (24,075) - - 303,209 6,473 ------2,661 (26,850) - 698,204 (1,390) - - - - - (565,501) - - - -92,809 - (340,861) - - - (11,585) 11,648 - 65,426 (39,357) 3,484,163 - 4,535,798 (269,418) - - - - - (727,041) - - (2,424,323) - 8,876 - 29,233 16,485 - 316,684 1,500 (2,418) - (59,048) 8,369 - (295,992) 19 - - -54,593 - (5,339,865) - - - 18,263 (4,178) - (11,827) - - - 235,307 - - (57,672) - - - 514,877 - - 2,455,546 - - - 355 (25,554) - (25,032) - - - (7,455) - - 274,661
$ (264,479) $ 3,340,598 $ - $ 4,969,501 $ 72,264 $ - $ 15,718,606
$ - $ - $ - $ - $ 7,283 $ - $ 7,283
85 MERCED IRRIGATION DISTRICT DEBT SERVICE RATIO RELATED TO OUTSTANDING COP AND BONDS- ENERGY RESOURCES FOR THE YEARS ENDED MARCH 31, 20 7 AND 2016
(restated) 2017 2016
REVENUES Electric sales and services $ 54,243,062 $ 54,181,356 Interest income 468,504 316,761 Other revenues 114,049 77,019 Transfer in - - Total Revenues 54,825,615 54,575,136
OPERATIONS AND MAINTENANCE EXPENSES Purchase of power 25,517,470 27,475,015 Electric transmission and distribution 6,714,099 5,598,060 Administrative and general 2,168,669 2,053,619 Transfer out 954,400 975,792 Total Operating Expenses 35,354,638 36,102,486
Net Energy Systems Revenue $ 19,470,977 (A) $ 18,472,650 (B)
DEBT SERVICE 2005 Electric Revenue Bond $ - $ 2,214,067 2005 Electric Revenue COP - 377,503 2012 Electric Refunding Revenue Bond 462,920 463,580 2013 Electric Refunding Revenue Bond - 547,576 2015 Electric System Refunding Bond 4,833,513 1,870,989 Total Debt Service $ 5,296,433 $ 5,473,715
Debt Service Coverage 3.68 3.37
Required Debt Service Coverage 1.20 1.20
(A) The above calculation schedule was compiled using the debt service calculation required by the bond document. The above schedule excludes noncash expenditures such as Pension Expenses – GASB 68, Loss on Disposal of Capital Assets, Depreciation, Amortization and Bond Issuance Cost.
(B) The above calculation schedule was compiled using the debt service calculation required by the bond document. The above schedule excludes noncash expenditures such as Pension Expenses – GASB 68, Depreciation, Amortization and Bond Issuance Cost.
86 MERCED IRRIGATION DISTRICT DEBT SERVICE RATIO RELATED TO OUTSTANDING COP AND BONDS- WATER RESOURCES AND HYDROELECTRIC PROJECT FOR THE YEARS ENDED MARCH 31, 20 7 AND 2016
(restated) 2017 2016 REVENUES Sales of Hydroelectric Energy $ 13,635,825 $ 3,992,983 Water sales 16,670,922 9,263,624 Deferred Revenue/Water Transfers 2,103,419 (A) 5,615,875 (B) 1% Property tax revenue 2,699,900 2,486,236 Permission fees - water 889,386 911,268 Grants 1,089,164 2,425,175 Interest income 181,744 153,043 Other revenues 63,368 403,014 Transfer in 94,673 - Total Revenues 37,428,401 25,251,218 OPERATIONS AND MAINTENANCE EXPENSES Hydroelectric transmission and distribution 3,455,714 2,284,227 Water distribution 11,774,432 11,489,346 Administrative and general 1,809,226 1,806,202 Transfer out 1,641 - Total Operating Expenses 17,041,013 15,579,775
Net Water and Hydro Systems Revenue $ 20,387,388 (C) $ 9,671,443 (C)
DEBT SERVICE 2014 Water, Hydroelectric, FERC Bond (Tax Exempt)$ 2,486,400 $ 2,494,333 2014 Water, Hydroelectric, FERC Bond (Taxable) 245,594 247,553 2014 Water, Hydroelectric, FERC Bond (LOC) 87,881 79,545 Total Debt Service $ 2,819,875 $ 2,821,431
Debt Service Coverage 7.23 3.43
Required Debt Service Coverage 1.25 1.25
(A) Water Transfers include $240,000 of deferred revenue related to physical water transfers that occurred in a prior year, but for accounting purposes was not recognized until the current fiscal year (FY 2017). Without this deferred revenue Net Revenue would have been $20.1 million resulting in debt coverage calculation of 7.14. (B) Water Transfers include $4,427,000 of deferred revenue related to physical water transfers that occurred in a prior year, but for accounting purposes was not recognized until the fiscal year (FY 2016). Without this deferred revenue Net Revenue would have been $5.2 million resulting in debt coverage calculation of 1.86. (C) The above calculation schedule was compiled using the debt service calculation required by the bond document. The above schedule excludes noncash expenditures such as Pension Expenses – GASB 68, Loss on Disposal of Capital Assets, Depreciation, Amortization and Bond Issuance Cost. The above schedule differs from the audited financial statement presentation in the following areas: Total Revenues (debt service calculation) includes permission fees earned by Water Resources. The audited financial statements present this account in the Nonoperating Revenues in the “Transfer In” category.
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Statistical Section
Exchequer Dam under construction, March 9, 1925
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STATISTICAL SECTION
This part of the District’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the District’s overall financial health.
Contents Page
Financial Trends 93 95
These schedules contain trend information to help the reader understand how the District’s financial performance and well being have changed over time.
Revenue Capacity 96 102
These schedules contain information to help the reader assess the District’s significant local revenue sources, property levies, water sales, and energy sales.
Due to the District being in direct competition with PG&E for electrical services the District will be unable to supply a table that includes the ten largest payers for the District’s own source revenue.
Debt Capacity 108 111
These schedules present information to help the reader assess the affordability of the District’s current levels of outstanding debt and the District’s ability to issue additional debt in the future.
Demographic and Economic Information 112 113
These schedules offer demographic and economic indicators to help the reader understand the environment within which the District’s financial activities take place.
Operating Information 114 118
These schedules contain service and infrastructure data to help the reader understand how the information in the District’s financial report relates to the services the District provides and the activities it performs.
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Table I MERCED IRRIGATION DISTRICT Net Position by Component Last Ten Years (accrual basis of accounting)
FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 * FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 Primary government (restated) (restated) Net Invested in Capital Assets $ 87,321,044 $ 75,221,148 $ 67,163,402 $ 65,801,230 $ 70,364,183 $ 56,940,683 $ 42,111,265 $ 39,111,893 $ 37,589,323 $ 37,895,293 Restricted 3,189,737 3,234,152 1,997,701 1,444,100 1,544,100 1,744,100 13,458,090 13,831,119 15,563,378 14,334,426 Unrestricted 51,918,032 36,327,796 32,267,635 51,598,476 42,209,263 40,599,619 32,123,162 27,996,033 25,615,919 26,520,147 Total Governmental Activities Net Position $ 142,428,813 $ 114,783,096 $ 101,428,738 $ 118,843,806 $ 114,117,546 $ 99,284,402 $ 87,692,517 $ 80,939,045 $ 78,768,620 $ 78,749,866
Percentage Increase/Decrease 24% 13% -15% 4% 15% 13% 8% 3% 0% 8%
Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March.
Source: Merced Irrigation District, Finance Department
Table II MERCED IRRIGATION DISTRICT Changes in Net Position Last Ten Years (accrual basis of accounting)
FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 * FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 Operating Revenue (restated) (restated) Electric Sales and Services $ 54,243,062 $ 54,181,356 $ 56,320,094 $ 52,655,884 $ 60,790,788 $ 49,902,766 $ 49,096,785 $ 53,177,365 $ 50,215,471 $ 46,034,044 Water Sales and Services 16,670,922 9,387,586 15,610,991 11,998,771 10,312,735 9,613,418 9,063,731 8,891,757 8,919,508 9,658,878 Hydroelectric Sales and Services (A) 13,193,171 3,894,991 8,401,170 6,821,581 9,864,859 5,819,743 9,039,230 7,470,082 6,114,517 6,179,373 Water Transfers/Deferred Revenue 2,103,419 5,661,009 7,880,905 3,879,498 5,701,325 3,203,258 6,859,023 5,056,833 4,648,428 5,185,240 Recreation Fees 1,276,633 848,773 1,100,747 1,423,916 1,830,125 1,554,226 1,607,626 1,672,795 1,564,837 1,821,687 Administrative services 122,111 106,658 - Storm Drainage Fees 24,648 10,323 6,480 19,942 12,812 7,443 9,020 8,225 28,495 67,240 Concessionaire Revenue (B) 1,446,134 1,136,380 1,496,512 1,837,517 1,588,511 1,361,010 - - - - Total Operating Revenue 89,080,100 75,227,076 90,816,899 78,637,109 90,101,155 71,461,864 75,675,415 76,277,057 71,491,256 68,946,462
Operating Expenses Purchase of Power 25,074,816 27,377,023 32,714,176 28,583,744 29,989,929 27,061,112 28,049,376 34,783,043 33,327,494 30,914,133 Water Distribution 11,774,432 11,556,965 15,272,068 16,197,532 13,961,533 11,042,027 12,395,276 13,807,527 15,405,911 13,845,451 Electric Transmission and Distribution 10,169,813 7,914,915 12,307,220 12,744,986 17,537,977 11,959,843 16,640,427 14,982,256 13,907,862 13,287,593 Recreation 2,498,234 1,942,452 2,642,197 2,670,247 2,896,704 2,362,824 2,002,847 1,920,704 1,861,015 1,750,324 Concessionaire (B) 1,081,595 928,493 789,633 529,003 378,088 239,164 - - - - Storm Drainage (2,332) 23,969 34,743 21,076 14,552 25,593 41,570 61,295 54,207 57,705 Administrative and General 5,534,045 4,514,101 5,067,069 6,189,318 7,882,331 4,477,355 3,080,480 2,047,216 2,190,498 1,980,938 Depreciation and Amortization 6,246,030 7,542,216 5,809,401 6,205,348 7,082,293 5,493,292 5,409,291 5,436,229 5,185,666 4,959,646 Total Operating Expenses 62,376,633 61,800,134 74,636,507 73,141,254 79,743,407 62,661,210 67,619,267 73,038,270 71,932,653 66,795,790
Net ncome ( oss) om perations 26,703,467 13,426,942 16,180,392 5,495,855 10,357,748 8,800,654 8,056,148 3,238,787 (441,397) 2,150,672
Non-operating Revenue (Expense) Property Tax Revenue 2,955,177 2,750,480 2,548,024 3,214,982 2,059,195 2,242,166 2,162,640 2,363,313 2,565,214 2,524,649 Interest Income 781,540 474,700 258,867 313,773 207,286 160,899 148,476 189,486 1,201,133 2,087,083 Administrative and eneral - onoperating (912,779) (265,463) - Other Non-Operating Income (Expense) (529,291) (230,916) (300,831) 135,065 753,778 656,835 1,304,566 956,220 493,127 747,851 Gain/ (Loss) on Disposal of Capital Assets (7,000) (60,474) 212,470 - 3,000 74,993 37,093 92,141 373,361 111,695 Interest Expense (3,691,356) (6,415,319) (20,351,456) (5,109,537) (6,169,805) (5,056,729) (5,248,012) (5,361,674) (5,426,972) (5,329,720) Realized Gains/(Losses) on Investment 95,746 40,257 29,634 Total Non-Operating Revenue (Expenses) (1,307,963) (3,706,735) (17,603,292) (1,445,717) (3,146,546) (1,921,836) (1,595,237) (1,760,514) (794,137) 141,558
Net ncome ( oss) efore apital ontribution 25,395,504 9,720,207 (1,422,900) 4,050,138 7,211,202 6,878,818 6,460,911 1,478,273 (1,235,534) 2,292,230
Capital Contributions Capital ontributions 2,071,299 3,467,868 707,862 676,122 9,132,946 4,713,067 292,561 692,152 1,254,288 3,819,348 Capital ontributions - ther 169,850 159,000 1,442,523 Capital ontributions on- ash 9,064 7,283 Total Capital Contributions 2,250,213 3,634,151 2,150,385 676,122 9,132,946 4,713,067 292,561 692,152 1,254,288 3,819,348
Change in Net Position 27,645,717 13,354,358 727,485 4,726,260 16,344,148 11,591,885 6,753,472 2,170,425 18,754 6,111,578
Net Position, Beginning of Year 114,783,096 101,428,738 100,701,253 114,117,546 97,773,398 87,692,517 80,939,045 78,768,620 78,749,866 72,638,288 Net Position, End of Year $ 142,428,813 $ 114,783,096 $ 101,428,738 $ 118,843,806 $ 114,117,546 $ 99,284,402 $ 87,692,517 $ 80,939,045 $ 78,768,620 $ 78,749,866
Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March. (A) Hydroelectric Project prior to July 2014, was a reimbursement of hydroelectric project operational costs, as the revenue generated was owned by PG&E until this (B) Concessionaires were acquired in 2010, as a wholly owned subsidiary, no data available before then. Source: Merced Irrigation District, Finance Department
Table III MERCED IRRIGATION DISTRICT Cash and Investment Balance Summary Last Ten Years (accrual basis of accounting)
Unrestricted Water Energy Drainage Internally Total Restricted Total Resources Resources District Designated Other Unrestricted Total Balance FY 2017 $ 3,189,737 $ 18,799,529 $ 53,489,944 $ 992,109 $ - $ 8,136,326 $ 81,417,908 $ 84,607,645 restated FY 2016 3,234,152 11,068,508 48,167,435 964,525 - 5,570,197 65,770,665 69,004,817 FY 2015 8,690,236 18,628,147 39,170,261 914,652 - 3,423,761 62,136,821 70,827,057 FY 2014 13,701,945 14,581,879 33,056,695 872,363 - 2,107,188 50,618,125 64,320,070 FY 2013 * 17,123,136 15,466,788 24,649,352 827,014 - 1,413,667 42,356,821 59,479,957 FY 2011 21,096,276 11,582,055 8,364,722 694,211 17,773,570 - 38,414,558 59,510,834 FY 2010 25,822,173 12,145,683 2,983,788 613,218 17,741,385 - 33,484,074 59,306,247 FY 2009 30,369,544 10,864,958 15,138 673,566 15,117,243 - 26,670,905 57,040,449 FY 2008 34,317,527 12,179,578 367,998 955,824 11,114,500 - 24,617,900 58,935,427 FY 2007 18,066,936 8,516,117 281,909 897,600 12,296,193 - 21,991,819 40,058,755
Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March.
Source: Merced Irrigation District, Finance Department
Table IV COUNTY OF MERCED ASSESSED VALUE OF TAXABLE PROPERTY Last Ten Years
Fiscal (1) (2) (3) (4) Total Taxable Total Direct Year Secured Unsecured Unitary Exempt Assessed Value Tax Rate 2015/16 $ 19,594,870,287 $ 1,533,439,064 $ 577,739,780 $ 878,965,724 $ 20,827,083,407 1.00% 2014/15 18,097,459,259 1,445,344,675 526,009,741 882,002,781 19,186,810,894 1.00% 2013/14 16,530,562,146 1,357,660,084 499,521,434 857,896,793 17,529,846,871 1.00% 2012/13 15,525,112,557 1,257,346,806 512,308,376 815,802,947 16,478,964,792 1.00% 2011/12 15,369,771,704 1,268,886,030 509,109,681 803,406,454 16,344,360,961 1.00% 2010/11 15,428,528,741 1,252,030,245 468,219,816 773,717,122 16,375,061,680 1.00% 2009/10 16,181,071,733 1,245,284,704 468,178,393 718,742,129 17,175,792,701 1.00% 2008/09 18,859,313,068 1,178,595,275 449,357,557 620,665,224 19,866,600,676 1.00% 2007/08 19,411,507,637 1,118,683,309 408,401,951 584,402,698 20,354,190,199 1.00% 2006/07 17,404,362,513 1,031,843,871 387,818,163 556,097,714 18,267,926,833 1.00%
Notes: (1) Secured property is generally real property defined as land, mines, minerals, timber, and improvement such as buildings, structures, crops, trees, and vines. (2) Unsecured property is generally personal property, including machinery, equipment, office tools, and supplies.
(3) Unitary properties are railroads and utility crossing the County and are assessed by the State Board of Equalizations.
(4) Exempt properties include numerous full and partial exclusions/exemptions provided by the State Constitution and the legislature that relieve certain taxpayers from the burden of paying property taxes.
Due to the 1978 passage of the property tax initiative Proposition 13, the County does not track the estimated actual value of all County properties. Under Proposition 13, property is assessed at the 1978 market value with an annual increase limited to the lesser of 2% or the Consumer Price Index on properties not involved in a change of ownership or properties that did not undergo new construction. Newly acquired property is assessed at its new market value (the purchase price) and the value of any new construction is added to the existing base value of a parcel. As a result, similar properties can have substantially different assessed values based on the date of purchase. Proposition 13 limits the property tax rate to 1% assessed value plus the a rate necessary to fund local voter-approved bonds and special assessments.
(5) The County of Merced fiscal year is from July to June, where as the District's fiscal year is from April to March.
Source: Comprehensive Annual Financial Report . 1st ed. Merced: County of Merced, 2016. Web. 9 March 2017.
Table V COUNTY OF MERCED PROPERTY TAX RATES DIRECT AND OVERLAPPING PROPERTY TAX RATES Last Ten Fiscal Years
Allocation of Percentage for Property Tax Rate Among Overlapping Governments Fiscal General Obligation Total Direct County School Special Year Basic Rate Debt Service Rate County Fire Cities Districts Districts Total 2015/16 $ 1.00 0.8178 $ 1.8178 16.45 7.19 12.70 60.08 3.58 100.00 2014/15 1.00 0.6930 1.6930 16.41 7.20 12.79 60.05 3.55 100.00 2013/14 1.00 0.6784 1.6784 16.39 7.25 12.42 60.36 3.58 100.00 2012/13 1.00 0.7891 1.7891 16.24 7.17 12.90 60.11 3.58 100.00 2011/12 1.00 0.7325 1.7325 16.12 7.07 13.44 59.78 3.59 100.00 2010/11 1.00 0.7307 1.7307 16.00 7.00 13.98 59.40 3.62 100.00 2009/10 1.00 0.5172 1.5172 15.89 6.90 14.59 59.01 3.61 100.00 2008/09 1.00 0.4158 1.4158 16.19 6.81 14.03 59.40 3.57 100.00 2007/08 1.00 0.4542 1.4542 16.33 6.68 13.55 59.82 3.62 100.00 2006/07 1.00 0.4777 1.4777 16.29 6.75 13.29 60.17 3.50 100.00
Notes: The basic property tax rate may be increased only by a majority vote of the residents. Rates for debt services are set based on each year's requirements. (1) The County of Merced's fiscal year is from July to June, where as the District's fiscal year is from April to March.
Source: Comprehensive Annual Financial Report . 1st ed. Merced: County of Merced, 2016. Web. 9 March 2017.
Table VI COUNTY OF MERCED PRINCIPAL PROPERTY TAXPAYERS CURRENT YEAR AND NINE YEARS AGO
2016 2007
Percentage of Percentage of Type of Property Taxes Total County Tax Property Taxes Total County Tax Taxpayer Business Levied Rank Levy Levied Rank Levy Pacific Gas and Electric Company Utility $ 6,094,748 1 2.49%$ 2,817,416 1 1.35% Gallo Winery E & J Agricultural 4,895,483 2 2.00% 1,142,705 4 0.55% Liberty Packing CO., LLC Agricultural 2,082,547 3 0.85% 1,227,211 3 0.59% Foster Poulty Farms Agricultural 1,848,114 4 0.75% 609,320 7 0.29% Fresno Farming LLC Agricultural 1,622,007 5 0.66% QG Printing II Corp Industrial 1,135,070 6 0.46% Ingomar Packing Company LLC Agricultural 1,039,891 7 0.42% 471,586 8 0.23% Dole Packaged Foods LLC Agricultural 1,023,305 8 0.42% Gallo Vineyards, Inc. Agricultural 919,233 9 0.38% HCC Properties LTD A Partnership Commercial 909,353 10 0.37% Hostetler Investments, LLC Commercial 635,533 6 0.30% World Color Press Inc Industrial 1,767,728 2 0.85% Lakemont LWH LLC Commercial 700,609 5 0.34% Pacific Bell Utility 470,955 9 0.23% McLane Company, Inc Industrial 440,716 10 0.00% $ 21,569,751 8.80%$ 10,283,779 4.94%
Note: (1) The County of Merced's fiscal year is from July to June, where as the District's fiscal year is from April to March.
Source: Comprehensive Annual Financial Report . 1st ed. Merced: County of Merced, 2016. Web. 9 March 2017.
Table VII COUNTY OF MERCED PROPERTY TAX LEVIES AND COLLECTED Last Ten Fiscal Years
Collected Within the Fiscal Year of the Levy Fiscal Taxes Levied for Percentage of Collections in Year the Fiscal Year Amount Levy Subsequent Years (1) 2015/16 $ 244,989,151 $ 239,650,497 97.82% $ 5,338,654 2014/15 228,111,696 223,315,970 97.90% 4,145,726 2013/14 208,534,218 202,790,500 97.25% 5,743,718 2012/13 199,494,595 192,427,553 96.46% 7,067,042 2011/12 198,111,579 189,557,824 95.68% 8,553,755 2010/11 196,342,199 186,912,123 95.20% 9,430,076 2009/10 201,407,394 189,011,701 93.85% 12,395,693 2008/09 227,866,274 209,155,011 91.79% 18,711,263 2007/08 233,753,983 211,305,001 90.40% 22,448,982 2006/07 208,850,020 194,734,558 93.25% 14,115,462
Notes: (1) Collections in subsequent years are the uncollected amounts for that one year that will be collected in subsequent years. Delinquent collections by year of levy are not available.
(2) The County of Merced's fiscal year is from July to June, where as the District's fiscal year is from April to March.
Source: Comprehensive Annual Financial Report. 1st ed. Merced: County of Merced, 2016. Web. 9 March 2017.
Table VIII MERCED IRRIGATION DISTRICT Water Rates Based on Irrigation Season for Water Resources Last Ten Years
Surface Water Supplement Water Standby Fee Fee / acre ft. Supply Pool FY 2017 $ 24.00 $66.00 $ 225.00 FY 2016 24.00 66.00 225.00 FY 2015 24.00 100.00 (A) 225.00 FY 2014 24.00 75.00 (D) 110.00 FY 2013 24.00 23.25 73.25 (B) FY 2012 24.00 18.25 - 23.25 (C) FY 2011 24.00 18.25 FY 2010 24.00 18.25 FY 2009 24.00 15.25 FY 2008 24.00 15.25
Notes: (A) Surface Water was unavailable in 2015 due to poor hydrological conditions. Due to a storm in May there was run off that allowed for an irrigation event in July at the rate of $100 /AF. (B) Supplement Water Supply Pool rate not established until 2013. Supplement water is a voluntary basis. (C) Surface Water Used a Tier Fee Schedule minimum $18.25/AF on parcels under 2.5 AF and a maximum $23.25/AF on parcels over 2.5 (D) Board authorized fee not to exceed $100.67, by Proposition 218 in April 2014. Established fee for the irrigation season was set at $75.00.
Source: Merced Irrigation District, Finance Department
1 Table IX MERCED IRRIGATION DISTRICT Energy Resources Electric Rate Monthly Charge Per Meter Last Ten Years
Descriptions FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 * FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 Residential $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 Municipal & Non-Profit Small Demand General Service 95.00 95.00 95.00 95.00 95.00 95.00 95.00 90.00 90.00 85.00
Medium Demand General Service 325.00 325.00 325.00 325.00 325.00 325.00 325.00 300.00 300.00 (A) Commercial & Small Industrial Small Demand General Service- Agricultural ------General Service 8.00 / 12.00 8.00 / 12.00 8.00 / 12.00 8.00 / 12.00 8.00 / 12.00 8.00 / 12.00 8.00 / 12.00 8.00 / 12.00 8.00 / 12.00 8.00 / 12.00
Small Demand General Service 95.00 95.00 95.00 95.00 95.00 95.00 95.00 90.00 90.00 (A) Commercial & Industrial Small Demand General Service 95.00 95.00 95.00 95.00 95.00 95.00 95.00 90.00 90.00 85.00 Medium Demand General Service 325.00 325.00 325.00 325.00 325.00 325.00 325.00 300.00 300.00 200.00 Large Demand Primary Service 800.00 800.00 800.00 800.00 800.00 800.00 800.00 800.00 800.00 400.00 Large Demand General Service 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 600.00 400.00 Agricultural Demand General Service 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 12.00
Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March. (A) The service was not established until 2008.
Source: Merced Irrigation District, Finance Department
1 Table X MERCED IRRIGATION DISTRICT Energy Resources Electric Service by Rate Schedules Stated per Kilowatt Last Ten Years
FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 * FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 ED-2 - Demand Charge
Winter A) $ 7.00 $ 7.00 7.00$ $ 7.00 7.00$ 7.00$ 7.00$ 6.00$ 6.00$ $ 7.00
Summer B) 17.00 17.00 17.00 17.00 17.00 17.00 17.00 18.00 18.00 10.00 ED-2 - Energy Charge
Winter A) 0.0725 0.0725 0.0725 0.0725 0.0725 0.0725 0.0725 0.0650 0.0650 0.0650
Summer B) 0.0875 0.0875 0.0875 0.0875 0.0875 0.0875 0.0875 0.0825 0.0825 0.0900 AG-2 - Demand Charge
Winter A) 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.50
Summer B) 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 5.00 AG-2 - Energy Charge
Winter A) 0.0880 0.0880 0.0880 0.0880 0.0880 0.0880 0.0880 0.0800 0.0800 0.0950
Summer B) 0.1180 0.1180 0.1180 0.1180 0.1180 0.1180 0.1180 0.1100 0.1100 0.0950 ED-2P - Demand Charge
Winter A) 5.00 5.00 5.00 5.00 5.00 5.00 5.00 4.50 4.50 4.50
Summer B) 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 7.00 Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March. A) Winter season is defined as November 1 through April 30 B) Summer season is defined as May 1 through October 31 C) Per Lamp Per Month Charge D) Per Service Connection Per Month
Source: Merced Irrigation District, Finance Department
1 2 Table X MERCED IRRIGATION DISTRICT Energy Resources Electric Service by Rate Schedules Stated per Kilowatt Last Ten Years
FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 * FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 ED-2P - Energy Charge
Winter A) 0.0700 0.0700 0.0700 0.0700 0.0700 0.0700 0.0700 0.0625 0.0625 0.0625
Summer B) 0.0850 0.0850 0.0850 0.0850 0.0850 0.0850 0.0850 0.0800 0.0800 0.0900 ED-3 - Demand Charge
Winter A) 7.00 7.00 7.00 7.00 7.00 7.00 7.00 6.00 6.00 7.00
Summer B) 17.00 17.00 17.00 17.00 17.00 17.00 17.00 18.00 18.00 10.00 ED-3 - Energy Charge
Winter A) 0.0750 0.0750 0.0750 0.0750 0.0750 0.0750 0.0750 0.0700 0.0700 0.0825
Summer B) 0.0900 0.0900 0.0900 0.0900 0.0900 0.0900 0.0900 0.0875 0.0875 0.1075 ED-3V - Demand Charge
Winter A) 7.00 7.00 7.00 7.00 7.00 7.00 7.00 6.00 6.00 -
Summer B) 17.00 17.00 17.00 17.00 17.00 17.00 17.00 18.00 18.00 - ED-3V - Energy Charge
Winter A) 0.0750 0.0750 0.0750 0.0750 0.0750 0.0750 0.0750 0.0700 0.0700 -
Summer B) 0.0900 0.0900 0.0900 0.0900 0.0900 0.0900 0.0900 0.0875 0.0875 - ED-4 - Demand Charge
Winter A) 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.00 4.00 5.00
Summer B) 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.50 7.00 Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March. A) Winter season is defined as November 1 through April 30 B) Summer season is defined as May 1 through October 31 C) Per Lamp Per Month Charge D) Per Service Connection Per Month
Source: Merced Irrigation District, Finance Department
1 Table X MERCED IRRIGATION DISTRICT Energy Resources Electric Service by Rate Schedules Stated per Kilowatt Last Ten Years
FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 * FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 ED-4 - Energy Charge
Winter A) 0.0925 0.0925 0.0925 0.0925 0.0925 0.0925 0.0925 0.0900 0.0900 0.0850
Summer B) 0.1175 0.1175 0.1175 0.1175 0.1175 0.1175 0.1175 0.1150 0.1150 0.1100 EGS-2 - Energy Charge
Winter A) 0.1250 0.1250 0.1250 0.1250 0.1250 0.1250 0.1250 0.1200 0.1200 0.1075
Summer B) 0.1700 0.1700 0.1700 0.1700 0.1700 0.1700 0.1700 0.1700 0.1700 0.1500 MD-3 - Demand Charge
Winter A) 6.0000 6.0000 6.0000 6.0000 6.0000 6.0000 6.0000 5.0000 5.0000 -
Summer B) 16.0000 16.0000 16.0000 16.0000 16.0000 16.0000 16.0000 17.0000 17.0000 - MD-3 - Energy Charge
Winter A) 0.0725 0.0725 0.0725 0.0725 0.0725 0.0725 0.0725 0.0675 0.0675 -
Summer B) 0.0875 0.0875 0.0875 0.0875 0.0875 0.0875 0.0875 0.0850 0.0850 - MD-4 - Demand Charge
Winter A) 4.0000 4.0000 4.0000 4.0000 4.0000 4.0000 4.0000 3.5000 3.5000 4.5000
Summer B) 7.0000 7.0000 7.0000 7.0000 7.0000 7.0000 7.0000 7.0000 7.0000 7.0000 MD-4 - Energy Charge
Winter A) 0.0900 0.0900 0.0900 0.0900 0.0900 0.0900 0.0900 0.0875 0.0875 0.0800
Summer B) 0.1150 0.1150 0.1150 0.1150 0.1150 0.1150 0.1150 0.1125 0.1125 0.1000 Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March. A) Winter season is defined as November 1 through April 30 B) Summer season is defined as May 1 through October 31 C) Per Lamp Per Month Charge D) Per Service Connection Per Month
Source: Merced Irrigation District, Finance Department
1 Table X MERCED IRRIGATION DISTRICT Energy Resources Electric Service by Rate Schedules Stated per Kilowatt Last Ten Years
FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 * FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 RES-2 - Energy Charge Tier 1 (0-100% of Baselin )
Winter (374 kWh) A) 0.1100 0.1100 0.1100 0.1100 0.1100 0.1100 0.1100 0.1050 0.1050 0.1000
Summer (551 kWh) B) 0.1100 0.1100 0.1100 0.1100 0.1100 0.1100 0.1100 0.1050 0.1050 0.1000 Tier 2 (101-130% of Baselin )
Winter (112 kWh) A) 0.1250 0.1250 0.1250 0.1250 0.1250 0.1250 0.1250 0.1200 0.1200 0.1150
Summer (165 kWh) B) 0.1250 0.1250 0.1250 0.1250 0.1250 0.1250 0.1250 0.1200 0.1200 0.1150 Tier 3 (131-200% of Baselin )
Winter (262 kWh) A) 0.2250 0.2250 0.2250 0.2250 0.2250 0.2250 0.2250 0.2100 0.2100 0.1800
Summer (386 kWh) B) 0.2250 0.2250 0.2250 0.2250 0.2250 0.2250 0.2250 0.2100 0.2100 0.1800 Tier 4 (201-300% of Baselin )
Winter (374 kWh) A) 0.3000 0.3000 0.3000 0.3000 0.3000 0.3000 0.3000 0.2700 0.2700 0.2300
Summer (551 kWh) B) 0.3000 0.3000 0.3000 0.3000 0.3000 0.3000 0.3000 0.2700 0.2700 0.2300 Tier 5 (301+ % of Baselin )
Winter (all other kWh) A) 0.3500 0.3500 0.3500 0.3500 0.3500 0.3500 0.3500 0.3100 0.3100 0.2700
Summer (all other kWh) B) 0.3500 0.3500 0.3500 0.3500 0.3500 0.3500 0.3500 0.3100 0.3100 0.2700 TR-1 - Monthly Rates Energy 0.0610 0.0610 ------Demand 10.00 10.00 ------Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March. A) Winter season is defined as November 1 through April 30 B) Summer season is defined as May 1 through October 31 C) Per Lamp Per Month Charge D) Per Service Connection Per Month
Source: Merced Irrigation District, Finance Department
1 Table X MERCED IRRIGATION DISTRICT Energy Resources Electric Service by Rate Schedules Stated per Kilowatt Last Ten Years
FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 * FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 LSC - Monthly Rates
Watts 0-50; Type - Lamp; kWh 17 C) 2.20 2.20 2.20 2.20 ------
Watts 51-70; Type - Lamp; kWh 29 C) 3.93 3.93 3.93 3.93 3.93 3.93 3.93 3.70 3.70 3.41
Watts 71-100; Type - Lamp; kWh 41 C) 5.59 5.59 5.59 5.59 5.59 5.59 5.59 5.26 5.26 4.85
Watts 101-150; Type - Lamp; kWh 60 C) 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.27 7.27 6.67
Watts 151-200; Type - Lamp; kWh 81 C) 10.10 10.10 10.10 10.10 10.10 10.10 10.10 9.45 9.45 8.64
Watts 201-250; Type - Lamp; kWh 100 C) 12.74 12.74 12.74 12.74 12.74 12.74 12.74 11.94 11.94 10.94
Watts 251-310; Type - Lamp; kWh 121 C) 14.91 14.91 14.91 14.91 14.91 14.91 14.91 13.94 13.94 12.73
Watts 311-; Type - Lamp; kWh 159 C) 19.29 19.29 19.29 19.29 19.29 19.29 19.29 18.02 18.02 16.43 LSC-1 - Monthly Rates
Watts 0-70; Type - Vapor; kWh 29 C) 9.51 9.51 9.51 9.51 9.51 9.51 9.51 9.28 9.28 8.99
Watts 71-100; Type - Vapor; kWh 41 C) 12.19 12.19 12.19 12.19 12.19 12.19 12.19 11.86 11.86 11.45
Watts 101-150; Type - Vapor; kWh 60 C) 14.19 14.19 14.19 14.19 14.19 14.19 14.19 13.71 13.71 13.11
Watts 200-249; Type - Vapor; kWh 81 C) 18.52 18.52 18.52 18.52 18.52 18.52 18.52 17.87 17.87 17.06
Watts 250-399; Type - Vapor; kWh 100 C) 20.62 20.62 20.62 20.62 20.62 20.62 20.62 19.82 19.82 18.82
Watts 400-; Type - Vapor; kWh 159 C) 28.15 28.15 28.15 28.15 28.15 28.15 28.15 26.88 26.88 25.29 Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March. A) Winter season is defined as November 1 through April 30 B) Summer season is defined as May 1 through October 31 C) Per Lamp Per Month Charge D) Per Service Connection Per Month
Source: Merced Irrigation District, Finance Department
1 Table X MERCED IRRIGATION DISTRICT Energy Resources Electric Service by Rate Schedules Stated per Kilowatt Last Ten Years
FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 * FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 MEF - Monthly Rates
000-200 watts: 26 kWh D) 9.96 9.96 9.96 9.96 9.96 9.96 9.96 9.96 9.96 9.70
201-300 watts: 64 kWh D) 14.84 14.84 14.84 14.84 14.84 14.84 14.84 14.84 14.84 14.20
301-500 watts: 102 kWh D) 19.72 19.72 19.72 19.72 19.72 19.72 19.72 19.72 19.72 18.70
501-800 watts: 166 kWh D) 27.91 27.91 27.91 27.91 27.91 27.91 27.91 27.91 27.91 26.25
801-1200 watts: 256 kWh D) 39.46 39.46 39.46 39.46 39.46 39.46 39.46 39.46 39.46 36.90
1201-1600 watts: 523 kWh D) 79.03 79.03 79.03 79.03 79.03 79.03 79.03 79.03 79.03 73.80 Other Rates NEM A customer taking services under this rate schedule is responsible for all charges in accordance with the rate schedule to which the same customer would be assigned if the customer did not use an eligible solar electrical generating facility, including monthly minimum charges, customer charges, demand charges, energy charges, mandated charges, and power factor corrections. Energy Charges will be based on the net metered kilowatt-hour consumption over a 12- month period, in accordance with the Net Energy Billing section. PCA The PCA charge is the product of the total kWh for the customer billing period times the PCA amount per kWh, and may be a charge or credit depending on energy market conditions. The PCA is calculated using twelve months of historical market prices and reevaluated every six months. The PCA will be recalculated twice per year and will coincide with existing seasonal rate changes. November 1 and May 1. EC The charge is the product of the total kWh for the customer billing period times the EC amount. The Environmental Charge is calculated and adjusted annually based on the District's fiscal calendar (April 1 - March 31). The EC will be determined based on a reconciliation of actual costs and projected values. Any over or under collections will be accounted for in the following year. Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March. A) Winter season is defined as November 1 through April 30 B) Summer season is defined as May 1 through October 31 C) Per Lamp Per Month Charge D) Per Service Connection Per Month Source: Merced Irrigation District, Finance Department 1 Table XI MERCED IRRIGATION DISTRICT Ratio of Outstanding Debt by Type & Per Capita Last Ten Years (accrual basis of accounting)
FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 * FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 Capital Lease $ $ $ $ $ $ 220,610 $ 323,793 $ 424,432 $ 543,079 $ 673,825 Line of Credit 4,310,000 4,310,000 4,342,000 533,156 Notes Payable 329,806 Development Bonds 395,000 1,945,000 4,170,000 5,585,000 6,950,000 8,265,000 9,535,000 Certificates of Participation 2,735,000 29,498,863 43,193,863 54,393,863 55,513,863 56,613,863 57,693,863 34,625,000 Refunding Revenue Bonds 94,725,000 98,360,000 108,663,190 78,943,960 68,280,000 59,285,000 60,480,000 61,635,000 62,750,000 63,050,000 Bond Premiums 7,456,857 8,213,052 3,966,402 1,015,514 1,110,988 1,341,218 1,448,516 1,559,940 1,675,491 1,816,755 Warrants 5,000,000 Total Outstanding Debt $ 106,491,857 $ 110,883,052 $ 119,706,592 $ 109,853,337 $ 115,063,007 $ 119,410,691 $ 123,351,172 $ 127,183,235 $ 130,927,433 $ 115,030,386
Percentage of Personal Income (A) 1.1% 1.2% 1.4% 1.3% 1.4% 1.7% 1.7% 1.8% 1.8% 1.6% Personal Income, Per Capita (1) 33,865 33,865 31,935 31,935 30,630 27,329 27,517 27,871 27,871 27,871 Debt per Capita (B) 400,144 416,644 451,856 414,663 438,372 461,516 480,549 494,499 512,689 452,776 Population (2) 266,134 266,134 264,922 264,922 262,478 258,736 256,688 257,196 255,374 254,056
Note: FY 2007 through FY 2011 These periods are based on a calendar year from January through December. FY 2013 * This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 These periods are based on a fiscal year from April through March. (A) Total Outstanding Debt /(Personal Income (1) * 1,000) = Percentage of Personal Income (1) Personal Income is stated in 1,000's and is disclosed on page 100. (B) Total Outstanding Debt / (Population (2) * 1,000) = Debt per Capita (2) Population is disclosed on page 100.
Source: Merced Irrigation District, Finance Department
Table XII MERCED IRRIGATION DISTRICT Debt Service Coverage Related to Outstanding COP's and Bond for Water Resources and Hydroelectric Project Last Ten Years (accrual basis of accounting)
Debt Service Related to Outstanding COP's Change in Net Reconciled Net Debt Service Required Debt Position Adjustments Revenue Principal Interest Total Coverage Service Coverage FY 2017 (C) $ 16,260,924 $ 4,126,464 $ 20,387,388 $ 1,365,000 $ 1,454,875 $ 2,819,875 723% 125% restated FY 2016 (B) 6,624,497 3,046,946 9,671,443 1,070,000 1,751,431 2,821,431 343% 125% restated FY 2015 (A) 9,917,658 3,857,563 13,775,221 465,001 160,633 625,633 2202% 125% FY 2014 105,692 1,947,082 2,052,774 436,719 201,164 637,883 322% 125% FY 2013 * 3,105,054 (1,705,819) 1,399,235 508,675 278,853 787,528 178% 120% FY 2011 3,301,095 (540,452) 2,760,643 537,864 248,931 786,795 351% 120% FY 2010 3,600,506 1,726,820 5,327,326 533,103 270,942 804,045 663% 120% FY 2009 553,141 1,783,614 2,336,755 540,162 326,971 867,133 269% 120% FY 2008 565,564 (396,256) 169,308 68,568 49,022 117,590 144% 120% FY 2007 4,911,224 (1,503,531) 3,407,693 702,889 315,804 1,018,693 335% 120%
Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March. (A) The increase in net income reflects an increase in water sales, water transfers, and the inclusion of hydroelectric revenues. (B) Water Transfers include $4,427,000 of deferred revenue related to physical water transfers that occurred in a prior year, but for accounting purposes was not recognized until the current fiscal year (FY 2016). Without this deferred revenue Net Revenue would have been $5.2 million resulting in debt coverage calculation of 1.86. The above calculation schedule was complied using the debt service calculation schedule required by the bond document. The above schedule excludes noncash expenditures such as Pension Expense - GASB 68, Loss on Disposal of Capital Assets, Depreciation, Amortization, and Bond Issuance Cost. The above schedule differs from the audited financial statement presentation in the following areas: Total Revenues (debt service calculation) includes Permission Fees earned by Water Resources. The audited financial statements present this account in the Nonoperating revenues in the "Transfer In" category. (C) Water Transfers include $240,000 of deferred revenue related to physical water transfers that occurred in a prior year, but for accounting purposes was not recognized until the current fiscal year (FY 2017). Without this deferred revenue Net Revenue would have been $20.1 million resulting in debt coverage calculation of 7.14. The above calculation schedule was compiled using the debt service calculation schedule required by the bond document. The above schedule excludes noncash expenditures such as pension Expense - GASB 68, Loss on Disposal of Capital Assets, Depreciation, Amortization, and Bond Issuance Cost. The above schedule differs from the audited financial statement presentation in the following areas: Total Revenues (debt service calculation) includes permission Fees earned by Water Resources, the audited financial statement present this account in the Nonoperating revenues in the "Transfer In" category.
Source: Merced Irrigation District, Finance Department
1 Table XIII MERCED IRRIGATION DISTRICT Debt Service Coverage Related to Outstanding COP's and Bond for Energy Resources Last Ten Years (accrual basis of accounting)
Debt Service Related to Outstanding COP's Change in Net Reconciled Net Debt Service Required Debt Position Adjustments Revenue Principal Interest Total Coverage Service Coverage FY 2017 (B) $ 13,471,865 $ 5,999,112 $ 19,470,977 $ 2,270,000 $ 3,026,433 $ 5,296,433 368% 120% restated FY 2016 (A) 8,723,214 9,749,436 18,472,650 2,244,460 3,229,255 5,473,715 337% 120% restated FY 2015 9,142,093 6,705,964 15,848,057 2,020,770 3,882,259 5,903,029 268% 120% FY 2014 5,780,326 7,564,796 13,345,122 3,414,572 2,079,326 5,493,898 243% 125% FY 2013 * 9,857,086 9,285,822 19,142,908 2,110,333 5,701,531 7,811,864 245% 125% FY 2011 6,504,500 7,336,174 13,840,674 1,612,860 4,647,909 6,260,769 221% 125% FY 2010 1,463,983 7,305,237 8,769,220 1,520,994 4,740,255 6,261,249 140% 125% FY 2009 942,326 6,913,235 7,855,561 1,487,987 4,769,482 6,257,469 126% 125% FY 2008 (1,006,121) 7,889,056 6,882,935 685,561 4,760,008 5,445,569 126% 125% FY 2007 107,890 6,147,233 6,255,123 342,518 4,542,501 4,885,019 128% 125%
Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March. (A) The above calculation schedule was compiled using the debt service calculation schedule required by the bond document. The above schedule excludes noncash expenditures such as Pension Expense - GASB 68, Loss on Disposal of Capital Assets, Depreciation, Amortization, and Bond Issuance Cost. (B) The above calculation schedule was complied using the debt service calculation schedule required by the bond document. The above schedule excludes noncash expenditures such as Pension Expense - GASB 68, Depreciation, Amortization, and Bond Issuance Cost.
Source: Merced Irrigation District, Finance Department
1 Table XIV MERCED IRRIGATION DISTRICT PRINCIPAL DEBT - PLEDGED REVENUE Last Ten Years (accrual basis of accounting)
Total Debt Water Resources & Water Resources & Total Annual Outstanding, End Energy Resources Energy Resources - Hydroelectric Project Hydroelectric Project - Debt Service of Year Annual Debt Service Revenue Pledged Annual Debt Service Revenue Pledged FY 2017 $ 8,116,308 $ 144,718,458 $ 5,296,433 $ 19,470,977 $ 2,819,875 $ 20,387,388 restated FY 2016 8,295,146 152,746,880 5,473,715 18,472,650 2,821,431 9,671,443 restated FY 2015 (A) 6,528,662 115,740,190 5,903,029 15,848,057 625,633 13,775,221 FY 2014 6,131,781 108,837,823 5,493,898 13,345,122 637,883 2,052,774 FY 2013 * 8,599,392 113,952,019 7,811,864 19,142,908 787,528 1,399,235 FY 2011 7,047,564 118,069,473 6,260,769 13,840,674 786,795 2,760,643 FY 2010 7,065,294 121,902,656 6,261,249 8,769,220 804,045 5,327,326 FY 2009 7,124,602 125,623,295 6,257,469 7,855,561 867,133 2,336,755 FY 2008 5,563,159 129,251,942 5,445,569 6,882,935 117,590 169,308 FY 2007 5,903,712 113,213,631 4,885,019 6,255,123 1,018,693 3,407,693
Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March. (A) The increase in net income reflects an increase in water sales, water transfers, and the inclusion of hydroelectric revenues.
Source: Merced Irrigation District, Finance Department
1 Table XV COUNTY OF MERCED DEMOGRAPHIC AND ECONOMIC STATISTICS Last Ten Years
Personal Income Per Capita (thousands of Personal School Unemployment Population dollars) Income * Enrollment Rate (Avg.) 2015/16 271,579 $ 9,827,086 $ 36,185 57,477 10.4% 2014/15 266,134 9,012,628 33,865 57,011 10.4% 2013/14 264,922 8,460,284 31,935 56,461 12.2% 2012/13 262,478 8,039,701 30,630 56,349 14.1% 2011/12 258,736 7,070,996 27,329 56,158 17.7% 2010/11 256,688 7,063,284 27,517 55,489 18.6% 2009/10 257,196 7,168,310 27,871 56,258 18.1% 2008/09 255,374 7,117,529 27,871 56,153 17.4% 2007/08 254,056 7,080,795 27,871 57,122 11.8% 2006/07 249,981 6,994,718 27,981 56,743 9.4%
Source: Population information is obtained from the State Department of Finance. Per capita income information is obtained from the U.S. Department of Commerce - Bureau of Economic Analysis. School enrollment data is obtained from the State Department of Education. Unemployment rate * Based on the most recent data available and prior years restated for updates.
Source: Comprehensive Annual Financial Report . 1st ed. Merced: County of Merced, 2015. Web. 7 March 2016. Notes: The County of Merced's fiscal year is from July to June, where as the District's fiscal year is from April to March.
1 Table XVI COUNTY OF MERCED Principal Employers Current Year and Nine Years Ago as of June 30, 2016
2016 2007 Percentage of Total County Percentage of Total Employer Employees Rank Employment Employees Rank City Employment Foster Farms Inc. 3,214 1 3.09% 3,500 1 3.83% UC Merced 1,997 2 1.92% 800 9 0.87% County of Merced 1,956 3 1.88% 2,175 2 2.38% Mercy Medical Center 1,337 4 1,000 6 1.09% Dole Packaged Foods 1,235 5 1.19% Merced City School District 1,127 6 1.08% 1,300 3 1.42% Merced Union High School District 1,060 7 1.02% 1,000 5 1.09% Merced College 883 8 0.85% 800 8 0.87% Liberty Packing Company LLC 650 9 0.62% 650 10 0.71% Quad Graphic Merced 420 10 0.004 Quebecor 1,000 4 1.09% AT & T 907 7 0.99%
13,879 1 . % 13,132 14.34%
Note: State Employement Development Department
Source: Comprehensive Annual Financial Report . 1st ed. Merced: County of Merced, 2016. Web. 9
1 3 Table XVII MERCED IRRIGATION DISTRICT FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION Last Ten Years
Full-time Equivalent Employees Function Mar-17 Mar-16 Mar-15 Mar-14 Mar-13 Dec-11 Dec-10 Dec-09 Dec-08 Dec-07 Directors 5 5 55555555 Energy 27 27 27 26 23 23 23 24 25 24 Water 80 80 80 79 78 78 84 98 98 98 Drainage 0 0 00000111 Hydroelectric 9 7 7 7 7 16 16 15 15 16 Parks & Recreations 17 19 19 19 23 22 20 25 20 20 Concessionaire (A) 8 8111424250000 Human Resources & Administration 31 30 30 30 30 29 29 29 27 27 Total 177 176 179 180 190 198 177 197 191 191
Notes: All managers are included with their divisions. Temporary employees are not included. Hydroelectric prior to July 2014 was owned by PG&E while the District supplied the labor for operations and maintenance of the facility. (A) Concessionaire was acquired in 2011, no data available before that date.
Source: Merced Irrigation District, Finance Department
1 Table XVIII MERCED IRRIGATION DISTRICT Water Resources Water Supply, Deliveries, Irrigated Acreage, Capacity Level in Acre-Feet
Water Supply Water Deliveries Irrigated Acreage Water Supply Level (AF) (AF) by Year as of October 31, (AF) FY 2017 429,522 208,683 98,742 377,758 FY 2016 50,177 30,197 38,486 68,860 FY 2015 264,068 132,500 87,989 90,161 FY 2014 (A) 440,047 265,613 101,802 258,425 FY 2013 (B) 502,908 315,295 104,480 384,794 FY 2011 610,679 288,865 97,415 687,449 FY 2010 543,442 277,789 98,471 649,066 FY 2009 473,567 251,775 99,092 412,233 FY 2008 409,266 222,194 90,184 257,900 FY 2007 501,316 303,794 95,642 300,672
Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March.
(A) FY 2014 values are from 3/11/2013 until 10/31/2013 (B) FY 2013 values are for 3/5/2012 until 11/9/2012
Source: Merced Irrigation District, Finance Department
1 Table XIX MERCED IRRIGATION DISTRICT Energy Resources MWh Sold by Customer Type Last Ten Years (accrual basis of accounting)
FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 * FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 MWh sold Residential 56,791 55,217 56,091 55,031 65,981 50,971 48,054 48,853 45,975 42,259 Commercial 175,166 170,606 170,769 170,952 199,495 162,376 154,545 151,078 153,536 149,500 Industrial 178,346 172,066 176,918 169,564 210,699 180,227 162,381 173,487 180,359 186,532 Agricultural 3,265 3,847 3,763 3,640 3,254 3,895 3,710 4,117 4,989 4,607 Municipal 702 57,884 58,167 57,795 63,381 50,277 47,824 46,788 45,111 43,785 Public Street & Highway Lighting 1,265 1,263 1,259 1,332 2,065 1,647 1,620 1,607 1,571 1,462 Total MWh Sold 415,536 460,883 466,965 458,314 544,875 449,393 418,135 425,930 431,541 422,674
Note: FY 2007 through FY 2011 These periods are based on a calendar year from January through December. FY 2013 * This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 These periods are based on a fiscal year from April through March.
Source: Merced Irrigation District, Finance Department
1 TABLE XX MERCED IRRIGATION DISTRICT OPERATING INDICATORS
FY 2017 FY 2016 FY 2015 FY 2014 Water Users 1,802 908 2,260 * Water Facilities Number of Turnouts 2,438 2,547 2,544 * Total Miles of Canals 685 728 723 * Miles of Concrete Lined Canals 107 107 101 * Miles of Pipelined Canals 178 181 248 * Miles of Drains 36 32 44 * Groundwater Extraction Wells 215 215 221 * Boosters 38 38 46 *
Electric Customers 9,000 8,702 8,130 8,060
Electric Facilities Sub Station 3 3 3 3 Transformers 1,573 1,493 1,473 1,453 in Miles: Transmission Lines 35 34 34 34 Dist. Lines Overhead 71 70 70 * Dist. Lines Underground 389 382 382 * Total Distribution Lines 460 452 452 247
* Data for prior fiscal years is not available
Source: Merced Irrigation District, Finance Department
Table XXI MERCED IRRIGATION DISTRICT CAPITAL ASSETS, NET OF ACCUMULATED DEPRECIATION DETAIL LAST TEN YEARS
FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 * FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 Distribution System, Net $ 86,874,613 $ 88,112,221 $ 89,346,013 $ 78,531,499 $ 81,867,811 $ 78,292,005 $ 80,309,612 $ 82,586,582 $ 76,164,339 $ 75,283,982 Land 13,098,088 13,098,088 13,098,088 13,098,088 13,144,380 13,144,380 13,144,380 13,144,380 13,144,380 13,144,380 Goodwill 10,100 10,100 10,100 10,100 10,100 - - - - - Landscaping 4,010,282 4,344,305 4,686,329 4,961,161 779,563 - - - - - Structures and mprovements, Net 25,042,389 24,023,950 24,742,716 24,354,200 25,110,110 26,816,013 27,656,705 28,056,765 28,790,979 29,559,510 Equipment, Net 13,381,213 13,660,837 10,295,441 4,866,280 4,630,731 5,136,191 5,174,338 4,866,511 4,656,617 4,908,499 Vehicles 1,138,395 754,044 488,611 640,012 619,916 - - - - - Intangible Assets, Net 567,168 766,384 960,796 1,079,983 1,295,863 1,524,256 1,631,519 1,739,894 1,928,488 2,055,044 Construction in Progress 19,622,587 12,528,650 8,772,519 20,160,236 24,398,070 15,597,510 10,026,453 7,845,512 14,657,097 14,662,930 Total $ 163,744,835 $ 157,298,579 $ 152,400,613 $ 147,701,559 $ 151,856,544 $ 140,510,355 $ 137,943,007 $ 138,239,644 $ 139,341,900 $ 139,614,345
Note: FY 2007 through FY 2011 - These periods are based on a calendar year from January through December. FY 2013 * - This period is for a 15 month period of time from January 2012 through March 2013, required by the switch from a calendar year (January through December) to a fiscal year (April through March). FY 2014 through FY 2017 - These periods are based on a fiscal year from April through March. Figures above are net of Accumulated Depreciation.
Source: Merced Irrigation District, Finance Department
1 This Page Left Blank Intentionally March 12,,q,pg 1926 Exchequer Dam, panorama showing down-stream face of Exchequerq Dam
744 W 20th Street · Merced, CA 95340 www.mercedid.org · (209) 722-5761 APPENDIX B
DEVELOPMENTS IN THE ELECTRIC MARKETS AND OTHER FACTORS AFFECTING THE UTILITY INDUSTRY
DEVELOPMENTS IN THE ENERGY MARKETS
The following factors affecting the Electric System and the electric utility industry should be considered when evaluating the Electric System and considering an investment in the 2017A Bonds. The District cannot predict what effects these risks and other factors will have on the business operations and financial condition of the Electric System, but the effects could be material. The following is a brief discussion of these factors. This discussion does not purport to be comprehensive or definitive, and these matters are subject to change subsequent to the date hereof. See Appendix A—“INFORMATION RELATING TO MERCED IRRIGATION DISTRICT” under the captions “THE ELECTRIC SYSTEM” and “FINANCIAL RESULTS OF THE ELECTRIC SYSTEM” and Appendix A-1 attached hereto for additional information relating to the Electric System.
Background: Electric Market Deregulation
California began the process of restructuring electricity service in the early 1990s by introducing competition into the generation of electricity, with the ultimate goal being lower prices for utility customers. The deregulation legislation was ultimately enacted in 1996 (known as AB 1890) and an independent system operator of the transmission system, the California Independent System Operator (“CAISO”), was established, as well as an independent power exchange, the Cal PX. The Cal PX was originally established to permit power generators to sell power on a competitive spot-market basis.
As a consequence of deregulation, the investor owned utilities, including PG&E (the “IOUs”) sold a large portion of their generation resources. As a result, three major IOUs in California, PG&E, SDG&E and SCE were net buyers of electricity. Following the deregulation of the California energy markets, the IOUs were purchasing electricity at fluctuating short-term and spot wholesale prices through the Cal PX and the CAISO while the retail prices that they would charge their residential and small business customers were capped at specified levels.
Financial Difficulties of the IOUs and Certain Other Market Participants. By the summer of 2000, wholesale power sellers were not making sufficient power supplies available in the wholesale spot market, and spot market prices began to rise, swiftly and dramatically. By December 2000, PG&E and SCE had incurred several billion dollars of losses, adversely affecting their creditworthiness and ultimately causing defaults in payments for power purchases in the CAISO markets and from other suppliers. Certain other marketers, power suppliers and power plant developers experienced downgrades of their credit ratings. PG&E emerged from bankruptcy on April 12, 2004. The credit ratings of SCE and PG&E have improved since the dislocations of the California energy markets in 2000 and 2001. In early 2001, the Cal PX ceased all operations and filed for bankruptcy protection.
State Intervention. In January 2001, then Governor Gray Davis ordered the California Department of Water Resources (“CDWR”) to begin buying power for the retail customers of the IOUs. Shortly thereafter, the State of California formally authorized CDWR’s power purchase program by enacting Assembly Bill Number 1X (“AB 1X”). AB 1X authorized CDWR to enter into power supply contracts in order to supply the shortfall (the “net short”) between each IOU’s power needs and its own retained generation. AB 1X also authorized CDWR to collect a charge from the IOUs’ customers to allow CDWR to recover its costs, including the above-market cost of CDWR’s power contracts, and repayment of over $11 billion of revenue bonds issued by CDWR in October and November 2002. CDWR’s authority to enter into new power purchase contracts expired on December 31, 2002, although CDWR continues to supply power to the IOUs under contracts entered into prior to that date.
B-1 AB 1X also required the CPUC to suspend the right of retail customers of the IOUs to purchase electricity from suppliers other than CDWR and the IOUs (i.e., direct access or “DA”) until CDWR is no longer a supplier of electricity. In March 2002, the CPUC adopted a decision suspending, as of September 20, 2001, any new DA arrangements. In a subsequent decision, the CPUC established a surcharge mechanism under which DA customers were made responsible for paying a share of the costs incurred by CDWR and by the IOUs during the energy crisis. The decision capped the surcharge, known as the DA Cost Responsibility Surcharge (“CRS”), initially at 2.7 cents/kWh. In March 2005, the CPUC issued a ruling outlining the process for calculating the DA CRS based on a prescribed methodology. On June 2, 2005, the Administrative Law Judge ruled that formal proceedings will be scheduled, as necessary, to assess whether the DA CRS cap should be adjusted prospectively to assure that its level remains adequate for under collections to be fully paid down by 2011.
In February 2008, the CPUC issued a decision concluding that the suspension of direct access could not be lifted because CDWR is still supplying power as authorized under AB 1X. On October 11, 2009, Senate Bill 695 was enacted and allowed retail nonresidential customers of the IOUs to acquire electric service from other providers, up to a maximum allowable limit as specified in a CPUC decision. Regardless of the level of DA participation within the IOUs’ service areas, DA customers will continue to be assessed CRS amounts.
Impact of the California Energy Crisis. During the 2000-2001 energy crisis in California, many utilities experienced adverse fiscal consequence and service level impacts to their customers. The District experienced increased power supply costs due to increased prices in the short-term market. Most wholesale sales from July to December 2000 were to the Cal PX and the CAISO. In mid-January 2001, the Cal PX discontinued operations and filed for bankruptcy protection.
State of California and federal authorities have conducted investigations and other proceedings concerning various aspects of the California energy markets. These included, for example, investigations by the FERC into alleged overcharging for the sale of electricity (including sales by municipal utilities) and alleged manipulation of the electricity market. The District is not able to predict the outcome of existing investigations and proceedings regarding California’s energy crisis or whether further investigations, proceedings, litigation or other actions will follow.
During 2000 and 2001, California experienced extreme fluctuations in the prices and supplies of natural gas and electricity in much of the State. Licenses for new power plants have been issued by the CEC, construction on several power plants has been completed and construction of additional power plants is underway. No assurance can be given that measures undertaken during the last several years, together with measures to be taken in the future, will prevent the recurrence of shortages, price volatility or other energy problems that have adversely affected the District and other California electric utilities in the recent past.
Market Redesign and Technology Upgrade and Other Reforms in the CAISO Market
Market Redesign and Technology Upgrade (“MRTU”). In response to the electricity market manipulation that occurred during the 2000-01 energy crisis and the underlying need for improved congestion management, the CAISO, as directed by the FERC, has undertaken its MRTU initiative, to implement a new day-ahead wholesale electricity market and to improve electricity grid management reliability, operational efficiencies and related technology infrastructure. After several delays, the CAISO launched the MRTU on April 1, 2009. The redesigned California energy market under MRTU includes the following new features among others:
an integrated forward market for energy, ancillary services and congestion management that operates on a day-ahead basis;
B-2 a congestion management process that represents all network transmission constraints to determine electric transmission congestion costs and credits between two locations and charged to the market participants;
Congestion Revenue Requirements (“CRRs”) to allow market participants to hedge the financial risks of CAISO-imposed transmission congestion costs in the MRTU day-ahead market;
Locational marginal energy prices by price nodes (approximately 3,000 in total), also known as locational marginal pricing; and
new market rules and penalties to prevent gaming and illegal manipulation of the market as well as modifications to certain existing market power and mitigation rules and procedures.
The CAISO implementation of MRTU to restructure California’s wholesale electric market presents both opportunities and risks to the District and is expected to affect the costs of operating the District’s Electric System due to reasons such as: (i) significant cost to implement MRTU in its Electric System; (ii) costs associated with CRRs in the event that District acquired CRRs are not sufficient to hedge the financial risks associated with the District’s CAISO-imposed congestion costs under MRTU; (iii) the new market mechanisms created by MRTU result in any price/market flaws that are not promptly and effectively corrected by the market mechanisms, the CAISO or the FERC; (iv) either the CAISO’s or the District’s MRTU-related systems and software do not perform as intended; and (v) the District is unable to timely identify and implement new operating procedures necessary under MRTU or to achieve operating and capital cost budgets based on current expectations. The District is vigilant in monitoring the market outcomes in the MRTU environment and continues active participation in the new market initiatives and will continue to implement changes to the appropriate systems, software and market strategies in the MRTU.
Credit Reform Initiative. Pursuant a FERC order issued on October 21, 2010 on credit reforms in the organized electric power market, the CAISO is initiating the credit reform initiative in its markets. Under the such order, the CAISO is directed to (a) calculate the CAISO market participants’ credit requirements on gross purchases in the CAISO markets; (b) require credit requirements to participate in the CAISO CRR allocation and auction processes; (c) shorten the invoicing and settlement period from 15 days to 7 days for transactions in the CAISO markets and (d) establish credit risk management criteria applicable to CAISO market participants.
The imposition of aforementioned credit requirements could result in additional financial credit requirements and costs to the District in order to participate in the CAISO markets.
Resource Adequacy Requirement. In September 2005, then Governor Schwarzenegger signed into law AB 380, which requires the CPUC to establish resource adequacy requirements for all Load Serving Entities (“LSEs”) within the CPUC’s jurisdiction. In addition, Assembly Bill 380 requires POUs to procure adequate resources to meet their peak demands and reserves. In October 2005, the CPUC issued a decision stating that LSEs under its jurisdiction would be required to demonstrate that they have acquired capacity sufficient to serve their forecast retail customer load plus a 15-17% reserve margin.
State Climate Change Policy Developments
A number of bills affecting the electric utility industry have been introduced or enacted by the California Legislature in recent years. In general, these bills regulate greenhouse gas emissions and provide for greater investment in energy efficiency and environmentally friendly generation and storage alternatives, principally through more stringent renewable resource portfolio standard requirements. The following is a brief summary of certain of these bills that have been enacted.
Greenhouse Gas Emissions — Executive Orders. On June 1, 2005, then Governor Arnold Schwarzenegger signed Executive Order S-3-05, which placed an emphasis on efforts to reduce greenhouse
B-3 gas emissions by establishing statewide greenhouse gas reduction targets. The targets are: (i) a reduction to 2000 emissions levels by 2010; (ii) a reduction to 1990 levels by 2020; and (iii) a reduction to 80% below 1990 levels by 2050. Executive Order S-3-05 also called for the California Environmental Protection Agency to lead a multi-agency effort to examine the impacts of climate change on California and develop strategies and mitigation plans to achieve the targets. On April 25, 2006, then Governor Schwarzenegger also signed Executive Order S-06-06 which directs the State of California to meet a 20% biomass utilization target within the renewable generation targets of 2010 and 2020 for the contribution to greenhouse gas emission reduction.
On April 29, 2015, Governor Jerry Brown signed Executive Order B-30-15, which establishes a new interim statewide greenhouse gas emission reduction target to reduce greenhouse gas emissions to 40% below 1990 levels by 2030. Executive Order B-30-15 indicates that the new interim target is aimed at ensuring that California meets the target established by Executive Order S-3-05 of reducing greenhouse gas emission to 80% below 1990 levels by 2050. Executive Order B-30-15 also directs the California Natural Resources Agency to update the State’s climate adaptation strategy every three years and to ensure that its provisions are fully implemented. Among other requirements, Executive Order B-30-15 provides that the State’s adaptation strategy must identify a lead agency or agencies that are responsible for adaptation efforts in at least the following sectors: water, energy, transportation, public health, agriculture, emergency services, forestry, biodiversity and habitat, and ocean and coastal resources. Executive Order B-30-15 required that the lead agencies for each sector outline the actions in their sector that will be taken as identified in the State’s adaptation strategy and report back to the California Natural Resources Agency by June 2016.
The interim statewide greenhouse gas emission reduction target established by Executive Order B-30- 15 was codified with the enactment of Senate Bill 32 (“SB 32”), which was signed by Governor Brown on September 8, 2016 and became effective as law on January 1, 2017. SB 32 requires the California Air Resources Board (“CARB”), which, pursuant to Assembly Bill 32, the Global Warming Solutions Act, enacted in 2006 (and described below), is the designated state agency charged with monitoring and regulating sources of emissions of greenhouse gases, to ensure that statewide greenhouse gas emissions are reduced to at least 40% below the 1990 level no later than December 31, 2030. Companion legislation, Assembly Bill 197 (“AB 197”), also signed by Governor Brown on September 8, 2016, took effect on January 1, 2017, increases legislative oversight of CARB. AB 197 adds to the CARB board two members of the State Legislature as ex officio, nonvoting members and provides for the voting members to serve staggered six-year terms. Subject to specified requirements, an individual voting member may serve longer but only upon reappointment at the end of their six-year term. AB 197 further establishes a Joint Legislative Committee on Climate Change Policies, consisting of at least three members of the Senate and three members of the Assembly, to ascertain facts and make recommendations to the houses of the Legislature concerning the State’s programs, policies and investments related to climate change. In addition, AB 197 requires that CARB, when adopting rules and regulations to achieve emissions reductions beyond the statewide greenhouse gas emissions limit, and to protect the state’s most impacted and disadvantaged communities, to follow specified requirements, consider the social costs of the emissions of greenhouse gases, and prioritize emission reduction rules and regulations that achieve specified results.
Greenhouse Gas Emissions — Global Warming Solutions Act. Then Governor Schwarzenegger signed Assembly Bill 32, the Global Warming Solutions Act of 2006 (the “GWSA”), which became effective as law on January 1, 2007. The GWSA prescribed a statewide cap on global warming pollution with a goal of returning to 1990 greenhouse gas emission levels by 2020. In addition, the GWSA established an annual mandatory reporting requirement for all investor-owned utilities (“IOUs”), local publicly-owned electric utilities (“POUs”) and other load-serving entities (electric utilities providing energy to end-use customers) to inventory and report greenhouse gas emissions to CARB, required CARB to adopt regulations for significant greenhouse gas emission sources (allowing CARB to design a “cap-and-trade” system) and gave CARB the authority to enforce such regulations beginning in 2012.
On December 11, 2008, CARB adopted a “scoping plan” to reduce greenhouse gas emissions. The scoping plan set out a mixed approach of market structures, regulation, fees and voluntary measures. The scoping plan included a cap-and-trade program. In August 2011, CARB revised the scoping plan in response
B-4 to litigation. The revised scoping plan also included a cap-and-trade program. The scoping plan is required to be updated every five years. CARB issued the proposed first update to the scoping plan update on February 10, 2014, which was approved by CARB on May 22, 2014. In addition, CARB approved a resolution at its October 25, 2013 board meeting that directs CARB’s executive officer to develop a plan for a post-2020 program, including a cost containment mechanism, before 2018. CARB is now working on the 2030 Target Scoping Plan Update towards incorporating the 2030 interim emissions reduction target (40% below 1990 emissions levels by 2030); a number of public workshops on the scoping plan update have been and are continuing to be held by CARB. The draft 2030 Target Scoping Plan Update has been released and consideration before the CARB Board is to be scheduled.
On October 20, 2011, CARB adopted a regulation implementing its cap-and-trade program. The California Office of Administrative Law (“OAL”) approved the regulation on December 13, 2011. The cap- and-trade regulation became effective on January 1, 2012. Emission compliance obligations under the regulation began on January 1, 2013. The cap-and-trade program covers sources accounting for 85% of California’s greenhouse gas emissions, the largest program of its type in the United States.
The cap-and-trade program is being implemented in phases. The first phase of the program (January 1, 2013 to December 31, 2014) introduced a hard emissions cap covering emissions from electricity generators, electricity importers and large industrial sources emitting more than 25,000 metric tons of carbon dioxide-equivalent greenhouse gases (“CDE”) per year. In 2015, the program was expanded to cover emissions from transportation fuels, natural gas, propane and other fossil fuels. The cap will decline each year until the end of the program currently scheduled for 2020 unless otherwise extended.
The cap-and-trade program includes the distribution of carbon allowances equal to the annual emissions cap. Each allowance is equal to one metric ton of CDE. As part of a transition process, initially, most of the allowances were distributed for free. Additional allowances are being auctioned quarterly (auctions began in November 2012). Utilities can acquire more allowances at these auctions or on the secondary market. IOUs are required to auction the allowances they received for free from CARB. This requirement also applies to POUs that sell electricity into the California Independent System Operator Corporation (“CAISO”) markets, other than sales of electricity from resources funded by municipal tax- exempt debt where the POU makes a matched purchase to serve its traditional retail customers. Utilities required to sell their allowances in the auctions are then required to purchase allowances to meet their compliance obligations, and use any remaining proceeds from the sale of their allocated allowances for the benefit of their ratepayers and to meet the goals of the GWSA. POUs that do not sell into the CAISO markets, and those that sell into the CAISO markets only electricity from resources funded by municipal tax-exempt debt, have three options (which are not mutually exclusive) once their allocated allowances are distributed to them. They can (i) place allowances in their compliance accounts to meet compliance obligations, (ii) place allowances in the compliance account of a joint powers agency or public power utility that generates power on their behalf, and/or (iii) auction the allowances and use the proceeds to benefit their ratepayers and meet the goals of the GWSA.
The cap-and-trade program also allows covered entities to use offset credits for compliance (not exceeding 8% of a covered entity’s compliance obligation). Offsets can be generated by emission reduction projects in sectors that are not regulated under the cap-and-trade program. CARB has approved the following types of offset projects: urban forest projects, reforestation projects, destruction of ozone-depleting substances, livestock methane management projects, destruction of fugitive coal mine methane and rice cultivation practices. CARB will continue to consider additional and updated offset protocols, including international, sector-based offsets.
On April 25, 2014, CARB adopted various changes to the cap-and-trade program, including provisions relating to the electricity sector such as “safe harbor” provisions under the “resource shuffling” prohibition. These changes became effective on July 1, 2014.
B-5 The California cap-and-trade program is linked to the equivalent program in Quebec, Canada. The link took effect on January 1, 2014, although the first joint auction was delayed until November 25, 2014 in order to resolve certain technical issues. California’s program may be linked to additional Canadian provincial cap-and-trade programs, and possibly other U.S. state cap-and-trade programs, in later years as part of the Western Climate Initiative. The Western Climate Initiative is a regional effort consisting of California and four Canadian provinces (Quebec, British Columbia, Ontario and Manitoba), which have established a greenhouse gas reduction trading framework.
CARB held an October 2, 2015 workshop to begin work towards developing 2016 cap-and-trade program amendments. The proceeding is underway. CARB has four stated objectives: (i) to extend the program beyond 2020; (ii) to improve programmatic efficiencies (including for auctions and data reporting); (iii) updates to better reflect the latest technical data on global warming potential and experiences with other emissions trading programs; and (iv) to maintain the environmental and market integrity of California’s program. Additional workshops and comment periods are continuing in what is expected to be a year-long rulemaking proceeding. On July 12, 2016, CARB released proposed amendments to the cap-and trade program to extend major provisions of the program to 2030. Under the draft proposal, new emissions caps would be established for 2021 through 2030. The proposal contemplates that the emissions cap would decline by approximately 3.5% per year between 2021 and 2030 (steeper than the approximately 2% decline under the current program). As is the case with the current program, under the draft proposal, entities with compliance obligations would be required to acquire and surrender carbon allowances or offset credits equal to annual emissions. The draft proposal also seeks to set initial emissions allowance budgets for 2031 through 2050, although staff noted that annual caps would be required to be refined in the post-2030 period. Under the proposed amendments, the linkage of California’s cap-and trade program to the equivalent Quebec cap-and- trade system would continue, and a new linkage with the province of Ontario would be established beginning in 2018. The draft proposal also includes several amendments that will allow the State to use the cap-and-trade program to comply with the federal Clean Power Plan (which is currently stayed during the pendency of ongoing litigation as discussed below). The proposed amendments will be subject to a formal comment period, as well as review by the OAL. A public hearing on the proposed amendments was held by CARB on September 22, 2016. As noted above, CARB is also working on the 2030 Target Scoping Plan Update. CARB staff has indicated that it intends for the CARB Board to act on the scoping plan update prior to final action of the proposed cap-and-trade program amendments.
In California Chamber of Commerce et. al. v. CARB, the California Third District Court of Appeals decided the State of California’s sale of allowances in the cap-and-trade auctions was not unconstitutional tax, and does not require a 2/3 supermajority vote of the California Legislature. The California Supreme Court declined to take up the appeal on this case. Therefore, future legislation to ratify and extend the cap-and-trade program beyond 2020 would not require a 2/3 supermajority vote of the California Legislature.
The District is unable to predict at this time the full impact of the cap-and-trade program over the long-term on the Electric System or on the electric utility industry generally or the likelihood or impact of any additional changes to the program. Under the current allowance allocation methodology utilized by CARB, the District’s annual allocation of allowances is expected to be sufficient to meet the Electric Utility’s greenhouse gas compliance obligations for its retail load. Any unused portion of the District’s allowances for retail may be sold by the District to reduce future renewable energy costs for retail customers. Under the cap- and-trade program, the District is required to obtain allowances through the auction or in the secondary market quarterly to satisfy its compliance obligation for wholesale sales.
The District could be adversely affected in the future if CARB changes the allowance allocation methodology, or if the greenhouse gas emissions of its resource portfolio is in excess of the allowances administratively allocated to it and it is required to purchase compliance instruments on the market to cover its emissions. The District may also be adversely affected depending on how the federal Clean Power Plan (described below) affects the State’s cap-and-trade program.
B-6 Greenhouse Gas Emissions - Emissions Performance Standard. Senate Bill 1368 (“SB 1368”) became effective as law on January 1, 2007. It provides for an emission performance standard (“EPS”), restricting new investments in baseload fossil fuel electric generating resources that exceed the rate of greenhouse gas emissions for existing combined-cycle natural gas baseload generation. SB 1368 allows the California Energy Commission (the “CEC”) to establish a regulatory framework to enforce the EPS for POUs such as the District. The CPUC has a similar responsibility for the IOUs. The regulations promulgated by the CEC were approved by the OAL on October 16, 2007. The CEC regulations prohibit any investment in baseload generation that does not meet the EPS of 1,100 pounds of carbon dioxide (“CO2”) per MWh of electricity produced, with limited exceptions for routine maintenance, requirements of pre-existing contractual commitments, or threat of significant financial harm.
In January 2012, the CEC initiated a review of the regulations for enforcement of the EPS for POUs to ensure there is adequate review of investments in facilities that do not meet the EPS. On March 19, 2014, the CEC issued its Final Conclusions in the EPS proceeding. The CEC proposed to expand the public notice requirement so that a POU would have to post a notice of a public meeting at which its governing board would consider any expenditure over $2.5 million to meet environmental regulatory requirements at a non-EPS compliant baseload facility. The CEC further proposed to require each POU to file an annual notice identifying all investments over $2.5 million that it anticipates making during the subsequent 12 months on non-EPS compliant baseload facilities to comply with environmental regulatory requirements. This requirement would be waived for any POU that has entered into a binding agreement to divest within five years of all baseload facilities exceeding the EPS. The CEC did not propose to lower the EPS. Further, by letter from the CPUC to the CEC, the CPUC expressed its view that the EPS not be lowered. A final regulatory package was unanimously adopted at the CEC’s June 18, 2014 business meeting. The adopted regulations had limited changes to the proposed POU reporting requirements. CEC staff has also since confirmed that the $2.5 million threshold applies to an individual investment by each utility – not the combined investment of all participants in a project. These changes and any future changes to the EPS regulations may impact the District.
Additionally, Assembly Bill 1925, signed by the Governor on September 26, 2006, requires the CEC to develop a cost effective strategy for the geologic sequestration and management of industrial carbon dioxide. Also on September 26, 2006, the Governor signed Senate Bill 1686, which authorizes the Wildlife Conservation Board (the “WCB”) to take into account the potential of forestlands to beneficially reduce or sequester GHG emissions when it prioritizes funds available for proposed acquisitions. Senate Bill 1686 also specifies that the WCB may use policies, protocols and other relevant information developed by the California Climate Action Registry in determining a project’s potential to reduce or sequester GHG emissions.
Energy Procurement and Efficiency Reporting. Senate Bill 1037 (“SB 1037”) was signed by then Governor Schwarzenegger on September 29, 2005. It requires that each POU, including the District, prior to procuring new energy generation resources, first acquire all available energy efficiency, demand reduction, and renewable resources that are cost-effective, reliable and feasible. SB 1037 also requires each POU to report annually to its customers and to the CEC its investment in energy efficiency and demand reduction programs. The District has complied with such reporting requirements.
Further, California Assembly Bill 2021 (“AB 2021”), signed by then Governor Schwarzenegger on September 29, 2006, requires that POUs establish, report, and explain the basis of the annual energy efficiency and demand reduction targets by June 1, 2007 and every three years thereafter for a ten-year horizon. A subsequent bill has changed the time interval for establishing annual targets to every four years. The District has complied with this reporting requirement under AB 2021. Future reporting requirements under AB 2021 include: (i) the identification of sources of funding for the investment in energy efficiency and demand reduction programs; (ii) the methodologies and input assumptions used to determine cost-effectiveness; and (iii) the results of an independent evaluation to measure and verify energy efficiency savings and demand reduction program impacts. The information obtained from the POUs is being used by the CEC to present the progress made by the POUs towards the State of California’s goal of reducing electrical consumption by 10% within ten years and the greenhouse gas targets presented in Executive Order S-3-05. In addition, the CEC
B-7 will provide recommendations for improvement to assist each POU in achieving cost-effective, reliable, and feasible savings in conjunction with the established targets for reduction. Governor Brown signed Assembly Bill 802 into law on October 8, 2015 that allows savings to bring buildings up to code to count (rather than only “above code” savings to count) towards energy efficiency and demand reduction targets while setting new benchmarking requirements for building owners and usage disclosure requirements for California utilities.
California Senate Bill 350 (“SB 350”), signed by Governor Brown in October, 2015, requires the CEC to establish a statewide goal of a cumulative doubling of statewide energy efficiency savings in electricity by retail customers by January 1, 2030.
California Renewable Portfolio Standard (RPS). Senate Bill 1X 2 (“SB1X 2”), the “California Renewable Energy Resources Act,” was signed into law by Governor Jerry Brown on April 12, 2011. SB1X 2 codifies the RPS target for retail electricity sellers to serve 33% of their loads with eligible renewable energy resources by 2020. As enacted, SB1X 2 makes the requirements of the RPS program applicable to POUs (rather than just prescribing that POUs meet the intent of the legislation as under previous statutes). However, the governing boards of the POUs are responsible for implementing the requirements, rather than the CPUC, as is the case for the IOUs. In addition, certain enforcement authority with respect to POUs is given to the CEC and CARB, including authority to impose penalties.
SBX1-2 requires each POU to adopt and implement a renewable energy resource procurement plan. As set out in more detail in the CEC’s RPS enforcement regulation, noted below, the plan must require the utility to procure at least the following amounts of electricity products from eligible renewable energy resources, which may include renewable energy certificates (“RECs”), as a proportion of total kilowatt hours sold to the utility’s retail end-use customers: (i) over the 2011-2013 compliance period, an average of 20% of retail sales from January 1, 2011 to December 31, 2013, inclusive; (ii) over the 2014-2016 compliance period, a total equal to 20% of 2014 retail sales, 20% of 2015 retail sales, and 25% of 2016 retail sales; and (iii) over the 2017-2020 compliance period, a total equal to 27% of 2017 retail sales, 29% of 2018 retail sales, 31% of 2019 retail sales, and 33% of 2020 retail sales. More recently, SB 350 (referenced above) increased the statewide RPS to 50% by 2030.
SBX1-2 grandfathers any facility approved by the governing board of a POU prior to June 1, 2010 as satisfying renewable energy procurement obligations adopted under prior law if the facility is a “renewable electrical generation facility” as defined in the bill (subject to certain restrictions). Renewable electrical generation facilities include certain out-of-state renewable energy generation facilities if such facility: (i) will not cause or contribute to any violation of a California environmental quality standard or requirement, (ii) participates in the accounting system to verify compliance with the RPS program requirements, and (iii) either (a) commenced initial commercial operation after January 1, 2005 or (b) either (x) the electricity generated by the facility is from incremental generation resulting from expansion or repowering of the facility or (y) the electricity generated by the facility was procured by a retail seller or POU as of January 1, 2010. The percentage of a retail electricity seller’s RPS requirements that may be met with unbundled RECs from generating facilities outside California declines over time, beginning at 25% through 2013 and declining to a level of 10% in 2017 and beyond.
The CEC has developed detailed rules to implement SB1X2. On June 12, 2013, the CEC adopted regulations for the enforcement of the RPS program requirements for POUs. In connection with the implementation of SB1X 2, the CEC is responsible for certifying electric generation facilities as “eligible renewable energy resources” for purposes of the RPS program and has adopted guidelines for this purpose that identifies the requirements, conditions and process for certification of facilities as eligible renewable energy resources. These guidelines are revised periodically, including to reflect changes in statute and market conditions, and were most recently updated on June 10, 2015 by the adoption by the CEC of its Renewables Portfolio Standard Eligibility Guidebook, 8th Edition. Certain amendments to the RPS Enforcement Procedures regulations were approved by the CEC on October 14, 2015 that clarify and expand certain eligibility definitions. On March 17, 2016, CEC staff held a scoping workshop to solicit public comment from
B-8 interested parties on staff proposed revisions to the Renewables Portfolio Standard Eligibility Guidebook in connection with the development of the next edition.
Clean Energy and Pollution Reduction Act of 2015. SB 350, the “Clean Energy and Pollution Reduction Act of 2015,” was signed into law by Governor Brown on October 7, 2015. SB 350, as enacted, establishes an RPS target of 50% by December 31, 2030 for the amount of electricity generated and sold to retail customers from eligible renewable energy resources for retail sellers and POUs, including interim targets of (i) 40% by the end of the 2021-2024 compliance period, (ii) 45% by the end of the 2025-2027 compliance period and (iii) 50% by the end of the 2028-2030 compliance period.
SB 350 requires each retail seller of electricity (including IOUs, most POUs above a certain size threshold, community choice aggregators and energy service providers) to provide a renewable energy procurement plan on an annual basis, and to file an integrated resource plan (“IRP”), and a schedule for periodic updates to the plan, for approval. This includes addressing how affected utilities plan to meet the 2030 interim emissions reductions goal set by CARB. IRPs for retail sellers other than POUs will be reviewed by the CPUC. For POUs, the governing body of the POU is responsible for adopting the IRP, subject to review by the CEC, which can recommend modifications to correct any shortcomings.
The CEC adopted an order instituting a new rulemaking proceeding on January 13, 2016 to implement the RPS and IRP provisions of SB 350. CARB has begun a public comment process to determine how best to set utility-specific greenhouse gas emissions reduction goals for those utilities that meet the IRP size threshold (i.e., local publicly-owned electric utilities with an annual electrical demand exceeding 700 gigawatt hours, as determined on a three-year average commencing January 1, 2013).
SB 350 specifies the factors that must be considered in proposed procurement plans and provides that the goals must be balanced by the need to have just and reasonable rates, to ensure system and local reliability, to preserve the resilience of the electric grid, and to enhance distribution system management. The bill specifically requires the CPUC to identify a “balanced portfolio of resources” to ensure “reliability” and “optimal integration” of renewables, and requires that utilities include in their procurement plans a “strategy for procuring best-fit and least cost resources” to meet the portfolio needs the CPUC identifies.
SB 350 further requires the CEC to establish annual targets for statewide energy efficiency savings and demand reduction that will achieve a cumulative doubling of statewide energy efficiency savings in electricity and natural gas final end uses of retail customers by January 1, 2030. The CPUC is required to establish energy efficiency targets for electrical and gas corporations consistent with this goal, and specifies programs that may be used to achieve the goal. POUs are required to establish annual targets for energy efficiency savings and demand reduction consistent with the goal and to report those targets to the CEC every four years for the next 10-year period. The bill provides guidance as to what measures qualify and requires an evaluation of feasibility and cost effectiveness in setting annual targets for those savings. SB 350 also requires the CEC to adopt a responsible contractor policy and establish consumer protection guidelines.
SB 350 requires the CAISO to prepare proposed governance modifications to facilitate the transformation of the CAISO into a regional organization but provides that such governance modifications will not take effect prior to completion of a specified process for review and study of the impacts of a regional market and the enactment by the California Legislature of future legislation implementing the proposed governance changes by 2019. Stakeholder and public review of the study results and potential governance structure are ongoing and are expected to last throughout the year.
In July 2016, the CAISO released a revised set of proposed principles for regional governance of the CAISO, which were presented at a joint state agency workshop on July 26, 2016. Following further input from stakeholders, the proposed principles are expected to be refined for transmittal to the Governor, who may choose to present them to the Legislature as a proposed modification of the CAISO’s governance, pursuant to SB 350. The principles, if approved, could then be incorporated into state legislation that, if enacted, would provide for the proposed changes to the CAISO governance structure necessary prior to any transformation of
B-9 the CAISO to a regional organization. Governor Brown has indicated that such legislation is not likely to be considered by the Legislature until next year.
In addition, in furtherance of the potential transformation of the CAISO into a regional organization, the CAISO and PacifiCorp have been studying the feasibility, costs and benefits of full participation by PacifiCorp in the CAISO. These activities are ongoing. Approval from the California Legislature and Governor for the CAISO to become a regional organization as described above would be required before full integration of the PacifiCorp and CAISO balancing authority areas could occur, which is currently not expected prior to 2019.
Solar Power
Solar Power. On August 21, 2006, then Governor Schwarzenegger signed into law Senate Bill 1 (also known as the “California Solar Initiative”). This legislation requires municipal utilities such as the District, to establish a program supporting the stated goal of the legislation to install 3,000 MW of photovoltaic resources in California. POUs are also required to establish eligibility criteria in collaboration with the CEC for the funding of solar energy systems receiving ratepayer funded incentives. The legislation gives a POU the choice of selecting an incentive based on the installed capacity, starting at $2.80 per watt, or based on the energy produced by the solar energy system, measured in kWh. Incentives would be required to decrease at a minimum average rate of 7% per year. POUs also have to meet certain reporting requirements regarding the installed capacity, number of installed systems, number of applicants, awarded incentives and the contribution toward the program’s goals.
Federal Climate Change Policy Developments
General. Electric utilities are subject to continuing environmental regulation. These changes may arise from continuing legislative, regulatory and judicial action regarding such standards and procedures. Consequently, there is no assurance that any District facility will remain subject to the regulations currently in effect, will always be in compliance with future regulations or will always be able to obtain all required operating permits. An inability to comply with environmental standards could result in additional capital expenditures to comply, reduced operating levels or the complete shutdown of individual electric generating units not in compliance. In addition, increased environmental laws and regulations may create certain barriers to new facility development, may require modifications of existing facilities and may result in additional costs for affected resources.
Greenhouse Gas Regulations Under the Clean Air Act. The EPA has taken steps to regulate GHG emissions under existing law. On April 2, 2007, the U.S. Supreme Court issued a decision in Massachusetts v. EPA holding that GHG emissions are “air pollutants” under the federal Clean Air Act (“CAA”), thereby requiring the EPA to determine whether GHGs pose a threat to public health and welfare. On December 15, 2009, the EPA published the final rule for the “endangerment finding” under the CAA. In the finding, the EPA declared that the six identified GHGs – carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride – cause or contribute to global warming, and that the effects of climate change endanger public health or welfare by increasing the likelihood of severe weather events and the other related consequences of climate change. As a result of this finding, the EPA is authorized to issue regulations limiting carbon dioxide emissions from, among other things, stationary sources such as electric generating facilities, under the federal CAA.
On March 29, 2010, the EPA affirmed its position that air pollutants that are regulated by actually controlling emissions under any CAA program must be taken into account when considering permits issued under other programs, such as the Prevention of Significant Deterioration (“PSD”) Permit Program or the Title V Permit Program. A PSD permit is required before commencement of construction of new major stationary sources or major modifications of such sources. Title V permits must be applied for within one year of when a source becomes subject to the program. Title V permits are operating permits for major sources that consolidate all CAA requirements (arising, for example, under the Acid Rain, New Source Performance
B-10 Standards, National Emission Standards for Hazardous Air Pollutants, and/or PSD programs) into a single document, provide for review of the documents by the EPA, state agencies and the public, and contain monitoring, reporting and certification requirements.
On May 13, 2010, the EPA issued a final rule for determining the applicability of the PSD program to GHG emissions from major sources. The rule, known as the “Tailoring Rule,” published in the Federal Register on June 3, 2010, establishes criteria for identifying facilities required to obtain PSD permits and the emissions thresholds at which permitting and other regulatory requirements apply. The applicability threshold levels established by this rule include both a mass-based calculation and a metric known as the carbon dioxide equivalent, or CO2e (“CO2e”), which incorporates the global warming potential for each of the six individual gases that comprise the collective GHG defined by the EPA.
The Tailoring Rule requires sources subject to PSD and/or Title V permits to address GHG emissions in new permit applications or renewals. Construction or modification of major sources will become subject to PSD requirements for their GHG emissions if the construction or modification results in a net increase in the overall mass of GHG emissions exceeding a certain amount of tons per year (“tpy”) on a CO2e basis. Examples of such permitting requirements include, but are not limited to, the application of Best Available Control Technology (known as BACT) for GHG emissions, and monitoring, reporting, and recordkeeping for GHGs.
The endangerment finding and the Tailoring Rule have been challenged in court, but were upheld on June 26, 2012 in a decision by the U.S. Court of Appeals for the District of Columbia Circuit in Coalition for Responsible Regulation, Inc., et al. v. EPA. A petition for rehearing was denied on December 20, 2012. In October 2013, several petitions for review relating to these findings were consolidated in the Supreme Court case Utility Air Regulatory Group v. EPA, dealing with the issue of whether the EPA permissibly determined that its regulation of GHG emissions from new motor vehicles triggered permitting requirements under the CAA for stationary sources that emit GHG. A decision in the case was rendered on June 23, 2014, as described below. Legislation has been introduced in the United States Congress that would repeal the EPA’s endangerment finding or otherwise prevent the EPA from regulating GHG as air pollutants.
On September 22, 2009, the EPA issued the final rule for mandatory monitoring and annual reporting of GHG emissions from various categories of facilities including fossil fuel suppliers, industrial gas suppliers, direct GHG emitters (such as electric generating facilities and industrial processes), and manufacturers of heavy-duty and off-road vehicles and engines. This rule does not require controls or limits on emissions, but required data collection to begin on January 1, 2010. The District is in compliance with the data collection and reporting requirements to which it is subject. Such data collection and reporting lays the foundation for controlling and reducing GHG emissions in the future, whether by way of the EPA regulations under existing CAA authority or under a new climate change federal law.
Pursuant to a December 23, 2010 settlement agreement, the EPA on April 13, 2012 proposed to establish New Source Performance Standards limiting CO2 emissions from fossil-fuel fired electric generating units. In response to a June 25, 2013 Presidential memorandum (the “Presidential Memorandum”), the EPA re-proposed such standards on September 20, 2013 and simultaneously rescinded the April 13, 2012 proposal. The proposed rule was published in the Federal Register on January 8, 2014. The EPA states that the re- proposed standards would apply only to new facilities, not reconstructed or modified facilities. The Presidential Memorandum required the EPA to propose by June 1, 2014, and to finalize by June 1, 2015, standards, regulations, or guidelines that address carbon pollution from existing and modified or reconstructed power plants. The District does not currently expect any such standards, regulations or guidelines to materially adversely affect the Electric System.
The proposed rule for new power plants was published in the Federal Register on January 8, 2014 for public comment. At the close of the comment period on May 9, 2014, the EPA had received approximately two million comments on the proposed rule.
B-11 As contemplated by the Presidential Memorandum, on June 2, 2014, the EPA concurrently released both its “Clean Power Plan” proposal for existing power plants and its proposed revised standards for modified or reconstructed power plants. The proposed rules for existing, and modified or reconstructed, power plants were published in the Federal Register on June 18, 2014; comments on the proposed rules were accepted until December 1, 2014 and October 16, 2014, respectively.
On August 3, 2015, then President Obama and the EPA announced the final version of the Clean Power Plan for existing power plants. The EPA further released its final new source performance standards for emissions of CO2 for newly constructed, modified, and reconstructed power plants.
The final version of the Clean Power Plan is designed to reduce CO2 emissions from the power sector by 32% on average nationwide by 2030, from a 2012 baseline. Under the final rule, the EPA will set different interim and final emissions targets for each state based on overall CO2 emissions and the amount of electricity generated in the State and revised the proposed rule to encourage greater regional cooperation (through WECC for California). Under the final rule, States would have until September 2016 to design their own state implementation plans to reach the emissions target or could request an extension until September 2018 either alone or in cooperation with other states while working on multi-state plans. States may choose between two plan types in order to comply with the program: a source-based “emission standards” plan type, including source-specific requirements ensuring all affected power plants within the state meet their required emissions performance rates or state-specific rate based or mass-based goal, and a “state measures” plan type, including a mixture of measures implemented by the state, such as renewable energy standards and programs to improve residential energy efficiency, that result in affected power plants meeting the state’s mass-based goal. In both cases, states will have to demonstrate that their plan will meet the CO2 emission performance rates, the state rate-based goal or the state mass-based goal by 2030. Interim standards are to be phased in from 2022 to 2029 prior to the final standards being reached in 2030. Progress towards meeting the target rates may be measured in one of three ways: (i) a rate-based state emissions goal measured in pounds per MWh, (ii) a mass-based state emissions goal measured in total short tons of CO2; and (iii) a mass-based state goal with a new source complement measured in total short tons of CO. Under the rule, state emission targets may be met in a combination of ways, with emissions targets set based on three “building blocks” identified by the EPA as reflecting a “Best System of Emissions Reduction,” which may include improved efficiency at power plants, switching generation from higher-emitting coal to lower-emitting natural gas, and shifting generation to zero- emitting renewable or nuclear energy. In the event a state fails to develop a satisfactory implementation plan, the EPA may impose a federal implementation plan instead.
Concurrently with the release of the final Clean Power Plan for existing power plants, on August 3, 2015, the EPA also set standards to limit CO2 emissions from new, modified and reconstructed power plants. These new final carbon pollution standards will apply to: (i) any newly constructed fossil fuel-fired power plant that commenced construction on or after January 8, 2014, (ii) existing power plants subject to modification, which includes a physical or operational change that increases the source’s maximum achievable hourly rate of emissions, which modification occurs on or after June 18, 2014, and (iii) reconstructed power plants, which includes any unit on which the replacement of components occurs on or after June 18, 2014 and to such an extent that the fixed capital costs of the new components exceeds 50% of the fixed capital costs that would be required to construct a comparable entirely new facility. In the final standards, the EPA is establishing separate standards for two types of fossil fuel-fired sources: (a) stationary combustion turbines, generally firing natural gas, and (b) electric utility steam generating units, generally firing coal. The new standards reflect the degree of emissions limitation achievable through the application of the “Best System of Emissions Reduction,” that the EPA has determined has been adequately demonstrated for each type of unit. Under the final standards, new and reconstructed baseload natural gas-fired electricity generating units would be required to meet an emissions limit of 1,000 pounds of CO2 per MWh. Non-base load units would need to meet a clean fuels input-based standard. New coal-fired facilities would be required to meet an emissions limit of 1,400 pounds of CO2 per MWh-gross. Coal-fired electricity generating units subject to modifications resulting in an increase of hourly CO2 emissions of more than 10% relative to the emissions of the most recent five years from that unit would be required to meet a unit-specific emission limit that is consistent with the unit’s best historical annual CO2 emissions rate since 2002. Such standard would be in the form of an
B-12 emissions limit in pounds of CO2 per MWh on a gross-output basis. Reconstructed coal-fired power plants with a heat input of greater than 2,000 MMBtu/h would be required to meet an emissions limit of 1,800 pounds of CO2 per MWh-gross. Smaller coal-fired units would be required to meet an emission limit of 2,000 pounds of CO2 per MWh-gross. These emissions limits are based on the use of the most efficient generating technology at the affected source.
The final Clean Power Plan and the carbon pollution standards for new, modified and reconstructed power plants will become effective 60 days after their respective publications in the Federal Register (which occurred on October 23, 2015). A number of lawsuits have been filed challenging the final rules and seeking to prevent the EPA from moving forward to implement the Clean Power Plan. On October 23, 2015, a group of 24 state attorneys general filed an action in the United States Court of Appeals for the District of Columbia Circuit seeking a stay of the Clean Power Plan deadlines while its legality is reviewed by the courts. Additional legal and legislative challenges have been, and expected to be, filed. Given the complexity and various approaches available to states towards implementing the final Clean Power Plan, it is too early to determine the impact of the final rule with any degree of certainty. Further, the District is unable to predict at this time the outcome of any ongoing legal challenges to other EPA rulemaking with respect to greenhouse gas emissions or the effect that any final rules promulgated by the EPA regulating greenhouse gas emissions from electric generating units will have on the District’s projects or its Electric System.
The District is unable to predict the impact of the Court’s decision in Utility Air Regulatory Group v. EPA, the outcome of any ongoing legal or legislative challenges to other EPA rulemaking with respect to greenhouse gas emissions or the effect that any future final rules promulgated by the EPA regulating greenhouse gas emissions from electric generating units will have on the District or its Electric System.
Air Quality - National Ambient Air Quality Standards. The Clean Air Act requires that the EPA establish National Ambient Air Quality Standards (“NAAQS”) for certain air pollutants. When a NAAQS has been established, each state must identify areas in its state that do not meet the EPA standard (known as “non- attainment areas”) and develop regulatory measures in its state implementation plan to reduce or control the emissions of that air pollutant in order to meet the applicable standard and become an “attainment area.” The EPA periodically reviews the NAAQS for various air pollutants and has in recent years increased, or proposed to increase, the stringency of the NAAQS for certain air pollutants. The EPA revised the NAAQS for particulate matter on December 14, 2012, the NAAQS for sulfur dioxide on June 22, 2010, and the NAAQS for nitrogen dioxide on February 9, 2010, and in each case made the NAAQS more stringent. Based on the revised standards for particulate matter, nitrogen dioxide and sulfur dioxide, some areas may be designated as non-attainment. On December 18, 2014, the EPA issued a final rule making initial area designations for the 2012 NAAQS for fine particulate matter (“PM2.5”), designating 14 areas in six states as non-attainment, including the Los Angeles – San Bernardino Counties and the Los Angeles – South Coast Air Basin. These PM2.5 designations became effective on April 15, 2015. These developments may result in stringent permitting processes for new sources of emissions and additional state restrictions on existing sources of emissions, such as power plants. On September 2, 2011, then President Obama directed the EPA to withdraw a proposal advanced by the EPA to lower the NAAQS for ozone. As a result of this withdrawal, the EPA resumed the process of issuing non-attainment designations for the ozone NAAQS under the standard set in 2008. On April 30, 2012, the EPA issued ozone non-attainment designations for areas in California. Additional non-attainment areas for ozone have been and may continue to be designated. On May 29, 2013, the EPA proposed a rule to implement the 2008 ozone NAAQS. Comments on the proposed rule were due to the EPA by August 5, 2013. While implementing the 2008 ozone NAAQS, the EPA is continuing its review of this standard. In January 2014, the EPA released draft risk and exposure assessment documents and a draft policy assessment document relating to this review; comments were due by March 24, 2014. In addition, the Supreme Court found in its review of EPA v. EME Homer City Generation, LP that the EPA has authority to impose a Cross-State Air Pollution Rule (the “Transport Rule”) which curbs air pollution emitted in upwind states to facilitate downwind attainment of three NAAQS. On November 26, 2014, the EPA proposed to strengthen the stringency of the NAAQS for ozone by lowering the existing ozone standard of 75 parts per billion (“ppb”) to between 65 and 70 ppb, although the EPA also sought public comment on a standard as low as 60 ppb. On October 1, 2015, the EPA issued its final rule, lowering the ozone standard to 70 ppb. The final
B-13 rule was published in the Federal Register on October 26, 2015. The EPA has until October 1, 2017 to make final non-attainment designations.
Air Quality - Mercury and Air Toxics Standards. On December 16, 2011, the EPA signed a rule establishing new standards to reduce air pollution from coal- and oil-fired power plants under sections 111 (new source performance standards, or “NSPS”) and 112 (toxics program) of the Clean Air Act. The final rule was published in the Federal Register on February 16, 2012. The EPA updated the Mercury and Air Toxics Standards (“MATS”) emission limits on November 30, 2012 and again on March 28, 2013. The EPA is currently reconsidering certain aspects of the regulation. Under section 111 of the Clean Air Act, MATS revises the standards that new and modified facilities, including coal- and oil-fired power plants, must meet for particulate matter, sulfur dioxide, and nitrogen oxide. Under section 112, MATS sets new toxics standards limiting emissions of heavy metals, including mercury, arsenic, chromium, and nickel; and acid gases, including hydrochloric acid and hydrofluoric acid, from existing and new power plants larger than 25 MW that burn coal or oil. Power plants have up to four years to meet these standards. While many plants already meet some or all of these new standards, some plants will be required to install new equipment to meet the standards. On November 25, 2014, the United States Supreme Court agreed to review the MATS rule following the filing of petitions for writ of certiorari from 23 states and industry groups. On June 29, 2015, the United States Supreme Court issued its decision in the case, finding that the EPA interpreted the Clean Air Act improperly because it did not consider the costs of emissions reductions prior to crafting the MATS rules, and remanded the case back to the District of Columbia Circuit Court.
Air Quality - Section 114(a) New Source Review Information Request. The CAA prohibits physical changes (other than routine maintenance, repair and replacement) or changes in method of operations that result or could result in increased emissions without first applying for and receiving the required permits under the CAA. Such permits would generally require the installation of additional pollution control equipment. The EPA announced plans to actively pursue New Source Review enforcement actions against electric utilities for making such changes to their coal-fired power plants in violation of the CAA.
Under Section 114 of the CAA, the EPA has the authority to request from any person who owns or operates an emission source, information and records about operation, maintenance, emissions, and other data relating to such source for the purpose of developing regulatory programs, determining if a violation occurred (such as the failure to undergo new source review), or carrying out other statutory responsibilities. If such violations are found to have occurred, the EPA or other enforcement authorities could require the installation of new pollution control equipment in addition to modifications that have already been completed or planned and could require the payment of fines and penalties.
Resource Conservation and Recovery Act (“RCRA”). In 2000, the EPA issued a regulatory determination that coal combustion waste disposed in landfills and surface impoundments is a regulated solid waste that is exempt from hazardous waste regulations. After issuing the regulatory determination, the EPA collected new information and conducted additional analyses in support of developing related regulations and made this information available for public comment in August 2007. Due to the failure of the coal ash impoundment at a coal-fired power plant facility in Tennessee that occurred in December 2008, the EPA is now considering all regulatory options for coal combustion waste regulation, including regulation as a hazardous waste under Subtitle C of the RCRA and imposing surface impoundment integrity requirements.
On June 21, 2010, the EPA published a proposed rule describing the two possible regulatory options it is considering under RCRA for the disposal of coal ash generated from the combustion of coal by electric utilities and independent power producers. Under either option, the EPA would regulate the construction of impoundments and landfills, and seek to ensure both the physical environmental integrity of disposal facilities. The EPA has not decided which approach it will take with respect to the management and disposal of coal ash. The District cannot predict the potential scope or impact of any such regulations at this time.
B-14 Water Quality – Cooling Water Process
Once-through cooling (“OTC”) is the process where water is drawn from a source, pumped through equipment at a power plant to provide cooling and then discharged. A cooling process is necessary for nearly every type of traditional electrical generating station and the OTC process is used by many electrical generating stations located next to large bodies of water. Typically, the water used for cooling is not chemically changed materially in the cooling process; however the water temperature can increase and those thermal discharges are regulated under the federal Clean Water Act (“CWA”) and similar state law.
EPA Requirements. In July 2004, the EPA published a final rule under the CWA Section 316(b) Phase II program, Cooling Water Intake Systems for Existing Facilities (“Rule 316(b)”), which would have modified requirements under Section 316(b) of the CWA. This Rule 316(b) required existing steam electric generating stations with OTC water systems to achieve a level of performance for the reduction of impingement mortality and entrainment of aquatic organisms. Rule 316(b) was challenged in the Second Circuit Court of Appeals, and the Second Circuit ruled in a way that remanded most of Rule 316(b) and deemed other portions unlawful. While the Second Circuit ruling was being appealed to the U.S. Supreme Court, the EPA suspended Rule 316(b) and directed state regulatory bodies to use their “Best Professional Judgment” for upcoming National Pollutant Discharge Elimination System (NPDES) permit renewals with regard to Rule 316(b) requirements. On April 1, 2009, the U.S. Supreme Court reversed the Second Circuit, holding that it was permissible to apply a cost-benefit analysis under the CWA when determining what constitutes the BACT, and remanded the case for further proceedings consistent with the opinion.
On April 20, 2011, the EPA proposed to regulate cooling water intake structures at certain existing power plants in order to reduce the number of fish and other aquatic organisms that are trapped against intake screens or drawn into the generating unit. The EPA proposed to require modified intake screens that would capture and safely return fish to water bodies, or require the facility’s water intake velocity to be reduced, thus allowing fish to move away from intake structures. The best technology to reduce entrainment would be determined on a site-specific basis. A final regulation was released by the EPA on May 16, 2014 and became effective on October 14, 2014. The District does not expect the final rule to materially adversely affect the District.
Effluent Limitations Guidelines and Standards. On June 7, 2013, the EPA proposed to set technology-based effluent limitations guidelines and standards for metals and other pollutants in wastewater discharged from steam electric power plants. The proposal would cover wastewater associated with several types of equipment and processes, including flue gas desulfurization, fly ash, bottom ash, flue gas mercury control and gasification of fuels. The EPA is also considering best management practices for surface impoundments containing CCRs. The EPA proposed four preferred alternatives for regulating wastewater discharges. The stringency of controls, types of waste streams covered, and the costs vary between the four alternatives. The public comment period on this proposal ended on September 20, 2013. The EPA was expected to issue a final rule in May 2014 but in December 2013 it announced that it would need additional time to finalize this rule. On September 30, 2015, the EPA announced its final Steam Electric Effluent Limitation Guidelines to update the federal limits on toxic metals in discharge wastewater. The EPA will provide the industry more time to coordinate compliance with this and the coal ash rule.
State Water Resources Control Board. The State Water Resources Control Board’s statewide policy with respect to the Clean Water act Section 316(b) became effective on October 1, 2010 when published as Section 2922 of Title 23 of the California Code of Regulations (“Regulation Section 2922”). The new regulation requires all facilities subject to the Clean Water Act Section 316(b) to either use Track 1, which requires the use of closed cycle cooling or flow reduction commensurate to that of closed cycle cooling - a minimum of 93% flow reduction; or Track 2, which entails demonstrating that Track 1 is infeasible and requires compliance measured on a unit by unit basis with the use of “alternate” technologies where IM reduction must be 83.7%. In the interim, Regulation Section 2922 requires the installation of large organism exclusion devices and the cessation of intake flows if not engaging in power-generating activities or critical
B-15 system maintenance. The owner or operator of such facilities must further mitigate any interim impacts commencing five years after the effective date of Regulation Section 2922 until final compliance is achieved.
Because the District currently purchases power through the TID Purchase Contract, Regulation Section 2922 does not directly apply to the District. These regulations will be applicable to the District in the event the District generates power in the future.
Other Environmental Issues
Electric utilities are subject to continuing environmental regulation. Federal, state and local standards and procedures that regulate the environmental impact of electric utilities are subject to change. These changes may arise from continuing legislative, regulatory and judicial action regarding such standards and procedures. Consequently, there is no assurance that any District facility will remain subject to the regulations currently in effect, will always be in compliance with future regulations or will always be able to obtain all required operating permits. An inability to comply with environmental standards could result in additional capital expenditures to comply, reduced operating levels or the complete shutdown of individual electric generating units not in compliance.
There is concern by the public and the scientific community regarding environmental damage resulting from the use of fossil fuels. There is support among certain members of congress for the increased regulation of air, water and soil contaminants is building, and there are a number of pending or recently enacted legislative proposals that may affect the electric utility industry. There has also been an increase in the level of environmental enforcement by the EPA and state and local authorities. Increased environmental regulations under the provisions of the federal CAA have created certain barriers to new facility development and modification of existing facilities. The additional costs, including time, human resources, uncertainty and delay, and the risk of fines and penalties for noncompliance, could affect the rate of return relating to investment in power project development. As such, there may be additional costs for purchased power from affected resources. Moreover, these additional costs may upset existing cost assumptions for utilities.
The District cannot predict at this time whether any additional legislation or rules will be enacted which will affect the Electric System’s operations, and if such laws or rules are enacted, what the costs to the District might be because of such action.
The construction and operation of projects for the Electric System by the District may require environmental-related and other permits and approvals that are specific to each project from different governmental agencies. Required permits or approvals can relate to a number of issues including, for example, air quality, water quality, endangered or threatened species, historical or archeological resources, solid or hazardous waste management, land use or zoning, and other issues. The District cannot guarantee that all permits or approvals will be obtained in a timely manner.
Each of the projects are also subject to the California Environmental Quality Act (“CEQA”), which requires agencies in California to consider the environmental impacts of California projects in connection with discretionary approvals of such projects. The District generally acts as the lead agency for CEQA approvals of the projects for its capital improvement projects.
Permits and governmental approvals can be challenged in court, which can lead to delays or even the cancellation of a project. Permits or approvals can also lead to the imposition of costly conditions or requirements to mitigate the environmental effects of a project. If the necessary permits or approvals are not obtained in a timely manner, or if there are judicial challenges to any of the projects, construction and operation may be delayed or prohibited.
Because the District currently purchases power through the TID Purchase Contract, these regulations do not directly affect the District’s Electric System. These regulations will be applicable to the District in the event the District generates power in the future.
B-16 Future Initiatives and Regulation of the Electric Utility Industry
The electric utility industry is highly regulated and is also regularly subject to reform. The most recent reforms and proposals are aimed at reducing emissions of GHG from combustion of fossil fuels. The District is unable to predict future reforms to the electric utility industry or the impact on the District of recent reforms and proposals. In particular, the District is unable to predict the outcome of proposals on GHG and the associated impact on the operations and finances of the Electric System or the electric utility industry.
Proposition 23, entitled “Suspends Air Pollution Control Laws Requiring Major Polluters to Report and Reduce Greenhouse Gas Emissions That Cause Global Warming Until Unemployment Drops Below Specified Level for Full Year,” qualified for the November 2, 2010 California ballot and would have suspended AB32 until certain unemployment thresholds were met. Although Proposition 23 was defeated, it suggests the controversial nature of renewable energy mandates and highlights the risks posed by California’s initiative system. See Appendix A—“INFORMATION RELATING TO MERCED IRRIGATION DISTRICT” under the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES” for a discussion of recent changes to the California Constitution, as a result of voter approval of Proposition 26, a Statewide voter initiative, that could impact the Electric System.
Propositions 23 and 26 are examples of the risk to the Electric System as a result of the voter initiative right established by the State Constitution.
Impact of Developments in the California Energy Markets on the District
The effect of these developments in the California energy markets on the District cannot be fully ascertained at this time. The electric industry and markets in the western states region, including the governing laws and regulations, continue to face various uncertainties that create risk for the market in general and, in some cases, for the District. Some of the general market uncertainties that exist include compliance with rapidly changing environmental, safety, licensing, regulatory and legislative requirements, volatility in fuel prices, integration of new renewable resources, electric energy prices, electric transmission and natural gas transmission constraints, and revisions in the CAISO market design. Future changes in the electric industry and markets could have an adverse effect on the District, the Electric System, the District’s ability to procure sufficient power supply at a reasonable price or its ability to make the Series 2017A Installment Payments.
Volatility in energy prices in California may return due to a variety of factors that affect both the supply and demand for electric energy in the western United States. These factors include, but are not limited to, insufficient generation resources, fuel costs and availability, weather, transmission congestion, restructuring of the wholesale energy markets under MRTU, the strength of the economy in California and surrounding states and levels of hydroelectric generation within the region (including the Pacific Northwest). This price volatility may contribute to greater volatility in the District’s revenues from the sale (and purchase) of electric energy and, therefore, could materially adversely affect the financial condition of the Electric System.
OTHER FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY
Federal Policy on Cybersecurity
On February 13, 2013, then President Obama issued the Executive Order “Improving Critical Infrastructure Security” (“Executive Order”). Among other things, the Executive Order calls for improved information sharing and processing of security clearances for owners and operators of critical infrastructure. The Executive Order further requires the Secretary of Commerce to direct the National Institute of Standards and Technology (“NIST”) to lead the development of a framework (“Framework”) to reduce cyber risks to critical infrastructure. NIST released the first version of the voluntary Framework on February 12, 2014. NIST has indicated that it intends for the Framework to be a living document that will continue to be updated and improved as industry provides feedback on implementation.
B-17 The Executive Order could result in substantive changes to policy, regulatory, and compliance issues that will affect the electric industry. The District will continue to monitor this issue in order to help ensure that the Framework continues to recognize the existing cybersecurity efforts in the electric sector, and does not undermine them by creating duplicative or inconsistent processes.
The Cybersecurity Information Sharing Act of 2015 was signed into law on December 18, 2015 as part of the year-end Omnibus Appropriations Act. It creates an industry-supported, voluntary cybersecurity information sharing program that will encourage both public and private sector entities to share cyber-related threat information.
Federal Regulation of Transmission Access
EPACT 1992. The Energy Policy Act of 1992 (the “EPACT 1992”) made fundamental changes in the federal regulation of the electric utility industry, particularly in the area of transmission access under Sections 211, 212 and 213 of the Federal Power Act. The purpose of these changes, in part, was to bring about increased competition in the electric utility industry. As amended by EPACT 1992, Sections 211, 212 and 213 of the Federal Power Act provide FERC authority, upon application by any electric utility, federal power marketing agency or other person or entity generating electric energy for sale or resale, to require a transmitting utility to provide transmission services (including any enlargement of transmission capacity necessary to provide such services) to the applicant at rates, charges, terms and conditions set by FERC based on standards and provisions in the Federal Power Act. Under EPACT 1992, electric utilities owned by municipalities and other public agencies which own or operate electric power transmission facilities which are used for the sale of electric energy at wholesale are “transmitting utilities” subject to the requirements of Sections 211, 212 and 213.
FERC also encouraged the voluntary formation of regional transmission organizations (“RTOs”) that are independent from owners of generation and other market participants and that will provide transmission access on a non-discriminatory basis to buyers and sellers of power. IOUs and POUs are encouraged to participate in the formation and operation of RTOs, but are not, at this time, being ordered by FERC to participate. These FERC proceedings may impact the District’s operation of the Electric System. See “DEVELOPMENTS IN THE ENERGY MARKETS—Market Redesign and Technology Upgrade and Other Reforms in the CAISO Market” above for additional information related to MRTU.
EPACT 2005. In August 2005, President Bush signed the Energy Policy Act of 2005 (“EPACT 2005”). EPACT 2005 addresses a wide array of energy matters that could affect the entire electric utility industry, including the District’s Electric System. It expands FERC’s jurisdiction to require open access transmission of municipal utilities that sell more than four million megawatt hours of energy and to order refunds under certain circumstances for municipal utilities that sell more than eight million megawatt hours of energy. EPACT 2005 requires that FERC conclude its investigation into the allegations of overcharges during the California energy crisis in 2000 and 2001 and submit a report to Congress.
In response to numerous regional electric reliability crises, EPACT 2005 required the FERC to enforce mandatory national electric reliability standards for all utilities. The North American Electric Reliability Corporation (“NERC”), which had previously issued voluntary reliability standards, was designated by FERC as the national Electric Reliability Organization to develop reliability standards to be approved and enforced by FERC. On March 16, 2007, FERC approved the first set of 83 reliability standards, and the standards became effective June 18, 2007. The District believes that it is currently subject to 65 NERC Reliability Standards as a Load-Serving Entity, Distribution Provider, Transmission Owner, Transmission Planner, Resource Planner, Generator Owner and Generator Operator. In August 2008, the District adopted an Internal Compliance Program to ensure the District’s compliance with all applicable standards. FERC has required that all utilities self-certify compliance on an annual basis and has indicated that it will eventually audit all utilities. Penalties for non-compliance with any of the requirements range from $1,000 to $1 million per violation per day.
B-18 In August 2010, the District participated in a Western Electricity Coordinating Council Off-Site Audit and did not receive any New Possible Violations that could have been discovered during the audit. In the three years since the 2010 audit, the District decided to do a complete review of all NERC compliance activities in preparation for the next on-site audit scheduled for August 2016. Based on a NERC consultant’s review of the entire District’s NERC compliance program in 2013, the District self-reported in early 2014 issues associated with standard PRC-005 requirements. On November 24, 2014, NERC assessed the District a $15,000 fine for lacking proper evidence of maintenance and testing per the PRC-005 standard. The NERC findings from this self-report, which included discovery of deficiencies in testing records, resulted in a complete rewrite of the District’s Protection System Maintenance Program (“PSMP”) and retesting of certain equipment under the program primarily. In addition, the Internal Compliance Policy was subsequently modified to incorporate revisions identified from this self-report and the ongoing evolution to NERC standards and requirements. These modifications will help insure that the District receives maximum credit from FERC for adopting such a policy.
EPACT 2005 also provides for criminal penalties for manipulative energy trading practices and the repeal of the Public Utility Holding Company Act of 1935, which prohibited certain mergers and consolidations involving electric utilities.
Under EPACT 2005, IOUs must offer and the municipal utilities need to consider offering each of its customer classes a time-based rate schedule to enable customers to manage energy use through advanced metering and communications technology. It authorizes FERC to exercise eminent domain powers to construct and operate transmission lines if FERC determines a state has unreasonably withheld approval. EPACT 2005 contains provisions designed to increase imports of liquefied natural gas and incentives to support renewable energy technologies, including a new two-year program for tax credit bonds for local governments to finance certain renewable energy facilities. EPACT 2005 also extends for 20 years the Price- Anderson Act, which concerns nuclear power liability protection, and provides incentives for the construction of new nuclear plants.
The District is not able to predict at this time the future impact that EPACT 2005 will have on the operations and finances of its Electric System or the electric utility industry generally.
Rate Regulation
The District sets rates and charges for electric service provided at retail within its boundaries. The authority of the District to impose and collect rates and charges for electric power and energy sold and delivered at retail within their boundaries is not subject to the general regulatory jurisdiction of the CPUC. Currently neither the CPUC nor any other regulatory authority of the State of California nor FERC reviews such rates and charges. It is possible that future Constitutional, legislative, and/or regulatory changes could subject such rates, charges and/or the service area of the District to the jurisdiction of the CPUC or to other limitations or requirements under federal or state law.
Certain Other Factors
The electric utility industry in general has been, or in the future may be, affected by a number of other factors that could impact the financial condition and competitiveness of many electric utilities and the level of utilization of generating and transmission facilities. In addition to the factors discussed above, such factors include, among others:
effects of compliance with rapidly changing environmental, safety, licensing, regulatory and legislative requirements other than those described above,
changes resulting from conservation and demand-side management programs on the timing and use of electric energy,
B-19 effects of reliability of the power supply with the increased usage of renewable resources,
changes resulting from a national energy policy,
effects of competition from other electric utilities (including increased competition resulting from mergers, acquisitions, and “strategic alliances” of competing electric and natural gas utilities and from competitors transmitting less expensive electricity from much greater distances over an interconnected system) and new methods of, and new facilities for, producing low-cost electricity,
the repeal of certain federal statutes that would have the effect of increasing the competitiveness of many IOUs,
increased competition from independent power producers and marketers, brokers and federal power marketing agencies,
“self-generation” or “distributed generation” (such as microturbines and fuel cells) by industrial and commercial customers and others,
issues relating to the ability to issue tax-exempt obligations, including severe restrictions on the ability to sell to nongovernmental entities electricity from generation projects and transmission service from transmission line projects financed with outstanding tax-exempt obligations,
effects of inflation on the operating and maintenance costs of an electric utility and its facilities,
changes from projected future load requirements,
increases in costs and uncertain availability of capital,
shifts in the availability and relative costs of different fuels (including the cost of natural gas),
sudden and dramatic increases in the price of energy purchased on the open market that may occur in times of high peak demand in an area of the country experiencing such high peak demand, such as has occurred in California,
inadequate risk management procedures and practices with respect to, among other things, the purchase and sale of energy and transmission capacity,
other legislative changes, voter initiatives, referenda and statewide propositions,
effects of the changes in the economy, population and demand of customers in the District’s service area,
effects of possible manipulation of the electric markets,
potential unavailability of hydro power in the region, and
natural disasters or other physical calamities, including, but not limited to, earthquakes.
Any of these factors (as well as other factors) could have an adverse effect on the financial condition of any given electric utility and likely will affect individual utilities in different ways.
B-20 The District is unable to predict what impact such factors will have on its business operations and financial condition, but the impact could be significant. This Official Statement includes a brief discussion of certain of these factors. This discussion does not purport to be comprehensive or definitive, and these matters are subject to change subsequent to the date hereof. Extensive information on the electric utility industry is available from the legislative and regulatory bodies and other sources in the public domain, and potential purchasers of the 2017A Bonds should obtain and review such information. .
B-21 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX C
DEFINITIONS AND SUMMARY OF PRINCIPAL LEGAL DOCUMENTS
The following is a summary of certain provisions of the Installment Purchase Agreement and the Indenture which are not described elsewhere. This summary does not purport to be comprehensive and reference should be made to the respective agreement for a full and complete statement of the provisions thereof.
DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE INSTALLMENT PURCHASE AGREEMENT
DEFINITIONS
Definitions. Unless the context otherwise requires, the terms defined in the Installment Purchase Agreement will for all purposes of the Installment Purchase Agreement and of any amendment of the Installment Purchase Agreement or supplement to the Installment Purchase Agreement and of any report or other document mentioned in the Installment Purchase Agreement have the meanings defined in the Installment Purchase Agreement, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined in the Installment Purchase Agreement. All capitalized terms used in the Installment Purchase Agreement and not defined in the Installment Purchase Agreement have the meanings ascribed thereto in the Indenture.
Accountant’s Report
The term “Accountant’s Report” means a report signed by an Independent Certified Public Accountant.
Authority
The term “Authority” means the Merced Irrigation District Financing Authority, a joint exercise of powers authority created pursuant to the Joint Powers Agreement, dated as of May 21, 2015, by and between the District and the Modesto Irrigation District.
Bonds
The term “Bonds” means all revenue bonds or notes of the District authorized, executed, issued and delivered by the District, the payments of which are payable from Net Electric System Revenues on a parity with the 2017A Bonds and which are secured by a pledge of and lien on the Electric System Revenues as described in the Installment Purchase Agreement, including but not limited to the 2015A Bonds.
Commodity Swap
The term “Commodity Swap” means a commodity swap entered into by the District to hedge the cost of power and energy and which is not secured by a pledge of Electric System Revenues or payable from Electric System Net Revenues on a parity with the 2017A Bonds.
Contracts
The term “Contracts” means and is limited to all contracts of the District previously or later authorized and executed by the District which are on a parity with the 2017A Bonds and which are secured by a pledge and lien on the Electric System Revenues as described in the Installment Purchase Agreement, but excluding (i) any contracts entered into for operation and maintenance of the Electric System, (ii) contracts for the
C-1 purchase of power, energy and related services which are treated as Operation and Maintenance Costs in accordance with clause (ii) as the definition thereof, and (iii) Commodity Swaps.
Date of Operation
The term “Date of Operation” means, with respect to any uncompleted Parity Project, the estimated date by which such Parity Project will have been completed and, in the opinion of an Independent Engineer, will be ready for commercial operation by or on behalf of the District.
Debt Service
The term “Debt Service” means, for any period of calculation, the sum of:
(1) the interest payable during such period on all outstanding Bonds, assuming that all outstanding serial Bonds are retired as scheduled and that all outstanding term Bonds are redeemed or paid from sinking fund payments as scheduled (except to the extent that such interest is capitalized or is reasonably anticipated to be reimbursed to the District by the United State of America pursuant to Section 54AA of the Code (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111-5, 23 Stat. 115 (2009), enacted February 17, 2009)), or any future similar program);
(2) those portions of the principal amount of all outstanding serial Bonds maturing in such period;
(3) those portions of the principal amount of all outstanding term Bonds required to be prepaid or paid in such period; and
(4) those portions of the Contracts required to be made during such period, (except to the extent the interest evidenced and represented thereby is capitalized or is reasonably anticipated to be reimbursed to the District by the United States of America pursuant to Section 54AA of the Code (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111 5, 23 Stat. 115 (2009), enacted February 17, 2009)), or any future similar program); but less the earnings to be derived from the investment of moneys on deposit in debt service reserve funds established for Bonds or Contracts; provided that, as to any such Bonds or Contracts bearing or comprising interest at other than a fixed rate, the rate of interest used to calculate Debt Service will, for all purposes, be assumed to bear interest at a fixed rate equal to the higher of:
(i) the then current variable interest rate borne by such Bonds or Contracts plus 1%, and
(ii) if such Bonds or Contracts have been outstanding for at least twelve months, the average rate over the twelve months immediately preceding the date of calculation, or if such Bonds or Contracts have not been outstanding for the twelve prior months, the average rate borne by reference to an index comparable to that to be utilized in determining the interest rate for the Bonds to be issued or the Contracts to be executed; provided further that if any series or issue of such Bonds or Contracts have twenty-five percent (25%) or more of the aggregate principal amount of such series or issue due in any one year, Debt Service will be determined for the period of determination as if the principal of and interest on such series or issue of such Bonds or Contracts were being paid from the date of incurrence thereof in substantially equal annual amounts over a period of twenty-five (25) years from the date of calculation; and
C-2 provided further that, as to any such Bonds or Contracts or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Bonds or Contracts or portions thereof, such accreted discount will be treated as interest in the calculation of Debt Service; and provided further that if the Bonds or Contracts constitute paired obligations, the interest rate on such Bonds or Contracts will be the resulting linked rate or the effective fixed interest rate to be paid by the District with respect to such paired obligations; and provided further that the amount on deposit in a debt service reserve fund on any date of calculation of Debt Service will be deducted from the amount of principal due at the final maturity of the Bonds and Contracts for which such debt service reserve fund was established and to the extent the amount in such debt service reserve fund is in excess of such amount of principal, such excess will be applied to the full amount of principal due, in each preceding year, in descending order, until such amount is exhausted.
District
The term “District” means Merced Irrigation District, an irrigation district duly organized and existing under and by virtue of the laws of the State of California.
District Representative.
The term “District Representative” means the General Manager of the District, the Deputy General Manager of Energy Resources of the District, or such other person designated in writing by the General Manager of the District.
Energy Service.
The term “Energy Service” means the electric generation, transmission and distribution service made available or provided by the Electric System.
Electric System.
The term “Electric System” means (i) all energy generation, transmission and distribution facilities of the District existing on the date of the Installment Purchase Agreement, and (ii) all additions, betterments, extensions and improvements to such existing energy generation, transmission and distribution facilities hereafter acquired or constructed, (iii) other energy distribution facilities of the District hereafter acquired or constructed, (iv) all other generation facilities of the District hereafter acquired or constructed other than generating facilities determined by the Board of Directors not to be included in the Electric System and which are not financed from Electric System Revenues or Net Electric System Revenues or from the proceeds of Bonds or Contracts, and (v) other transmission facilities of the District hereafter acquired and constructed and determined by the Board of Directors to be a part of the Electric System; provided, however, that neither the facilities included in the Hydroelectric System nor the Water System will be a part of the Electric System.
Electric System Revenue Fund.
The term “Electric System Revenue Fund” means those District accounts designated by the District as account numbers 104.XXXX.40000 through 104.XXXX.49999 and account numbers 104.XXXX.59111, 59121, 59131, 59141, 59211, 59221, 59231, 59241, 59251, 59311, 59331, 59351, 59511, 59521, 59531, 59551, and 59810 (excluding 104.XXXX.48000 Contribution Revenue Non Cash), together with other accounts created in the future and designated by action of the Board of Directors as a part of the Electric System Revenue Fund established pursuant to the Installment Purchase Agreement.
C-3 Electric System Revenues.
The term “Electric System Revenues” means all income, rents, rates, fees, charges and other moneys derived from or attributable the ownership or operation of the Electric System calculated in accordance with generally accepted accounting principles, including, without limiting the generality of the foregoing,
(1) all income, rents, rates, fees, charges, business interruption insurance proceeds or other moneys derived by the District from the sale, furnishing and supplying of electric generation, transmission and distribution through the facilities of or in the conduct or operation of the business of the Electric System; plus
(2) all income, rents, rates, fees, charges, business interruption insurance proceeds or other moneys derived by the District under any contract for the sale of power, energy, transmission or other services from the Electric System or any part thereof or any contractual arrangement with respect to the use of the Electric System or any part thereof or the services, output or capacity thereof;
(3) connection charges or similar charges related to the Electric System; plus
(4) payments received by the District in connection with any commodity swaps related to the Electric System, including Commodity Swaps;
(5) the earnings on and income derived from the investment of the amounts described in clauses (1) through (4) above, and from investment of amounts in the Electric System Revenue Fund; plus
(6) the earnings on and income derived from investment of the District reserves allocated to the Electric System;
In addition, the term “Electric System Revenues” will include, and notwithstanding the application of generally accepted accounting principles, all amounts transferred from the Rate Stabilization Fund to the Electric System Revenue Fund during any Fiscal Year in accordance with the Installment Purchase Agreement;
but excluding in all cases (i) any amounts transferred from the Electric System Revenue Fund to the Rate Stabilization Fund during any Fiscal Year in accordance with the Installment Purchase Agreement, (ii) customer deposits or any other deposits or advances subject to refund until such deposits or advances have become the property of the District, (iii) any proceeds of taxes restricted by law to be used by the District to pay obligations of the District other than Bonds or Contracts, (iv) revenues of the Hydroelectric System, (v) revenues of the Water System, and (vi) revenues with respect to any energy generation or transmission facilities of the District which are not a part of the Electric System as determined in accordance with clauses (iv) and (v) of the definition of Electric System.
Engineer’s Report.
The term “Engineer’s Report” means a report by an Independent Engineer.
Event of Default
The term “Event of Default” means any of the events specified in the Installment Purchase Agreement.
Fiscal Year
The term “Fiscal Year” means the twelve month period beginning on April 1 of each year and ending on March 31 of the following year, both dates inclusive, or any other twelve month period later selected and designated as the official Fiscal Year of the District.
C-4 Hydroelectric System.
The term “Hydroelectric System” means (i) the whole and each and every part of the hydroelectric generation system of the District existing on the date of the Installment Purchase Agreement and generally referred to as the “Merced River Development Project,” and (ii) all additions, betterments, extensions and improvements to such hydroelectric system and (iii) any other hydroelectric facilities later acquired or constructed and determined by the Board of Directors to be a part of the Hydroelectric System; provided, however, that the Small Hydroelectric Projects will not be a part of the Hydroelectric System.
Indenture.
The term “Indenture” means the Indenture of Trust, dated as of July 1, 2017, by and between the Authority and the Trustee, as it may from time to time be supplemented, modified or amended by any Supplemental Indenture.
Independent Certified Public Accountant
The term “Independent Certified Public Accountant” means any firm of certified public accountants appointed by the District, each of whom is independent of the District pursuant to the Statement on Auditing Standards No. 1 of the American Institute of Certified Public Accountants.
Independent Engineer.
The term “Independent Engineer” means any firm of registered engineers of national reputation generally recognized to be well qualified in engineering matters relating to systems such as the Electric System, appointed by the District and who, or each of whom: (1) is in fact independent and not under domination of the District; (2) does not have any substantial interest, direct or indirect, with the District; and (3) is not connected with the District as an officer or employee thereof, but who may be regularly retained to make reports thereto.
Independent Financial Consultant
The term “Independent Financial Consultant” means a financial consultant or firm of such consultants appointed by the District, which may, for purposes of the certification described in the definition of “Paired Obligations” be an interest rate swap adviser, and who, or each of whom: (1) is in fact independent and not under domination of the District; (2) does not have any substantial interest, direct or indirect, with the District; and (3) is not connected with the District as an officer or employee thereof, but who may be regularly retained to make reports thereto.
Installment Payment Date; Series 2017A Installment Payment Date
The term “Installment Payment Date” means any date on which Installment Payments are scheduled to be paid by the District under and pursuant to any Contract. The term “Series 2017A Installment Payment Date” means the fifth Business Day before any Interest Payment Date.
Installment Payments; Series 2017A Installment Payments
The term “Installment Payments” means the installment payments of interest and principal scheduled to be paid by the District under and pursuant to the Contracts. The term “Series 2017A Installment Payments” means the Installment Payments scheduled to be paid by the District under and pursuant to the Installment Purchase Agreement.
C-5 Installment Purchase Agreement.
The term “Installment Purchase Agreement” means the Installment Purchase Agreement, dated as of July 1, 2017, by and between the District and the Authority, as originally executed and as it may from time to time be amended or supplemented in accordance with the Installment Purchase Agreement.
Law
The term “Law” means, collectively, the Irrigation District Law of the State of California (being Division 11 of the Water Code of the State of California, as amended), and all laws amendatory thereof or supplemental thereto.
Loan Agreement
The Term “Loan Agreement” means that Credit Agreement by and between the District and Wells Fargo Bank, National Association dated as of August 18, 2014, as such credit agreement may be extended from time-to-time and any replacement or substitute credit agreement entered into by the District from time-to- time with substantially similar security provisions.
Net Proceeds
The term “Net Proceeds” means, when used with respect to any insurance or condemnation award, the proceeds from such insurance or condemnation award remaining after payment of all expenses (including reasonable attorneys’ fees) incurred in the collection of such proceeds.
Net Electric System Revenues
The term “Net Electric System Revenues” means, for any Fiscal Year, the Electric System Revenues for such Fiscal Year less the Operation and Maintenance Costs of the Electric System for such Fiscal Year.
Operation and Maintenance Costs of the Electric System
The term “Operation and Maintenance Costs of the Electric System” means (i) costs spent or incurred for maintenance and operation of the Electric System calculated in accordance with generally accepted accounting principles, including (among other things) the reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Electric System in good repair and working order, and including administrative costs of the District that are charged directly or apportioned to the Electric System, including but not limited to salaries and wages of employees, payments to the Public Employees Retirement System, overhead, insurance, taxes (if any), fees of auditors, accountants, attorneys, consultants or engineers and insurance premiums, and including all other reasonable and necessary costs of the District or charges (other than Debt Service) required to be paid by it to comply with the terms of the Installment Purchase Agreement or any other Contract or of any resolution or indenture authorizing the issuance of any Bonds or of such Bonds, and (ii) all costs of electricity purchased or otherwise acquired for delivery by the Electric System (including any interim or renewed arrangement therefor), including payments under agreements or other arrangements pursuant to which the District has agreed to treat costs thereunder as operating and maintenance costs, whether such arrangements are take-or-pay arrangements or otherwise, as well as payments (other than termination payments) under commodity swaps related to the Electric System including Commodity Swaps; but excluding in all cases depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles or other bookkeeping entries of a similar nature, and any amounts transferred to the Rate Stabilization Fund.
C-6 Parity Project
The term “Parity Project” means any additions, betterments, extensions or improvements to the District’s Electric System designated by the Board of Directors of the District as a Parity Project, the acquisition and construction of which is to be paid for with the proceeds of any Contracts or Bonds.
Project; 2017A Project
The term “Project” means any additions, betterments, extensions, or improvements to the District’s facilities designated by the Board of Directors of the District as a Project, the acquisition and construction of which is to be paid for by the proceeds of any Contracts or Bonds. The term “2017A Project” means the additions, betterments, extensions and improvements to the Electric System described in the Installment Purchase Agreement.
Purchase Price
The term “Purchase Price” means the principal amount plus interest thereon owed by the District to the Authority under the terms of the Installment Purchase Agreement.
Rate Stabilization Fund
The term “Rate Stabilization Fund” means the District fund by that name established pursuant to the Installment Purchase Agreement.
Rate Stabilization Fund
The term “Rate Stabilization Fund” means the District fund by that name established pursuant to the Installment Purchase Agreement.
Small Hydroelectric Projects.
The term “Small Hydroelectric Projects” means the three hydroelectric facilities owned by the District on the date of the Installment Purchase Agreement and operated by Turlock Irrigation District, including all additions, betterments, extensions and improvements to such existing hydroelectric facilities.
Trustee.
The term “Trustee” means The Bank of New York Mellon Trust Company, N.A., acting in its capacity as Trustee under and pursuant to the Indenture, and its successors and assigns.
2017A Bonds.
The term “2017A Bonds” means the Merced Irrigation District Electric System Refunding Revenue Bonds, Series 2017A issued pursuant to the Indenture of Trust, by and between the District and the Trustee, dated July 1, 2017.
Water System
The term “Water System” means (i) the whole and each and every part of the water system of the District including the portion thereof existing on the date of the Installment Purchase Agreement, and including all additions, betterments, extensions and improvements to such water system or any part thereof later acquired or constructed, and (ii) the Small Hydroelectric Projects.
C-7 ACQUISITION AND CONSTRUCTION OF THE 2017A PROJECT
Acquisition and Construction of the 2017A Project. The Authority by the Installment Purchase Agreement has agreed to cause the 2017A Project, and any additions or modifications thereto, to be constructed, acquired or installed by the District as its agent, and the District will enter into contracts and provide for, as agent of the Authority, the complete construction, acquisition and installation of the 2017A Project. The District by the Installment Purchase Agreement has agreed that it will cause the construction, acquisition and installation of the 2017A Project to be diligently performed after the deposit of funds with the Trustee pursuant to the Indenture, upon satisfactory completion of design work and compliance with the California Environmental Quality Act and approval by the Board of Directors of the District, unforeseeable delays beyond the reasonable control of the District only excepted. It is by the Installment Purchase Agreement expressly understood and agreed that the Authority will be under no liability of any kind or character whatsoever for the payment of any cost of the 2017A Project and that all such costs and expenses will be paid by the District, regardless of whether the funds deposited in the Acquisition Fund are sufficient to cover all such costs and expenses.
Purchase and Sale of the 2017A Project. In consideration for the District’s agreement to pay the Series 2017A Installment Payments as set forth in the Installment Purchase Agreement, the Authority agrees to sell, and hereby sells, to the District, and the District agrees to purchase, and hereby purchases, from the Authority, the 2017A Project at the purchase price specified in the Installment Purchase Agreement and otherwise in the manner and in accordance with the provisions of the Installment Purchase Agreement.
Title. All right, title and interest in each component of the 2017A Project will vest in the District immediately upon the completion of the acquisition, construction or improvement thereof. Such vesting will occur without further action by the Authority or the District and the Authority will, if requested by the District or if necessary to assure such automatic vesting, deliver any and all documents required to assure such vesting.
Substitutions. The District may substitute improvements for or add other improvements to those listed as components of the 2017A Project in the Installment Purchase Agreement, but only if a District Representative first files with the Authority and the Trustee a statement of the District in the form attached to the Installment Purchase Agreement:
(a) identifying the improvements to be substituted or added and the improvements to District facilities they replace (if relevant) in the 2017A Project;
(b) stating that the estimated costs of construction, acquisition and installation of the substituted or additional improvements are not less than such costs for the improvements previously planned; and
(c) with respect to any substitution of a component of the 2017A Project with a transmission component or addition of a transmission component, an opinion of Bond Counsel stating, in substance, that such substitution or addition, as applicable will not, in and of itself, adversely affect the exclusion of interest on the 2017A Bonds from federal income taxation and from state income taxation.
SERIES 2017A INSTALLMENT PAYMENTS
Purchase Price.
(a) The Purchase Price to be paid by the District under the Installment Purchase Agreement to the Authority is the sum of the principal amount of the District’s obligations under the Installment Purchase Agreement plus the interest to accrue on the unpaid balance of such principal amount from the effective date of the Installment Purchase Agreement over the term of the Installment Purchase Agreement, subject to prepayment as provided in the Installment Purchase Agreement.
C-8 (b) The principal amount of the payments to be made by the District under the Installment Purchase Agreement is shown in the Installment Purchase Agreement.
(c) The interest to accrue on the unpaid balance of such principal amount is as specified in the Installment Purchase Agreement, and will be paid by the District as and constitute interest paid on the principal amount of the District’s obligations under the Installment Purchase Agreement.
2017A Installment Payments. The District will, subject to any rights of prepayment provided in the Installment Purchase Agreement, pay the Authority the Purchase Price in installment payments of interest and principal in the amounts and on the Series 2017A Installment Payment Dates as shown in the Installment Purchase Agreement.
Each Series 2017A Installment Payment will be paid to the Authority, or the Trustee as its assignee, in lawful money of the United States of America. In the event that the District fails to make any of the payments required to be made by it under the Installment Purchase Agreement, such payment will continue as an obligation of the District until such amount will have been fully paid; and the District has agreed to pay the same with interest accruing thereon at the rate or rates of interest then applicable to the remaining unpaid principal balance of the Series 2017A Installment Payments if paid in accordance with their terms.
The obligation of the District to make the Series 2017A Installment Payments is absolute and unconditional, and until such time as the Purchase Price has been paid in full (or provision for the payment thereof will have been made pursuant to the Installment Purchase Agreement), the District will not discontinue or suspend any Series 2017A Installment Payments required to be made by it under the Installment Purchase Agreement when due, whether or not the Electric System or any part thereof is operating or operable or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such payments will not be subject to reduction whether by offset or otherwise and will not be conditional upon the performance or nonperformance by any party of any agreement for any cause whatsoever.
Amounts due to the Insurer, as issuer of the Insurance Policy and the Reserve Surety Policy, will be included as a 2017A Installment Payment or an Additional Payment, as applicable.
SECURITY
Allocation of Electric System Revenues. In order to carry out and effectuate the pledge and lien contained in the Installment Purchase Agreement, the District has agreed and covenanted to receive all Electric System Revenues in trust under the Installment Purchase Agreement and the Electric System Revenues will be deposited when and as received in a special fund previously created and designated as the “Electric System Revenue Fund.” The District has agreed and covenanted to maintain the Electric System Revenue Fund and to hold the Electric System Revenue Fund separate and apart from other funds so long the 2017A Bonds remain unpaid. Moneys in the Electric System Revenue Fund will be held in trust by the District and will be applied, used and withdrawn by the District for the purposes set forth in the Installment Purchase Agreement.
The District will, from the moneys in the Electric System Revenue Fund, pay all Electric System Operation and Maintenance Costs (including amounts reasonably required to be set aside in contingency reserves for Electric System Operation and Maintenance Costs, the payment of which is not then immediately required) as such Electric System Operation and Maintenance Costs become due and payable. All remaining moneys in the Electric System Revenue Fund will be applied by the District at the following times for the transfer to the following respective special funds in the following order of priority; and all moneys in each of such funds will be held in trust and will be applied, used and withdrawn only for the purposes set forth in the Installment Purchase Agreement.
(i) Interest and Principal Payments. On or before each Series 2017A Installment Payment Date, the District will, from the moneys in the Electric System Revenue Fund, pay the Series 2017A Installment Payments coming due on such Series 2017A Installment Payment Date. The District will also,
C-9 from the moneys in the Electric System Revenue Fund, transfer to the applicable trustee for deposit in the respective payment fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any other Debt Service in accordance with the provisions of any Bond or Contract.
(ii) Reserve Funds. The District will, from the remaining moneys in the Electric System Revenue Fund, thereafter, without preference or priority and in the event of any insufficiency of such moneys ratably without any discrimination or preference, transfer to the applicable trustee for such other reserve funds and/or accounts, if any, as may have been established in connection with Bonds or Contracts, that sum, if any, necessary to restore such funds or accounts to an amount equal to the reserve requirement with respect thereto. No such transfer will be made with respect to the Reserve Fund, which will be deemed fully funded at all times by the deposit of the Reserve Surety Policy in the Reserve Fund.
(iii) Policy Costs and Insurer Reimbursement Amounts. The District will, from remaining moneys in the Electric System Revenue Fund, pay Policy Costs and Insurer Reimbursement Amounts to the Insurer, to the extent such amounts are due and payable.
(iv) Surplus. Moneys on deposit in the Electric System Revenue Fund Electric System Revenue Fund on any date when the District reasonably expects such moneys will not be needed for the payment of Electric System Operation and Maintenance Costs, or for any of the purposes described in clauses (i), (ii) or (iii) may be expended by the District on payments of principal of and interest on notes, bonds, contracts or other obligations payable from Electric System Net Revenues subordinate to the payments described in clauses (i), (ii) and (iii) above or on the Loan Agreement or for any other purpose permitted by law, including, but not limited to the deposit of amounts in the Rate Stabilization Fund in accordance with the Installment Purchase Agreement.
Rate Stabilization Fund. The Installment Purchase Agreement continues a special fund designated as the “Rate Stabilization Fund” to be held by the District in trust thereunder, which fund the District agrees and covenants to maintain and to hold separate and apart from other funds so long as any 2017A Bonds remain unpaid, including but not limited to the Rate Stabilization Fund created with respect to the Water System and the Hydroelectric System. Money transferred by the District from the Electric System Revenue Fund to the Rate Stabilization Fund in accordance with the Installment Purchase Agreement will be held in the Rate Stabilization Fund and applied in accordance with the Indenture.
The District may withdraw all or any portion of the amounts on deposit in the Rate Stabilization Fund and transfer such amounts to the Electric System Revenue Fund for application in accordance with the Installment Purchase Agreement or, in the event that all or a portion of the 2017A Bonds are discharged in accordance with the Installment Purchase Agreement, transfer all or any portion of such amounts for application in accordance with the Installment Purchase Agreement. Amounts transferred from the Rate Stabilization Fund to the Electric System Revenue Fund pursuant to the Installment Purchase Agreement during or within 270 days after a Fiscal Year, may be taken into account as Electric System Revenues for purposes of the calculations with respect to the issuance of Bonds or the execution of Contracts and the District’s rate covenant under the Installment Purchase Agreement in such Fiscal Year.
Investments. All moneys held by the District in the Electric System Revenue Fund will be invested in Permitted Investments and the investment earnings thereon will remain on deposit in such fund.
COVENANTS OF THE DISTRICT
Compliance with Installment Purchase Agreement and Ancillary Agreements. The District will punctually pay the Series 2017A Installment Payments in strict conformity with the terms of the Instalment Purchase Agreement, and will faithfully observe and perform all the agreements, conditions, covenants and terms contained in the Installment Purchase Agreement required to be observed and performed by it, and will not terminate the Installment Purchase Agreement for any cause including, without limiting the generality of
C-10 the foregoing, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Series 2017A Project, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State of California or any political subdivision of either or any failure of the Authority to observe or perform any agreement, condition, covenant or term contained in the Instalment Purchase Agreement required to be observed and performed by it, whether express or implied, or any duty, liability or obligation arising out of or connected with the Installment Purchase Agreement or the insolvency, or deemed insolvency, or bankruptcy or liquidation of the Authority or any force majeure, including acts of God, tempest, storm, earthquake, war, rebellion, riot, civil disorder, acts of public enemies, blockade or embargo, strikes, industrial disputes, lock outs, lack of transportation facilities, fire, explosion, or acts or regulations of governmental authorities.
The District will faithfully observe and perform all the agreements, conditions, covenants and terms contained in the Indenture required to be observed and performed by it, and it is expressly understood and agreed by and among the parties to the Installment Purchase Agreement that, subject to the Installment Purchase Agreement, each of the agreements, conditions, covenants and terms contained in each such contract and agreement is an essential and material term of the purchase of and payment for the 2017A Project by the District pursuant to, and in accordance with, and as authorized under the Law.
The District will faithfully observe and perform all the agreements, conditions, covenants and terms required to be observed and performed by it pursuant to all outstanding Contracts and Bonds as such may from time to time be executed or issued, as the case may be.
Against Encumbrances. The District will not make any pledge of or place any lien on Electric System Revenues or the moneys in the Electric System Revenue Fund or the Rate Stabilization Fund except as provided in the Installment Purchase Agreement. The District may at any time, or from time to time, issue evidences of indebtedness or incur other obligations for any lawful purpose which are payable from and secured by a pledge of and lien on Electric System Revenues or any moneys in the Electric System Revenue Fund and the Rate Stabilization Fund as may from time to time be deposited therein (as provided in the Installment Purchase Agreement), provided that such pledge and lien will be subordinate in all respects to the pledge of and lien thereon provided in the Installment Purchase Agreement.
Against Sale or Other Disposition of Property. The District will not sell, lease or otherwise dispose of any facilities of the Electric System essential to the proper operation of the Electric System or to the payment of the Series 2017A Installment Payments. The District will not enter into any agreement or lease which unreasonably impairs the operation of the Electric System necessary to secure adequate Electric System Revenues for the payment of the Series 2017A Installment Payments, or which would otherwise impair the rights of the Authority under the Installment Purchase Agreement. Any real or personal property that is not needed for the efficient and proper operation of the District may be sold if such sale will not impair the ability of the District to pay the Series 2017A Installment Payments.
Nothing in the Installment Purchase Agreement will restrict the ability of the District to sell any portion of the Electric System if such portion is immediately repurchased by the District and if such arrangement cannot by its terms result in the purchaser of such portion of the Electric System exercising any remedy which would deprive the District of or otherwise interfere with its right to own and operate such portion of the Electric System.
Against Competitive Facilities. To the extent permitted by law, the District has covenanted that it will not acquire, construct, maintain or operate and will not, to the extent permitted by law and within the scope of its powers, permit any other public or private agency, corporation, district or political subdivision or any person whomsoever to acquire, construct, maintain or operate within the District any electric system competitive with the Electric System; provided that such covenant will not apply to (i) the construction, maintenance or operation of electric transmission and distribution facilities by Pacific Gas & Electric Company or any successor assignee thereof or (ii) transmission facilities or generating facilities permitted by the definition of “Electric System” to be maintained separate and apart from the Electric System.
C-11 Tax Covenants. Notwithstanding any other provision of the Installment Purchase Agreement, absent an opinion of Bond Counsel that the exclusion from gross income of interest on the 2017A Bonds will not be adversely affected for federal income tax purposes, the District has covenanted to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income and specifically covenanted, without limiting the generality of the foregoing, as follows:
(a) Private Activity. The District will take no action or refrain from taking any action or make any use of the proceeds of the 2017A Bonds or of any other moneys or property which would cause the 2017A Bonds to be “private activity bonds” within the meaning of Section 141 of the Code.
(b) Arbitrage. The District will make no use of the proceeds of the 2017A Bonds or of any other amounts or property, regardless of the source, or take any action or refrain from taking any action which will cause the 2017A Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code.
(c) Federal Guarantee. The District will make no use of the proceeds of the 2017A Bonds or take or omit to take any action that would cause the 2017A Bonds to be “federally guaranteed” within the meaning of Section 149(b) of the Code.
(d) Information Reporting. The District will take or cause to be taken all necessary action to comply with the informational reporting requirements of Section 149(e) of the Code.
(e) Hedge Bonds. The District will make no use of the proceeds of the 2017A Bonds or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause the 2017A Bonds to be considered “hedge bonds” within the meaning of Section 149(g) of the Code unless the District takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the 2017A Bonds for federal income tax purposes.
(f) Miscellaneous. The District will take no action or refrain from taking any action, inconsistent with its expectations stated in that certain Tax Certificate executed by the District in connection with the issuance of the 2017A Bonds and will comply with the covenants and requirements stated therein and incorporated by reference in the Installment Purchase Agreement.
Prompt Acquisition and Construction. Subsequent to the receipt of all required engineering and environmental documentation satisfactory to the District, the District will take all necessary and appropriate steps to acquire and construct the 2017A Project, as agent of the Authority, with all practicable dispatch and in an expeditious manner and in conformity with law so as to complete the same as soon as possible.
Maintenance and Operation of the District. The District will maintain and preserve its facilities, including but not limited to the Electric System, in good repair and working order at all times and will operate the Electric System in an efficient and economical manner and will pay all Maintenance and Operation Costs as they become due and payable.
Payment of Claims. The District will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Electric System Revenues or the funds or accounts created under the Installment Purchase Agreement or on any funds in the hands of the District pledged to pay the Series 2017A Installment Payments or to the Owners prior or superior to the lien of the Series 2017A Installment Payments or which might impair the security of the Installment Payments.
Compliance with Contracts. The District will comply with, keep, observe and perform all material agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all contracts necessary for the use of the Electric System, to the extent that the District is a party thereto.
C-12 Insurance.
(a) The District will procure and maintain or cause to be procured and maintained insurance on the Electric System with responsible insurers in such amounts and against such risks (including accident to or destruction of the Electric System) as are usually covered in connection with facilities similar to the Electric System so long as such insurance is available from reputable insurance companies at a reasonable cost.
In the event of any damage to or destruction of the Electric System caused by the perils covered by such insurance, the Net Proceeds thereof will be applied to the reconstruction, repair or replacement of the damaged or destroyed portion of the Electric System. The District will begin such reconstruction, repair or replacement promptly after such damage or destruction will occur, and will continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and will pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same will be completed and the Electric System will be free and clear of all claims and liens.
If such Net Proceeds exceed the costs of such reconstruction, repair or replacement, then the excess Net Proceeds will be applied in part to the prepayment of Series 2017A Installment Payments as provided in the Installment Purchase Agreement and in part to such other fund or account as may be appropriate and used for the retirement of Bonds, Contracts and Obligations in the same proportion which the aggregate unpaid principal balance of Series 2017A Installment Payments then bears to the aggregate unpaid principal amount of such Bonds, Contracts and Obligations. If such Net Proceeds are sufficient to enable the District to retire the entire obligation evidenced by the Installment Purchase Agreement prior to the final due date of the Series 2017A Installment Payments as well as the entire obligations evidenced by Bonds, Contracts and Obligations then remaining unpaid prior to their final respective due dates, the District may elect not to reconstruct, repair or replace the damaged or destroyed portion of the Electric System; and thereupon such Net Proceeds will be applied to the prepayment of Series 2017A Installment Payments as provided in the Installment Purchase Agreement and to the retirement of such Bonds, Contracts and Obligations.
(b) The District will procure and maintain such other insurance which it deems advisable or necessary to protect its interests and the interests of the Authority, which insurance will afford protection in such amounts and against such risks as are usually covered in connection with facilities similar to those of the District.
(c) Any insurance may be maintained under a self-insurance program so long as such self- insurance is maintained in the amounts and manner usually maintained in connection with facilities similar to those of the District and is, in the opinion of an accredited actuary, actuarially sound.
All policies of insurance required to be maintained in the Installment Purchase Agreement will provide that the Authority will be given thirty (30) days’ written notice of any intended cancellation thereof or reduction of coverage provided thereby.
Accounting Records; Financial Statements and Other Reports.
(a) The District will keep appropriate accounting records in which complete and correct entries will be made of all transactions relating to the District, which records will be available for inspection by the Authority and the Trustee at reasonable hours and under reasonable conditions.
(b) The District will prepare and file with the Authority annually within two hundred seventy (270) days after the close of each Fiscal Year (commencing with the Fiscal Year ending March 31, 2018) financial statements of the District for the preceding Fiscal Year prepared in accordance with generally accepted accounting principles, together with an Accountant’s Report thereon.
C-13 Protection of Security and Rights of the Authority. The District will preserve and protect the security of the Installment Purchase Agreement and the rights of the Authority to the Series 2017A Installment Payments under the Installment Purchase Agreement and will warrant and defend such rights against all claims and demands of all persons.
Payment of Taxes and Compliance with Governmental Regulations. The District will pay and discharge all taxes, assessments and other governmental charges which may later be lawfully imposed upon the Electric System or any part thereof or upon the Electric System Revenues when the same will become due. The District will duly observe and conform with all valid regulations and requirements of any governmental authority relative to the operation of the facilities of the District, including but not limited to the Electric System, or any part thereof, but the District will not be required to comply with any regulations or requirements so long as the validity or application thereof will be contested in good faith.
Collection of Rates and Charges. The District will have in effect at all times by-laws, rules and regulations requiring each customer to pay the rates and charges applicable to the Energy Service and providing for the billing thereof and for a due date and a delinquency date for each bill.
Eminent Domain Proceeds. If all or any part of the Electric System will be taken by eminent domain proceedings, the Net Proceeds thereof will be applied as follows:
(a) If (1) the District files with the Authority and the Trustee a certificate showing (i) the estimated loss of annual Net Electric System Revenues, if any, suffered or to be suffered by the District by reason of such eminent domain proceedings, (ii) a general description of the additions, betterments, extensions or improvements to the Electric System proposed to be acquired and constructed by the District from such Net Proceeds, and (iii) an estimate of the additional annual Net Electric System Revenues to be derived from such additions, betterments, extensions or improvements, and (2) the District, on the basis of such certificate filed with the Authority and the Trustee, determines that the estimated additional annual Net Electric System Revenues will sufficiently offset the estimated loss of annual Net Electric System Revenues resulting from such eminent domain proceedings so that the ability of the District to meet its obligations under the Installment Purchase Agreement will not be substantially impaired (which determination will be final and conclusive), then the District will promptly proceed with the acquisition and construction of such additions, betterments, extensions or improvements substantially in accordance with such certificate and such Net Proceeds will be applied for the payment of the costs of such acquisition and construction, and any balance of such Net Proceeds not required by the District for such purpose will be deposited in the Electric System Revenue Fund.
(b) If the foregoing conditions are not met, then such Net Proceeds will be applied in part to the prepayment of Series 2017A Installment Payments as provided in the Installment Purchase Agreement and in part to such other fund or account as may be appropriate and used for the retirement of Bonds, Contracts and Obligations in the same proportion which the aggregate unpaid principal balance of Series 2017A Installment Payments then bears to the aggregate unpaid principal amount of such Bonds, Contracts and Obligations.
Further Assurances. The District will adopt, deliver, execute and make any and all further assurances, instruments and resolutions as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Installment Purchase Agreement and for the better assuring and confirming unto the Authority of the rights and benefits provided to it in the Installment Purchase Agreement.
Enforcement of Contracts. So long as any of the 2017A Bonds are outstanding, the District will not voluntarily consent to or permit any rescission of, nor will it consent to any amendment to or otherwise take any action under or in connection with any contracts previously or later entered into which contracts provide for payments to be deposited into the Electric System Revenue Fund which will reduce the payments thereunder (except as provided in the Installment Purchase Agreement) or which will in any manner impair or adversely affect rights of the Owners from time to time of the 2017A Bonds.
C-14 Continuing Disclosure. The District by the Installment Purchase Agreement has covenanted and agreed that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of the Installment Purchase Agreement, failure of the District to comply with the Continuing Disclosure Certificate will not be considered an Event of Default; however, any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under the Installment Purchase Agreement. For purposes of the Installment Purchase Agreement, “Beneficial Owner” means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any 2017A Bonds (including persons holding 2017A Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any 2017A Bond for federal income tax purposes.
Compliance With Indenture. The District covenants and agrees in the Installment Purchase Agreement that it will comply with and carry out all of the provisions of the Indenture to be performed by the District, and acknowledges and agrees to the other provisions pertaining to it under the Indenture.
PREPAYMENT OF SERIES 2017A INSTALLMENT PAYMENTS
Prepayment.
(a) The District may or will, as the case may be, prepay from the Net Proceeds as provided in the Installment Purchase Agreement, all or any part on any date in inverse order of maturity and by lot (in an integral multiple of $5,000), of the principal amount of the unpaid Series 2017A Installment Payments at a prepayment price equal to the sum of the principal amount prepaid plus accrued interest thereon to the date of prepayment.
(b) The District may prepay the Series 2017A Installment Payments, as a whole or in part, in the order of payment date as directed by the District, on the date and at the prepayment price (expressed as a percentage of the principal amount of the 2017A Bonds to be redeemed) plus accrued interest thereon to the date of prepayment, as set forth in the Indenture.
(c) Notwithstanding any such prepayment, the District will not be relieved of its obligations under the Installment Purchase Agreement, including its obligations under the Installment Purchase Agreement, until the Purchase Price has been fully paid (or provision for payment thereof will have been provided to the written satisfaction of the Authority).
Method of Prepayment. Before making any prepayment pursuant to the Installment Purchase Agreement, the District will give written notice to the Authority and the Trustee describing such event and specifying the date on which the prepayment will be paid, which date will be not less than forty-five (45) days (or such lesser number of days acceptable to the Authority and the Trustee in their sole discretion) nor more than seventy-five (75) days from the date such notice is given.
EVENTS OF DEFAULT AND REMEDIES OF THE AUTHORITY
Events of Default and Acceleration of Maturities. If one or more of the following Events of Default happens:
(a) if default is made in the due and punctual payment of any Series 2017A Installment Payment or, if the Trustee will have received notice of such default on any Contract, Bond or Obligation when and as the same will become due and payable;
(b) if default is made by the District in the performance of any of the agreements or covenants required in the Installment Purchase Agreement to be performed by it, and such default will have continued for a period of thirty (30) days after the District will have given notice in writing of such default by the Authority; provided, however, that if in the reasonable opinion of the District the default stated in the
C-15 notice can be corrected, but not within such thirty (30) day period, and corrective action is instituted by the District, with the written approval of the Insurer (so long as the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy), within such thirty (30) day period and diligently pursued in good faith until the default is corrected, such default will not be an Event of Default under the Installment Purchase Agreement.
(c) if the District files a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction approves a petition filed with or without the consent of the District seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction assume custody or control of the District or of the whole or any substantial part of its property; or
(d) if payment of the principal of any Contract, Bond or Obligation is accelerated in accordance with its terms; then in each and every such case during the continuance of such Event of Default specified in clauses (c) and (d) above, the Authority will, and for any other such Event of Default the Authority may, with the consent of the Insurer so long as the Insurance Policy and Reserve Surety Policy are in full force and effect and the Insurer is not in default of its obligations thereunder, by notice in writing to the District, declare the entire principal amount of the unpaid Series 2017A Installment Payments and the accrued interest thereon to be due and payable immediately, and upon any such declaration the same will become immediately due and payable, anything contained in the Installment Purchase Agreement to the contrary notwithstanding; provided, however, that if at any time after the entire principal amount of the unpaid Series 2017A Installment Payments and the accrued interest thereon have been so declared due and payable and before any judgment or decree for the payment of the moneys due have been obtained or entered the District will deposit with the Authority a sum sufficient to pay the unpaid principal amount of the Series 2017A Installment Payments or the unpaid payment of any other Contract, Bond or Obligation referred to in clause (a) above due prior to such declaration and the accrued interest thereon, with interest on such overdue installments, at the rate or rates applicable to the remaining unpaid principal balance of the Series 2017A Installment Payments or such Contract, Bond or Obligation if paid in accordance with their terms, and the reasonable expenses of the Authority, and any and all other defaults known to the Authority (other than in the payment of the entire principal amount of the unpaid Series 2017A Installment Payments and the accrued interest thereon due and payable solely by reason of such declaration) have been made good or cured to the satisfaction of the Authority or provision deemed by the Authority to be adequate have been made therefor, then and in every such case the Authority by written notice to the District, may rescind and annul such declaration and its consequences; but no such rescission and annulment will extend to or affect any subsequent default or impair or exhaust any right or power consequent thereon.
Subordinate Obligations will not be accelerated without the prior written consent of the Insurer.
Application of Funds Upon Acceleration. Upon the date of the declaration of acceleration as provided in the Installment Purchase Agreement, all Electric System Revenues thereafter received will be applied in the following order:
First, to the payment and in the event of any insufficiency of such moneys of the costs and expenses of the Trustee, if any, in carrying out the provisions of the Events of Default provisions of the Installment Purchase Agreement, including reasonable compensation to its accountants and counsel; and then the costs and expenses of the Authority in carrying out the provisions of the Events of Default provisions of the Installment Purchase Agreement, including reasonable compensation to its accountants and counsel;
Second, to the payment of the Maintenance and Operations Costs; and
C-16 Third, to the payment of the entire principal amount of the unpaid Series 2017A Installment Payments and the unpaid principal amount of all Bonds and Contracts and the accrued interest thereon, with interest on the overdue installments at the rate or rates of interest applicable to the Series 2017A Installment Payments and such Bonds and Contracts if paid in accordance with their respective terms, together with all amounts due and owing to the Insurer under the Insurance Policy and the Reserve Surety Policy.
Other Remedies of the Authority. The Authority will have the right:
(a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the District or any director, officer or employee thereof, and to compel the District or any such director, officer or employee to perform and carry out its or his duties under the Law and the agreements and covenants required to be performed by it or him contained in the Installment Purchase Agreement;
(b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Authority; or
(c) by suit in equity upon the happening of an Event of Default to require the District and its directors, officers and employees to account as the trustee of an express trust.
Notwithstanding anything contained in the Installment Purchase Agreement, the Authority will have no security interest in or mortgage on the Series 2017A Project, the Electric System or other assets of the District, and no default under the Installment Purchase Agreement will result in the loss of the 2017A Project, the Electric System, or the assets of the District.
Non-Waiver. Nothing in the Installment Purchase Agreement will affect or impair the obligation of the District, which is absolute and unconditional, to pay the Series 2017A Installment Payments to the Authority at the respective due dates or upon prepayment from the Electric System Revenue Fund and the other funds in the Installment Purchase Agreement pledged for such payment, or will affect or impair the right of the Authority, which is also absolute and unconditional, to institute suit to enforce such payment by virtue of the contract embodied in the Installment Purchase Agreement.
A waiver of any default or breach of duty or contract by the Authority will not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the Authority to exercise any right or remedy accruing upon any default or breach of duty or contract will impair any such right or remedy or will be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Authority by the Law or by the Installment Purchase Agreement may be enforced and exercised from time to time and as often as will be deemed expedient by the Authority.
If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned or determined adversely to the Authority, the District and the Authority will be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken.
Remedies Not Exclusive. No remedy in the Installment Purchase Agreement conferred upon or reserved to the Authority is intended to be exclusive of any other remedy, and each such remedy will be cumulative and will be in addition to every other remedy given under the Installment Purchase Agreement or now or later existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by the Law or any other law.
C-17 DISCHARGE OF OBLIGATIONS
Discharge of Obligations. When:
(a) all or any portion of the Series 2017A Installment Payments will have become due and payable in accordance with the Installment Purchase Agreement or a written notice of the District to prepay all or any portion of the Series 2017A Installment Payments have been filed with the Trustee; and
(b) there has been deposited with the Trustee at or prior to the Series 2017A Installment Payment Dates or date (or dates) specified for prepayment, in trust for the benefit of the Authority or its assigns and irrevocably appropriated and set aside to the payment of all or any portion of the Series 2017A Installment Payments, sufficient moneys and Permitted Investments, issued by the United State of America and described in clause (A) of the definition thereof in the Installment Purchase Agreement, the principal of and interest on which when due will provide money sufficient to pay all principal, prepayment premium, if any, and interest of such Series 2017A Installment Payments to their respective Series 2017A Installment Payment Dates or prepayment date or dates as the case may be; and
(c) provision has been made for paying all fees and expenses of the Trustee, then and in that event, if an opinion of Bond Counsel if filed with the Trustee to the effect that the actions authorized by and taken pursuant to the Installment Purchase Agreement will not adversely affect the tax exempt status of the interest portion of the Series 2017A Installment Payments, the right, title and interest of the Authority in the Installment Purchase Agreement and the obligations of the District under the Installment Purchase Agreement will, with respect to all or such portion of the Series 2017A Installment Payments as have been so provided for, thereupon cease, terminate, become void and be completely discharged and satisfied (except for the right of the Trustee and the obligation of the District to have such moneys and such Permitted Investments applied to the payment of such Series 2017A Installment Payments);
In such event, upon request of the District, the Trustee will cause an accounting for such period or periods as may be requested by the District to be prepared and filed with the District and will execute and deliver to the District all such instruments as may be necessary or desirable to evidence such total or partial discharge and satisfaction, as the case may be, and, in the event of a total discharge and satisfaction, the Trustee will pay over to the District, after payment of all amounts due the Trustee pursuant to the Indenture, as an overpayment of Series 2017A Installment Payments, all such moneys or such Permitted Investments held by it pursuant to the Installment Purchase Agreement other than such moneys and such Permitted Investments as are required for the payment or prepayment of the Series 2017A Installment Payments, which moneys and Permitted Investments will continue to be held by the Trustee in trust for the payment of the Series 2017A Installment Payments and will be applied by the Trustee to the payment of the Series 2017A Installment Payments of the District.
Notwithstanding anything to the contrary set forth in the Installment Purchase Agreement or in the Indenture, the right, title and interest of the Authority in the Installment Purchase Agreement and the obligations of the District thereunder will not cease, terminate, become void or be discharged and satisfied until all amounts due and owing to the Insurer under the Insurance Policy and the Reserve Surety Policy will have been paid.
MISCELLANEOUS
Limited Liability. Notwithstanding anything contained in the Installment Purchase Agreement, but subject to the priority of payment with respect to Operations and Maintenance Costs, the District will not be required to advance any moneys derived from any source of income other than Electric System Revenues, the Electric System Revenue Fund, the Rate Stabilization Fund and the other moneys pledged in the Installment Purchase Agreement for the payment of the Series 2017A Installment Payments or for the performance of any agreements or covenants required to be performed by it contained in the Installment Purchase Agreement.
C-18 Nevertheless, the District may, but will not be required to, advance for any such purpose any funds of the District which may be legally available to it for such purpose.
The obligation of the District to make the Series 2017A Installment Payments is a special obligation of the District payable solely from Electric System Revenues, the Electric System Revenue Fund, the Rate Stabilization Fund and other moneys pledged in the Installment Purchase Agreement, and does not constitute a debt of the District or of the State of California or of any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction and does not constitute an obligation for which the District is obligated to levy or pledge any form of taxation or for which the District has levied or pledged any form of taxation.
Benefits of Installment Purchase Agreement Limited to Parties. Nothing contained in the Installment Purchase Agreement, expressed or implied, is intended to give to any person other than the District, the Authority, the Trustee or the Insurer any right, remedy or claim under or pursuant to the Installment Purchase Agreement, and any agreement or covenant required in the Installment Purchase Agreement to be performed by or on behalf of the District, the Authority, the Trustee or the Insurer will be for the sole and exclusive benefit of the other party. To the extent that the Installment Purchase Agreement confers upon or gives or grants the Insurer or the Trustee any right, remedy or claim under or by reason of the Installment Purchase Agreement, the Insurer and the Trustee is recognized as being a third-party beneficiary under the Installment Purchase Agreement and may enforce any such right, remedy or claim conferred, given or granted thereunder.
Successor Is Deemed Included in all References to Predecessor. Whenever either the District or the Authority is named or referred to in the Installment Purchase Agreement, such reference will be deemed to include the successor to the powers, duties and functions that are presently vested in the District or the Authority, and all agreements and covenants required by the Installment Purchase Agreement to be performed by or on behalf of the District or the Authority will bind and inure to the benefit of the respective successors thereof whether so expressed or not.
Waiver of Personal Liability. No director, officer or employee of the District is individually or personally liable for the payment of the Series 2017A Installment Payments, but nothing contained in the Installment Purchase Agreement will relieve any director, officer or employee of the District from the performance of any official duty provided by any applicable provisions of law or by the Installment Purchase Agreement.
Partial Invalidity. If any one or more of the agreements or covenants or portions thereof required by the Installment Purchase Agreement to be performed by or on the part of the District or the Authority will be contrary to law, then such agreement or agreements, such covenant or covenants or such portions thereof will be null and void and will be deemed separable from the remaining agreements and covenants or portions thereof and will in no way affect the validity of the Installment Purchase Agreement. The District and the Authority by the Installment Purchase Agreement have declared that they would have executed the Installment Purchase Agreement, and each and every other article, section, paragraph, subdivision, sentence, clause and phrase of the Installment Purchase Agreement irrespective of the fact that any one or more articles, sections, paragraphs, subdivisions, sentences, clauses or phrases of the Installment Purchase Agreement or the application thereof to any person or circumstance may be held to be unconstitutional, unenforceable or invalid.
Assignment. The Installment Purchase Agreement and any rights under the Installment Purchase Agreement may be assigned by the Authority, as a whole or in part, without the necessity of obtaining the prior consent of the District.
Net Contract. The Installment Purchase Agreement will be deemed and construed to be a net contract, and the District will pay absolutely net during the term of the Installment Purchase Agreement the Series 2017A Installment Payments and all other payments required under the Installment Purchase Agreement, free of any deductions and without abatement, diminution or set-off whatsoever.
C-19 California Law. THE INSTALLMENT PURCHASE AGREEMENT WILL BE CONSTRUED AND GOVERNED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
Indemnification of Authority. The District by the Installment Purchase Agreement agrees to indemnify and hold harmless the Authority if and to the extent permitted by law, from and against all claims, advances, damages and losses, including legal fees and expenses, arising out of or in connection with the acceptance or the performance of its duties under the Installment Purchase Agreement and under the Indenture; provided that no indemnification will be made for willful misconduct, negligence or breach of an obligation under the Installment Purchase Agreement or under the Indenture by the Authority.
Amendments Permitted. The Installment Purchase Agreement and the rights and obligations of the Authority, the District, the Owners of the 2017A Bonds and of the Trustee may be modified or amended at any time by an amendment thereto which will become binding when the written consents of the Owners of a majority in aggregate principal amount of the 2017A Bonds then Outstanding, exclusive of 2017A Bonds disqualified as provided in the Indenture, together with the written consent of the Insurer so long as the Insurance Policy and Reserve Surety Policy are in full force and effect and the Insurer has not defaulted on its obligations thereunder, will have been filed with the Trustee. No such modification or amendment will: (1) extend the fixed maturity of any Series 2017A Installment Payments, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the rate of interest or the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the Owner of each 2017A Bond so affected; or (2) reduce the aforesaid percentage of 2017A Bonds the consent of the Owners of which is required to affect any such modification or amendment, or permit the creation of any lien on the Electric System Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture except as permitted in the Installment Purchase Agreement, or deprive the Owners of the 2017A Bonds of the lien created by the Indenture on such Electric System Revenues and other assets except as permitted in the Installment Purchase Agreement, without the consent of the Owners of all of the 2017A Bonds then Outstanding.
The Installment Purchase Agreement and the rights and obligations of the Authority, the District and of the Owners of the 2017A Bonds may also be modified or amended at any time by an amendment to the Installment Purchase Agreement which will become binding upon adoption, without the consent of the Owners of any 2017A Bonds, but with the written consent of the Bond Insurer so long as the Insurance Policy and Reserve Surety Policy are in full force and effect and the Bond Insurer has not defaulted on its obligations thereunder, if the Trustee receives an opinion of Bond Counsel to the effect that the provisions of such amendment will not materially adversely affect the interests of the Owners of the Outstanding 2017A Bonds, including, without limitation, for any one or more of the following purposes:
(a) to add to the covenants and agreements of the Authority or the District contained in the Installment Purchase Agreement other covenants and agreements thereafter to be observed or to surrender any right or power in the Installment Purchase Agreement reserved to or conferred upon the Authority or the District, and which will not adversely affect the interests of the Owners of the 2017A Bonds;
(b) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in the Indenture, or in regard to matters or questions arising under the Installment Purchase Agreement, as the Authority and the District may deem necessary or desirable;
(c) to make such other amendments or modifications as may be in the best interests of the Owners of the 2017A Bonds; and
(d) to make any amendments or supplements necessary or appropriate to preserve or protect the exclusion of interest with respect to the 2017A Bonds from gross income for federal income tax purposes under the Code or the exemption of such interest from State personal income taxes.
C-20 No amendment without consent of the Owners of the 2017A Bonds may modify any of the rights or obligations of the Trustee without its written consent thereto.
Any amendment, supplement, modification to, or waiver of the Installment Purchase Agreement or the other Security Documents that require the consent of the Owners of the Certificates or adversely affects the rights or interest of the Insurer will be subject to the prior written consent of the Insurer.
Interest Rate Swap Agreement. Any interest rate exchange agreement (“Swap Agreement”) entered into by the District will meet the following conditions: (i) the Swap Agreement must be entered into to manage interest costs related to, or a hedge against (a) assets then held, or (b) debt then outstanding, or (iii) debt reasonably expected to be issued within the next twelve (12) months, and (ii) the Swap Agreement will not contain any leverage element or multiplier component greater than 1.0x unless there is a matching hedge arrangement which effectively off-sets the exposure from any such element or component. Unless otherwise consented to in writing by the Insurer (so long as the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy), any uninsured net settlement, breakage or other termination amount then in effect will be subordinate to the payment of principal of and interest due under the Installment Purchase Agreement and on any debt on parity with Contracts or Bonds. The District will not terminate a Swap Agreement unless it demonstrates to the satisfaction of the Insurer prior to the payment of any such termination amount that such payment will not cause the District to be in default under the Indenture or any supplement thereto or amendment thereof, including but not limited to, any monetary obligations thereunder. All counterparties or guarantors to any Swap Agreement must have a rating of at least “A-” by S&P. If the counterparty or guarantor's rating falls below “A-” by S&P, the counterparty or guarantor will execute a credit support annex to the Swap Agreement, which credit support annex will be acceptable to the Insurer. If the counterparty or the guarantor's long term unsecured rating falls below BBB+” by S&P, a replacement counterparty or guarantor, acceptable to the Insurer (so long as the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy), will be required.
The District will not enter into any Swap Agreement or any other interest rate maintenance agreement secured by and payable from Net Electric System Revenues without the prior written consent of the Insurer (so long as the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy).
Reimbursement of Fees. The District will pay or reimburse the Insurer any and all charges, fees, costs and expenses that the Insurer may reasonably pay or incur in connection with (a) the administration, enforcement, defense or preservation of any rights or security in the Indenture, the Installment Purchase Agreement, or any related document (each a “Related Document”), (b) the pursuit of any remedies under the Installment Purchase Agreement or any other Related Document or otherwise afforded by law or equity, (c) any amendment, waiver or other action with respect to, or related to, the Indenture or any Related Document whether or not executed or completed, or (d) any litigation or other dispute in connection with the Indenture or any Related Document or the transactions contemplated thereby, other than costs resulting from the failure of the Insurer to honor its obligations under the Insurance Policy or the Reserve Surety Policy. The Insurer reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of the Indenture or any other Related Document.
Covenant to Preserve Priority; Rates and Charges. The District has covenanted and agrees to take such action (including, as applicable, filing of Uniform Commercial Code financing statements and continuations thereof) as is necessary from time to time to preserve the priority of the pledge of the Authority Revenues set forth in the Installment Purchase Agreement under applicable law.
Notwithstanding provisions to the contrary in the Installment Purchase Agreement, so long as the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy, in the event that Net Electric System Revenues for a Fiscal Year is determined, on the basis of the audited financial statements for such Fiscal Year, to be less than one hundred percent (100%) of Debt Service paid in such Fiscal Year and the District has not adjusted rates and charges for Energy Service for the current Fiscal Year
C-21 consistent with such minimum level and in compliance with the Installment Purchase Agreement, then, subject to the cure provisions in the Installment Purchas Agreement, an Event of Default will be deemed to occur upon written notice to the District from the Insurer thereof, if not cured by the District.
Provision of Information. So long as the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy, the Insurer will be provided with the following information by the District or Trustee, as the case may be:
(a) Annual audited financial statements within 270 days after the end of the District’s Fiscal Year (together with a certification of the District that it is not aware of any default or Event of Default under Installment Purchase Agreement), and the District’s annual budget within 30 days after the approval thereof together with such other information, data or reports as the Insurer reasonably requests from time to time;
(b) Notice of any default known to the District within five Business Days after knowledge thereof;
(c) Notice of the commencement of any proceeding by or against the District commenced under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an “Insolvency Proceeding”);
(d) Notice of the making of any claim in connection with any Insolvency Proceeding seeking the avoidance as a preferential transfer of any payment of principal of, or interest on, the 2017A Bonds;
(e) All reports, notices and correspondence to be delivered to Owners under the terms of the Installment Purchase Agreement.
(f) All information furnished pursuant to a continuing disclosure agreement with respect to the 2017A Bonds will also be provided to the Insurer, simultaneously with the furnishing of such information; and
(g) Such additional information as the Insurer may reasonably request, so long as the information is public information within the meaning of the California Public Records Act.
Discussion of and Access to Information. The District will permit the Insurer to discuss the affairs, finances and accounts of the District or any information the Insurer may reasonably request regarding the security for the 2017A Bonds with appropriate officers of the District and will use commercially reasonable efforts to enable the Insurer to have access to the facilities, books and records of the District on any Business Day upon reasonable prior notice.
Insurer as Third Party Beneficiary. The Insurer is intended as a third party beneficiary to the Installment Purchase Agreement.
DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS
Definitions. Unless the context otherwise requires, the terms defined in the Indenture will, for all purposes of the Indenture and of any indenture supplemental thereto and of any certificate, opinion or other document therein mentioned, have the meanings therein specified, to be equally applicable to both the singular and plural forms of any of the terms therein defined. Unless the context otherwise requires, all capitalized terms used in the Indenture and not defined have the meanings ascribed thereto in the Installment Purchase Agreement.
Acquisition Fund. The term “Acquisition Fund” means the fund by that name established pursuant to the Indenture.
C-22 Authority. The term “Authority” means the Merced Irrigation District Financing Authority, a joint exercise of powers agency duly organized and existing under the Joint Powers Agreement, and under the Constitution and laws of the State.
Authority Revenues. The term “Authority Revenues” means: (a) all Series 2017A Installment Payments received by the Authority or the Trustee pursuant to or with respect to the Installment Purchase Agreement; and (b) all interest or gain derived from the investment of amounts in any of the funds or accounts established under the Indenture.
Authorized Representative. The term “Authorized Representative” means with respect to the Authority, its Chairperson, Vice Chairperson, Secretary, Treasurer, Controller or any other person designated as an Authorized Representative of the Authority by a Certificate of the Authority signed by its Chairperson, Vice Chairperson, Secretary, Treasurer or Controller and filed with the Trustee.
Bond Counsel. The term “Bond Counsel” means Stradling Yocca Carlson & Rauth, a Professional Corporation, or another firm of nationally recognized attorneys experienced in the issuance of obligations the interest on which is excludable from gross income under Section 103 of the Code.
Bond Year. The term “Bond Year” will have the meaning set forth in the Tax Certificate.
Business Day. The term “Business Day” means: (i) a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State, or in any other state in which the Office of the Trustee is located, are closed; or (ii) a day on which the New York Stock Exchange is not closed.
Certificate; Direction; Request; Requisition. The terms “Certificate,” “Direction,” “Request” or “Requisition” of the Authority mean a written certificate, direction, request or requisition signed in the name of the Authority by its Authorized Representative. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined will be read and construed as a single instrument. If and to the extent required by the Indenture, each such instrument will include the statements provided for therein.
Closing Date. The term “Closing Date” means the date on which the 2017A Bonds are delivered to the original purchaser thereof.
Code. The term “Code” means the Internal Revenue Code of 1986, as amended.
Depository; DTC. The terms “Depository” or “DTC” mean The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York in its capacity as Securities Depository for the 2017A Bonds.
District. The term “District” means the Merced Irrigation District, an irrigation district duly organized and existing under and by virtue of the laws of the State.
Event of Default. The term “Event of Default” means any of the events specified in the Indenture.
Federal Securities. The term “Federal Securities” means (1) cash, (2) non-callable direct obligations of the United States of America (“Treasuries”), (3) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated, (4) subject to the prior written consent of the Insurer (so long as the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy), pre-refunded municipal obligations rated “AAA” and “Aaa” by S&P and Moody's, respectively, or (5)
C-23 subject to the prior written consent of the Insurer (so long as the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy), securities eligible for “AAA” defeasance under then existing criteria of S&P or any combination thereof, will be used to effect defeasance of the 2017A Bonds unless the Insurer otherwise approves.
Government Code. The term “Government Code” means the Government Code of the State.
Indenture. The term “Indenture” means the Indenture of Trust, dated as of July 1, 2017, by and between the Authority and the Trustee, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture.
Information Services. The term “Information Services” means the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System; or, in accordance with then-current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds as the Authority may specify in a Certificate to the Authority and the Trustee as the Trustee may select.
Installment Purchase Agreement. The term “Installment Purchase Agreement” means the Installment Purchase Agreement, dated as of July 1, 2017, by and between the Authority and the District, as amended from time to time.
Insurance Policy. The term “Insurance Policy” means the insurance policy issued by the Insurer guaranteeing the scheduled payment of principal of and interest on the 2017A Bonds when due.
Insurer. The term “Insurer” means Assured Guaranty Municipal Corp., a New York stock insurance company, or any successor thereto or assignee thereof.
Interest Account. The term “Interest Account” means the account by that name in the Revenue Fund established pursuant to the Indenture.
Interest Payment Date. The term “Interest Payment Date” means April 1 and October 1 of each year, commencing October 1, 2017.
Investment Agreement. The term “Investment Agreement” means an investment agreement supported by appropriate opinions of counsel, provided that the guarantor thereof is rated at the time of issuance, at least “AA” by S&P.
Joint Powers Agreement. The term “Joint Powers Agreement” means that certain Joint Powers Agreement, dated May 21, 2015, by and between the District and Modesto Irrigation District, an irrigation district, duly organized and existing under the laws of the State, as amended from time to time.
Letter of Representations. The term “Letter of Representations” means the letter of the Authority and the Trustee delivered to and accepted by the Depository on or prior to delivery of the 2017A Bonds as book entry bonds setting forth the basis on which the Depository serves as depository for such book entry bonds, as originally executed or as it may be supplemented or revised or replaced by a letter from the Authority and the Trustee delivered to and accepted by the Depository.
Nominee. The term “Nominee” means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Indenture.
Office. The term “Office” means with respect to the Trustee, the principal corporate trust office of the Trustee in San Francisco, California, or at such other or additional offices as may be specified in writing by the Trustee to the Authority, except that with respect to presentation of 2017A Bonds for payment or for registration of transfer and exchange such term means the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted.
C-24 Opinion of Counsel. The term “Opinion of Counsel” means a written opinion of counsel (including but not limited to counsel to the District or the Authority) selected by the Authority. If and to the extent required by the provisions of the Indenture, each Opinion of Counsel will include the statements provided for therein.
Outstanding. The term “Outstanding,” when used as of any particular time with reference to 2017A Bonds, means (subject to the provisions of the Indenture) all 2017A Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except: (i) 2017A Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (ii) 2017A Bonds with respect to which all liability of the Authority has been discharged in accordance with the Indenture, including 2017A Bonds (or portions thereof) described therein; and (iii) 2017A Bonds for the transfer or exchange of or in lieu of or in substitution for which other 2017A Bonds have been authenticated and delivered by the Trustee pursuant to the Indenture.
Owner; 2017A Bond Owner. The term “Owner” or “2017A Bond Owner,” whenever used in the Indenture with respect to a 2017A Bond, means the person in whose name the ownership of such 2017A Bond is registered on the Registration Books.
Participants. The term “Participants” means those broker-dealers, banks and other financial institutions from time to time for which the Depository holds book-entry certificates as securities depository.
Permitted Investments. The term “Permitted Investments” means any of the following obligations if and to the extent that they are permissible investments of funds of the District (provided that the Trustee will be entitled to rely upon any investment directions from the District as conclusive certification to the Trustee that the investments described therein are permissible investment of funds of the District):
(a) Direct obligations of the United States (including obligations issued or held in book- entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States.
(b) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States (stripped securities are only permitted if they have been stripped by the agency itself):
1. U.S. Export-Import Bank (“Eximbank”) Direct obligations or fully guaranteed certificates of beneficial ownership
2. Farmers Home Administration (“FmHA”) Certificates of beneficial ownership
3. Federal Financing Bank
4. Federal Housing Administration Debentures (“FHA”)
5. General Services Administration Participation certificates
6. Government National Mortgage Association (“GNMA”) GNMA - guaranteed mortgage-backed bonds GNMA - guaranteed pass-through obligations (not acceptable for certain cash-flow sensitive issues)
7. United States Maritime Administration Guaranteed Title XI financing
C-25 8. United States Department of Housing and Urban Development (“HUD”) Project Notes Local Authority Bonds New Communities Debentures United States government guaranteed debentures United States Public Housing Notes and Bonds United States government guaranteed public housing notes and bonds
(c) Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit United States government agencies (stripped securities are only permitted if they have been stripped by the agency itself):
1. Federal Home Loan Bank System Senior debt obligations
2. Federal Home Loan Mortgage Corporation (“FHLMC”) Participation Certificates Senior debt obligations
3. Federal National Mortgage Association (“FNMA”) Mortgage-backed securities and senior debt obligations
4. Student Loan Marketing Association (“SLMA”) Senior debt obligations
5. Resolution Funding Corporation obligations
6. Farm Credit System Consolidated system-wide bonds and notes
(d) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of “AAAm-G,” “AAA-m” or “AA-m” and if rated by Moody’s rated “Aaa,” “Aa1” or “Aa2,” including such funds for which the Trustee (including as transfer agent, custodian), its affiliates or subsidiaries provide investment advisory or other management services or for which the Trustee or an affiliate of the Trustee serves as investment administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (i) the Trustee or an affiliate of the Trustee retains a fee from funds for services provided to the fund, (ii) the Trustee collects fees for services rendered pursuant to the Indenture, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Indenture may at times duplicate those provided to such funds by the Trustee or an affiliate of the Trustee.
(e) Certificates of deposit secured at all times by collateral described in clauses (a) and/or (b) above. Such certificates must be issued by commercial banks (including affiliates of the Trustee), savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral.
(f) Certificates of deposit, savings accounts, deposit accounts or money market deposits (including those of the Trustee and its affiliates) which are fully insured by FDIC, or secured at all times by collateral described in clauses (a) and/or (b) above.
(g) Investment Agreements, including guaranteed investment contracts, forward purchase agreements and reserve fund put agreements.
C-26 (h) Commercial paper rated, at the time of purchase, “Prime-1” by Moody’s and “A-1” or better by S&P.
(i) Bonds or notes issued by any state or municipality which are rated by Moody’s and S&P in one of the two highest Rating Categories assigned by such agencies.
(j) Bank deposit products, trust funds, trust accounts, certificates of deposit (including those placed by a third party pursuant to an agreement between the Authority and the Trustee), overnight bank deposits, interest bearing deposits, interest bearing money market accounts, Federal funds or bankers acceptances with a maximum term of one year of any bank (including those of the Trustee and its affiliates) which (i) has an unsecured, uninsured and unguaranteed obligation rating of “Prime-1” or “A3” or better by Moody’s and “A-1” or “A” or better by S&P, or (ii) are fully insured by the Federal Deposit Insurance Corporation.
(k) Repurchase or reverse repurchase agreements for 30 days or less must follow the following criteria. Repurchase agreements which provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee (buyer/lender) (including those of the Trustee or any of its affiliates), and the transfer of cash from the Trustee to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee in exchange for the securities at a specified date; and:
1. Repurchase agreements must be between the Trustee and a dealer bank or securities firm;
A. Primary dealers on the Federal Reserve reporting dealer list which are rated “A” or better by S&P and Moody’s; or
B. Banks rated “A” or above by S&P and Moody’s.
2. The written repurchase agreements contract must include the following:
A. Securities which are acceptable for transfer are:
(l) Direct United States governments, or
(2) Federal agencies backed by the full faith and credit of the United States government (and FNMA & FHLMC)
B. The term of a repurchase agreement may be up to 30 days
C. The collateral must be delivered to the Trustee, trustee (if trustee is not supplying the collateral) or third party acting as agent for the Trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities).
D. Valuation of Collateral
(l) The securities must be valued weekly, marked to market at current market price plus accrued interest.
(2) The value of collateral must be equal to 104% of the amount of cash transferred by the Trustee to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below l04% of the value of the cash transferred by municipality, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%.
C-27 (3) A legal opinion must be delivered to the Trustee to the effect that the repurchase agreement meets guidelines under state law for legal investment of public funds.
(l) Any pooled investment fund administrated by Merced County in which the District is statutorily permitted or required to invest.
(m) Any state administered pooled investment fund in which the District is statutorily permitted or required to invest will be deemed a permitted investment, including, but not limited to the Local Agency Investment Fund in the treasury of the State.
Principal Account. The term “Principal Account” means the account by that name in the Revenue Fund established pursuant to the Indenture.
Rating. The term “Rating” means any currently effective rating on the 2017A Bonds issued by a Rating Agency.
Rating Agency. The term “Rating Agency” means S&P.
Rebate Fund. The term “Rebate Fund” means the fund by that name established pursuant to the Indenture.
Record Date. The term “Record Date” means, with respect to any Interest Payment Date, the 15th day of the calendar month preceding such Interest Payment Date, whether or not such day is a Business Day.
Redemption Date. The term “Redemption Date” means the date fixed for an optional redemption prior to maturity of the 2017A Bonds.
Redemption Fund. The term “Redemption Fund” means the fund by that name established pursuant to the Indenture.
Redemption Price. The term “Redemption Price” means, with respect to any 2017A Bond (or portion thereof), the principal amount of such 2017A Bond (or portion) plus the interest accrued to the applicable Redemption Date and the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of the 2017A Bonds and the Indenture.
Registration Books. The term “Registration Books” means the records maintained by the Trustee for the registration of ownership and registration of transfer of the 2017A Bonds pursuant to the Indenture.
Reserve Fund. The term “Reserve Fund” means the fund by that name established pursuant to the Indenture.
Reserve Requirement. The term “Reserve Requirement” means $______.
Reserve Surety Policy. The term “Reserve Surety Policy” means the municipal bond debt service reserve policy No. ___ issued by the Insurer and deposited in the Reserve Fund to satisfy the Reserve Requirement.
Responsible Officer of the Trustee. The term “Responsible Officer of the Trustee” means any officer within the corporate trust division (or any successor group or department of the Trustee) including any vice president, assistant vice president, assistant secretary or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time are such officers, respectively, with responsibility for the administration of the Indenture.
C-28 Revenue Fund. The term “Revenue Fund” means the fund by that name established pursuant to the Indenture.
S&P. The term “S&P” means S&P Global Ratings, a Standard & Poor’s Financial Services LLC business, or any successor thereto.
Securities Depositories. The term “Securities Depositories” means The Depository Trust Company; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Authority may designate in a Request of the Authority deliver to the Trustee.
State. The term “State” means the State of California.
Supplemental Indenture. The term “Supplemental Indenture” means any indenture duly authorized and entered into between the Authority and the Trustee, supplementing, modifying or amending the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture.
Tax Certificate. The term “Tax Certificate” means the Tax Certificate dated the Closing Date, concerning certain matters pertaining to the use and investment of proceeds of the 2017A Bonds issued by the Authority on the date of issuance of the 2017A Bonds, including any and all exhibits attached thereto.
Trustee. The term “Trustee” means The Bank of New York Mellon Trust Company, N.A., a national banking association duly organized and existing under the laws of the United States of America, or its successor, as Trustee under the Indenture as provided therein.
2017A Bonds. The term “2017A Bonds” means the Electric System Revenue Bonds, Series 2017A issued by the Authority and at any time Outstanding pursuant to the Indenture.
Value. The term “Value” which is determined as of the end of each month, means that the value of any investments is calculated as follows: (a) For the purpose of determining the amount of any fund, all Permitted Investments credited to such fund will be valued at fair market value. The Trustee will determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers include, but are not limited to, pricing services provided by Financial Times Interactive Data Corporation, Bank of America Merrill Lynch and Morgan Stanley Smith Barney. (b) As to certificates of deposit and bankers’ acceptances, the face amount thereof, plus accrued interest. (c) As to any investment not specified above, the market value, or, if the market value is not ascertainable by the District or the Trustee, the value thereof will be established by prior agreement among the District, the Authority and the Trustee.
Content of Certificates and Opinions. Every certificate or opinion provided for in the Indenture except the certificate of destruction provided for therein, with respect to compliance with any provision thereof will include: (a) a statement that the person making or giving such certificate or opinion has read such provision and the definitions in the Indenture relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the certificate or opinion is based; (c) a statement that, in the opinion of such person he has made or caused to be made such examination or investigation as is necessary to enable him to express an informed opinion with respect to the subject matter referred to in the instrument to which his signature is affixed; (d) a statement of the assumptions upon which such certificate or opinion is based, and that such assumptions are reasonable; and (e) a statement as to whether, in the opinion of such person, such provision has been complied with.
Any such certificate or opinion made or given by an officer of the Authority may be based, insofar as it relates to legal or accounting matters, upon a certificate or opinion of or representation by counsel or an Independent Certified Public Accountant, unless such officer knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which such certificate or statement may be based, as aforesaid, is erroneous. Any such certificate or opinion made or
C-29 given by counsel or an Independent Certified Public Accountant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the Authority) upon a certificate or opinion of or representation by an officer of the Authority, unless such counsel or Independent Certified Public Accountant knows, or in the exercise of reasonable care should have known, that the certificate or opinion or representation with respect to the matters upon which such person’s certificate or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the Authority, or the same counsel or Independent Certified Public Accountant, as the case may be, need not certify to all of the matters required to be certified under any provision of the Indenture, but different officers, counsel or Independent Certified Public Accountants may certify to different matters, respectively.
THE 2017A BONDS
Registration Books. The Trustee will keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the 2017A Bonds, which will upon reasonable notice and at reasonable times be open to inspection during regular business hours by the Authority, the District and the Owners; and, upon presentation for such purpose, the Trustee will, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the 2017A Bonds as provided in the Indenture.
The person in whose name any 2017A Bond is registered will be deemed the Owner thereof for all purposes of the Indenture, and payment of or on account of the interest on and principal and Redemption Price of by such 2017A Bonds will be made only to or upon the order in writing of such registered Owner, which payments will be valid and effectual to satisfy and discharge liability upon such 2017A Bond to the extent of the sum or sums so paid.
2017A Bonds Mutilated, Lost, Destroyed or Stolen. If any 2017A Bond becomes mutilated, the Authority, at the expense of the Owner of said 2017A Bond, will execute, and the Trustee will thereupon authenticate and deliver, a new 2017A Bond of like tenor, series and authorized denomination in exchange and substitution for the 2017A Bonds so mutilated, but only upon surrender to the Trustee of the 2017A Bond so mutilated. Every mutilated 2017A Bond so surrendered to the Trustee will be canceled by it and upon the written request of the Authority delivered to, or upon the order of, the Authority. If any 2017A Bond is lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence is satisfactory to the Trustee and indemnity satisfactory to the Trustee is given, the Authority, at the expense of the Owner, will execute, and the Trustee will thereupon authenticate and deliver, a new 2017A Bond of like tenor, series and authorized denomination in lieu of and in substitution for the 2017A Bond so lost, destroyed or stolen (or if any such 2017A Bond has matured or is about to mature, instead of issuing a substitute 2017A Bond, the Trustee may pay the same without surrender thereof). The Authority may require payment by the Owner of a sum not exceeding the actual cost of preparing each new 2017A Bond issued under the Indenture and of the expenses which may be incurred by the Authority and the Trustee in the premises. Any 2017A Bond issued under the provisions of the Indenture in lieu of any 2017A Bond alleged to be lost, destroyed or stolen constitutes an original additional contractual obligation on the part of the Authority whether or not the 2017A Bond so alleged to be lost, destroyed, or stolen be at any time enforceable by anyone, and is entitled to the benefits of the Indenture with all other 2017A Bonds secured by the Indenture. Notwithstanding any other provision of the Indenture, in lieu of delivering a new 2017A Bond for a 2017A Bond which has been mutilated, lost, destroyed or stolen and which has matured or has been selected for redemption, the Trustee may make payment of such 2017A Bond upon receipt of indemnity satisfactory to the Trustee.
Book Entry System.
(a) Election of Book Entry System. Prior to the issuance of the 2017A Bonds, the Authority may provide that such 2017A Bonds will be initially issued as book entry 2017A Bonds. If the Authority elects to deliver any 2017A Bonds in book entry form, then the Authority will cause the delivery of a separate single fully registered bond (which may be typewritten) for each maturity date of such 2017A Bonds
C-30 in an authorized denomination corresponding to that total principal amount of the 2017A Bonds designated to mature on such date. Upon initial issuance, the ownership of each such 2017A Bond will be registered in the 2017A Bond Registration Books in the name of the Nominee, as nominee of the Depository, and ownership of the 2017A Bonds, or any portion thereof may not thereafter be transferred except as provided in the Indenture.
With respect to book entry 2017A Bonds, the Authority and the Trustee have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in such book entry 2017A Bonds. Without limiting the immediately preceding sentence, the Authority and the Trustee have no responsibility or obligation with respect to: (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in book entry 2017A Bonds; (ii) the delivery to any Participant or any other person, other than an Owner as shown in the 2017A Bond Registration Books, of any notice with respect to book entry 2017A Bonds, including any notice of redemption; (iii) the selection by the Depository and its Participants of the beneficial interests in book entry 2017A Bonds to be redeemed in the event the Authority redeems the 2017A Bonds in part; or (iv) the payment by the Depository or any Participant or any other person, of any amount of principal of, premium, if any, or interest on book entry 2017A Bonds. The Authority and the Trustee may treat and consider the person in whose name each book entry 2017A Bond is registered in the 2017A Bond Registration Books as the absolute Owner of such book entry 2017A Bond for the purpose of payment of principal of, premium and interest on such 2017A Bond, for the purpose of giving notices of redemption and other matters with respect to such 2017A Bond, for the purpose of registering transfers with respect to such 2017A Bond, and for all other purposes whatsoever. The Trustee will pay all principal of, premium, if any, and interest on the 2017A Bonds only to or upon the order of the respective Owner, as shown in the 2017A Bond Registration Books, or his respective attorney duly authorized in writing, and all such payments will be valid and effective to fully satisfy and discharge the Authority’s obligations with respect to payment of principal of, premium, if any, and interest on the 2017A Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the 2017A Bond Registration Books, will receive a 2017A Bond evidencing the obligation to make payments of principal of, premium, if any, and interest on the 2017A Bonds. Upon delivery by the Depository to the Authority and the Trustee, of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions of the Indenture with respect to Record Dates, the word Nominee in the Indenture will refer to such nominee of the Depository.
(b) Delivery of Letter of Representations. In order to qualify the book entry 2017A Bonds for the Depository’s book entry system, the Authority and the Trustee will execute and deliver to the Depository a Letter of Representations, if required by the Depository. The execution and delivery of a Letter of Representations does not in any way impose upon the Authority or the Trustee any obligation whatsoever with respect to persons having interests in such book entry 2017A Bonds other than the Owners, as shown on the 2017A Bond Registration Books. By executing a Letter of Representations, the Authority has agreed to cause the Trustee to take all action necessary at all times so that the Authority will be in compliance with all representations of the Authority in such Letter of Representations. In addition to the execution and delivery of a Letter of Representations, the Authority and the Trustee will take such other actions, not inconsistent with the Indenture, as are reasonably necessary to qualify book entry 2017A Bonds for the Depository’s book entry program.
(c) Selection of Depository. In the event that: (i) the Depository determines not to continue to act as securities depository for book entry 2017A Bonds; or (ii) the Authority determines that continuation of the book entry system is not in the best interest of the beneficial owners of the 2017A Bonds or the Authority, then the Authority will discontinue the book entry system with the Depository. If the Authority determines to replace the Depository with another qualified securities depository, the Authority will prepare or direct the preparation of a new single, separate, fully registered 2017A Bond for each of the maturity dates of such book entry 2017A Bonds, registered in the name of such successor or substitute qualified securities depository or its Nominee as provided in the Indenture. If the Authority fails to identify another qualified securities depository to replace the Depository, then the 2017A Bonds will no longer be restricted to being registered in such 2017A Bond Registration Books in the name of the Nominee, but will be registered in
C-31 whatever name or names the Owners transferring or exchanging such 2017A Bonds designate, in accordance with the provisions of the Indenture.
(d) Payments To Depository. Notwithstanding any other provision of the Indenture to the contrary, so long as all Outstanding 2017A Bonds are held in book entry form and registered in the name of the Nominee, all payments of principal of, redemption premium, if any, and interest on such 2017A Bond and all notices with respect to such 2017A Bond are made and given, respectively to the Nominee, as provided in the Letter of Representations or as otherwise instructed by the Depository and agreed to by the Trustee notwithstanding any inconsistent provisions in the Indenture.
(e) Transfer of 2017A Bonds to Substitute Depository. (i) The 2017A Bonds will be initially issued as provided in the Indenture. Registered ownership of such 2017A Bonds, or any portions thereof, may not thereafter be transferred except: (A) to any successor of DTC or its nominee, or of any substitute depository designated pursuant to clause (B) below (“Substitute Depository”); provided that any successor of DTC or Substitute Depository must be qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any Substitute Depository, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the Authority that DTC (or its successor) is no longer able to carry out its functions as depository; provided that any such Substitute Depository is qualified under any applicable laws to provide the services proposed to be provided by it; or (C) to any person as provided below, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the Authority that DTC or its successor (or Substitute Depository or its successor) is no longer able to carry out its functions as depository.
(ii) In the case of any transfer pursuant to clauses (A) or (B) above, upon receipt of all Outstanding 2017A Bonds by the Trustee, together with a written request of the Authority to the Trustee designating the Substitute Depository, a single new 2017A Bond, which the Authority will prepare or cause to be prepared, will be issued for each maturity of 2017A Bonds then Outstanding, registered in the name of such successor or such Substitute Depository or their Nominees, as the case may be, all as specified in such written request of the Authority. In the case of any transfer pursuant to clause (C) above, upon receipt of all Outstanding 2017A Bonds by the Trustee, together with a written request of the Authority to the Trustee, new 2017A Bonds, which the Authority will prepare or cause to be prepared, will be issued in such denominations and registered in the names of such persons as are requested in such written request of the Authority, subject to the limitations of the Indenture, provided that the Trustee is not required to deliver such new 2017A Bonds within a period of less than 60 days from the date of receipt of such written request from the Authority.
(iii) In the case of a partial redemption or an advance refunding of any 2017A Bonds evidencing a portion of the principal maturing in a particular year, DTC or its successor (or any Substitute Depository or its successor) will make an appropriate notation on such 2017A Bonds indicating the date and amounts of such reduction in principal, in form acceptable to the Trustee, all in accordance with the Letter of Representations. The Trustee is not liable for such Depository’s failure to make such notations or errors in making such notations and the records of the Trustee as to the outstanding principal amount of such 2017A Bonds are controlling.
(iv) The Authority and the Trustee are entitled to treat the person in whose name any 2017A Bond is registered as the Owner thereof for all purposes of the Indenture and any applicable laws, notwithstanding any notice to the contrary received by the Trustee or the Authority; and the Authority and the Trustee have no responsibility for transmitting payments to, communicating with, notifying, or otherwise dealing with any beneficial owners of the 2017A Bonds. Neither the Authority nor the Trustee have any responsibility or obligation, legal or otherwise, to any such beneficial owners or to any other party, including DTC or its successor (or Substitute Depository or its successor), except to the Owner of any 2017A Bonds, and the Trustee may rely conclusively on its records as to the identity of the Owners of the 2017A Bonds.
C-32 VALIDITY OF 2017A BONDS AND APPLICATION OF PROCEEDS
Validity of 2017A Bonds. The validity of the authorization and issuance of the 2017A Bonds is not dependent on and will not be affected in any way by any proceedings taken by the Authority, the District or the Trustee with respect to or in connection with the Installment Purchase Agreement. The recital contained in the 2017A Bonds that the same are issued pursuant to the Constitution and laws of the State is conclusive evidence of the validity and of compliance with the provisions of law in their issuance.
Establishment and Application of Acquisition Fund. There is established with the Trustee a fund known as the “Acquisition Fund,” which the Trustee will maintain and hold in trust separate and apart from other funds held by it.
Notwithstanding anything to the contrary set forth in the Indenture or in the Installment Purchase Agreement, so long as the Insurance Policy and the Reserve Surety Policy are in full force and effect and the Insurer has not defaulted on its obligations thereunder, unless the Insurer otherwise directs, upon the occurrence and continuance of an Event of Default or an event which with notice or lapse of time would constitute an Event of Default, amounts on deposit in the Acquisition Fund will not be disbursed, but will instead be applied to the payment of principal and interest or redemption price with respect to the 2017A Bonds.
REVENUES, FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST
Pledge and Assignment; Revenue Fund. (a) All of the Authority Revenues and any other amounts (including proceeds of the sale of the 2017A Bonds) held in any fund or account established pursuant to the Indenture (except the Rebate Fund) have been irrevocably pledged to secure the payment of the principal of and interest, and the premium, if any, on the 2017A Bonds in accordance with their terms and the provisions of the Indenture, subject only to the provisions of the Indenture permitting the terms and conditions set forth therein. Such pledge constitutes a lien on and security interest in such amounts and will attach, be perfected and be valid and binding from and after the Closing Date, without any physical delivery thereof or further act and is valid and binding against all parties having claims of any kind in tort, contract or otherwise against the Authority, irrespective of whether such parties have notice of the Indenture.
(b) The Authority, for good and valuable consideration in hand received, has irrevocably assigned and transferred to the Trustee without recourse, for the benefit of the Owners of the 2017A Bonds as set forth in the Indenture, all of its rights, title, and interest in all Series 2017A Installment Payments payable by the District pursuant to the Installment Purchase Agreement, including all rights of the Authority thereunder as may be necessary to enforce compliance with said provisions (including enforcement of payment obligations and rate covenants, if any, contained in the Installment Purchase Agreement, or otherwise to protect the interest of the Owners of the 2017A Bonds. Such assignment is subject to and limited by the terms of the Indenture.
(c) There has been established with the Trustee the Revenue Fund, which the Trustee has covenanted to maintain and hold in trust separate and apart from other funds held by it so long as any Series 2017A Installment Payments remain unpaid. Except as directed in the Indenture, all Authority Revenues will be promptly deposited by the Trustee upon receipt thereof into the Revenue Fund; except that all moneys received by the Trustee and required by the Indenture to be deposited in the Redemption Fund will be promptly deposited therein. All Authority Revenues deposited with the Trustee will be held, disbursed, allocated and applied by the Trustee only as provided in the Indenture. The Trustee will also create and maintain an Interest Account and a Principal Account within the Revenue Fund.
Allocation of Authority Revenues. The Trustee will transfer from the Revenue Fund and deposit into the following respective accounts, the following amounts in the following order of priority and at the following times, the requirements of each such account (including the making up of any deficiencies in any such account
C-33 resulting from lack of Authority Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority:
(a) Not later than the Business Day preceding each date on which the interest on the 2017A Bonds becomes due and payable under the Indenture, the Trustee will deposit in the Interest Account that sum, if any, required to cause the aggregate amount on deposit in the Interest Account to be at least equal to the amount of interest becoming due and payable on such date on all 2017A Bonds then Outstanding.
(b) Not later than the Business Day preceding each date on which the principal of the 2017A Bonds becomes due and payable under the Indenture, the Trustee will deposit in the Principal Account that sum, if any, required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the 2017A Bonds coming due and payable on such date or subject to mandatory sinking fund redemption on such date.
Application of Interest Account. All amounts in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying interest on the 2017A Bonds as it becomes due and payable (including accrued interest on any 2017A Bonds purchased or accelerated prior to maturity pursuant to the Indenture).
Application of Principal Account. All amounts in the Principal Account will be used and withdrawn by the Trustee solely to pay the principal amount of the 2017A Bonds at maturity, mandatory sinking fund redemption, purchase or acceleration; provided, however, that at any time prior to selection for redemption of any such 2017A Bonds, upon written direction of the District, the Trustee will apply such amounts to the purchase of 2017A Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as will be directed pursuant to a written request of the District, except that the purchase price (exclusive of accrued interest) may not exceed the Redemption Price then applicable to the 2017A Bonds.
Application of Redemption Fund. There has been established with the Trustee a special fund designated as the “Redemption Fund.” All amounts in the Redemption Fund will be used and withdrawn by the Trustee solely for the purpose of paying the principal of and accrued interest on the 2017A Bonds to be redeemed on any Redemption Date pursuant to the Indenture; provided, however, that at any time prior to selection for redemption of any such 2017A Bonds, upon written direction of the District, the Trustee will apply such amounts to the purchase of 2017A Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as will be directed pursuant to a written request of the District, except that the purchase price (exclusive of accrued interest) may not exceed the Redemption Price then applicable to the 2017A Bonds.
Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture will be invested by the Trustee solely in Permitted Investments, which will, as nearly as possible, mature on or before the dates when such moneys are anticipated to be needed for disbursement. Such investments will be directed by the Authority pursuant to a Request of the Authority filed with the Trustee at least two Business Days in advance of the making of such investments (which directions will be promptly confirmed to the Trustee in writing). In the absence of any such directions from the Authority, the Trustee will invest any such moneys in Permitted Investments; provided, however, that any such investment will be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee has received a written direction from the District specifying a specific money market fund and, if no such written direction from the District is so received, the Trustee will hold such moneys uninvested. Obligations purchased as an investment of moneys in any fund will be part of such fund or account.
All interest or gain derived from the investment of amounts in any of the funds or accounts established under the Indenture will be deposited in the Interest Account unless otherwise provided in the Indenture. For purposes of acquiring any investments under the Indenture, the Trustee may commingle funds (other than the Rebate Fund) held by it thereunder upon the Request of the Authority. The Trustee may act as principal or
C-34 agent in the acquisition or disposition of any investment and may impose its customary charges therefor. The Trustee will incur no liability for losses arising from any investments made pursuant to the Indenture. The Trustee may rely conclusively upon the investment direction of the Authority or the District as to the suitability and legality of the directed investments.
The District has acknowledged that to the extent that regulations of the Comptroller of the Currency or other applicable regulatory entity grant the District the right to receive brokerage confirmations of security transactions as they occur, the District has specifically waived receipt of such confirmations to the extent permitted by law. The Trustee will furnish the District periodic cash transaction statements which include detail for all investment transactions effected by the Trustee and brokers selected by the District. Upon the District’s election, such statements will be delivered via the Trustee’s online service and upon electing such service; paper statements will be provided only upon request. The District further understands that trade confirmations for securities transactions effected by the Trustee will be available upon request and at no additional cost and other trade confirmations may be obtained from the applicable broker.
The Trustee may make any investments under the Indenture through its own bond or investment department or trust investment department, or those of its parent or an affiliate. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Indenture. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Indenture.
The District will invest, or cause to be invested, all moneys in any fund or accounts established with the Trustee as provided in the Tax Certificate.
The Authority will invest, or cause to be invested, all monies in any fund or accounts established with the Trustee as provided in the Tax Certificate.
For investment purposes, the Trustee may commingle the funds and accounts established under the Indenture, but will account for each separately. In determining the market value of Permitted Investments, the Trustee may use and rely conclusively and without liability upon any generally recognized pricing information service (including brokers and dealers in securities) available to it.
Reserve Fund. The Trustee will establish and hold in trust the Reserve Fund. The District will cause the Reserve Surety Policy to be deposited in the Reserve Fund and the Trustee will draw upon the Reserve Surety Policy in accordance with the Indenture.
As long as the Reserve Surety Policy is in full force and effect, and the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy, the District and Trustee agree to comply with the following provisions:
(a) In the event and to the extent that moneys on deposit in the Interest Account and the Principal Account, plus all amounts on deposit in and credited to the Reserve Fund in excess of the amount of the Reserve Surety Policy, are insufficient to pay the amount of principal and interest coming due, then upon the later of: (i) one (1) Business Day after receipt by the Insurer of a Notice of Nonpayment (as such terms are defined in the Reserve Surety Policy), duly executed by the Trustee certifying that payment due under the Indenture has not been made to the Trustee; or (ii) the Interest Payment Date, the Insurer will make a deposit of funds in an account with the Trustee or its successor sufficient for the payment to the Trustee of amounts which are then due to the Trustee under the Indenture up to but not in excess of the Policy Limit, as defined in the Reserve Surety Policy; provided, however, that in the event that the amount on deposit in, or credited to, the Reserve Fund, in addition to the amount available under the Reserve Surety Policy, includes amounts available under a letter of credit, insurance policy, reserve surety policy or other such funding instrument (the “Additional Funding Instrument”), draws on the Reserve Surety Policy and the Additional Funding Instrument shall be made on a pro rata basis to fund the insufficiency.
C-35 (b) The Authority will repay, or cause the District to repay any draws under the Reserve Surety Policy and pay all related reasonable expenses incurred by the Insurer. Interest will accrue and be payable on such draws and expenses from the date of payment by the Insurer at the Late Payment Rate. For purposes of the Indenture, “Late Payment Rate” means the lesser of: (i) the greater of: (A) the per annum rate of interest, publicly announced from time to time by JP Morgan Chase Bank at its principal office in the City of New York, as its prime or base lending rate (“Prime Rate”) (any change in such Prime Rate to be effective on the date such change is announced by JP Morgan Chase Bank) plus 3%; and (B) the then applicable highest rate of interest on the 2017A Bonds; and (ii) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate will be computed on the basis of the actual number of days elapsed over a year of 360 days. In the event that JP Morgan Chase Bank ceases to announce its Prime Rate publicly, Prime Rate will be the publicly announced prime or base lending rate of such national bank as the Insurer will specify.
(c) If the interest provisions of the Indenture will result in an effective rate of interest which, for any period, exceeds the limit of the usury or any other laws applicable to the indebtedness created in the Indenture, then all sums in excess of those lawfully collectible as interest for the period in question will, without further agreement or notice between or by any party to the Indenture, be applied as additional interest for any later periods of time when amounts are outstanding thereunder to the extent that interest otherwise due thereunder for such periods plus such additional interest would not exceed the limit of the usury or such other laws, and any excess will be applied upon principal immediately upon receipt of such moneys by the Insurer, with the same force and effect as if the Authority had specifically designated such extra sums to be so applied and the Insurer had agreed to accept such extra payment(s) as additional interest for such later periods. In no event will any agreed-to or actual exaction as consideration for the indebtedness created in the Indenture exceed the limits imposed or provided by the law applicable to the transaction set forth in the Indenture for the use or detention of money or for forbearance in seeking its collection.
(d) Repayment of draws and payment of expenses and accrued interest thereon at the Late Payment Rate (collectively, “Policy Costs”) will commence in the first month following each draw, and each such monthly payment will be in an amount at least equal to 1/12 of the aggregate of Policy Costs related to such draw.
(e) Amounts in respect of Policy Costs paid to the Insurer will be credited first to interest due, then to the expenses due and then to principal due. As and to the extent that payments are made to the Insurer on account of principal due, the coverage under the Reserve Surety Policy will be increased by a like amount, subject to the terms of the Reserve Surety Policy.
(f) All cash and investments in the Reserve Fund will be transferred to the Principal Account or the Interest Account, as applicable, for payment of the principal of and interest on the 2017A Bonds before any drawing may be made on the Reserve Surety Policy or any other credit facility credited to the Reserve Fund in lieu of cash (“Credit Facility”). Payment of any Policy Costs shall be made prior to replenishment of any such cash amounts. Draws on all Credit Facilities (including the Reserve Surety Policy) on which there is available coverage will be made on a pro-rata basis (calculated by reference to the coverage then available thereunder) after applying all available cash and investments in the Reserve Fund. Payment of Policy Costs and reimbursement of amounts with respect to other Credit Facilities will be made on a pro-rata basis prior to replenishment of any cash drawn from the Reserve Fund. For the avoidance of doubt, “available coverage” means the coverage then available for disbursement pursuant to the terms of the applicable alternative credit instrument without regard to the legal or financial ability or willingness of the provider of such instrument to honor a claim or draw thereon or the failure of such provider to honor any such claim or draw.
(g) If the Authority fails to pay any Policy Costs in accordance with the requirements of the Indenture, the Insurer will be entitled to exercise any and all legal and equitable remedies available to it, including those provided under the Indenture other than: (i) acceleration of the maturity of the payments of principal of and interest on the 2017A Bonds; or (ii) remedies which would adversely affect Owners of the 2017A Bonds.
C-36 (h) The Trustee will ascertain the necessity for a claim upon the Reserve Surety Policy in accordance with the provisions of the Indenture and provide notice to the Insurer in accordance with the terms of the Reserve Surety Policy at least five (5) Business Days prior to an Interest Payment Date. Where deposits are required to be made by the Authority with the Trustee to the Principal Account or the Interest Account, as applicable, for the payment of principal of and interest on the 2017A Bonds more often than semi-annually, the Trustee will be instructed to give notice to the Insurer of any failure of the Authority to make timely payment in full of such deposits within two Business Days of the date due.
So long as the Reserve Surety Policy is in full force and effect and the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy, future deposits of a Credit Facility in the Reserve Fund will require the prior written consent of the Insurer.
Rebate Fund.
(a) Establishment. The Trustee will establish a separate fund for the 2017A Bonds designated the “Rebate Fund.” Absent an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest with respect to the 2017A Bonds will not be adversely affected, the Authority will cause to be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to the Indenture and the Tax Certificate. All money at any time deposited in the Rebate Fund will be held by the Trustee in trust for payment to the United States Treasury. All amounts on deposit in the Rebate Fund for the 2017A Bonds will be governed by the Indenture and the Tax Certificate, unless and to the extent that the Authority delivers to the Trustee an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest with respect to the 2017A Bonds will not be adversely affected if such requirements are not satisfied. Notwithstanding anything to the contrary contained in the Indenture or the Tax Certificate, the Trustee: (i) will be deemed conclusively to have complied with the provisions thereof if it follows all Requests of the Authority; and (ii) has no liability or responsibility to enforce compliance by the Authority with the terms of the Tax Certificate; and (iii) may rely conclusively on the Authority’s calculations and determinations and certifications relating to rebate matters; and (iv) has no responsibility to independently make any calculations or determinations or to review the Authority’s calculations or determinations thereunder.
(i) Annual Computation. Within 55 days of the end of each Bond Year (as such term is defined in the Tax Certificate), the Authority will calculate or cause to be calculated the amount of rebatable arbitrage, in accordance with Section 148(f)(2) of the Code and Section 1.148-3 of the Treasury Regulations (taking into account any applicable exceptions with respect to the computation of the rebatable arbitrage, described, if applicable, in the Tax Certificate (e.g., the temporary investments exceptions of Section 148(f)(4)(B) and the construction expenditures exception of Section 148(f)(4)(C) of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the “1½% Penalty”) has been made), for such purpose treating the last day of the applicable Bond Year as a computation date, within the meaning of Section 1.148-1(b) of the Treasury Regulations (the “Rebatable Arbitrage”). The Authority will obtain expert advice as to the amount of the Rebatable Arbitrage to comply with the foregoing provisions.
(ii) Annual Transfer. Within 55 days of the end of each Bond Year, upon the written Request of the Authority, an amount will be deposited to the Rebate Fund by the Trustee from any Authority Revenues legally available for such purpose (as specified by the Authority in the aforesaid written Request), if and to the extent required so that the balance in the Rebate Fund equals the amount of Rebatable Arbitrage so calculated in accordance with clause (i) above. In the event that immediately following the transfer required by the previous sentence, the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein, upon written Request of the Authority, the Trustee will withdraw the excess from the Rebate Fund and then credit the excess to the Revenue Fund.
(iii) Payment to the Treasury. The Trustee will pay, as directed by Request of the Authority, to the United States Treasury, out of amounts in the Rebate Fund: (A) Not later than 60 days after the end of: (X) the fifth Bond Year; and (Y) each applicable fifth Bond Year thereafter, an amount equal
C-37 to at least 90% of the Rebatable Arbitrage calculated as of the end of such Bond Year; and (B) Not later than 60 days after the payment of all the 2017A Bonds, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable Bond Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f) of the Code and Section 1.148-3 of the Treasury Regulations.
In the event that, prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the Authority will calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant to the foregoing provisions will be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and will be accompanied by Internal Revenue Service Form 8038-T (prepared by the Authority), or be made in such other manner as provided under the Code.
(b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after redemption and payment of the 2017A Bonds and the payments described in the Indenture being made may be withdrawn by the Authority and utilized in any manner by the Authority.
(c) Survival of Defeasance. Notwithstanding anything in the Indenture to the contrary, the obligation to comply with the Rebate Fund requirements of the Indenture will survive the defeasance or payment in full of the 2017A Bonds.
Application of Funds and Accounts When No 2017A Bonds are Outstanding. On the date on which all 2017A Bonds are retired under the Indenture or provision made therefor pursuant to the Indenture and after payment of all amounts due the Trustee thereunder, all moneys then on deposit in any of the funds or accounts (other than the Rebate Fund) established with the Trustee pursuant to the Indenture will be withdrawn by the Trustee and paid to the Authority for distribution in accordance with the Installment Purchase Agreement.
Claims Upon the Insurance Policy and Payments By and To the Insurer. If, on the fourth Business Day prior to the related scheduled interest payment date or principal payment date (“Payment Date”) there is not on deposit with the Trustee, after making all transfers and deposits required under the Indenture, moneys sufficient to pay the principal of and interest on the 2017A Bonds due on such Payment Date, the Trustee will give notice to the Insurer and to its designated agent (if any) (the “Insurer's Fiscal Agent”) by telephone or telecopy of the amount of such deficiency by 12:00 noon, New York City time, on such Business Day. If, on the second Business Day prior to the related Payment Date, there continues to be a deficiency in the amount available to pay the principal of and interest on the 2017A Bonds due on such Payment Date, the Trustee will make a claim under the Insurance Policy and give notice to the Insurer and the Insurer’s Fiscal Agent (if any) by telephone of the amount of such deficiency, and the allocation of such deficiency between the amount required to pay interest on the 2017A Bonds and the amount required to pay principal of the 2017A Bonds, confirmed in writing to the Insurer and the Insurer’s Fiscal Agent by 12:00 noon, New York City time, on such second Business Day by filling in the form of Notice of Claim and Certificate delivered with the Insurance Policy.
The Trustee will designate any portion of payment of principal on the 2017A Bonds paid by the Insurer, whether by virtue of mandatory sinking fund redemption, maturity or other advancement of maturity, on its books as a reduction in the principal amount of the 2017A Bonds registered to the then current Owner of the 2017A Bonds, whether DTC or its nominee or otherwise, and will issue a replacement 2017A Bond to the Insurer, registered in the name of Assured Guaranty Municipal Corp., in a principal amount equal to the amount of principal so paid (without regard to authorized denominations); provided that the Trustee's failure to so designate any payment or issue any replacement 2017A Bond will have no effect on the amount of principal or interest payable by the Authority on any 2017A Bond or the subrogation rights of the Insurer.
The Trustee will keep a complete and accurate record of all funds deposited by the Insurer into the Policy Payments Account (defined below) and the allocation of such funds to payment of interest with respect
C-38 to and principal of any 2017A Bond. The Insurer will have the right to inspect such records at reasonable times upon reasonable notice to the Trustee.
Upon payment of a claim under the Insurance Policy, the Trustee will establish a separate special purpose trust account for the benefit of Owners of the 2017A Bonds referred to in the Indenture as the “Policy Payments Account” and over which the Trustee will have exclusive control and sole right of withdrawal. The Trustee will receive any amount paid under the Insurance Policy in trust on behalf of Owners of the 2017A Bonds and will deposit any such amount in the Policy Payments Account and distribute such amount only for purposes of making the payments for which a claim was made. Such amounts will be disbursed by the Trustee to Owners of the 2017A Bonds in the same manner as principal and interest payments are to be made with respect to the 2017A Bonds under the sections of the Indenture regarding payment of the 2017A Bonds. It will not be necessary for such payments to be made by checks or wire transfers separate from the check or wire transfer used to pay the principal of and interest with respect to the 2017A Bonds with other funds available to make such payments. Notwithstanding anything in the Indenture to the contrary, the Authority agrees to pay, or will cause the District to pay, to the Insurer (i) a sum equal to the total of all amounts paid by the Insurer under the Insurance Policy (the “Insurer Advances”); and (ii) interest on such Insurer Advances from the date paid by the Insurer until payment thereof in full, payable to the Insurer at the Late Payment Rate per annum (collectively, the “Insurer Reimbursement Amounts”). “Late Payment Rate” means the lesser of (a) the greater of (i) the per annum rate of interest, publicly announced from time to time by JP Morgan Chase Bank at its principal office in the City of New York, as its prime or base lending rate (any change in such rate of interest to be effective on the date such change is announced by JP Morgan Chase Bank) plus 3%, and (ii) the then applicable highest rate of interest on the 2017A Bonds and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate will be computed on the basis of the actual number of days elapsed over a year of 360 days. The District covenants and agrees under the Indenture that the Insurer Reimbursement Amounts are secured by a lien on and pledge of the Electric System Revenues and payable from such Electric System Revenues on a parity with the payments of the Series 2017A Installment Payments.
Funds held in the Policy Payments Account will not be invested by the Trustee and may not be applied to satisfy any costs, expenses or liabilities of the Trustee. Any funds remaining in the Policy Payments Account following an Interest Payment Date shall promptly be remitted to the Insurer.
Payments by the Insurer as a Result of Nonpayment. The Insurer will be entitled to pay principal or interest on the 2017A Bonds that will become Due for Payment but will be unpaid by reason of Nonpayment by the Authority (as such terms are defined in the Insurance Policy) and any amounts due on the 2017A Bonds as a result of acceleration of the maturity thereof in accordance with the Indenture, whether or not the Insurer has received a Notice of Nonpayment (as such terms are defined in the Insurance Policy) or a claim upon the Insurance Policy.
PARTICULAR COVENANTS
Punctual Payment. The Authority will punctually pay or cause to be paid the principal and interest to become due in respect of all the 2017A Bonds, in strict conformity with the terms of the 2017A Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Authority Revenues and other assets pledged for such payment as provided in the Indenture.
Extension of Payment of 2017A Bonds. The Authority will not directly or indirectly extend or assent to the extension of the maturity of any of the 2017A Bonds or the time of payment of any claims for interest by the purchase of such 2017A Bonds or by any other arrangement, and in case the maturity of any of the 2017A Bonds or the time of payment of any such claims for interest are extended, such 2017A Bonds or claims for interest will not be entitled, in case of any default under the Indenture, to the benefits of the Indenture, except subject to the prior payment in full for the principal of all of the 2017A Bonds then Outstanding and of all claims for interest thereon which have not been so extended.
C-39 Against Encumbrances. The Authority may not create, or permit the creation of, any pledge, lien, charge or other encumbrances upon the Authority Revenues and other assets pledged or assigned under the Indenture while any of the 2017A Bonds are Outstanding, except the pledge and assignment created by the Indenture. Subject to the foregoing limitation, the Authority has reserved the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Joint Powers Agreement, and reserves the right to issue other obligations for such purposes.
Power to Issue 2017A Bonds and Make Pledge and Assignment. The Authority has been duly authorized pursuant to law to issue the 2017A Bonds and to enter into the Indenture and to pledge and assign the Authority Revenues and other assets purported to be pledged and assigned under the Indenture in the manner and to the extent provided in the Indenture. The 2017A Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the Authority in accordance with their terms, and the Authority and the Trustee will at all times, subject to the provisions of the Indenture and to the extent permitted by law, defend, preserve and protect said pledge and assignment of Authority Revenues and other assets and all the rights of the 2017A Bond Owners under the Indenture against all claims and demands of all persons whomsoever.
Accounting Records and Financial Statements. The Trustee will at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries are made of all transactions made by it relating to the proceeds of 2017A Bonds, the Authority Revenues and all funds and accounts established by it pursuant to the Indenture. Such books of record and account will be available for inspection by the Authority and the District upon reasonable prior notice during business hours and under reasonable circumstances.
Tax Covenants. Notwithstanding any other provision of the Indenture, absent an opinion of Bond Counsel that the exclusion from gross income of the portion of interest on the 2017A Bonds will not be adversely affected for federal income tax purposes, the Authority has covenanted to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income with respect to the 2017A Bonds and has specifically covenanted, without limiting the generality of the foregoing, as follows:
(a) Private Activity. The Authority will take no action or refrain from taking any action or make any use of the proceeds of the 2017A Bonds or of any other moneys or property which would cause the 2017A Bonds to be “private activity bonds” within the meaning of Section 141 of the Code;
(b) Arbitrage. The Authority will make no use of the proceeds of the 2017A Bonds or of any other amounts or property, regardless of the source, or take any action or refrain from taking any action which will cause the 2017A Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code;
(c) Federal Guarantee. The Authority will make no use of the proceeds of the 2017A Bonds or take or omit to take any action that would cause the 2017A Bonds to be “federally guaranteed” within the meaning of Section 149(b) of the Code;
(d) Information Reporting. The Authority will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the Code necessary to preserve the exclusion of interest on the 2017A Bonds pursuant to Section 103(a) of the Code;
(e) Hedge Bonds. The Authority will make no use of the proceeds of the 2017A Bonds or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause either the 2017A Bonds to be considered “hedge bonds” within the meaning of Section 149(g) of the Code unless the Authority takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the 2017A Bonds for federal income tax purposes; and
C-40 (f) Miscellaneous. The Authority will take no action or refrain from taking any action inconsistent with its expectations stated in that certain Tax Certificate executed by the Authority in connection with the issuance of the 2017A Bonds and will comply with the covenants and requirements stated therein and incorporated by reference in the Indenture.
The foregoing tax covenants are not applicable to, and nothing contained in the Indenture prevents the Authority from causing the Trustee to issue Bonds other than the 2017A Bonds or to execute and deliver Contracts payable on a parity with the 2017A Bonds, the interest with respect to which has been determined by Bond Counsel to be subject to federal income taxation.
Payments Under Installment Purchase Agreement. The Authority will promptly collect all Series 2017A Installment Payments due from the District pursuant to the Installment Purchase Agreement and, subject to the provisions of the Indenture, enforce, and take all steps, actions and proceedings which the Authority or the Trustee determines to be reasonably necessary for the enforcement of all of the obligations of the District thereunder.
The Authority may not enter into any amendments to the Installment Purchase Agreement except as permitted therein. The Trustee will give written consent only if: (a) such amendment, modification or termination will not materially adversely affect the interests of the 2017A Bond Owners; or (b) the Trustee first obtains the written consent of the Owners of a majority in aggregate principal amount of the 2017A Bonds then Outstanding to such amendment, modification or termination.
Waiver of Laws. The Authority may not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time in force that may affect the covenants and agreements contained in the Indenture or in the 2017A Bonds, and all benefit or advantage of any such law or laws has been waived by the Authority to the extent permitted by law.
Further Assurances. The Authority will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto the Owners of the 2017A Bonds of the rights and benefits provided in the Indenture.
Eminent Domain. If all or any part of the 2017A Project is taken by eminent domain proceedings (or sold to a government entity threatening to exercise the power of eminent domain), the Net Proceeds therefrom will be applied in the manner specified in the Installment Purchase Agreement.
EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS
Events of Default. The following events are Events of Default under the Indenture: (a) Default by the Authority in the due and punctual payment of the principal of any 2017A Bonds when and as the same become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise. (b) Default by the Authority in the due and punctual payment of any installment of interest on any 2017A Bonds when and as the same become due and payable. (c) Default by the Authority in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the 2017A Bonds contained, if such default continues for a period of thirty (30) days after written notice thereof specifying such default and requiring the same to be remedied has been given to the Authority by the Trustee or by the Owners of not less than a majority in aggregate principal amount of 2017A Bonds Outstanding; provided, however, that if in the reasonable opinion of the Authority the default stated in the notice can be corrected, but not within such thirty (30) day period, and corrective action is instituted by the Authority, with the written approval of the Insurer (so long as the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy), within such thirty (30) day period and diligently pursued in good faith until the default is corrected, such default will not be an Event of Default under the Indenture. (d) The Authority files a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction approves a petition
C-41 filed with or without the consent of the Authority seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction assumes custody or control of the Authority or of the whole or any substantial part of its property. (e) An Event of Default occurs under the Installment Purchase Agreement.
Remedies Upon Event of Default. If any Event of Default occurs, then, and in each and every such case during the continuance of such Event of Default, the Trustee may, with the written consent of the Insurer (so long as the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy) which consent will be at the sole discretion of the Insurer, declare the principal of all of the 2017A Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same will become and be immediately due and payable, anything in the Indenture or in the 2017A Bonds contained to the contrary notwithstanding.
Nothing contained in the Indenture permits or requires the Trustee or the Authority to accelerate payments due under the Installment Purchase Agreement if the District, which is a party to such Installment Purchase Agreement, is not in default of its obligation thereunder.
Any such declaration is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due has been obtained or entered, the Authority or the District deposits with the Trustee a sum sufficient to pay all the principal of and installments of interest on the 2017A Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective 2017A Bonds to the extent permitted by law, and the reasonable charges and expenses of the Trustee, and any and all other Events of Default known to the Trustee will have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate have been made therefor, then, and in every such case the Trustee will on behalf of the Owners of all of the 2017A Bonds, rescind and annul such declaration and its consequences and waive such Event of Default; but no such rescission and annulment extends to or affects any subsequent Event of Default, or impairs or exhausts any right or power consequent thereon.
So long as the Insurance Policy and Reserve Surety Policy are in full force and effect and the Insurer is not in default of its obligations thereunder, the Insurer may elect, in its sole discretion, to pay accelerated principal and interest accrued on such principal to the date of acceleration (to the extent unpaid by the Authority), and the Trustee will be required to accept such amounts. Upon payment in full of such accelerated principal and interest accrued to the acceleration date as provided above, the Insurer’s obligations under the Insurance Policy and the Reserve Surety Policy with respect to such 2017A Bonds will be fully discharged.
Application of Authority Revenues and Other Funds After Default. If an Event of Default occurs and is continuing, all Authority Revenues and any other funds then held or thereafter received by the Trustee under any of the provisions of the Indenture (other than amounts held in the Rebate Fund) will be applied by the Trustee as follows and in the following order: (i) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the 2017A Bonds and payment of reasonable fees and expenses of the Trustee (including reasonable fees and disbursements of accountants and counsel) incurred in and about the performance of its powers and duties under the Indenture; (ii) To the payment of the principal of and interest then due on the 2017A Bonds (upon presentation of the 2017A Bonds to be paid, and stamping or otherwise noting thereon of the payment if only partially paid, or surrender thereof if fully paid) in accordance with the provisions of the Indenture, in the following order of priority: First: To the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available are not sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and Second: To the payment to the persons entitled thereto of the unpaid principal of any 2017A Bonds which have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate of 8% per annum, and, if the amount available is not sufficient to pay in full all the 2017A Bonds, together with such interest, then to the payment thereof
C-42 ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference; and Third: To the extent Policy Costs or Insurer Reimbursement Amounts are due and payable to the Insurer, to the payment of such amounts; and Fourth: If there will exist any remainder after the foregoing payments, such remainder will be paid to the Authority.
Trustee to Represent 2017A Bond Owners. The Trustee has been irrevocably appointed (and the successive respective Owners of the 2017A Bonds, by taking and holding the same, are conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney in fact of the Owners of the 2017A Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the 2017A Bonds or the Indenture and applicable provisions of any other law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the 2017A Bond Owners, the Trustee in its discretion may, and upon the written request of the Owners of a majority in aggregate principal amount of the 2017A Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, will proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceedings as it deems most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained in the Indenture, or in aid of the execution of any power therein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the 2017A Bonds or the Indenture or any other law; and upon instituting such proceeding, the Trustee is entitled, as a matter of right, to the appointment of a receiver of the Authority Revenues and other assets pledged under the Indenture, pending such proceedings. All rights of action under the Indenture or the 2017A Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the 2017A Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee will be brought in the name of the Trustee for the benefit and protection of all the Owners of such 2017A Bonds, subject to the provisions of the Indenture. Except to the extent provided therein, nothing in the Indenture will be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner any plan of reorganization, arrangement, adjustment, or composition affecting the 2017A Bonds or the rights of any Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Owner in any such proceeding without the approval of the Owners so affected.
2017A Bond Owners’ Direction of Proceedings. Anything in the Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the 2017A Bonds then Outstanding have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction to direct the method of conduct in all remedial proceedings taken by the Trustee under the Indenture, provided that such direction will not be otherwise than in accordance with law and the provisions of the Indenture, and that the Trustee has the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to 2017A Bond Owners not parties to such direction.
Suit by Owners. No Owner of any 2017A Bonds has the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture, the Installment Purchase Agreement, the Joint Powers Agreement or any other applicable law with respect to such 2017A Bonds, unless: (a) such Owners have given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of not less than 25% in aggregate principal amount of the 2017A Bonds then Outstanding have made written request upon the Trustee to exercise the powers granted in the Indenture or to institute such suit, action or proceeding in its own name; (c) such Owner or Owners have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee has failed to comply with such request for a period of 60 days after such written request has been received by, and said tender of indemnity has been made to, the Trustee; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60 day period by the Owners of a majority in aggregate principal amount of the 2017A Bonds then Outstanding.
C-43 Such notification, request, tender of indemnity and refusal or omission have been declared, in every case, to be conditions precedent to the exercise by any Owner of 2017A Bonds of any remedy under the Indenture or under law; it being understood and intended that no one or more Owners of 2017A Bonds have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners of 2017A Bonds, or to enforce any right under the 2017A Bonds, the Indenture, the Installment Purchase Agreement, the Joint Powers Agreement or other applicable law with respect to the 2017A Bonds, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any such right will be instituted, had and maintained in the manner provided in the Indenture and for the benefit and protection of all Owners of the Outstanding 2017A Bonds, subject to the provisions of the Indenture.
Absolute Obligation of the Authority. Nothing contained in the Indenture or in any other provision of the Indenture or in the 2017A Bonds affects or impairs the obligation of the Authority, which is absolute and unconditional, to pay the principal of and interest on the 2017A Bonds to the respective Owners of the 2017A Bonds at their respective dates of maturity, or upon call for redemption, as provided in the Indenture, but only out of the Authority Revenues and other assets pledged therefore in the Indenture, or affects or impairs the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the 2017A Bonds.
Remedies Not Exclusive. No remedy conferred upon or reserved to the Trustee or to the Owners of the 2017A Bonds in the Indenture is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, is cumulative and in addition to any other remedy given under the Indenture or now or later existing at law or in equity or otherwise.
No Waiver of Default. No delay or omission of the Trustee or of any Owner of the 2017A Bonds to exercise any right or power arising upon the occurrence of any Event of Default will impair any such right or power or be construed to be a waiver of any such Event of Default or an acquiescence therein.
Insurer Rights. The Insurer is deemed to be the sole Owner of the 2017A Bonds for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the Owners of the 2017A Bonds are entitled to take pursuant to the Indenture pertaining to (i) defaults and remedies and (ii) the duties and obligations of the Trustee. In furtherance thereof and as a term of the Indenture and each 2017A Bond, each Owner of the 2017A Bonds appoints the Insurer as its agent and attorney-in-fact with respect to the 2017A Bonds and agrees that the Insurer may at any time during the continuation of any proceeding by or against the Authority or the District under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an “Insolvency Proceeding”) direct all matters relating to such Insolvency Proceeding, including without limitation, (A) all matters relating to any claim or enforcement proceeding in connection with an Insolvency Proceeding (a “Claim”), (B) the direction of any appeal of any order relating to any Claim, (C) the posting of any surety, supersedeas or performance bond pending any such appeal and (D) the right to vote to accept or reject any plan or adjustment. In addition, each Owner of the 2017A Bonds delegates and assigns to the Insurer, to the fullest extent permitted by law, the rights of each Owner of the 2017A Bonds with respect to the 2017A Bonds in the conduct of any Insolvency Proceeding, including, without limitation, all rights of any party to an adversary proceeding or action with respect to any court order issued in connection with any such Insolvency Proceeding. Remedies granted to the Owner of the 2017A Bonds expressly include mandamus.
The Trustee acknowledges such appointment, delegation and assignment by each Owner of the 2017A Bonds for the Insurer’s benefit, and agrees to cooperate with the Insurer in taking any action reasonably necessary or appropriate in connection with such appointment, delegation and assignment.
THE TRUSTEE
Duties, Immunities and Liabilities of Trustee. (a) The Trustee will, prior to an Event of Default, and after the curing or waiver of all Events of Default which may have occurred, perform such duties and only
C-44 such duties as are expressly and specifically set forth in the Indenture and no implied covenants or duties may be read into the Indenture against the Trustee. The Trustee will, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
(b) The Authority may remove the Trustee at any time, unless an Event of Default has occurred and then is continuing, and will remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the 2017A Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee ceases to be eligible in accordance with the Indenture, or becomes incapable of acting, or is adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property is appointed, or any public officer takes control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee and thereupon will promptly appoint a successor Trustee by an instrument in writing.
(c) The Trustee may at any time resign by giving thirty (30) days’ written notice of such resignation to the Authority and by giving the 2017A Bond Owners notice of such resignation by mail at the addresses shown on the Registration Books. Upon receiving such notice of resignation, the Authority will promptly appoint a successor Trustee by an instrument in writing.
(d) Any removal or resignation upon thirty (30) days’ prior notice of the Trustee and appointment of a successor Trustee will become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee has been appointed and accepted appointment within forty five (45) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any 2017A Bond Owner (on behalf of himself and all other 2017A Bond Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Indenture will signify its acceptance of such appointment by executing and delivering to the Authority and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, will become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee in the Indenture; but, nevertheless at the Request of the Authority or the request of the successor Trustee, such predecessor Trustee will execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under the Indenture and will pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions set forth in the Indenture. Upon request of the successor Trustee, the Authority will execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in the Indenture, the Authority will mail or cause the successor trustee to mail a notice of the succession of such Trustee to the trusts under the Indenture to each rating agency which is then rating the 2017A Bonds and to the 2017A Bond Owners at the addresses shown on the Registration Books. If the Authority fails to mail such notice within fifteen (15) days after acceptance of appointment by the successor Trustee, the successor Trustee will cause such notice to be mailed at the expense of the Authority.
(e) Any Trustee appointed under the provisions of the Indenture in succession to the Trustee must be a trust company, banking association or bank having the powers of a trust company, having a combined capital and surplus of at least $75,000,000, and subject to supervision or examination for federal or state authority. If such bank, banking association or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of the Indenture the combined capital and surplus of such trust company, banking association or bank will be deemed to be its combined capital and surplus as set forth in its most recent report
C-45 of condition so published. In case at any time the Trustee ceases to be eligible in accordance with the provisions of the Indenture, the Trustee will resign immediately in the manner and with the effect specified in the Indenture.
Merger or Consolidation. Any trust company, banking association or bank into which the Trustee may be merged or converted or with which it may be consolidated or any trust company, banking association or bank resulting from any merger, conversion or consolidation to which it is a party or any trust company, banking association or bank to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such trust company, banking association or bank is eligible under the Indenture, will be the successor to such Trustee, without the execution or filing of any paper or any further act, anything in the Indenture to the contrary notwithstanding.
Liability of Trustee. (a) The recitals of facts in the Indenture and in the 2017A Bonds will be taken as statements of the Authority, and the Trustee does not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of the Indenture, the 2017A Bonds or the Installment Purchase Agreement, nor does the Trustee incur any responsibility in respect thereof, other than as expressly stated in the Indenture in connection with the respective duties or obligations therein or in the 2017A Bonds assigned to or imposed upon it. The Trustee will, however, be responsible for its representations contained in its certificate of authentication on the 2017A Bonds. The Trustee will not be liable in connection with the performance of its duties under the Indenture, except for its own negligence or willful misconduct. The Trustee may become the Owner of 2017A Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of 2017A Bond Owners, whether or not such committee represents the Owners of a majority in principal amount of the 2017A Bonds then Outstanding.
(b) The Trustee is not liable for any error of judgment made in good faith by a responsible officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts.
(c) The Trustee is not liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority (or such other percentage provided for in the Indenture) in aggregate principal amount of the 2017A Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture.
(d) The Trustee is not liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture.
(e) The Trustee will not be deemed to have knowledge of any default or Event of Default under the Indenture or the Installment Purchase Agreement or any other event which, with the passage of time, the giving of notice, or both, would constitute an Event of Default under the Indenture or the Installment Purchase Agreement unless and until a Responsible Officer of the Trustee has actual knowledge of such event or the Trustee has been notified in writing, in accordance with the Indenture, of such event by the Authority or the Owners of not less than 25% of the 2017A Bonds then Outstanding. Except as otherwise provided in the Indenture, the Trustee is not bound to ascertain or inquire as to the performance or observance by the Authority or the District of any of the terms, conditions, covenants or agreements in the Indenture, or under the Installment Purchase Agreement, of any of the documents executed in connection with the 2017A Bonds, or as to the existence of an Event of Default thereunder or an event which would, with the giving of notice, the passage of time, or both, constitute an Event of Default thereunder. The Trustee is not responsible for the validity, effectiveness or priority of any collateral given to or held by it.
(f) No provision of the Indenture requires the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties thereunder, or in the exercise of any of its rights or powers.
C-46 (g) The Trustee is under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of Owners pursuant to the Indenture, unless such Owners have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. No permissive power, right or remedy conferred upon the Trustee under the Indenture will be construed to impose a duty to exercise such power, right or remedy and the Trustee will not be answerable for other than its negligence or willful misconduct.
(h) Whether or not expressly so provided in the Indenture, every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee is subject to the provisions of the Indenture.
(i) The Trustee has no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the 2017A Bonds.
(j) The immunities extended to the Trustee also extend to its directors, officers, employees and agents.
(k) The Trustee may execute any of the trusts or powers of the Indenture and perform any of its duties through attorneys, agents and receivers and is not answerable for the conduct of the same if appointed by it with reasonable care.
(l) The Trustee will not be considered in breach of or in default in its obligations under the Indenture or progress in respect thereto in the event of enforced delay (“unavoidable delay”) in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence which affects the Trustee’s ability to perform its obligations under the Indenture, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the 2017A Project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee.
(m) The Trustee will have the right to accept and act upon instructions, including funds transfer instructions (“Instructions”) given pursuant to the Indenture and delivered using Electronic Means (“Electronic Means” means the following communications methods: e-mail, facsimile transmission, secure electronic transmission containing applicable authorization codes, passwords and/or authentication keys issued by the Trustee, or another method or system specified by the Trustee as available for use in connection with its services under the Indenture); provided, however, that the Authority will provide to the Trustee an incumbency certificate listing officers with the authority to provide such Instructions (“Authorized Officers”) and containing specimen signatures of such Authorized Officers, which incumbency certificate will be amended by the Authority, whenever a person is to be added or deleted from the listing. If the Authority elects to give the Trustee Instructions using Electronic Means and the Trustee in its discretion elects to act upon such Instructions, the Trustee’s understanding of such Instructions will be deemed controlling. The Authority understands and agrees that the Trustee cannot determine the identity of the actual sender of such Instructions and that the Trustee will conclusively presume that directions that purport to have been sent by an Authorized Officer listed on the incumbency certificate provided to the Trustee have been sent by such Authorized Officer. The Authority will be responsible for ensuring that only Authorized Officers transmit such Instructions to the Trustee and that the Authority and all Authorized Officers are solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt by the Authority. The Trustee will not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such Instructions notwithstanding such directions conflict or are inconsistent with a subsequent written instruction. The
C-47 Authority agrees: (i) to assume all risks arising out of the use of Electronic Means to submit Instructions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Instructions, and the risk of interception and misuse by third parties; (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Instructions to the Trustee and that there may be more secure methods of transmitting Instructions than the method(s) selected by the Authority; (iii) that the security procedures (if any) to be followed in connection with its transmission of Instructions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances; and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures.
(n) Notwithstanding the effective date of the Indenture or anything to the contrary in the Indenture, the Trustee will have no liability or responsibility for any act or event relating to the Indenture which occurs prior to the date the Trustee formally executes the Indenture and commences acting as Trustee thereunder.
(o) The Trustee is not concerned with or accountable to anyone for the subsequent use or application of any moneys which are released or withdrawn in accordance with the provisions of the Indenture.
(p) The Trustee is under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request, order or direction of any of the Owners pursuant to the provisions thereof unless such Owners have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby.
(q) The permissive right of the Trustee to do things enumerated in the Indenture will not be construed as a duty and it is not answerable for other than its negligence or willful misconduct.
(r) The Trustee has no responsibility or liability with respect to any information, statements or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the 2017A Bonds.
Right to Rely on Documents. The Trustee will be protected in acting upon any notice, resolution, requisition, request, consent, order, certificate, report, opinion, notes, direction, facsimile transmission, electronic mail or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the Authority, with regard to legal questions, and the opinion of such counsel will be full and complete authorization and protection in respect of any action taken or suffered by it under the Indenture in good faith and in accordance therewith.
The Trustee may treat the Owners of the 2017A Bonds appearing in the Trustee’s Registration Books as the absolute owners of the 2017A Bonds for all purposes and the Trustee will not be affected by any notice to the contrary.
Whenever in the administration of the trusts imposed upon it by the Indenture the Trustee deems it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Indenture, such matter (unless other evidence in respect thereof is specifically prescribed in the Indenture) may be deemed to be conclusively proved and established by a Certificate, Request or Requisition of the Authority, and such Certificate, Request or Requisition will be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of the Indenture in reliance upon such Certificate, Request or Requisition, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable.
Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of the Indenture will be retained in their respective possession and will be subject at all reasonable times to the inspection of the Authority, the District and any 2017A Bond Owner, and their agents and representatives duly authorized in writing, at reasonable hours and under reasonable conditions.
C-48 Compensation and Indemnification. The Authority and the District will pay to the Trustee from time to time all reasonable compensation for all services rendered under the Indenture, and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of their attorneys, agents and employees, incurred in and about the performance of their powers and duties under the Indenture.
The Authority and the District will indemnify, defend and hold harmless the Trustee, its officers, employees, directors and agents from and against any loss, costs, claims, liability or expense (including fees and expenses of its attorneys and advisors) incurred without negligence or bad faith on its part, arising out of or in connection with the execution of the Indenture, acceptance or administration of such trust, including costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers under the Indenture. The rights of the Trustee and the obligations of the Authority under the Indenture will survive removal or resignation of the Trustee thereunder or the discharge of the 2017A Bonds and the Indenture.
Notice to Insurer by Trustee. The Trustee will notify the Insurer of any known failure of the District to provide notices, certificates and other information under the Installment Purchase Agreement of which the Trustee has actual or deemed knowledge pursuant to the Indenture.
MODIFICATION OR AMENDMENT OF THE INDENTURE
Amendments Permitted. (a) The Indenture and the rights and obligations of the Authority and of the Owners of the 2017A Bonds and of the Trustee may be modified or amended from time to time and at any time by an indenture or indentures supplemental thereto, which the Authority and the Trustee may enter into with the written consent of the Insurer, so long as the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy (or, in the event the Insurer has so defaulted, with the written consent of the Owners of a majority in aggregate principal amount of all 2017A Bonds then Outstanding, will have been filed with the Trustee). No such modification or amendment may: (1) extend the fixed maturity of any 2017A Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the rate of interest or the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the Owner of each 2017A Bond so affected; or (2) alter the right of the Insurer to consent to any such modification or amendment, reduce the aforesaid percentage of 2017A Bonds the consent of the Owners of which is required to effect any such modification or amendment, or permit the creation of any lien on the Authority Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture except as permitted in the Indenture, or deprive the Owners of the 2017A Bonds of the lien created by the Indenture on such Authority Revenues and other assets except as permitted in the Indenture, without the consent of the Insurer or the Owners of all of the 2017A Bonds then Outstanding. It is not necessary for the consent of the Insurer or the 2017A Bond Owners to approve the particular form of any Supplemental Indenture, but it is sufficient if such consent approves the substance thereof. Promptly after the execution by the Authority and the Trustee of any Supplemental Indenture pursuant to the Indenture, the Trustee will mail a notice, setting forth in general terms the substance of such Supplemental Indenture, to each Rating Agency and the Owners of the 2017A Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, does not, however, in any way impair or affect the validity of any such Supplemental Indenture.
(b) The Indenture and the rights and obligations of the Authority, the Trustee and the Owners of the 2017A Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority and the Trustee may enter into without the consent of any 2017A Bond Owners, but with the written consent of the Insurer so long as the Insurer has not defaulted on an obligation under the Insurance Policy or the Reserve Surety Policy, if the Trustee receives an opinion of Bond Counsel to the effect that the provisions of such Supplemental Indenture do not materially adversely affect the interests of the Owners of the Outstanding 2017A Bonds, including, without limitation, for any one or more of the following purposes: (1) to add to the covenants and agreements of the Authority contained in the Indenture other covenants and agreements thereafter to be observed, to pledge or assign additional security for the 2017A Bonds (or any portion thereof), or to surrender any right or power reserved to or conferred upon the Authority
C-49 in the Indenture; (2) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Indenture, or in regard to matters or questions arising under the Indenture, as the Authority may deem necessary or desirable; (3) to modify, amend or supplement the Indenture in such manner as to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute under the Indenture in effect, and to add such other terms conditions and provisions as may be permitted by said act or similar federal statute; and (4) to modify, amend or supplement the Indenture in such manner as to cause interest on the 2017A Bonds to remain excludable from gross income under the Code.
(c) The Trustee may in its discretion, but is not obligated to, enter into any such Supplemental Indenture authorized by the Indenture which materially adversely affects the Trustee’s own rights, duties or immunities under the Indenture or otherwise.
(d) Prior to the Trustee entering into any Supplemental Indenture under the Indenture, there will be delivered to the Trustee an opinion of Bond Counsel stating, in substance, that such Supplemental Indenture has been adopted in compliance with the requirements of the Indenture and that the adoption of such Supplemental Indenture will not, in and of itself, adversely affect the exclusion of interest on the 2017A Bonds from federal income taxation and from state income taxation.
Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to the Indenture, the Indenture will be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the Authority, the Trustee, the Insurer, and all Owners of 2017A Bonds Outstanding will thereafter be determined, exercised and enforced thereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture will be deemed to be part of the terms and conditions of the Indenture for any and all purposes.
Endorsement of 2017A Bonds; Preparation of New 2017A Bonds. 2017A Bonds delivered after the execution of any Supplemental Indenture pursuant to the Indenture may, and if the Trustee so determines, will, bear a notation by endorsement or otherwise in form approved by the Authority and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand on the Owner of any 2017A Bonds Outstanding at the time of such execution and presentation of his or her 2017A Bonds for the purpose at the Office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation will be made on such 2017A Bonds. If the Supplemental Indenture so provides, new 2017A Bonds so modified as to conform, in the opinion of the Authority and the Trustee, to any modification or amendment contained in such Supplemental Indenture, will be prepared and executed by the Authority and authenticated by the Trustee, and upon demand on the Owners of any 2017A Bonds then Outstanding will be exchanged at the Office of the Trustee, without cost to any 2017A Bond Owner, for 2017A Bonds then Outstanding, upon surrender for cancellation of such 2017A Bonds, in equal aggregate principal amount of the same maturity.
Amendment of Particular 2017A Bonds. The provisions of the Indenture do not prevent any 2017A Bond Owner from accepting any amendment as to the particular 2017A Bonds held by him.
Effect of Insurance Policy. In determining whether any amendment, consent, waiver or other action to be taken, or any failure to take action, under the Indenture would adversely affect the security for the 2017A Bonds or the rights of the Owners, the Trustee will consider the effect of any such amendment, consent, waiver, action or inaction as if there were no Insurance Policy.
DEFEASANCE
Discharge of Indenture. The 2017A Bonds may be paid by the Authority in any of the following ways, provided that the Authority also pays or causes to be paid any other sums payable under the Indenture by the Authority: (a) by paying or causing to be paid the principal of and interest and redemption premiums (if any) on the 2017A Bonds, as and when the same become due and payable; (b) by depositing with the Trustee,
C-50 in trust, at or before maturity, money or securities in the necessary amount (as provided in the Indenture) to pay or redeem all 2017A Bonds then Outstanding; or (c) by delivering to the Trustee, for cancellation by it, all of the 2017A Bonds then Outstanding.
If the Authority also pays or causes to be paid all other sums payable under the Indenture by the Authority, then and in that case, at the election of the Authority (as evidenced by a Certificate of the Authority, filed with the Trustee, signifying the intention of the Authority to discharge all such indebtedness and the Indenture), and notwithstanding that any 2017A Bonds have not been surrendered for payment, the Indenture and the pledge of Authority Revenues and other assets made under the Indenture and all covenants, agreements and other obligations of the Authority under the Indenture will cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Request of the Authority, the Trustee will execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee will pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to the Indenture which are not required for the payment or redemption of 2017A Bonds not theretofore surrendered for such payment or redemption to the Authority.
The Indenture will not be discharged until all amounts due or to become due to the Insurer have been paid in full in accordance with the Indenture. The Authority’s obligation to pay such amounts will expressly survive payment in full of the payments of principal of and interest on the 2017A Bonds.
Discharge of Liability on 2017A Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as provided in the Indenture) to pay or redeem any Outstanding 2017A Bonds (whether upon or prior to the maturity or the redemption date of such 2017A Bonds), provided that, if such Outstanding 2017A Bonds are to be redeemed prior to maturity, notice of such redemption has been given as provided in the Indenture or provisions satisfactory to the Trustee have been made for the giving of such notice, then all liability of the Authority in respect of such 2017A Bonds will cease, terminate and be completely discharged, and the Owners thereof will thereafter be entitled only to payment out of such money or securities deposited with the Trustee as aforesaid for their payment, subject however, to the provisions of the Indenture.
The Authority may at any time surrender to the Trustee for cancellation by it any 2017A Bonds previously issued and delivered, which the Authority may have acquired in any manner whatsoever, and such 2017A Bonds, upon such surrender and cancellation, will be deemed to be paid and retired.
Deposit of Money or Securities with Trustee. Whenever in the Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any 2017A Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to the Indenture and will be:
(a) lawful money of the United States of America in an amount equal to the principal amount of such 2017A Bonds and all unpaid interest thereon to maturity, except that, in the case of 2017A Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption has been given as provided in the Indenture or provisions satisfactory to the Trustee have been made for the giving of such notice, the amount to be deposited or held will be the principal amount of such 2017A Bonds and all unpaid interest and premium, if any, thereon to the redemption date; or
(b) Federal Securities the principal of and interest on which when due will, in the written opinion of an Independent Certified Public Accountant filed with the Authority, the Insurer and the Trustee, provide money sufficient to pay the principal of and all unpaid interest to maturity, or to the redemption date (with premium, if any), as the case may be, on the 2017A Bonds to be paid or redeemed, as such principal, interest and premium, if any, become due, provided that in the case of 2017A Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption has
C-51 been given as provided in the Indenture or provision satisfactory to the Trustee has been made for the giving of such notice; provided, in each case, that: (i) the Trustee has been irrevocably instructed (by the terms of the Indenture or by Written Request of the District) to apply such money to the payment of such principal, interest and premium, if any, with respect to such 2017A Bonds as directed by the District; (ii) the District has delivered to the Trustee an opinion of Bond Counsel addressed to the District, the Insurer and the Trustee to the effect that such 2017A Bonds have been discharged in accordance with the Indenture (which opinion may rely upon and assume the accuracy of the Independent Certified Public Accountant’s or Independent Financial Consultant’s opinion referred to above); (iii) the District has delivered an escrow agreement (acceptable in form and substance to the Insurer, so long as the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy); and (iv) the District has delivered a certificate of discharge of the Trustee with respect to the 2017A Bonds. The opinion of Bond Counsel and Independent Certified Public Accountant’s or Independent Financial Consultant’s opinion referred to above will be acceptable in form and substance, and addressed, to the District, Trustee and Insurer (so long as the Insurer has not defaulted on any obligation under the Insurance Policy or the Reserve Surety Policy). The Insurer will be provided with final drafts of the above-referenced documentation not less than five Business Days prior to the funding of the escrow.
The 2017A Bonds will be deemed Outstanding under the Indenture unless and until they are in fact paid and retired or the defeasance criteria in the Indenture are met.
Payment of 2017A Bonds After Discharge of Indenture. Notwithstanding any provisions of the Indenture, any moneys held by the Trustee in trust for the payment of the principal of, or interest on, any 2017A Bonds and remaining unclaimed for two years after the principal of all of the 2017A Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in the Indenture), if such moneys were so held at such date, or two years after the date of deposit of such moneys if deposited after said date when all of the 2017A Bonds became due and payable, will be repaid to the Authority (without liability for interest) free from the trusts created by the Indenture upon receipt of an indemnification agreement acceptable to the Authority and the Trustee indemnifying the Trustee with respect to claims of Owners of 2017A Bonds which have not yet been paid, and all liability of the Trustee with respect to such moneys will thereupon cease; provided, however, that before the repayment of such moneys to the Authority as aforesaid, the Trustee will at the written direction of the Authority (at the cost of the Authority) first mail to the Owners of 2017A Bonds which have not yet been paid, at the addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the 2017A Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Authority of the moneys held for the payment thereof.
MISCELLANEOUS
Liability of Authority Limited to Authority Revenues. Notwithstanding anything in the Indenture or the 2017A Bonds, the Authority is not required to advance any moneys derived from any source other than the Authority Revenues and other moneys pledged under the Indenture for any of the purposes in the Indenture mentioned, whether for the payment of the principal of or interest on the 2017A Bonds or for any other purpose of the Indenture. Nevertheless, the Authority may, but is not required to, advance for any of the purposes of the Indenture any funds of the Authority which may be made available to it for such purposes.
The 2017A Bonds are not a debt of the members of the Authority, the State or any of its political subdivisions (other than the Authority) and neither the members of the Authority, said State nor any of its political subdivisions (other than the Authority) is liable under the Indenture. The District has no liability or obligation in the Indenture except with respect to Series 2017A Installment Payments payable under the Installment Purchase Agreement.
Successor Is Deemed Included in All References to Predecessor. Whenever in the Indenture either the Authority or the Trustee is named or referred to, such reference includes the successors or assigns thereof, and
C-52 all the covenants and agreements in the Indenture contained by or on behalf of the Authority or the Trustee bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not.
Limitation of Rights to Parties and 2017A Bond Owners. Nothing in the Indenture or in the 2017A Bonds expressed or implied is intended or will be construed to give to any person other than the Authority, the Trustee, the District, the Insurer and the Owners of the 2017A Bonds, any legal or equitable right, remedy or claim under or in respect of the Indenture or any covenant, condition or provision contained therein or in the Indenture; and all such covenants, conditions and provisions are and will be held to be for the sole and exclusive benefit of the Authority, the Trustee, the District, the Insurer and the Owners of the 2017A Bonds.
Waiver of Notice; Requirement of Mailed Notice. Whenever in the Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any such case the giving or receipt of such notice will not be a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in the Indenture any notice is required to be given by mail, such requirement will be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail.
Destruction of 2017A Bonds. Whenever in the Indenture provision is made for the cancellation by the Trustee and the delivery to the Authority of any 2017A Bonds, the Trustee will destroy such 2017A Bonds as may be allowed by law, and deliver a certificate of such destruction to the Authority.
Severability of Invalid Provisions. If any one or more of the provisions contained in the Indenture or in the 2017A Bonds are for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions will be severable from the remaining provisions contained in the Indenture and such invalidity, illegality or unenforceability does not affect any other provision of the Indenture, and the Indenture will be construed as if such invalid or illegal or unenforceable provision had never been contained therein. The Authority has declared that it would have entered into the Indenture and each and every other Section, paragraph, sentence, clause or phrase thereof and authorized the issuance of the 2017A Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of the Indenture may be held illegal, invalid or unenforceable.
Evidence of Rights of 2017A Bond Owners. Any request, consent or other instrument required or permitted by the Indenture to be signed and executed by 2017A Bond Owners may be in any number of concurrent instruments of substantially similar tenor and will be signed or executed by such 2017A Bond Owners in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of 2017A Bonds transferable by delivery, will be sufficient for any purpose of the Indenture and will be conclusive in favor of the Trustee and the Authority if made in the manner provided in the Indenture.
The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The Ownership of 2017A Bonds will be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any 2017A Bond binds every future Owner of the same 2017A Bond and the Owner of every 2017A Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Authority in accordance therewith or reliance thereon.
Disqualified 2017A Bonds. In determining whether the Owners of the requisite aggregate principal amount of 2017A Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, 2017A Bonds which are known by the Trustee to be owned or held by or for the account of the Authority, or by any other obligor on the 2017A Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or any other obligor on the
C-53 2017A Bonds, will be disregarded and deemed not to be Outstanding for the purpose of any such determination. 2017A Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of the Indenture if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right to vote such 2017A Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or any other obligor on the 2017A Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel will be full protection to the Trustee. Upon request, the Authority will certify to the Trustee those 2017A Bonds that are disqualified pursuant to the Indenture and the Trustee may conclusively rely on such certificate.
Money Held for Particular 2017A Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular 2017A Bonds (or portions of 2017A Bonds in the case of registered 2017A Bonds redeemed in part only) will, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the 2017A Bonds entitled thereto, subject, however, to the provisions of the Indenture but without any liability for interest thereon.
Funds and Accounts. Any fund or account required by the Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts will at all times be maintained in accordance with corporate trust industry standards to the extent practicable, and with due regard for the requirements of the Indenture and for the protection of the security of the 2017A Bonds and the rights of every Owner thereof.
Waiver of Personal Liability. No member, officer, agent, employee, consultant or attorney of the Authority or the District is individually or personally liable for the payment of the principal of or premium or interest on the 2017A Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing contained in the Indenture relieves any such member, officer, agent, employee, consultant or attorney from the performance of any official duty provided by law or by the Indenture.
CUSIP Numbers. Neither the Trustee nor the Authority are liable for any defect or inaccuracy in the CUSIP number that appears on any 2017A Bond or in any redemption notice. The Trustee may, in its discretion, include in any redemption notice a statement to the effect that the CUSIP numbers on the 2017A Bonds have been assigned by an independent service and are included in such notice solely for the convenience of the 2017A Bondholders and that neither the Authority nor the Trustee are liable for any inaccuracies in such numbers.
Choice of Law. THE INDENTURE WILL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.
Notice to Rating Agencies. The Trustee will provide any rating agency rating the 2017A Bonds with written notice of each amendment to the Indenture and a copy thereof at least 15 days in advance of its execution.
No Grace Period. No grace period for a covenant default will exceed 30 days or be extended for more than 60 days, without the prior written consent of the Insurer. No grace period will be permitted for payment defaults.
Insurer as Third Party Beneficiary. The Insurer is intended as a third party beneficiary to the Indenture.
Impairment of Insurer’s Rights. No contract will be entered into or any action taken by which the rights of the Insurer or security for or sources of payment of the 2017A Bonds may be impaired or prejudiced in any material respect except upon obtaining the prior written consent of the Insurer.
C-54 Insurer Consideration. The rights granted to the Insurer under the Indenture or any supplement thereto or amendment thereof to request, consent to or direct any action are rights granted to the Insurer in consideration of its issuance of the Insurance Policy. Any exercise by the Insurer of such rights is merely an exercise of the Insurer’s contractual rights and will not be construed or deemed to be taken for the benefit, or on behalf, of the Owners and such action does not evidence any position of the Insurer, affirmative or negative, as to whether the consent of the Owners or any other person is required in addition to the consent of the Insurer.
Amounts Paid by Insurer. Amounts paid by the Insurer under the Insurance Policy and the Reserve Surety Policy will not be deemed paid for purposes of the Indenture and the 2017A Bonds relating to such payments will remain Outstanding and continue to be due and owing until paid by the District in accordance with the Indenture. The Indenture will not be discharged unless all amounts due or to become due to the Insurer have been paid in full or duly provided for.
Covenant to Preserve Priority; Rates and Charges. The Trustee has covenanted and agreed to take such action (including, as applicable, filing of Uniform Commercial Code financing statements and continuations thereof) as is necessary from time to time to preserve the priority of the pledge of the Authority Revenues set forth in the Indenture under applicable law.
Subrogation and Survival of Obligations. The Insurer will, to the extent it makes any payment of principal of or interest on the 2017A Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Insurance Policy (which subrogation rights will also include the rights of any such recipients in connection with any Insolvency Proceedings). Each obligation of the Authority to the Insurer under the Indenture or any supplement thereto or amendment thereof will survive discharge or termination of the Indenture or any supplement thereto or amendment thereof.
C-55 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX D
PROPOSED FORM OF LEGAL OPINION
Upon issuance of the 2017A Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form:
Merced Irrigation District Financing Authority 744 West 20th Street Merced, CA 95340
Re: Merced Irrigation District Financing Authority Electric System Revenue Bonds, Series 2017A
Members of the Board of Directors:
We have acted as Bond Counsel to the Merced Irrigation District Financing Authority (the “Authority”) in connection with the issuance of $____ aggregate principal amount of Electric System Revenue Bonds, Series 2017A (the “2017 Bonds”). The 2017 Bonds have been issued by the Authority pursuant to the terms of the Indenture of Trust, dated as of July 1, 2017 (the “Indenture”), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”).
The 2017 Bonds are limited obligations of the Authority payable solely from Authority Revenues (as such term is defined in the Indenture), consisting of payments (the “Series 2017A Installment Payments”) to be made by the Merced Irrigation District (the “District”) to the Authority pursuant to an Installment Purchase Agreement, dated as of July 1, 2017 (the “Installment Purchase Agreement”), by and between the District and the Authority and from certain other amounts on deposit in funds and accounts under the Indenture.
In connection with our representation we have examined a certified copy of the proceedings relating to the 2017 Bonds. As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigations.
Based upon the foregoing and after examination of such questions of law as we have deemed relevant in the circumstances, but subject to the limitations set forth herein, we are of the opinion that:
1. The proceedings of the Authority show lawful authority for the issuance and sale by the Authority of the 2017 Bonds under the laws of the State of California now in force, and the Indenture has been duly authorized, executed and delivered by the Authority, and, assuming due authorization, execution and delivery by the Trustee, as appropriate, the 2017 Bonds and the Indenture are valid and binding obligations of the Authority enforceable against the Authority in accordance with their respective terms.
2. The obligation of the Authority to make the payments of principal and interest on the 2017 Bonds from Authority Revenues (as such term is defined in the Indenture) is an enforceable obligation of the Authority and does not constitute an indebtedness of the Authority in contravention of any constitutional or statutory debt limit or restriction.
3. Under existing statutes, regulations, rulings and judicial decisions, interest on the 2017 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. With respect to corporations, interest on the 2017 Bonds may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations.
4. Interest on the 2017 Bonds is exempt from State of California personal income tax.
D-1 5. The difference between the issue price of a 2017 Bond (the first price at which a substantial amount of the 2017 Bonds of the same series and maturity is to be sold to the public) and the stated redemption price at maturity with respect to such 2017 Bonds (to the extent that the stated redemption price is greater than the issue price) constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a 2017 Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by the 2017 Bond Owner will increase the 2017 Bond Owner’s basis in the 2017 Bond. In the opinion of Bond Counsel, the amount of original issue discount that accrues to the owner of a 2017 Bond is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax.
6. The amount by which a 2017 Bond Owner’s original basis for determining loss on sale or exchange in the applicable 2017 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended (the “Code”); such amortizable bond premium reduces the 2017 Bond Owner’s basis in the applicable 2017 Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a 2017 Bond Owner realizing a taxable gain when a 2017 Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2017 Bond to the Owner. Purchasers of the 2017 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium.
The opinions expressed herein as to the exclusion from gross income of interest on the 2017 Bonds are based upon certain representations of fact and certifications made by the Authority and others and are subject to the condition that the Authority complies with all requirements of the Code that must be satisfied subsequent to issuance of the 2017 Bonds to assure that interest on the 2017 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the 2017 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2017 Bonds. The Authority has covenanted to comply with all such requirements.
The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Indenture, the Installment Purchase Agreement and the Tax Certificate relating to the 2017 Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. No opinion is expressed herein as to the effect on the exclusion from gross income of interest (and original issue discount) for federal income tax purposes with respect to the 2017 Bonds if any such action is taken or omitted based upon the opinion or advice of counsel other than ourselves. Other than expressly stated herein, we express no other opinion regarding tax consequences with respect to the 2017 Bonds.
The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. We call attention to the fact that the rights and obligations under the Indenture, the Installment Purchase Agreement and the 2017 Bonds are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California.
Respectfully submitted,
D-2 APPENDIX E
DTC AND BOOK-ENTRY ONLY SYSTEM
The information in this section concerning DTC and DTC’s book-entry only system has been obtained from sources that the Authority, the District and the Underwriters believe to be reliable, but none of the Authority, the District or the Underwriters takes any responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2017A Bonds, payment of principal, premium, if any, accreted value, if any, and interest with respect to the 2017A Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2017A Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC.
The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the 2017A Bonds. The 2017A Bonds will be executed and delivered as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond will be executed and delivered for each annual maturity of the 2017A Bonds, each in the aggregate principal amount of such annual maturity, and will be deposited with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book- entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC is rated AA+ by Standard & Poor’s. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.
Purchases of 2017A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2017A Bonds on DTC’s records. The ownership interest of each actual purchaser of each 2017A Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2017A Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in 2017A Bonds, except in the event that use of the book-entry system for the 2017A Bonds is discontinued.
To facilitate subsequent transfers, all 2017A Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 2017A Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2017A Bonds; DTC’s records reflect only the identity of the Direct
E-1 Participants to whose accounts such 2017A Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of 2017A Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2017A Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2017A Bond documents. For example, Beneficial Owners of 2017A Bonds may wish to ascertain that the nominee holding the 2017A Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the 2017A Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2017A Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts 2017A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, and dividend payments on the 2017A Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Authority or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
A 2017A Bond Owner shall give notice to elect to have its 2017A Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such 2017A Bond by causing the Direct Participant to transfer the Participant’s interest in the 2017A Bonds, on DTC’s records, to the Trustee. The requirement for physical delivery of 2017A Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the 2017A Bonds are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered 2017A Bonds to the Trustee’s DTC account.
DTC may discontinue providing its services as depository with respect to the 2017A Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical 2017A Bonds are required to be printed and delivered.
The Authority may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, 2017A Bonds will be printed and delivered to DTC.
THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE 2017A BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE 2017A BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.
E-2 APPENDIX F
FORM OF CONTINUING DISCLOSURE CERTIFICATE
Upon issuance of the 2017A Bonds, the District proposes to enter into a Continuing Disclosure Certificate in substantially the following form:
This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the Merced Irrigation District (the “District”) in connection with the issuance of the $______Merced Irrigation District Financing Authority (the “Authority”) Electric System Revenue Bonds, Series 2017A (the “Bonds”). The Bonds are being issued pursuant to an Indenture of Trust, dated as of July 1, 2017 (the “Indenture”), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as Trustee (the “Trustee”). The District covenants and agrees as follows:
SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the District for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule (as defined below).
SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:
“Annual Report” shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.
“Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes.
“Dissemination Agent” shall mean the District, or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation.
“EMMA” shall mean the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http://emma.msrb.org/.
“Holders” shall mean the Owners as defined in the Indenture.
“Installment Purchase Agreement” shall mean the Installment Purchase Agreement, dated as of July 1, 2017, by and between the District and the Authority.
“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.
“Official Statement” shall mean the Official Statement relating to the Bonds, dated ______, 2017.
“Participating Underwriter” shall mean the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds.
“Repository” shall mean EMMA.
“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.
F-1 “State” shall mean the State of California.
SECTION 3. Provision of Annual Reports.
(a) The District shall, or shall cause the Dissemination Agent to, not later than 270 days after the end of the District’s fiscal year (presently such fiscal year ends March 31), commencing with the report for the fiscal year ending March 31, 2018, provide to the Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the District’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c).
(b) Not later than fifteen (15) Business Days prior to said date, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If the District is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the District shall send a notice to the Repository in substantially the form attached as Exhibit A.
(c) The Dissemination Agent shall:
determine each year prior to the date for providing the Annual Report the name and address of the Repository, if any; and
if the Dissemination Agent is other than the District, file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided.
SECTION 4. Content of Annual Reports. The District’s Annual Report shall contain or include by reference the following:
(a) The audited financial statements of the District for the prior fiscal year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the District’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they come available.
(b) An update for the last Fiscal Year of the operating results of the District and debt service coverage on the Bonds and any parity obligations presented in a similar format as the table entitled “Historic Electric System Operating Results and Debt Service Coverage” on page __ of Appendix A to the Official Statement; provided however if such operating results and debt service coverage can be derived from the audited financial statements required to be filed in 4(a) above, failure to file a separate table under this section 4(b) shall not constitute a default hereunder.
Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference.
F-2 SECTION 5. Reporting of Significant Events.
(a) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) Business Days after the event:
1. principal and interest payment delinquencies;
2. unscheduled draws on debt service reserves reflecting financial difficulties;
3. unscheduled draws on credit enhancements reflecting financial difficulties;
4. substitution of credit or liquidity providers, or their failure to perform;
5. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability or Notices of Proposed Issue (IRS Form 5701 TEB);
6. tender offers;
7. defeasances;
8. ratings changes; and
9. bankruptcy, insolvency, receivership or similar proceedings.
Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person.
(b) Pursuant to the provisions of this Section 5, the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material:
1. unless described in Section 5(a)(5), other notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds;
2. modifications to the rights of Bond holders;
3. optional, unscheduled or contingent Bond redemptions;
4. release, substitution or sale of property securing repayment of the Bonds;
5. non-payment related defaults;
6. the consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of
F-3 business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; and
7. appointment of a successor or additional trustee or the change of the name of a trustee.
(c) If the District determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, the District shall file a notice of such occurrence with EMMA in a timely manner not more than ten (10) Business Days after the event.
(d) While the failure to file a notice of the occurrence of a Listed Event under Section 5(a)(8) shall constitute non-compliance with the terms hereof and may be required to be disclosed by the District in accordance with the Rule, failure shall not constitute an event of default hereunder if (i) the District did not receive written notice of such rating change from the respective rating agency, (ii) the rating change was a result of a change in the rating of a liquidity or credit enhancement and the market was generally aware of the change in the rating of such liquidity or credit enhancer or (iii) the rating agency filed a notice of such rating change with the Repository.
SECTION 6. Termination of Reporting Obligation. The District’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).
SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate.
SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(c), and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.
SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.
F-4 SECTION 10. Default. In the event of a failure of the District to file an annual report under Section 4 hereof or to file a report of a significant event under Section 5 hereof, any Holders or Beneficial Owners of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to make such filing. Notwithstanding the foregoing, no action may be undertaken by Holders or Beneficial Owners of the Bonds with respect to the accuracy of the information contained in any such filing or otherwise without the approval in writing of Holder or Beneficial Owner of at least 50% of the aggregate principal amount of the Bonds. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Installment Purchase Agreement or the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance.
No Owners or Beneficial Owners may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the District satisfactory written evidence of their status as Owners or Beneficial Owners of at least 50% aggregate principal amount of the Bonds, and a written notice of and request to cure such failure, and the District shall have refused to comply therewith within a reasonable time.
SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.
SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.
Date: August __, 2017 MERCED IRRIGATION DISTRICT
By: Chief Financial Officer
F-5 EXHIBIT A
NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT
Name of Obligated Person: MERCED IRRIGATION DISTRICT
Name of Obligation: MERCED IRRIGATION DISTRICT FINANCING AUTHORITY ELECTRIC SYSTEM REVENUE BONDS, SERIES 2017A
Date of Issuance: ______, 2017
NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Certificate executed by the District on the date of issuance of the Bonds. The District anticipates that the Annual Report will be filed by ______.
Dated:______
MERCED IRRIGATION DISTRICT
By: [no signature required; form only]
F-6 APPENDIX G
SPECIMEN MUNICIPAL BOND INSURANCE POLICY [THIS PAGE INTENTIONALLY LEFT BLANK] MUNICIPAL BOND INSURANCE POLICY
ISSUER: Policy No: -N
BONDS: $ in aggregate principal amount of Effective Date: Premium: $
ASSURED GUARANTY MUNICIPAL CORP. ("AGM"), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee") or paying agent (the "Paying Agent") (as set forth in the documentation providing for the issuance of and securing the Bonds) for the Bonds, for the benefit of the Owners or, at the election of AGM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer.
On the later of the day on which such principal and interest becomes Due for Payment or the Business Day next following the Business Day on which AGM shall have received Notice of Nonpayment, AGM will disburse to or for the benefit of each Owner of a Bond the face amount of principal of and interest on the Bond that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by AGM, in a form reasonably satisfactory to it, of (a) evidence of the Owner's right to receive payment of the principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner's rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in AGM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by AGM is incomplete, it shall be deemed not to have been received by AGM for purposes of the preceding sentence and AGM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, who may submit an amended Notice of Nonpayment. Upon disbursement in respect of a Bond, AGM shall become the owner of the Bond, any appurtenant coupon to the Bond or right to receipt of payment of principal of or interest on the Bond and shall be fully subrogated to the rights of the Owner, including the Owner's right to receive payments under the Bond, to the extent of any payment by AGM hereunder. Payment by AGM to the Trustee or Paying Agent for the benefit of the Owners shall, to the extent thereof, discharge the obligation of AGM under this Policy.
Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer's Fiscal Agent are authorized or required by law or executive order to remain closed. "Due for Payment" means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity unless AGM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. "Nonpayment" means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. "Nonpayment" shall also include, in respect of a Bond, any payment of principal or interest that is Due for Payment made to an Owner by or on behalf of the Issuer which has been recovered from such Owner pursuant to the
G-1 Page 2 of 2 Policy No. -N
United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. "Notice" means telephonic or telecopied notice, subsequently confirmed in a signed writing, or written notice by registered or certified mail, from an Owner, the Trustee or the Paying Agent to AGM which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount and (d) the date such claimed amount became Due for Payment. "Owner" means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that "Owner" shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.
AGM may appoint a fiscal agent (the "Insurer's Fiscal Agent") for purposes of this Policy by giving written notice to the Trustee and the Paying Agent specifying the name and notice address of the Insurer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee and the Paying Agent, (a) copies of all notices required to be delivered to AGM pursuant to this Policy shall be simultaneously delivered to the Insurer's Fiscal Agent and to AGM and shall not be deemed received until received by both and (b) all payments required to be made by AGM under this Policy may be made directly by AGM or by the Insurer's Fiscal Agent on behalf of AGM. The Insurer's Fiscal Agent is the agent of AGM only and the Insurer's Fiscal Agent shall in no event be liable to any Owner for any act of the Insurer's Fiscal Agent or any failure of AGM to deposit or cause to be deposited sufficient funds to make payments due under this Policy.
To the fullest extent permitted by applicable law, AGM agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses may be available to AGM to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy.
This Policy sets forth in full the undertaking of AGM, and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, (a) any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity and (b) this Policy may not be canceled or revoked. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
In witness whereof, ASSURED GUARANTY MUNICIPAL CORP. has caused this Policy to be executed on its behalf by its Authorized Officer.
ASSURED GUARANTY MUNICIPAL CORP.
By Authorized Officer
A subsidiary of Assured Guaranty Municipal Holdings Inc. 1633 Broadway, New York, N.Y. 10019 (212) 974-0100
Form 500NY (5/90)
G-2
MERCED IRRIGATION DISTRICT FINANCING AUTHORITY • ELECTRIC SYSTEM REVENUE BONDS, SERIES 2017A