Tid annual report 2008

Page 1

TURLOCK IRRIGATION DISTRICT ANNUAL REPORT 2008


TID at a glance Established in 1887, the Turlock Irrigation District is the first publicly owned irrigation district in the state and one of only four in California today that also provides electric retail energy directly to homes, farms and businesses. Organized under the Wright Act, the District operates under the provisions of the California Water Code as a special district. TID is also an independent control area and is governed by a five member Board of Directors.


Electric Service Area: 662 square-miles Number of Electric Accounts at year end: 98,548

Customers per mile of Distribution Line: 45 Customers per mile of Transmission Line: 275

Irrigation Service Area:

Miles of Distribution Line:

307 square-miles

2,180

Number of Acres Irrigated:

Employees:

145,559

482

DON PEDRO LAKE XY

Y X

Y X

X

Y X

X

Y X

Y X

Y X

TUOLUMNE RIVER

MODESTO Y X

X

Y X

X

Y X

HUGHSON

CERES

Y X

Y X

TURLOCK LAKE

KEYES Y X

DENAIR TURLOCK

Y NT OU NTY SC AU D COU ISL E N C R STA ME

N SA

N UI AQ JO

PATTERSON

X

CALIFORNIA

Y X

Y X Y X

XY

RI CED MER Y X

XY

Y X

Y X

Y X

Y X

XY

VER

STANISLAUS COUNTY SANTA CLARA COUNTY

ELECTRICAL SERVICE AREA IRRIGATION SERVICE AREA

XY

ER RIV

DELHI BALLICO HILMAR



General Manager’s Message Success. The word can mean many things to many people. Whether coaching a baseball team to victory or purchasing your first home, success seldom happens without careful planning and diligent follow through. That same planning and follow through is required to successfully operate and maintain an affordable and reliable irrigation and electric system. Since 1887, TID has relied upon leadership, innovation, strategic planning and careful follow through to achieve the success we share with our irrigation and electric customers. From establishing some of the oldest water rights in California on the Tuolumne River to building, owning and operating 11 power generation facilities capable of producing 708 Megawatts of energy, we continue to innovatively plan for the future. California mandates and environmental stewardship require that future planning includes even more sources of clean, renewable energy. I am pleased to report that TID has incorporated environmentally friendly hydroelectric energy into its generation from the very beginning. In 2008 the TID Board of Directors increased the amount of renewable energy in our portfolio and approved the purchase of a wind generation facility, the Tuolumne Wind Project, capable of producing 137 megawatts of renewable energy. Keeping with our long held strategy of owning and operating facilities rather than purchasing the energy on the open market, that ownership will provide long term rate stability for our customers by avoiding market volatility. Additionally water remains a core part of our plans and is critical to the environment in which we all live. While the State of California works to solve water issues in the Delta, protecting our water rights and keeping Tuolumne River water in the region we serve is another cornerstone of our business strategy. In 2008, work continued on a partnership with local cities to build a surface water drinking plant. Don Pedro Reservoir, central to both our water and energy businesses, is licensed by the Federal Energy Regulatory Commission (FERC). That FERC license will expire and be renewed in 2016 and the relicensing process can be both complex and time consuming. As project operator and majority owner of the reservoir and generation facilities, TID began working with other project partners in 2008 to outline the work needed to ensure a smooth methodology for the eight year re-licensing effort. I am confident that our legacy of careful planning for the future will balance the needs for the growing demand for renewable energy while reducing greenhouse gas emissions and maintaining an affordable, reliable electric system.



The Power of Wind With the need for renewable energy expected to rise significantly, TID acted swiftly and carefully to protect its customers from inflated costs in the future by securing its own wind generation facility in 2008. Building on its history and the financial stability of owning generation assets, TID purchased the Tuolumne Wind Project rather than rely on acquiring credits associated from renewable projects owned by others. Located in Klickitat County, Washington along the Columbia River, this site has been recognized as one of the most productive wind resource areas in the Western United States. The project consists of 62 turbines which can generate a total of 136.6 megawatts, enough green energy to power approximately 44,000 households each year. Upon completion, the project will add significantly to TID’s renewable energy portfolio, taking it to 28 percent qualified renewable energy, eight years ahead of the Board adopted goal of 20 percent by 2017. This is TID’s first ownership in wind facilities. The project will be completed in 2009. Wind power diversifies TID’s Renewable Portfolio Standard (RPS), which currently includes small hydro, solar, geothermal and the largest fuel cell in California.


Utilizing the Sun Participation in TID’s solar photovoltaic (PV) rebate program has increased significantly since its adoption in 2006. In 2008, TID interconnected 941.4 kilowatts to the grid and paid over $2,800,000 in rebates. The systems connected include 30 residential homes, 3 commercial properties and 4 agricultural installations. The solar rebate program provides an incentive to TID customers that purchase and install solar power at their home or business. TID’s rebate program is currently one of the highest rebates available in California at $2.80 per watt for non-residential customers and $4.00 per watt for residential customers.

TID customers that install solar are placed on a Net Metering rate schedule. Customers continue to pay the customer and demand charges, but their energy consumption is netted against the amount of energy they generate. If a customer ends the billing cycle generating more energy than they consume, the customer receives a credit for the kilowatt-hours they generated and sent to the TID grid. The amount credited for the kilowatt-hours produced is at the same rate TID would have charged the customer.


Project Highlight: TID Interconnects the Largest Solar Project in its Service Area In 2008, TID interconnected the largest solar electric project in its service area, a 518.5 kilowatt array of photovoltaic panels atop the walnut processor at Grower Direct Nut Company located in Hughson, California. The 2,530 solar panels are expected to generate approximately 800,000 kilowatt-hours of renewable energy, enough to provide almost all of the energy needed to operate their business each year. SunPower Corporation, a Silicon Valley-based manufacturer of high efficiency solar systems, designed and constructed the roof mounted solar photovoltaic arrays. This project was made possible in part by a solar rebate from TID. Grower Direct Nut Company uses a variety of natural resources to operate their business efficiently and will now begin to utilize the sun to supply nearly all of the electricity needed to shell and cool the walnuts they process. “It’s the right thing to do for the environment as well as control our future energy costs,” said Kevin Chiesa of Grower Direct Nut Company. In addition to installing solar, Grower Direct Nut Company has also evaluated and implemented other energy efficiency options to reduce their overall energy consumption. A lighting retrofit was completed in which metal halide lighting was replaced with fluorescent lighting. Occupancy sensors were also installed for additional energy efficiency savings. They are also continuing to research the cost-effectiveness of retrofitting their dryers for additional energy efficiency savings. “Changing to meet the new challenges of tomorrow is a part of our family farming tradition,” said Ron Martella of Grower Direct Nut Company.


Managing our Water Resources California is clearly in the midst of a significant drought. In June 2008, the Governor proclaimed an official statewide drought and issued an Executive Order after two consecutive years of below-average rainfall, low reservoir storage and low runoff conditions. Additionally, a state of emergency was declared in Sacramento, San Joaquin, Stanislaus, Merced, Madera, Fresno, Kings, Tulare and Kern Counties due to severe water shortages. The TID storage in Don Pedro Reservoir was lower at the start of the 2008 season than any other season since 1992, at the end of the last drought. The situation can be attributed to the lack of precipitation in 2007, which was the twelfth driest year on record since 1897. Precipitation and spring runoff have also been well behind historical averages up and down the state for the past three years. TID ended the 2008 season with water levels in Don Pedro Reservoir at approximately 1,053,229 acre-feet or at 59 percent of capacity. By carefully managing the available resources, TID has developed a reputation of being able to navigate through multiple dry years. Ahead of other water providers, at the beginning of the irrigation season, TID took several precautions and implemented conservation measures including capping the amount of water available to growers, shortening the irrigation season, renting pumps to supplement the surface water supply and working to minimize spills. TID also worked diligently to educate growers on the water situation as well as offer solutions and education for managing their crops with less water.



Promoting Energy Efficiency The TID Board of Directors adopted an aggressive 10-year plan to promote energy conservation by assisting customers with efficiency projects. For 2008, the goal was to conserve 9.3 megawatthours of electricity. TID was able to surpass the annual goal for a second year in a row and achieve a savings of 10.9 megawatt-hours of electricity. TID continues to help customers achieve energy savings through the implementation and promotion of a variety of programs that provide rebate opportunities for all rate classes to encourage customers to conserve energy. A significant portion of the energy efficiency measures were implemented by industrial and commercial customers.

TID provides a variety of options for businesses that are looking to make changes in their existing systems by making upgrades or retrofitting their existing facility. Rebates are available that address areas such as lighting, compressed air systems, refrigeration systems, motors, gaskets, chillers and many other systems and components.


Project Highlight: G3 Enterprises Incorporates Energy Efficiency Methods G3 Enterprises, headquartered in Modesto California, provides a wide variety of packaging and product solutions and services for the wine and beverage industry. The facility is primarily made up of warehouses which provide storage as part of G3’s logistics, labeling and bottle-decorating operations. TID partnered with G3 Enterprises to perform a comprehensive lighting audit to identify potential high-value energy and demand savings in their lighting systems by focusing on energy efficiency and time-of-use management. Most of G3’s buildings and warehouses are accessed 24 hours a day, seven days a week throughout the year, by a wide variety of employees. The warehouses were primarily illuminated with metal halides and T12 fluorescent lights, many of which remained on constantly, while the remaining lights were manually controlled. The audit identified several lighting measures that, if implemented, would result in a substantial reduction in energy consumption. All of the lights in the facility were replaced with high efficiency T5 or T8 fluorescent lights which consume approximately half the energy as the metal halides. Occupancy and daylight sensors were also incorporated into the systems to further reduce energy consumption by only providing light when needed, which reduced their energy consumption by an additional 85 percent. Lights are now only on in areas where employees are working instead of the entire warehouse, further increasing the efficiency and complementing the round the clock nature of the operation of the facility. G3 estimates they will reduce their overall energy consumption by 90 percent as a result of the project and TID estimates the annual energy saving to be 7,273,294 kilowatt-hours. TID provided over $230,000 in rebates for the projects completed in 2008. “We are currently researching how we can continue to conserve and seek new opportunities we may have for savings,” said Doug Smith, G3 Properties Project Manager. TID and G3 are continuing their energy efficiency efforts and are evaluating additional energy efficiency projects related to their chillers, HVAC units and pumps. “We are also in the process of installing a 100 kilowatt solar system that will be operational by October 2009. The system will generate about 70 percent (164,000kwh per year) of our annual electrical needs for our corporate headquarters.”


Leading the Way In 2008, TID constructed the largest fuel cell in the state of California. Partnering with the City of Turlock, the fuel cell is located at their Regional Water Quality Control Facility. The 1.2 megawatt fuel cell generates clean, renewable energy from the methane gas produced by the facility. Prior to the fuel cell, a portion of the methane gas was utilized to operate three boilers at the treatment facility with the remaining portion being burned into the atmosphere. Because fuel cells convert methane gas into electricity electrochemically, there is no combustion or creation of greenhouse gases. They operate hundreds of times cleaner than conventional power generation facilities which signiďŹ cantly reduce nitrogen oxides, particulates and sulfur dioxides emitted into the air, which gives the City the opportunity to reduce its emissions. The fuel cell project qualiďŹ es as a renewable energy project and helps TID surpass its objective of securing 20 percent of its energy from renewable resources by 2017.



A Legacy of Giving Throughout the years TID remains rooted in its commitment to customers and the communities it serves. In 2008, TID invested substantial funds in sponsorships, grants, community activities and projects as well as education that reached customers in virtually every neighborhood in its service area. To educate its customers about the importance of energy efficiency, TID provided free compact fluorescent light (CFL) bulbs throughout the year as well as conducted 138 free home energy audits. TID’s full-time Education Specialist continued to be available to all schools within its 662 square-mile service area to teach children concepts such as the water cycle, water and electrical safety, renewable resources and energy conservation. In addition to the organization’s contributions, TID employees have donated thousands of hours of their own time and money to worthy community projects. Some projects include the Salvation Army’s Angel Tree Program where employees donated over 300 gifts to children for Christmas, as well as donating over $1,000 to the American Cancer Society’s Daffodil Days Campaign. There are many other activities and foundations that TID employees contributed to and at TID all of this is second nature, because partnering with the community is a core value of the organization.

Project Highlight: Alternative Energy Learning Center TID provided a grant to purchase and install a renewable energy demonstration project at the Alternative Energy Learning Center located at Walnut Elementary School in Turlock. The project will be tied to the TID grid and computer monitored for students to learn about how much electricity is being produced in real time. Along with a solar array, the grant covers a voltage meter for students to view, a display of electrical appliances using energy efficient products and a model of a watershed and dam generating renewable hydroelectric energy. There will also be a small wind generator to accompany the solar array. The Learning Center was designed and created for the purpose of educating students within TID about alternative energy. The project will enable students, parents and other interested parties to learn about energy production, conservation and future energy needs. It is an ideal opportunity to inform community members of TID’s commitment to provide clean, reliable power today and for the future.


“TID is to be highly commended for its contribution to the education of the children of this area. Our students need to be very familiar with alternative sources of energy. By constructing the solar array and wind generator, we hope to make future generations better informed about energy production and conservation available in our valley.”

–Bret Sutterley, Fifth grade teacher at Walnut Elementary School



Investing in Reliability Since 1923, TID has been providing reliable, affordable power to its customers. TID plans strategically, well in advance, for infrastructure enhancements to ensure reliability and meet the growing demand for energy. Additionally, investments are made in industry advancements that would position it to better serve its customers. In 2008, TID continued its efforts to install “Smart Meters” as well as initiate the expansion of one of its natural gas-fired power plants.

Installing “Smart Meters” TID has completed the first phase of replacing existing retail electric meters with the new advanced “Smart Meters.” The new meters are designed to provide a wide range of benefits to customers while increasing operational efficiencies at TID. The meters will be installed over 4 years. This phased approach allows existing staff to change the meters as well as maintain better control of the critical meter reading and billing processes. The expected cost is $12.6 million, which is projected to be offset through operational savings - which will reduce waste, improve reliability and encourage energy efficiency and demand response.

Almond Power Plant Expansion In an effort to further reduce the reliance on the wholesale electricity market, TID has purchased three of General Electric’s newest gas turbines to expand its existing Almond Power Plant. The purchase will quadruple the plant’s current output adding 150 megawatts to its existing 50 megawatts. This important upgrade will allow TID to contribute to California’s energy goals of building sufficient generation facilities and ensuring new generation plants can quickly come online when necessary. In addition, it will help TID meet its resource adequacy and reserve needs well into the future. The units are scheduled for commercial operation in the spring of 2011.


2008 Board of Directors

Advisors

Phillip Short – Division 1

Griffith & Masuda – General Counsel

Charles Fernandes – Division 2 – President

PricewaterhouseCoopers LLP – Independent Accountants

Michael Berryhill – Division 3 Rob Santos – Division 4 Randy Fiorini – Division 5 – Vice President

Management Team Larry Weis – General Manager/CEO Jeff Barton – Assistant General Manager, Civil Engineering & Water Operations Randy Baysinger – Assistant General Manager, Power Generation Steve Boyd – Assistant General Manager, Consumer Services Casey Hashimoto – Assistant General Manager, Electrical Engineering & Operations

Public Financial Management, Inc. – Financial Advisor R.W. Beck, Inc. – Consulting Engineers

Revenue Bond Ratings Moody’s A1 Fitch A+ Standard & Poor’s A+

Photography Photographs on pages 4, 5, 6a, 6b, 8, 9, 10, 11, 13a, 15b are courtesy of photographer Daniel Morrissey.

Joe Malaski – Assistant General Manager, Financial Services/CFO

For additional information, contact: Turlock Irrigation District

P.O. Box 949 Turlock, CA 95381-0949

(209) 883-8300 www.tid.com


Turlock Irrigation District Consolidated Financial Statements December 31, 2008 and 2007

Table of Contents Historical Operating Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Historical Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . 7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Notes to Financial Statements: Note 1: Organization and Description of Business . . . . . . 21 Note 2: Summary of Significant Accounting Policies . . . . 21 Note 3: Utility Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Note 4: Participation in Joint Powers Agencies . . . . . . . . 30 Note 5: Cash, Cash Equivalents and Investments . . . . . . . 32 Note 6: Long-term Debt . . . . . . . . . . . . . . . . . . . . . . . . . 36 Note 7: Commercial Paper . . . . . . . . . . . . . . . . . . . . . . . . 39 Note 8: Regulatory Deferrals . . . . . . . . . . . . . . . . . . . . . . 40 Note 9: Derivative Financial Instruments . . . . . . . . . . . . . 41 Note 10: Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Note 11: Other Post Employment Benefits . . . . . . . . . . . . 47 Note 12: Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Note 13: Contingencies and Settlements . . . . . . . . . . . . . . 50 Note 14: Pending Acquisition . . . . . . . . . . . . . . . . . . . . . . . 51


Historical Operating Statistics (2005-2008) 2008 2007 2006 HISTORICAL OPERATING STATISTICS AVERAGE CUSTOMERS AT END OF PERIOD: Residential Commercial Industrial Other (1) AVERAGE CUSTOMERS AT END OF PERIOD: Total Residential MWh SALES: Commercial Residential Industrial (1) OtherCommercial Industrial Total Other (1) MWh SALES: Total Retail Residential Wholesale Power Commercial Total Industrial SOURCES OF MWh: (1) Other Generated Total Retail by district P Purchased h Power d Wholesale TotalSubtotal System losses SOURCES OF MWh: Total Generated by district ELECTRIC P Purchased h d ENERGY REVENUES: (IN THOUSANDS) Subtotal Residential losses System Commercial Total Industrial ELECTRIC REVENUES: Ot eENERGY (1) ( ) Other (IN THOUSANDS) Total Retail Energy Residential Electric Service Charges Commercial Other Electric Revenue IndustrialElectric Energy Retail Ot eWholesale (1) ( ) Other Power TotalTotal Retail Energy Electric Service Charges SYSTEM PEAK DEMAND (MW) Other Electric Revenue Electric Energy Retail AVERAGE MWh SALES Wholesale Power PER CUSTOMER FOR THE PERIOD Total Residential

2008

2007 70,981

70,594

2006

2005 2005

70,715

68,257 6,584 766 730 2006 2005 18,346 19,214 97,443 93,917 70,715 68,257 6,748 6,584 729,792 678,878 766 730 125,050 121,825 19,214 18,346 709,315 675,016 97,443 93,917 395,600 338,395 1,959,757 1,814,114 729,792 678,878 995,658 (6) 950,873 (6) 125,050 121,825 2,955,415 2,764,987 709,315 675,016 395,600 338,395 1,762,745 776,112 1,959,757 1,814,114 1 239 151 1,239,151 2 088 418 2,088,418 995,658 (6) (6) 950,873 (6) (6) 3,001,896 2,864,530 2,955,415 2,764,987 46,481 99,543 2,955,415 2,764,987 1,762,745 776,112 1 239 151 (6) 1,239,151 2 088 418 (6) 2,088,418 3,001,896 2,864,530 $81,956 $70,659 46,481 99,543 12,874 11,630 2,955,415 2,764,987 55,026 44,643 32,521 3 ,5 26,535 6,535 182,377 153,467 $81,956 324 $70,659 284 12,874 165 11,630 164 55,026 44,643 182,866 153,915 32,521 3 ,5 57,083 (6) 26,535 6,535 58,296 (6) 182,377 153,467 $239,949 $212,211 324 284 165 534 164 476 182,866 153,915 57,083 (6) 58,296 (6) $239,949 $212,2119.946 10.320 18.531 18.503 534 476 925.999 924.679

HISTORICAL6,923 OPERATING6,851 STATISTICS 6,748 792 20,239 98,548 70,594 6,923 712,387 792 128,553 20,239 754,527 98,548 425,399 2,020,866 712,387 1,260,069 (6) 128,553 3,280,935 754,527 425,399 1,924,982 2,020,866 1 1,445,451 445 451 (6) (6) 1,260,069 3,370,433 3,280,935 89,498 3,280,935 1,924,982 1 1,445,451 445 451 (6) 3,370,433 $91,826 89,498 14,807 3,280,935 66,688 41,100 , 00 214,421 $91,826 344 14,807 190 66,688 214,955 41,100 , 00 97,385 (6) 214,421 $312,340 344 190 520 214,955 97,385 (6) $312,340 10.091

2008

784 19,807 98,423 70,981 6,851 706,977 784 125,614 19,807 753,617 98,423 422,016 2,008,224 706,977 1,392,429 (6) 125,614 3,400,653 753,617 422,016 1,748,714 2,008,224 1 706 265 1,706,265 1,392,429 (6) (6) 3,454,979 3,400,653 54,326 3,400,653 1,748,714 1 706 265 (6) 1,706,265 3,454,979 $86,561 54,326 13,587 3,400,653 62,058 38,534 38,53 200,740 $86,561 373 13,587 270 62,058 201,383 38,534 38,5386,408 (6) 200,740 $287,791 373 270 516 201,383 86,408 (6) $287,7919.960

2007

Commercial 18.569 18.335 520 516 SYSTEM PEAK DEMAND (MW) Industrial 952.686 961.246 AVERAGE MWh SALES REVENUE PER AVERAGE CUSTOMER FOR THE PERIOD PER MWh FOR THE PERIOD Residential 10.091 9.960 $128.90 $122.44 Residential Commercial 18.569 18.335 $115.18 $108.16 Commercial Industrial 952.686 961.246 $88.38 $82.35 Industrial AVERAGE REVENUE AVERAGE COST OF POWER PER MWh FOR THE PERIOD $0 077 $0.077 $0 066 $0.066 PER KWh FOR RETAIL LOAD(2) $128.90 $122.44 Residential $115.18 $108.16 Commercial (1) Includes agricultural and municipal water pumping, street lighting, and interdepartmental meters. $88.38 $82.35 Industrial (2) Includes depreciation, excludes debt service.

10.320 $112.30 18.531 $102.95 925.999 $77.58

9.946 $104.08 18.503 $95.46 924.679 $66.14

$0 055 $0.055 $112.30 $102.95 $77.58

$0 046 $0.046 $104.08 $95.46 $66.14

(3) Summary are now counted by individual connections. AVERAGE COST accounts OF POWER Includes the benefits of well above normal wholesale power margins. $0 077 $0.077 $0 066 $0.066 $0 055 $0.055 PER (4) KWh FOR RETAIL LOAD(2) (5) District acquired Westside Service territory which included 5,778 accounts. (1) Includes agricultural and municipal water pumping, lighting, andphysically interdepartmental meters. (6) Includes adjustments for transaction "bookouts"street which were not settled into the District's system. (2) Includes depreciation, excludes debt service. (3) Summary accounts are now counted by individual connections. (4) Includes the benefits of well above normal wholesale power margins. (5) District acquired Westside Service territory which included 5,778 accounts. (6) Includes adjustments for transaction "bookouts" which were not physically settled into the District's system.

$0 046 $0.046

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

2 T


Historical Operating Statistics (1999-2004) HISTORICAL OPERATING STATISTICS 2004 2003 2007 2002 2001 20002005 1999 2008 2006 HISTORICAL OPERATING STATISTICS HISTORICAL OPERATING STATISTICS AVERAGE CUSTOMERS AT END OF PERIOD: 70,981 70,715 68,257 Residential 70,594 2008 2007 2005 2004 2002 2006 2001 2000 6,851 6,748 6,584 1999 Commercial 6,923 2003 AVERAGE CUSTOMERS AT END OF PERIOD: Industrial 78456,480 70,715 55,505766 68,257 54,535 730 54,341 70,981 Residential 70,594 792 65,218 62,813 (1) 20,239 19,214 6,584 5,311 18,346 Other Commercial 6,923 6,0946,851 19,807 5,508 6,748 5,416 5,285 6,419 Industrial 766 687792 718 784 98,423 613 592 602 97,443 730 613 93,917 Total 98,548 Other (1)

MWh SALES: Total Residential MWh SALES: Commercial Residential Industrial Commercial (1) Other Industrial (1) OtherRetail Total Total WholesaleRetail Power Wholesale Power Total Total

SOURCES OFOF MWh: SOURCES MWh: Generated bybydistrict district Generated P Purchased P Purchased h hd d Subtotal Subtotal losses System losses System Total Total

ELECTRIC ENERGY REVENUES: ELECTRIC ENERGY REVENUES: (IN THOUSANDS) Residential (IN THOUSANDS) Commercial Residential Industrial Commercial Ot e (1) ( ) Other Industrial Total Retail Energy Ot e (1) ( ) Service Charges Other Electric Total Energy OtherRetail Electric Revenue ElectricElectric Service Charges Retail Energy Wholesale Other ElectricPower Revenue Total Energy Retail Electric

Wholesale Power SYSTEM PEAK DEMAND (MW) Total AVERAGE MWh SALES

PER CUSTOMER FOR THE PERIOD (MW) SYSTEM PEAK DEMAND Residential

Commercial AVERAGE MWh SALES Industrial PER CUSTOMER FOR THE PERIOD Residential AVERAGE REVENUE Commercial PER MWh FOR THE PERIOD Residential Industrial

20,239 17,307 98,548 89,631

712,387

19,807 15,646 98,423 85,271 (5)

14,944 19,214 77,545 97,443

706,977

11,888 (3)18,346 6,183 93,917 66,642 73,401

729,792

678,878

125,050678,878539,341 121,825 517,436 128,553 602,930 706,977 125,614 712,387 661,266 551,132729,792 544,930 709,315121,825 96,612 675,016 93,243 754,527 109,644 125,614 753,61798,991125,050 99,240 128,553 119,746 425,399 584,283 395,600675,016534,329 338,395 520,835 753,617 422,016 754,527 544,995709,315 522,229 651,200 425,399 422,016 298,345395,600 284,873 327,811 2,008,224 1,959,757338,395281,2061,814,114 283,648 2,020,866 306,511 2,008,224 1,959,757 1,814,114 2,020,866 1,603,368 1,493,463 1,451,272 1,760,023 1,392,429 (6) 995,658 (6)1,451,488 950,873 1,415,162 (6) 1,260,069 (6) 1,392,429 (6) (6) (6) 1,260,069 (6) (6) 354,687 (6)3,400,653 553,520995,6581,002,446 356,686 3,280,935 2,955,415950,873667,564 2,764,987 147,706 3,280,935 3,400,653 2,955,4152,453,718 2,764,987 1,958,055 2,046,983 2,119,052 1,562,868 2,116,709 1,924,982 337,430 1,748,714 1,762,745776,112797,851 776,112 668,970 1,924,982 1,748,714 1,762,745 643,359 425,110 419,211 1 1,445,451 445 451 1451 706 265 (6) 265 1 239 1511,875,316 1,239,151 2 088(6) 2,088,418 418 (6)687 1,799,808 1 799 808 (6) (6) 6821,706,265 (6)1,706,265 1 744 (6) 1,744,398 398 1 (6) 875 316151 1,424,687 1 424 978,626 978 626 1 1,445,451 445 451 11,682,451 (6) 1 706 1 239 1,239,151 2 088 418 (6) 2,088,418 3,370,433 3,454,979 3,001,8962,518,675 2,864,530 2,163,609 2,222,538 2,224,918 3,370,433 2,019,881 3,454,979 3,001,896 2,864,530 1,647,596 89,498 54,326 54,326 61,826 116,626 46,481 64,957 108,209 89,498 46,481 99,543103,486 99,543 84,728 3,400,653 2,955,4152,453,718 2,764,987 3,280,935 1,958,055 2,046,983 2,119,052 1,562,868 2,116,709 3,280,935

3,400,653

$91,826 $86,561 $65,231 $58,563 13,587 14,807 9,988 11,081 $91,826 62,058 66,688 35,336 40,100 14,807 38,53 ,41,100 5, 00 22,561 ,5638,534 24,152 66,688 214,421 200,740 140,564 126,448 41,100 , 00 295344 213 373 214,421 190 (645) 94 270 214,955 344 126,755 201,383 140,214 86,408 97,385 (6) (6) 22,335 (6) 24,081 190 $312,340 $287,791 $164,295 214,955 $149,090

2,955,415

$48,547$81,956 $47,680

2,764,987

$70,659$46,676

$44,701

8,979 9,102 $86,561 8,909 12,874 $81,956 11,630 9,156 $70,659 13,58730,744 55,026 29,773 12,874 44,643 31,017 11,630 31,198 3 ,5 6,535 20,253 ,303 32,521 20,447 0, 55,026 26,535 0, 53 44,643 20,366 0,366 62,05821,303 109,503182,377 106,879 153,467107,102 105,367 38,534 38,53 127 324 32,521 374,5 6,535 284 92 26,535 200,740 118 165 182,377 164 170 100 153,467 373 284 153,915107,294 109,748182,866 107,123324 (6) 27021,232 57,083 (6) (6) 201,108165 58,296 82,893 4,441 164 $239,949 $308,231 $212,211 $130,980 $190,187 153,915 $109,808 201,383 182,866 57,083 (6) 97,385 (6) 406 516 86,408 (6) 534 476 437520 397 410 379 58,296 (6) 382 $312,340 $287,791 $239,949 $212,211

10.091 10.139 18.569 18.655 952.686 947.889

520

10.091 18.569 $128.90 $98.65 952.686

9.5999.960 18.335 17.992 961.246 813.765

516

9.758 10.320 9.818 17.972 18.531 18.323 925.999 889.062 882.144

534

9.946 9.890 18.503 18.191 924.679871.662

476

9.960 18.335 $122.44 961.246$88.09$112.30 $97.13

10.320 9.946 18.531 18.503 $87.50 925.999$104.08 $86.54 924.679

$88.38 $82.35 Industrial $61.58 $60.48 $56.41 $77.58 AVERAGE REVENUE PERAVERAGE MWh FOR THEOFPERIOD COST POWER $128.90 Residential $0 077 $0.077 $0 066 $122.44$0.055 $0.066 $0 055 PER KWh FOR RETAIL LOAD(2) $0 055 $0.055 $0 048 $0.048 $0 055 $0.055 $115.18 $108.16 Commercial (1) Includes agricultural and municipal water pumping, street lighting, and interdepartmental meters. $88.38 $82.35 Industrial

$112.30 $0 046 $0.029 $0.046 $0.047 $0 047 $0 029 $104.08 (4)

Commercial

6,228 66,456

$115.18 $92.54

$108.16 $91.09

$90.00$102.95

(2) Includes depreciation, excludes debt service.

(3) Summary accounts are now counted by individual connections. AVERAGE COST OF POWER (4) Includes the benefits of well above normal wholesale power margins. $0 077 $0.077 PER(5) KWh FOR RETAIL LOAD(2) District acquired Westside Service territory which included 5,778 accounts.

$90.48 $57.01

$95.46 $94.77 $66.14 $58.05

$102.95 $77.58

$95.46 $66.14

$0 055 $0.055

$0 046 $0.046

$0 066 $0.066

9.522 17.643 865.174

$86.39 $97.62 $59.90 $0 042 $0.042

(6) Includes adjustments for municipal transaction "bookouts" which were notlighting, physicallyand settled into the District's system. (1) Includes agricultural and water pumping, street interdepartmental meters.

(2) Includes depreciation, excludes debt service. (3) Summary accounts are now counted by individual connections. (4) Includes the benefits of well above normal wholesale power margins. (5) District acquired Westside Service territory which included 5,778 accounts. (6) Includes adjustments for transaction "bookouts" which were not physically settled into the District's system.

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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Historical Results of Operations (2005-2008)

HISTORICAL RESULTS OF OPERATIONS

(IN THOUSANDS) OPERATING REVENUES: Electric energy - Retail Electric energy - Wholesale (IN THOUSANDS) Small Hydropower OPERATING Other ElectricREVENUES: Electric energy - Retail Irrigation Electric energy - Wholesale Other Small Hydropower Revenue Total OtherOperating Electric

2008

2007

2006

2008 RESULTS 2007 2006 HISTORICAL OF OPERATIONS $

2008 $

214,955 $ 97,385 (2) 2007

Irrigation

201,383 $ 6,571 86,408 (2)

182,866 $ 6,168 153,915 57,083 (2) 58,296 (2)

6,570 17,653 336,563

6,571 12,406 306,768

6,168 11,803 257,920

324,014

93,293 112,255 205,548 16,541 10,240 3,111 17,650 27,854 280,944

12,549

25,824

95,460 (2) 143,792 239,252 (2) 95,460 143,79217,259 239,25210,239 17,259 6,041 10,23918,819 6,041 18,81932,404 324,014 32,404

Total Operating Expenses

12,549

OPERATING INCOME (LOSS) OPERATING INCOME (LOSS)

OTHER INCOME (EXPENSE): OTHER INCOME(EXPENSE): Interest Interest (Loss) onInvestments Investments Unrealized (Loss)Gain Gain on Unrealized Miscellaneous Miscellaneous Total OtherIncome Income Total Other INTEREST EXPENSE

INTEREST EXPENSE Long Term Debt Long Term Debt NCPA Obligation NCPA Obligation

(6) 14,26214,262 (6)

TRANSFER (TO) FROM DEFERRED

12,406 306,768

93,293 (2) 65,177 (2) 112,255 89,172 (5) 205,548 (2) 65,177 (2) 154,349 120,184 (2) 16,541 89,172 (5) 15,416 14,164 154,349 134,348 10,240 10,482 15,416 12,593 3,111 3,429 10,482 17,650 18,3578,302 3,429 3,133 27,854 23,126 18,357 14,915 280,944 225,159 23,126 15,936 25,824

225,159

32,761

120,184 (2) 14,164 134,348 12,593 8,302 3,133 14,915 15,936 189,227

189,227

32,761

34,000

34,000

5,7613,409

3,409

5,808 5,808 20,07020,070

6,634 12,678

6,634 12,678

6,402 12,163

6,4026,571 12,1639,980

6,571 9,980

20,388

23,894

0

0

12,231

BEGINNING OF YEAR GASB Accounting Principle DEBT33 SERVICE COVERAGE END REVENUE OF YEARBONDS/COP'S

6,105 4,911 223,227

5,761

12,231

NETRETAINED INCOME EARNINGS: (LOSS) BEGINNING OF YEAR GASB 33 Accounting Principle RETAINED EARNINGS: END OF YEAR

6,105 4,911 223,227

11,803 257,920

6,044

0

NET INCOME (LOSS) REFUNDING LOSS FROM ADVANCE

153,915 58,296 (2)

6,044

20,388

REGULATORY CREDITS (TO) FROM DEFERRED TRANSFER REGULATORY CREDITS LOSS FROM ADVANCE REFUNDING

2005 182,866 $ 57,083 2005 (2)

214,955 6,570$ 97,385 (2)

17,653 336,563

OPERATING Other EXPENSES: Power Supply: Total Operating Revenue Purchased Power OPERATING EXPENSES: Generation and Fuel Power Supply: Total PowerPower Supply Purchased OtherGeneration Electric O&M and Fuel Total Power Supply O&M Irrigation Other Electric O&M Public Benefits Irrigation O&Mand General Administration Public Benefits andand amortization Depreciation Administration General Total Operating and Expenses amortization Depreciation

201,383 $ 86,408 2006 (2)

2005

$356,111

$343,880

10,902

20,955

0

14,608 329,272

(6) 2.13x $356,111

20,955

0

343,880

343,880

23,894

329,272

1.91x$343,880

0

0 23,969

14,608

10,902

305,303 $329,272 2.38x

0

33,078

23,969

33,078

272,225

$305,303

305,303

$329,2722.71x

272,225 $305,303

(1) Revised 2002 to reflect Public Benefits.

DEBT SERVICE COVERAGE (2) Includes adjustments for transaction "bookouts" which were not physically settled into the(6) District's system. 2.13x REVENUE BONDS/COP'S (3) Revised 2003 to reflect changes in reporting format.

1.91x

2.38x

2.71x

(4) Rate 2002 Stabilization transfer of $7,240. (1) Revised to reflect Public Benefits. (5) Walnut Energy Center commercial 2/28/06. which were not physically settled into the District's system. (2) Includes adjustments forwent transaction "bookouts" (6) Electric Rate Stabiliation transfer of $8,000

(3) Revised 2003 to reflect changes in reporting format. (4) Rate Stabilization transfer of $7,240. (5) Walnut Energy Center went commercial 2/28/06. (6) Electric Rate Stabiliation transfer of $8,000

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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HISTORICAL RESULTS OF OPERATIONS (IN THOUSANDS) 2008 2007 Historical Results of Operations (1999-2004) OPERATING REVENUES: Electric energy - Retail Electric energy - Wholesale Small Hydropower Other Electric Irrigation Other (IN THOUSANDS) Total Operating Revenue OPERATING REVENUES:

OPERATING EXPENSES: Electric energy - Retail Electric energy - Wholesale Power Supply: Small Hydropower Purchased Power Other Electric Generation and Fuel Irrigation Other Total Power Supply Revenue Total Operating Other Electric O&M O&M Irrigation OPERATING EXPENSES: Power Supply: Public Benefits Purchased Power Administration Generation andand FuelGeneral and amortization Depreciation Total Power Supply Other Operating Electric O&M Expenses Total

$

214,955 $ 97,385 (2)

2006

201,383 $ 86,408 (2)

2005

182,866 $ 57,083 (2)

153,915 58,296 (2)

2004 2003 2002 20006,168 1999 HISTORICAL RESULTS OF OPERATIONS HISTORICAL RESULTS OF OPERATIONS 6,570 6,571 2001 17,653 2003 2007 336,563

20042008

12,406 2001 2006 306,768

2002

$ $ 140,214214,955$ 126,755 $ 109,748 $ 201,383 $ 24,081 97,385 (2) (2) 22,335 (2)86,408 (2)21,232

Irrigation O&M Public Benefits OPERATING INCOME (LOSS) Administration and General Depreciation and amortization Total Operating Expenses

5,603 6,570 3,449 17,653 173,347336,563

95,460 (2) 143,792 5,191 6,571 343 (3)12,406 239,252 154,624 306,768 17,259 10,239 6,041 89,108 (2)93,293 18,819 8,064 112,255 32,404 97,172 205,548 10,823 16,541 324,014

5,392 103 136,475

$ 107,123 182,866 $ 57,083201,108 (2)

93,293 (2) 112,255 6,168 5,172 16 11,803 205,548 257,920 16,541313,419 10,240 3,111 65,177215,010 (2) (1)17,650 89,172 44,686 (5) 27,854 154,349259,696 (1) 15,416 10,099 280,944

(2) 103,074 95,460 (2) (2)72,766 22,174 11,847143,792 94,940 114,921239,252 10,301 14,459 17,259 8,490 8,369 8,032 10,239 10,240 10,482 7,159 2,102 1,677 (1) 2,855 6,041 3,111 3,429 12,549 25,824 15,208 18,819 14,191 12,469 17,650 18,357 11,820 13,121 12,316 14,360 32,404 27,854 23,126 12,252 145,899 280,944 140,072 169,835324,014 225,159301,026

OTHER INCOME (EXPENSE): OPERATING INCOME (LOSS) Interest Unrealized (Loss) Gain on Investments OTHER INCOME (EXPENSE): Miscellaneous Interest (Loss) Gain on Investments Unrealized Total Other Income Miscellaneous

Total Other Income INTEREST EXPENSE INTEREST Long TermEXPENSE Debt LongObligation Term Debt NCPA

3,512 12,549

8,725 25,824 14,262 (6)

(3,597)

2,901 14,262 (6)

5,808(3) 6,044 5,292 20,070

7,423

5,955 5,808 8,856 20,070 9,194 20,388

NCPA Obligation

FROM DEFERRED TRANSFER (TO) FROM DEFERRED TRANSFER(TO) REGULATORY CREDITS REGULATORY CREDITS

0

0

6,117 (3) 6,634 11,409 12,678

20,388 9,920

23,894

0 0(3)

4,094 11,517 10,644

0

(1,220)

14,608

(3,944)

32,761 12,393 6,044

6,634 5,761 10,164 12,678

6,402 3,506 12,163 13,670

23,894

20,955 11,642

00

(5,820)

20052000

6,105 4,911 223,227

11,803 257,920 1999

$ 153,915 110,209 82,893 58,296 (2)

$

65,177

89,172 6,1055,192 34 4,911 154,349 198,328 223,227 15,416

10,482 3,429 98,170 120,184 (2) 18,357 18,905 14,164 23,126 117,075 134,348 12,5939,191 225,159 8,3027,032 3,133 32,761 15,081 14,915 11,635 15,936 160,014 189,227 38,314 34,000

5,761

3,4097,1906,402 1,726 12,163 6,5712,679 11,595 9,980

20,955

11,615 10,902 171

(5,589) 0

0

105,367 4,441 (2)1,053 1,438 (5)6,371 56 118,726

120,184 (2) 14,164 134,348 12,593 8,302 3,133 14,915 15,936 189,227

50,048 10,481 60,529 8,376 6,501 11,341 10,765 97,512

34,000

21,214

3,409 6,571 9,980

6,038 (2,094) 1,734 5,678

10,902

11,819 118

0

(2,251)

LOSS FROM ADVANCE REFUNDING

LOSS FROM ADVANCE REFUNDING

3,174 12,231

NET INCOME (LOSS)

NETRETAINED INCOME (LOSS) EARNINGS:

BEGINNING OF YEAR GASB 33EARNINGS: Accounting Principle RETAINED END OF YEAR BEGINNING OF YEAR

GASB Accounting Principle DEBT 33 SERVICE COVERAGE BONDS/COP'S ENDREVENUE OF YEAR

269,051343,880 $272,225 $356,111

10,214

12,231

258,837 329,272

23,969 8,601

14,608

262,781

305,303254,180

$269,051 343,880$343,880 $258,837

$262,781 $329,272 329,272

1.83x 1.64x (4) 2.13x (6)$356,111

1.91x

1.36x$343,880 2.38x 1.31x

32,534 33,078

23,969

12,704

33,078

168,758 156,054 272,225 52,888 $254,180 $305,303 305,303 $168,758 2.74x 2.71x $329,272

1.75x

272,225 $305,303

(1) Revised 2002 to reflect Public Benefits.

DEBT SERVICE COVERAGE (2) Includes adjustments for transaction "bookouts" which were not physically settled into the District's system. 2.13x (6) REVENUE BONDS/COP'S (3) Revised 2003 to reflect changes in reporting format.

1.91x

2.38x

2.71x

(4) Rate Stabilization transfer of $7,240.

(1) Revised 2002 to reflect Public Benefits.

(5) Walnut Energy Center went commercial 2/28/06.

(2) Includes transaction (6) Electricadjustments Rate Stabiliationfor transfer of $8,000 "bookouts" which were not physically settled into the District's system. (3) Revised 2003 to reflect changes in reporting format. (4) Rate Stabilization transfer of $7,240. (5) Walnut Energy Center went commercial 2/28/06. (6) Electric Rate Stabiliation transfer of $8,000

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

5 T


PricewaterhouseCoopers LLP 400 Capitol Mall, Suite 600 Sacramento CA 95814-4602 Telephone (916) 930 8100 Facsimile (916) 930 8450 www.pwc.com

Report of Independent Auditors Report of Independent Auditors

To the Board of Directors of Turlock Irrigation District To the Board of Directors of

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of Turlock Irrigation District revenues, expenses and changes in net assets and of cash flows present fairly, in all material respects, the financial position of Turlock Irrigation District and its blended component unit (“TID”) at December 31, 2008 In our opinion, the accompanying consolidated balance sheets and the related consolidated and 2007, and the of their operations and theirin cash flows for years flows then ended conformity statements of results revenues, expenses and changes net assets andthe of cash presentinfairly, in all with material respects, the financial position of Turlock Irrigation District and its blended component unitare the accounting principles generally accepted in the United States of America. These financial statements ("TID”) at December 31, 2008 and 2007, and the results of their operations and their cash flows for responsibility of TID’s management. Our responsibility is to express an opinion on these financial statements the years then ended in conformity with accounting principles generally accepted in the United basedStates on ourofaudits. WeThese conducted our statements audits of these statements in accordance with auditing standards America. financial are the responsibility of TID's management. Our responsibility is to express an opinion on these financial statements based on our audits. We generally accepted in the United States of America. Those standards require that we plan and perform the conducted our audits of these statements in accordance with auditing standards generally accepted auditintothe obtain reasonable assurance about whether the financial statements are free of material misstatement. United States of America. Those standards require that we plan and perform the audit to An audit includes examining, on aabout test basis, evidence supporting the amounts and obtain reasonable assurance whether the financial statements are free of disclosures material in the financial misstatement. An audit includes examining, on a test basis, evidence supporting amounts andand statements, assessing the accounting principles used and significant estimates made bythe management, disclosures in the financial statements, assessing the accounting principles used and significant evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis estimates made by management, and evaluating the overall financial statement presentation. We for our opinion. believe that our audits provide a reasonable basis for our opinion. As discussed in Note 2, effective January 1, 2008, TID adopted the provisions of Governmental

As discussed in Note 2, effective January 1, 2008, TID adopted the provisions of Governmental Accounting Accounting Standards Board Statement No. 53, Accounting and Financial Reporting for Derivative Standards Board Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. Instruments. The management's discussion and analysis included on pages 2 through 10 is not a required part of

The management’s discussion and analysis included on pages 2 through 10 is not a required part of the basic the basic financial statements but is supplementary information required by the Governmental financial statements but is supplementary information required by the Governmental Accounting Standards applied certain limited procedures, which consisted Accounting Standards Board. We have principally of inquiries of management regarding the methods of measurement and presentation of Board. We have applied certain limited procedures, which consisted principally of inquiries of management the required supplementary information. However, we did not audit the information and express no regarding the methods of measurement and presentation of the required supplementary information. opinion on it. However, we did not audit the information and express no opinion on it.

April 9, 2009

April 9, 2009

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

6 T


Management’s Discussion & Analysis The following management’s discussion and analysis of Turlock Irrigation District (“TID”) and its financial performance provides an overview of TID’s financial activities for the years ended December 31, 2008 and 2007. This management’s discussion and analysis should be read in conjunction with TID’s financial statements and accompanying notes, which follow this section.

Background TID is an irrigation district organized under the provisions of the Wright Act and has the powers provided therein. Organized in 1887, TID was the first of 65 irrigation districts to be formed in the State of California. The Board of Directors (the “Board”) governs TID. The five members of the Board are elected from geographic divisions of TID for staggered four-year terms. The Board appoints a general manager and certain other senior managers who are responsible for the operations of TID. Since 1923, TID has provided all the electric service within its 425 square-mile service area, which includes portions of Stanislaus, Merced and Tuolumne counties. TID’s service area includes the cities of Turlock, Ceres, Hughson and a part of Modesto and the unincorporated communities of Ballico, Keyes, Denair, Hickman, Delhi and Hilmar. In December 2003, TID completed the acquisition of Pacific Gas and Electric’s (PG&E) electric distribution facilities in a portion of the west side of Stanislaus County, including the City of Patterson, the community of Crows Landing and certain adjacent rural areas (collectively, the “Westside”). The Westside covers approximately 237 square miles

and includes 10,154 electric customer accounts. To provide electric service within its service area, TID owns and operates an electric system, which includes generation, transmission and distribution facilities. Its generating facilities include hydroelectric units and gas-fired facilities. TID also purchases power and transmission service from other sources and participates in other utility arrangements. TID also supplies water for irrigation use within 308 square miles of its service area, comprising approximately 5,800 parcels of land and 250 miles of gravity flow canals and laterals. TID’s electric and irrigation systems are operated and accounted for as a single entity; hence, revenues from both systems are available to pay the obligations of TID.

Rates and Charges TID’s Board has full and independent authority to establish revenue levels and rate schedules for all electric service provided by TID. TID is not subject to retail rate regulation by any state or federal regulatory body, and is empowered to set retail rates effective at any time. TID has maintained rates for electric service that have been sufficient to provide for all operating and maintenance costs and expenses, debt service, repairs, replacements and renewals and to provide for base capital additions to the system. The Board fixes rates and charges of TID based on a cost of service methodology. TID recently increased electric rates by an average of 15.00% effective February 1, 2009. TID has a credit requirement for all new service

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

7 T


connections, which requires new customers to verify their good credit standing with their former electric utility provider or to place a deposit with TID if an acceptable credit standing cannot be verified.

Financial Reporting TID maintains its accounts in accordance with generally accepted accounting principles for proprietary funds as prescribed by the Governmental Accounting Standards Board (GASB), and where not in conflict with GASB pronouncements, accounting principles prescribed by the Financial Accounting Standards Board (FASB). TID is accounted for as an enterprise fund and is financed and operated in a manner similar to that of a private business enterprise. TID uses the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. TID’s accounting records generally follow the Uniform System of Accounts for public utilities and licensees prescribed by the Federal Energy Regulatory Commission (FERC), except as it relates to the accounting for contributions in aid of construction (CIAC). In accordance with Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation, the Board has taken various regulatory actions for ratemaking purposes that result in the deferral of revenue or expense recognition. At December 31, 2008 and 2007, TID had a regulatory asset of $17.0 million and $9.1 million, respectively. At December 31, 2008 and 2007, TID had total regulatory credits of $19.8 million and $27.2 million, respectively. The regulatory assets and credits will be recognized in the statement of revenues, expenses and changes in net assets when determined by the Board for ratemaking purposes.

Investment Policies and Procedures The Board reviews the investment policy on an annual basis. TID also has an Investment Committee, comprised of the Treasurer, Deputy Treasurer, General Manager and two members of the Board. This committee meets on an as-needed basis to review issues related to TID’s investments. TID has contracted with Public Financial Management, Inc. (PFM), a leading investment manager of public entity funds, to invest TID’s cash and investments. PFM only purchases investments on behalf of TID which are permitted by TID’s investment policy. The Bank of New York Western Trust Company holds these investments in custody.

Debt Management Program TID regularly reviews its debt structure, which includes the issuance of refunding bonds to achieve debt service savings.

Component Unit The Walnut Energy Center Authority (the “Authority”) was formed in 2003 for the purposes of developing and operating a 250 MW natural gas fueled generation facility located in TID’s service territory. Although the Authority is a separate legal entity from TID, it is blended into and reported as part of TID because of the extent of its operational and financial relationship with TID. Accordingly, all operations of the Authority are consolidated into TID’s financial statements.

Using this Financial Report This annual financial report consists of management’s discussion and analysis and the

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

8 T


financial statements, including notes to the financial statements. The annual financial report reflects the activities of TID primarily funded through the sale of energy, transmission, and distribution services to its retail and wholesale customers, as well as irrigation services.

Balance Sheets, Statements of Revenues, Expenses and Changes in Net Assets, and Statements of Cash Flows The balance sheets include all of TID’s assets and liabilities, using the accrual basis of accounting, as well as information about which assets can be utilized for general purposes, and which assets are restricted as a result of bond covenants and other commitments. The statements of revenues, expenses, and changes in net assets report all of the revenues and expenses during the time periods indicated. The statements of cash flows report the cash provided and used by operating activities, as well as cash payments for debt service and capital expenditures and cash proceeds from investments.

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

9 T


Turlock Irrigation District

Management’s Discussion and Analysis December 31, 2008 and 2007 Balance Sheets, Statements of Revenues, Expenses and Changes in Net Assets, and Statements of Cash Flows The balance sheets include all of TID’s assets and liabilities, using the accrual basis of accounting, as well as information about which assets can be utilized for general purposes, and which assets are restricted as a result of bond covenants and other commitments. The statements of revenues, expenses, and changes in net assets report all of the revenues and expenses during the time periods indicated. Summary of Financial inused NetbyAssets (dollars inasthousands) The statements of cash flowsPosition report theand cash Changes provided and operating activities, well as cash payments for debt service and capital expenditures and cash proceeds from investments. as of and for the years ended December 31, 2008, 2007, and 2006 Summary of Financial Position and Changes in Net Assets (dollars in thousands) as of and for the years ended December 31, 2008, 2007, and 2006 2008 Assets Utility plant, net Cash and investments Other non-current assets Other current assets

$

$ Liabilities and Net Assets Long-term debt Other non-current liabilities and deferred credits Other current liabilities

$

Total liabilities Net assets: Invested in capital assets, net of related debt Restricted Unrestricted Total net assets $ Revenue, Expenses and Changes in Net Assets Operating revenues Operating expenses

$

Operating income

782,936 134,382 21,918 55,762 994,998 383,911 35,544 219,432

2007 $

$ $

743,515 145,082 15,523 46,281 950,401 394,726 41,250 170,545

2006 $

$ $

701,873 166,954 7,986 44,903 921,716 404,768 41,163 146,513

638,887

606,521

592,444

280,956 11,060 64,095

264,787 10,432 68,661

247,267 9,728 72,277

356,111 994,998

343,880 950,401

329,272 921,716

336,563 (324,014)

$ $

306,768 (280,944)

$ $

257,920 (225,159)

12,549

25,824

32,761

Net investment income Other income, net Interest expense

14,262 5,808 (20,388)

6,044 6,634 (23,894)

5,761 6,402 (20,955)

Increase in net assets

12,231

14,608

23,969

Net assets, beginning of year Net assets, end of year

$

343,880 356,111

$

329,272 343,880

$

305,303 329,272

-4-

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

10 T


Management’s Discussion and Analysis as of and for the Year Ended December 31, 2008 ASSETS Utility Plant TID has invested approximately $782.9 million in utility plant assets and construction work in progress, net of accumulated depreciation at December 31, 2008. TID transferred approximately $51.0 million of assets from construction in process to utility plant assets in 2008. Net utility plant makes up 79% of TID’s assets at December 31, 2008, compared to 78% in the prior year. The following chart shows the breakdown of net utility plant by major plant category at December 31, 2008 - generation, transmission, distribution, natural gas supply, pipeline, unamortized future power rights, irrigation and other: Natural Gas Supply 10% Irrigation 6%

Pipeline 2% Other 4%

Unamortized Future Power Rights 2%

Distribution 23%

Transmission 7%

Generation 47%

During 2008, TID capitalized $72.9 million of additions to construction work in progress and utility plant. TID invested $4.8 million in gas field development activities. TID also invested $20.8 million for the Almond power plant LM6000, $5.9 million for a fuel cell plant, $10.3 million to add/ upgrade certain transmission and distribution assets, $9.4 million for routine expansion which consists of transformers, transmission and distribution (T&D) lines, meters, lights, and new services and $5.8 million in irrigation improvements (including $2.5 million for the Domestic Water Infiltration project). Cash and Investments TID’s cash and investments decreased $10.7 million during 2008. This was primarily due to cash used by capital and financing activities. Other Non-current Assets Other non-current assets increased $6.4 million during 2008. This increase was primarily due to change in regulatory assets of $7.8 million. Other Current Assets Other current assets increased $9.5 million during 2008. This was primarily due to an increase in the deferred loss related to hedged derivative financial instruments of $11.4 million as a result of adopting Governmental Accounting Standards Board Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, the prepayment of OPEB costs of $3.7 million, an increase in derivative financial instruments of $1.4 million offset by a decrease in wholesale energy receivables of $4.1 million, and a decrease in interest and other receivables of $3.2 million.

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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LIABILITIES AND CHANGES IN NET ASSETS Long-term Debt Long-term debt decreased $10.8 million in 2008 as a result of scheduled principal payments. The following table shows TID’s future debt service requirements from 2009 through 2013 at December 31, 2008 (dollars in thousands): Interest Principal

$35,000 $30,000

Other Non-current Liabilities and Deferred Credits Other non-current liabilities and deferred credits decreased $5.7 million in 2008. The decrease was due primarily to a decrease in deferred regulatory credits of $7.4 million offset by an increase in TID’s share of the Transmission Agency of Northern California’s obligation of $1.8 million. Other Current Liabilities

$25,000 $20,000

Other current liabilities increased $48.9 million in 2008. This was primarily the result of an increase in Commercial Paper of $34.6 million and an increase in derivative financial instruments of $12.0 million.

$15,000 $10,000 $5,000 $0

portion of 2008; however, by year end, rates declined to 3% and 4%. To minimize this interest rate exposure, TID is considering a number of alternatives if the markets continue to perform erratically. Under the terms of the bond indenture, the Series B and C Revenue Bonds cannot be put back to TID. There have been no failed auctions to date.

2009

2010

2011

2012

2013

At December 31, 2008, TID’s bond ratings are A1 from Moody’s, A+ from Fitch and A+ from Standard and Poor’s. In 2004, TID purchased a financial guaranty insurance policy to insure the regularly scheduled payment of principal and interest on $201 million of 2004 Revenue Bond Series A, B and C. The 2004 Revenue Bonds Series B and C total $58.3 million and are variable rate bonds that bear interest based on weekly auction rates. In January 2008, the insurer’s credit rating was downgraded and/or put on review for possible downgrade by several credit agencies. This resulted in increases in interest rates during a

CHANGES IN NET ASSETS Operating Revenues Operating revenues increased $29.8 million from $306.8 million in 2007 to $336.6 million in 2008. Retail power revenues were up $13.6 million primarily due to an increase in Power Supply Adjustment (PSA) revenue, and a 0.6% increase in consumption. Wholesale revenues increased $11.0 million to $97.4 from $86.4 million in 2007 as a result of an increase in average sales price of approximately 22% from an average of $61/ megawatt hour (MWh) in 2007 to $75/MWh in 2008, slightly offset by a decrease in volumes sold of approximately 11.0%.

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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Operating Expenses Purchased power, generation and fuel expenses were $239.3 million in 2008 compared to $205.5 million in 2007. Walnut Energy Center Fuel cost increased $31.0 million due to increased volume and gas prices. Other electric expense is up $0.7 million due to increased maintenance on overhead lines. Administrative and General expense is up $1.2 million related to enhancing TID’s renewable energy portfolio. Public Benefits expense was up $2.9 million in 2008 due to new solar programs. Depletion expense increased $4.2 million due to increased production and fully depleting abandoned wells, and depreciation increased $0.3 million. Net Investment Income Net investment income in 2008 was $8.2 million higher than in 2007, primarily as a result of the recognition of $8.0 million in interest revenue that was released from the regulatory credits in connection with rate action authorized by the TID Board of Directors in December 2008. Other Income Other income is down $0.8 million in 2008 when compared to 2007. This decrease is the result of a $0.7 million decrease in contribution in aid of construction and a $0.1 million decrease in property tax revenue. Interest Expense Interest expense decreased $3.5 million in 2008 as compared to 2007. Interest expense on TID’s variable rate debt was down $0.9 million in 2008 due to a decrease in interest rates. Capitalized interest was approximately $2.0 million compared to $0.8 million in 2007. Interest expense related to

the Authority decreased by $1.3 million due to lower interest rates. Management’s Discussion and Analysis as of and for the Year Ended December 31, 2007 ASSETS Utility Plant TID has invested approximately $743.5 million in utility plant assets and construction work in progress, net of accumulated depreciation at December 31, 2007. TID transferred approximately $35.0 million of assets from construction work in process to utility plant assets in 2007. Net utility plant makes up 78% of TID’s assets at December 31, 2007, compared to 76% in the prior year. The following chart shows the breakdown of net utility plant by major plant category at December 31, 2007 – generation, transmission, distribution, natural gas supply, pipeline, unamortized future power rights, irrigation and other:

Natural Gas Supply 11% Irrigation 6%

Pipeline 2% Other 4%

Generation 45%

Unamortized Future Power Rights 2%

Distribution 24%

Transmission 6%

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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During 2007, TID capitalized $69.1 million of additions to construction work in progress and utility plant. TID invested $10.9 million in gas field development activities. TID also invested $33.0 million to add/upgrade certain transmission and distribution assets, $11.5 million for routine expansion which consists of transformers, T&D lines, meters, lights, and new services and $7.1 million in irrigation improvements (including $4.1 million for the Domestic Water Infiltration project).

LIABILITIES AND CHANGES IN NET ASSETS

Cash and Investments

TID’s cash and investments decreased $21.9 million during 2007. This was primarily due to cash used by capital and financing activities.

Long-term Debt Long-term debt decreased $10.0 million in 2007 as a result of scheduled principal payments. The following table shows TID’s future debt service requirements from 2008 through 2012 at December 31, 2007 (dollars in thousands):

Interest Principal

$35,000 $30,000

Other Non-current Assets

$25,000

Other non-current assets increased $7.5 million. This increase was primarily due to change in regulatory assets of $8.2 million offset by amortization of District assets totaling $0.8 million.

$20,000 $15,000 $10,000 $5,000 $0

Other Current Assets Other current assets in 2007 increased $1.4 million when compared to 2006. This was primarily due to an increase of energy receivables of $5.2 million due to an increase in rates and consumption, an increase in accrued interest and other receivables of $1.0 million primarily for credits due under transmission agreements and a increase in materials and supplies of $0.8 million due to increased construction in progress offset by a decrease in the current portion of derivatives of $5.2 million and a decrease in prepaid expenses of $0.4 million.

2008

2009

2010

2011

2012

At December 31, 2007, TID’s bond ratings are A1 from Moody’s, A+ from Fitch and A+ from Standard and Poor’s. In 2004, TID purchased a financial guaranty insurance policy to insure the regularly scheduled payment of principal and interest on $201 million of 2004 Revenue Bond Series A, B and C. The 2004 Revenue Bonds Series B and C total $58.3 million and are variable rate bonds that bear interest based on weekly auction rates. In January 2008, the insurer’s credit rating was downgraded and/ or put on review for possible downgrade by several credit agencies. This has resulted in increases in

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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interest rates on the Series B and C Revenue Bonds. To minimize this interest rate exposure, TID is considering a number of alternatives if the markets continue to result in abnormally high interest rates. Under the terms of the bond indenture, the Series B and C Revenue Bonds cannot be put back to TID. Other Non-current Liabilities and Deferred Credits Other non-current liabilities and deferred credits remain unchanged when compared to 2006. TID’s share of the Transmission Agency of Northern California obligation decreased by $1.1 million offset by an increase in deferred regulatory credits of $0.7 million and an increase in long-term lease obligation of $0.3 million and an increase in the non-current portion of derivative financial instruments of $0.3. Other Current Liabilities Other current liabilities increased $24.0 million in 2007. This was primarily the result of an increase in Commercial Paper of $33.4 million relating to ongoing construction work in progress, an increase in accrued salaries, wages and related benefits of $2.0 million due to the implementation of GASB 45 and increased wages and related benefits offset by a decrease in trade and power purchase payables of $7.0 million, a decrease in the current portion of derivatives of $3.0 million and a decrease in current portion of lease obligation of $1.4 million. CHANGES IN NET ASSETS Operating Revenues Operating revenues increased $48.8 million from $257.9 million in 2006 to $306.8 million in 2007. Retail power revenues were up $18.5 million due

to an increase in PSA revenue of $9.0 million as a result of increased purchased power and fuel costs and a 2.5% increase in consumption as a result of customer growth from 97,443 in 2006 to 98,423 in 2007. Wholesale revenues increased $29.3 million from $57.1 million in 2006 to $86.4 million in 2007 as a result of an increase in volumes sold of approximately 40%, an increase in average sales price of approximately 9% from an average of $56/MWh in 2006 to $61/MWh in 2007. Operating Expenses Purchased power, generation and fuel expenses were $205.5 million in 2007 compared to $154.3 million in 2006. Purchased power costs increased by approximately 39% due to higher prices during 2007 and higher volumes of power purchase required as a result of increased retail consumption and poor hydro conditions. Depreciation expense increased approximately $4.7 million primarily due to a full year of depreciation on the Walnut Energy Center Power Plant and utility plant additions. TID’s other operating expenses remained relatively unchanged. Net Investment Income Net investment income in 2007 was $0.3 million higher than in 2006, primarily as a result of better market conditions in 2007. Other Income Other income is up $0.2 million in 2007 when compared to 2006. This increase is the result of a $0.5 million increase in property tax revenue offset by a $0.3 million decrease in contribution in aid of construction.

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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Interest Expense Interest expense increased $2.9 million in 2007 as compared to 2006, primarily due to interest payments on the 2004 Walnut Energy Center

Authority Revenue bonds being expensed rather than capitalized for two months of 2006 a result of the Walnut Energy Center commencing operations in February 2006 and increased commercial paper issuance due to continued construction in progress.

Financial Statements Turlock Irrigation District

Consolidated Balance Sheets Consolidated Balance Sheets December 31, 2008 and 2007

(dollars in thousands)

(dollars in thousands) 2008

Assets Utility plant, net

$

Investments and other long-term assets: Cash and cash equivalents restricted for long-term purposes Long-term investments, including restricted amounts Debt issuance costs and other assets Derivative financial instruments, net of current portion Deferred regulatory asset

Current assets: Cash and cash equivalents, including restricted amounts Short-term investments, including restricted amounts Retail accounts receivable, net Wholesale accounts receivable, net Accrued interest and other receivables Materials and supplies, net Prepaid expenses and other current assets Derivative financial instruments Total assets

$

782,936

2007

$

743,515

15,950 54,328 4,968 16,950

15,623 68,263 5,493 908 9,122

92,196

99,409

51,392 12,712 16,852 5,616 6,251 3,062 18,797 5,184

53,239 7,957 16,917 9,718 9,465 3,578 2,838 3,765

119,866

107,477

994,998

$

950,401

The accompanying notes are an integral part of these financial statements.

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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Turlock Irrigation District

Consolidated Balance Sheets, continued Consolidated Balance Sheets, continued December 31, 2008 and 2007

(dollars in thousands)

(dollars in thousands) 2008

Capitalization and Liabilities Capitalization: Net assets: Invested in capital assets, net of related debt Restricted Unrestricted

$

Total net assets Long-term debt, net of current portion Total capitalization Liabilities and deferred credits: Deferred regulatory credits Derivative financial instruments, net of current portion Long-term lease obligation Affiliate obligation

Current liabilities: Commercial paper notes Current portion of long-term debt Power purchases payable Accounts payable and accrued expenses Accrued salaries, wages and related benefits Customer deposits and advances Accrued interest payable Current portion of lease obligation Derivative financial instruments

280,956 11,060 64,095

2007

$

264,787 10,432 68,661

356,111

343,880

372,696

383,951

728,807

727,831

19,760 142 10,576 5,066

27,171 276 10,557 3,246

35,544

41,250

154,069 11,215 15,185 12,797 6,790 7,123 7,246 1,394 14,828

119,420 10,775 12,813 13,128 7,435 7,223 7,703 2,823

230,647

181,320

Commitments and contingencies (Notes 4,6,7,9,10,11,12,13 and 14) Total capitalization and liabilities

$

994,998

$

950,401

The accompanying notes are an integral part of these financial statements.

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007 The accompanying notes are an integral part of these financial statements. -12-

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Turlock Irrigation District

Consolidated Statements of Revenues, Expenses Consolidated Statements of Revenues, and Changes in Net Assets Expenses and Changes in Net Assets For the years ended December 31, 2008 and 2007

(dollars in thousands)

(dollars in thousands) 2008

Operating revenues: Electric: Retail Wholesale Irrigation Wholesale gas Other

$

Operating expenses: Purchased power Generation and fuel Other electric Irrigation Public benefits Administration and general Depreciation and amortization Operating income Nonoperating revenues and expenses: Net investment income Other income, net Interest expense

Increase in net assets Net assets, beginning of year Net assets, end of year

$

214,955 97,385 6,570 14,592 3,061

2007

$

201,383 86,408 6,571 9,627 2,779

336,563

306,768

95,460 143,792 17,259 10,239 6,041 18,819 32,404

93,293 112,255 16,541 10,240 3,111 17,650 27,854

324,014

280,944

12,549

25,824

14,262 5,808 (20,388)

6,044 6,634 (23,894)

(318)

(11,216)

12,231

14,608

343,880

329,272

356,111

$

343,880

The accompanying notes are an integral part of these financial statements.

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

The accompanying notes are an integral part of these financial statements.

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Turlock Irrigation District

Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows For the years ended December 31, 2008 and 2007

(dollars in thousands) (dollars in thousands) 2008

Cash flows from operating activities: Receipts from electric customers Receipts from wholesale power sales Receipts from irrigation customers Receipts from sales of gas Payments to vendors for purchased power Payments to employees and vendors for generation and fuel and other electric Payments to employees and vendors for irrigation Payments to employees and vendors for administration and general Other receipts, net

$

214,920 101,487 6,529 14,974 (101,782)

2007

$

199,005 83,152 6,586 9,257 (100,659)

(164,562) (10,251) (22,189) 12,060

(130,371) (10,266) (16,522) 3,872

51,186

44,054

(75,913) 2,728 (10,775) 2,068 (159) 34,808 (19,880) (654)

(71,983) 3,423 (10,040) (2,525) (2,800) 36,170 (23,980) (477)

(67,777)

(72,212)

5,891 (105,165) 114,345

6,286 (83,543) 95,944

15,071

18,687

Net decrease in cash and cash equivalents

(1,520)

(9,471)

Cash and cash equivalents, beginning of year

68,862

78,333

Net cash provided by operating activities Cash flows from capital and related financing activities: Acquisition and construction of capital assets Proceeds from contributions in aid of construction Repayment of long-term debt Repayment of long-term lease obligation Borrowing under long-term lease obligation Repayment of commercial paper Proceeds from issuance of commercial paper Interest payments on long-term debt Interest payments on long-term lease obligation Net cash used in capital and related financing activities Cash flows from investing activities: Investment income Purchases of investments Sales of investments Net cash provided by investing activities

Cash and cash equivalents, end of year

$

67,342

$

68,862

Reconciliation of cash and equivalents to balance sheet: Cash and cash equivalents restricted for long-term purposes Cash and cash equivalents, including restricted amounts

$

15,950 51,392 67,342

$

15,623 53,239 68,862

$

$

The accompanying notes are an integral part of these financial statements. The accompanying notes are an integral part of these financial statements. -14TURLOCK IRRIGATION DISTRICT

Consolidated Financial Statements–December 31, 2008 and 2007

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Turlock Irrigation District

Consolidated Statements of Cash Flows, continued Consolidated Statements of Cash Flows, continued For the years ended December 31, 2008 and 2007

(dollars in thousands)

(dollars in thousands) 2008

Adjustment to reconcile operating income to net cash provided by operations: Operating income Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization Change in fair value of derivative financial instruments Other income Other changes in operating assets and liabilities: Accounts receivable Materials and supplies Prepaid expenses and other current assets Regulatory assets and credits Power purchases payable Accounts payable and accrued expenses Accrued salaries, wages and related benefits Customer deposits and advances Affiliate obligation Net cash provided by operating activities Supplemental non-cash investing and financing activities: Accounts payable related to construction of capital assets Rate Stabilization transfer Investment income from derivatives

$

12,549

2007

$

25,824

32,404 11,360 4,173

27,854 2,357 3,233

6,495 516 (15,785) (7,239) 2,372 3,266 (645) (100) 1,820

(6,377) (786) 397 (7,585) 714 (2,664) 2,064 170 (1,147)

$

51,186

$

44,054

$

2,995 8,000 602

$

3,270 -

The accompanying notes are an integral part of these financial statements.

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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Notes to Consolidated Financial Statements 1. Organization and Description of Business

The Turlock Irrigation District (“TID”) was organized under the Wright Act in 1887 and operates under the provisions of the California Water Code as a special district of the State of California. As a public power utility, TID is not subject to regulation or oversight by the California Public Utilities Commission (CPUC). TID provides electric power and irrigation water to its customers. TID’s Board of Directors (the “Board”) determines its rates and charges for its commodities and services. TID levies ad valorem property taxes on property located in the counties of Stanislaus and Merced. TID may also incur indebtedness, including issuing bonds, and is exempt from payment of federal and state income taxes.

basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. TID’s accounting records generally follow the Uniform System of accounts for public utilities and licensees prescribed by the Federal Energy Regulatory Commission (FERC), except as it relates to the accounting for contributions in aid of construction (CIAC).

Component Unit

The Walnut Energy Center Authority (the “Authority”) owns and operates a 250 MW natural gas fueled generation facility, which commenced commercial operations on February 28, 2006. Although the Authority is a separate legal entity from TID, it is blended into and reported as part of TID because of the extent of its operational and financial relationship with TID. Accordingly, all operations of the Authority are consolidated into TID’s financial statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. TID’s more significant estimates include fair value

2. Summary of Significant Accounting Policies

Method of Accounting

TID maintains its accounts in accordance with generally accepted accounting principles for proprietary funds as prescribed by the Governmental Accounting Standards Board (GASB), and where not in conflict with GASB pronouncements, accounting principles prescribed by the Financial Accounting Standards Board (FASB). TID is accounted for as an enterprise fund and is financed and operated in a manner similar to that of a private business enterprise. TID uses the economic resources measurement focus and the accrual

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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estimates for cash and investments, derivative financial instruments, and long-term debt; allowance for doubtful accounts; estimated useful lives of utility plant; health insurance reserves; and workers’ compensation reserves.

Utility Plant

Utility plant is recorded at cost. The cost of additions, renewals and betterments are capitalized; repairs and minor replacements are charged to operating expenses as incurred. Interest and related financing costs are capitalized as a component of major utility plant development projects. TID capitalized $1,986 and $805 of interest during 2008 and 2007, respectively.

Depreciation is computed using the straightline method over the estimated useful lives, which generally range from 20 to 40 years and 40 to 150 years for electric and irrigation related assets, respectively. The estimated useful lives of furniture, fixtures, equipment and other assets range from 5 to 25 years. Upon retirement, the cost of depreciable utility plant, plus removal costs, less salvage, is charged to accumulated depreciation.

Future power rights are costs incurred by TID in development of hydroelectric facilities owned by others who provide power to TID. Such costs are recorded as a component of utility plant and are being amortized on a straight-line basis over the 49-year periods to which these rights apply.

Impairment of Long-Lived Assets

TID accounts for potential impairments in accordance with GASB Statement No. 42, Accounting and Financial Reporting for Impairment

of Capital Assets and for Insurance Recoveries (SGAS No. 42) under which TID 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. TID did not incur impairment losses in 2008 or 2007.

Intangible Assets

Included in utility plant are costs related to emission credits acquired that may be necessary to operate the gas fired facility which meet the definition of an intangible asset as defined under SGAS 51. Such credits have an indeterminate life and are therefore, not amortized. TID had previously classified the emission credits as capital assets and therefore the adoption of SGAS 51 had no impact to TID. At December 31, 2008 and 2007 TID had emission credits totaling $20,187 and $5,732, respectively.

In 2008, TID early adopted GASB issued Statement of the Governmental Accounting Standards Board No. 51, Accounting and Financial Reporting for Intangible Assets (SGAS 51). SGAS 51 provides guidance regarding how to identify, account for and report intangible assets. Intangible assets are defined as assets that lack physical substance, are nonfinancial in nature, and have an initial useful life extending beyond a single reporting period. SGAS 51 provides that intangible assets be classified as capital assets, except for items explicitly excluded from the scope of the standard. SGAS 51 requires retroactive application for all periods presented.

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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Investments in Gas Properties

TID owns non-operating ownership interests in gas producing properties in Wyoming and Texas. TID uses the successful efforts method of accounting for its investments in gas producing properties. Costs to drill and complete wells that access economically recoverable reserves are capitalized as a component of utility plant on the balance sheet. Costs to drill wells that do not find economically recoverable reserves are expensed. The capitalized costs of producing gas properties, after considering estimated residual salvage values, are depleted by the unit-ofproduction method based on the estimated future production of proved reserves for the properties.

Gas production from TID’s share of these properties is sold to wholesale buyers as an economic hedge to offset the net cost of TID’s gas supply costs. Sales of gas in 2008 and 2007 totaled $14,592 and $9,627, respectively. Depletion expense, which is included as a component of depreciation expense in the accompanying statement of revenues, expenses and changes in net assets, totaled $7,091 and $2,904, respectively, in 2008 and 2007.

Cash, Cash Equivalents and Investments

Cash equivalents include all debt instruments with original maturity dates of three months or less from the date of purchase and all investments in the California Asset Management Program (CAMP) and the Local Agency Investment Fund (LAIF). The debt instruments are reported at amortized cost which approximates fair value and the CAMP and LAIF are reported at the value of their pool shares. CAMP is a joint powers authority ( JPA) and public agency whose investments are limited to those permitted by

the California Government Code. 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 amortized cost which approximates market. TID’s deposits with CAMP and LAIF are generally available for withdrawal on demand.

All investments are carried at their fair market value, generally based on market prices quoted by dealers for those or similar investments. Investment income includes both realized gains and losses and unrealized changes in the fair market value of investments, unless deferred as a regulatory asset or credit.

In accordance with provisions of the credit agreements relating to TID’s long-term debt obligations, restricted funds held by trustees have been established to provide for certain debt service and project funding requirements. The restricted funds held by trustees are invested primarily in United States (U.S.) government securities and related instruments with maturities no later than the expected date of the use of such funds.

Participation in Joint Power Authorities

TID’s ownership investments in JPAs, all representing less than 20% ownership interests

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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except for the Authority, are accounted for using the cost method.

Debt Issuance Costs

Costs incurred in connection with the issuance of debt obligations, principally underwriters’ and legal fees, are deferred on the balance sheet as debt issuance costs and are amortized, as a component of interest expense, over the terms of the related obligations using the effective interest method.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable arise from billings to customers for the sale of power and water, and certain improvements made to customers’ properties. Accounts receivable also includes an estimate for unbilled retail and wholesale revenues related to power delivered between the last billing and the last day of the reporting period.

TID recognizes an estimate of uncollectible accounts for its retail and wholesale receivables based upon its historical experience with collections, current market conditions and specific identification of known losses. At December 31, 2008 and 2007, the allowance for doubtful accounts relating to retail electric receivables totaled $349 and $264, respectively. At December 31, 2008 and 2007, the allowance on the wholesale receivables of $3,820, relates primarily to collectibility issues resulting from the uncertain California wholesale energy markets. TID records bad debt expense related to electric service and wholesale activities as administration and general in the statements of revenues, expenses and changes in net assets.

In 2008 and 2007, bad debt expense relating to uncollectible accounts receivable was $492 and $372, respectively.

Materials and Supplies

Materials and supplies are used in TID’s operations and are recorded at average cost, net of reserves for obsolete items. Reserves for obsolete items totaled $301 at December 31, 2008 and 2007.

Long-term Debt

Long-term debt is recorded at the principal amounts of the obligations adjusted for original issue discounts and premiums. The premiums and discounts on bonds issued are amortized over the terms of the bonds using the effective interest method as a component of interest expense.

Debt defeasance charges result from debt refunding transactions and comprise the difference between the reacquisition costs and the net outstanding debt balances including deferred costs of the defeased debt at the date of the defeasance transaction. Such charges are included as a component of long-term debt and amortized as a component of interest expense over the shorter of the life of the refunded debt or the new debt, using the effective interest method.

Long-term Lease Obligation

In connection with completing the Walnut Energy Center, TID entered into a longterm transmission arrangement with Pacific Gas and Electric (PG&E) which included PG&E constructing new, and reinforcing existing natural gas transmission facilities. The arrangement represents, in substance, a capital

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

24 T


lease wherein TID (lessee) is obligated to repay all costs associated with the construction and reinforcement of the transmission facilities to PG&E through billings on transmission usage. As such, TID records its obligation to PG&E as a long-term lease obligation and the associated assets in utility plant in accordance with Statement of Financial Accounting Standard (SFAS) No. 13, Accounting for Leases, as amended. Contract terms include an up-front payment of $1,600 plus an irrevocable payment obligation which totals $13,800 on a net present value basis to be paid over a ten year period with the amounts due within one year classified as current. Contract provisions provides for periodic evaluation of TID’s usage of natural gas which has resulted in additional amounts being paid to PG&E or received from PG&E in the first three years of the contract.

The lease obligation is included in TID’s balance sheet at December 31, 2008 and 2007 with a balance of $11,970 and $10,557, respectively, along with the related assets with a net book value of $11,091 and $12,639, respectively, in utility plant.

Deferred Regulatory Asset and Credits

TID’s Board has the authority to establish the level of rates charged for all District services. As a regulated entity, TID’s financial statements are prepared in accordance with SFAS No. 71, Accounting for the Effects of Certain Types of Regulation, which requires the effects of the rate making process be recorded in the financial statements. Accordingly, certain expenses and income, normally reflected in operations as incurred, are recognized when included in rates and recovered from or refunded to customers as set forth in rate actions taken by the Board.

Compensated Absences

TID accrues vacation leave, sick leave and other compensated absences earned as liabilities when the employees earn the benefits. At December 31, 2008 and 2007, the total estimated liability for vacation, sick, and other compensated absences was $4,070 and $4,002, respectively, and is included in accrued salaries, wages and related benefits in the accompanying balance sheet.

Self-insurance Liability

Substantially all of TID’s assets are insured against possible losses from fire and other risks. TID carries insurance coverage to cover general liability claims in excess of $1,000 per occurrence up to $35,000, worker’s compensation claims in excess of $750 per occurrence and medical claims in excess of $125 per employee and covered retiree. TID records liabilities for unpaid claims when they are probable of occurrence and the amount can be reasonably estimated.

TID purchases its excess workers’ compensation insurance from the California State Association of Counties (CSAC) Excess Insurance Authority. The risk of loss in excess of $750 per occurrence is transferred to the insurance pool.

The accompanying financial statements include accrued expenses for general liability, workers’ compensation and medical, dental and vision claims based on TID’s best estimates of the ultimate cost of settling outstanding claims and claims incurred, but not reported. At December 31, 2008 and 2007, TID’s estimated self-insurance liability for its worker’s compensation claims totaled $3,450 and $3,260, respectively, and is reported as a component of accounts payable and accrued expenses in the

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

25 T


consolidated balance sheets. At December 31, 2008 and 2007, TID’s estimated self-insurance liability for its medical claims totaled $780, and is reported as a component of accrued salaries, wages and related benefits in the consolidated balance sheets.

Gas Price Swap and Option Agreements

TID uses forward purchase agreements, swaps and option agreements to hedge the impact of market volatility on gas prices for its gas fueled power plants. Expenses under the contracts, net of the payments received, are reported as a component of generation and fuel expense, in the period in which the underlying gas and power deliveries occur.

Derivative Financial Instruments

Effective January 1, 2008, TID early adopted SGAS No. 53, Accounting and Financial Reporting for Derivative Instruments (SGAS 53), which establishes accounting and financial reporting standards for the recognition, measurement, and disclosure of information regarding derivative instruments entered into by state and local governments (See note 9). Prior to adopting SGAS 53, TID accounted for its derivative contracts under the provisions of SFAS 133, Derivative Instruments and Hedging Activities, as amended (SFAS 133). Retroactive application is required upon the adoption of SGAS 53 for all periods presented; however, the impact of applying the standard at January 1, 2007 and for the year ended December 31, 2007 is not material to TID. Therefore, the financial statements for the year ending December 31, 2007 have not been adjusted for the application of SGAS 53, as prescribed.

TID records derivative financial instruments, consisting of gas price swap agreements, option agreements, and gas and electricity purchase and sales agreements that are not treated as normal purchases and normal sales, at fair value on its balance sheets. Under the provisions of GASB 53, normal purchases and normal sales are contracts that are for the purchase or sale of a commodity, such as natural gas or electricity, to be used in the normal course of operations, provided that it is probable TID will take or make delivery of the commodity specified in the derivative instrument. Changes in the fair value of derivatives that do not meet the requirements of an effective hedge transaction are included in investment income as required under SGAS 53. Changes in the fair value of derivatives which are effective hedges, are deferred on the balance sheet and included in prepaid expenses and other current assets. Under SFAS 133, TID did not apply hedge accounting to its derivative contracts; therefore, the changes in derivative financial instruments were recorded as a component of generation and fuel expense.

The fair values of gas price swap and option agreements are based on forward prices from established indexes for the applicable regions, where available and forward prices obtained from a pricing service utilized by TID. The fair values of gas and electricity purchase and sales agreements are based on forward prices from both published indexes from applicable regions and discounted using established interest rate indexes, where applicable, and information obtained from a pricing service where a published index is not available.

TID reports derivative financial instruments with remaining maturities of one year or less and the portion of long-term contracts with scheduled

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

26 T


transactions over the next twelve months as Unrestricted – This component of net assets current on the consolidated balance sheets. TID consists of net assets that do not meet the is exposed to risk of nonperformance if the definition of “restricted” or “invested in capital counterparties default or if District the agreements are assets, net of related debt”. Turlock Irrigation terminated. TID monitors these risks and does Notes to Consolidated Financial Statements not anticipate 31, nonperformance. Board Designated Net Assets in thousands) December 2008 and 2007 (dollars

Net Assets

Net assets include amounts that TID’s Board

Net Assets designates as reserves for debt service, capital TID classifies its net assets into three components – invested in capital assets, net of related debt; TIDrestricted; classifies its assets into three and rate stabilization. The rate andnet unrestricted. These classifications areimprovements defined as follows:

components – invested in capital assets, net of stabilization fund represents amounts reserved for Invested in capital assets, net of related debt – This component of net assets consists of capital related debt; restricted; and unrestricted. These the purpose of stabilizing electric utility rates in assets, net of accumulated depreciation reduced by the outstanding debt balances, net of classifications are defined as follows: future periods. The Board determines the annual unamortized debt expenses and unspent debt proceeds. transfers into and out of these reserves. While Restricted – This component consists of net assets with constraints placed onastheir use.funds, Invested in capital assets, net of related debt – This the external Board designates these funds reserve Constraints include those imposed by debt indentures, grants or laws and regulations of other component of net assets capital assets,provisionsthey are not restricted and the Board can utilize governments, by lawconsists throughofconstitutional or enabling legislation. net of accumulated depreciation reduced by the such funds for any purpose. Unrestricted This component of net assets consists of net assets that do not meet the definition of outstanding debt–balances, net of unamortized “restricted” or “invested in capital assets, net of related debt”. debt expenses and unspent debt proceeds. In 2008, the Board transferred $5,000 out of the capital improvements account to pre-fund TID’s Board Designated Net Assets Net assets amounts that TID’s as Post-Employment reserves for debt service, Restricted – Thisinclude component consists of netBoard designates Other Benefitscapital as described in improvements and rate stabilization. The rate stabilization fund represents amounts reserved for the assets with external constraints placed on their Note 11. purpose of stabilizing electric utility rates in future periods. The Board determines the annual use.transfers Constraints include those imposed by debt into and out of these reserves. While the Board designates these funds as reserve funds, they are not restricted and the Board can funds for any purpose. indentures, grants or laws and regulations of utilize such The designated funds included in unrestricted net other governments, by law through constitutional assets were as follows at December 31: In 2008, the Board transferred $5,000 out of the capital improvements account to pre-fund TID's provisions or enabling legislation. Other Post-Employment Benefits as described in Note 11. The designated funds included in unrestricted net assets were as follows at December 31: 2008 Rate stabilization Debt service Capital improvements

2007

$

34,076 18,306 7,791

$

34,076 18,175 12,791

$

60,173

$

65,042

Purchased Power Expenses A portion of TID’s power needs are provided by power purchase agreements. Expenses from such agreements, along with associated transmission costs paid to other utilities, are charged to purchased power expense in the period the power was received. Adjustments to prior billings are included in purchased power expense once the payments or adjustments can be reasonably estimated. Gains or losses on power purchase and sale transactions that are settled without physical delivery are recorded as net additions or reductions to purchased power expense. CIAC and Grants TID receives CIAC for customer contributions relating to expansions to TID’s distribution facilities. TID also receives grant proceeds from federal and state assisted programs for its river restoration (dollarsprograms in thousands) and other programs. The contributions and grant proceeds are included in other income in the accompanying financial statements. When applicable, these programs may be subject to TURLOCK IRRIGATION DISTRICT 27 financial and compliance audits pursuant to regulatory requirements, although TID considers the Consolidated Financial Statements–December 31, 2008 and 2007 T possibility of any material grant disallowances to be remote.


Purchased Power Expenses

A portion of TID’s power needs are provided by power purchase agreements. Expenses from such agreements, along with associated transmission costs paid to other utilities, are charged to purchased power expense in the period the power was received. Adjustments to prior billings are included in purchased power expense once the payments or adjustments can be reasonably estimated. Gains or losses on power purchase and sale transactions that are settled without physical delivery are recorded as net additions or reductions to purchased power expense.

CIAC and Grants

TID receives CIAC for customer contributions relating to expansions to TID’s distribution facilities. TID also receives grant proceeds from federal and state assisted programs for its river restoration programs and other programs. The contributions and grant proceeds are included in other income in the accompanying financial statements. When applicable, these programs may be subject to financial and compliance audits pursuant to regulatory requirements, although TID considers the possibility of any material grant disallowances to be remote.

Asset Retirement Obligations

TID accounts for potential asset retirement obligations in accordance with SFAS No 143 (SFAS 143), Accounting for Asset Retirement Obligations, which sets forth accounting requirements for the recognition and measurement of liabilities for legal obligations associated with the retirement of tangible longlived assets. Under SFAS 143, an obligation is recorded only when legally binding retirement

obligations exist under enacted laws, statutes, written contracts or oral contracts, including obligations arising under the doctrine of promissory estoppel. Under this statement, asset retirement obligations (AROs) are recognized at fair value as incurred and capitalized as a component of the cost of the related tangible long-lived assets. TID has identified potential retirement obligations related to certain generation, transmission and distribution facilities located on properties that do not have perpetual leases. TID’s nonperpetual leased land rights generally are renewed continuously because TID intends to utilize these facilities indefinitely. Since the timing and extent of any potential asset retirements are unknown, the fair value of any obligations associated with these facilities cannot be reasonably estimated. Accordingly, no liability has been recorded at December 31, 2008 or 2007. Recent Accounting Pronouncements

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 provides guidance for using fair value to measure assets and liabilities. The statement clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability. The statement also establishes a fair value hierarchy that prioritizes the information used to develop these assumptions. This Statement is effective for TID beginning in 2008. TID adopted SFAS 157 during 2008. The statement is applicable to TID’s fair value of its Long-Term Debt as disclosed in Note 6. The application of SFAS 157 did not have a significant impact to TID’s financial statements. SFAS 157 would have been applicable to the fair market valuation of

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

28 T


TID’s derivative instruments; however with the adoption of SGAS 53, SFAS 157 is not applicable and the specific guidelines of fair value measurement were applied as described under SGAS 53. Reclassifications

or capitalization. Such reclassifications primarily relate to the gross presentation of investment purchases and sales, which were previously presented on a net basis in the consolidated statement of cash flows. 3. Utility Plant

Turlock Irrigation District

Certain prior year amountsFinancial have been reclassified Notes to Consolidated Statements The summarized activity of TID’s utility plant to conform to the current year presentation, with December 31, 2008 and 2007 (dollars in thousands) during 2008 is presented below:

no effect on consolidated increase in net assets

3. Utility Plant The summarized activity of TID’s utility plant during 2008 is presented below: Balance December 31, 2007 Nondepreciable utility plant Land Emission credits Construction in progress Total nondepreciable utility plant Depreciable utility plant Generation Distribution Transmission General Future power rights Irrigation Investment in gas properties Total depreciable utility plant Less: accumulated depreciation, amortization and depletion Depreciable utility plant, net Utility plant, net

$

$

25,386 5,732 34,499 65,617

Additions

$

887 14,455 52,779 68,121

Transfers

$

(51,014) (51,014)

Balance December 31, 2008

Disposals

$

-

$

26,273 20,187 36,264 82,724

383,062 239,946 76,721 60,321 26,426 50,249 87,177 923,902

4,796 4,796

5,117 21,992 16,707 4,187 39 2,972 51,014

(79) (1,974) (2,010) (143) (1,064) (5,270)

388,100 259,964 91,418 64,508 26,465 53,078 90,909 974,442

(246,004) 677,898 743,515

(32,404) (27,608) 40,513

51,014 -

4,178 (1,092) (1,092)

(274,230) 700,212 782,936

$

$

$

$

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

29 T


Turlock Irrigation District

Notes to Consolidated Financial Statements December 31, 2008 and 2007

(dollars in thousands)

The summarized activity of TID’s utility plant during 2007 is presented below:

The summarized activity of TID’s utility plant during 2007 is presented below: Balance December 31, 2006 Nondepreciable utility plant Land Emission credits Construction in progress Total nondepreciable utility plant Depreciable utility plant Generation Distribution Transmission General Future power rights Irrigation Investment in gas properties Total depreciable utility plant Less: accumulated depreciation, amortization and depletion Depreciable utility plant, net Utility plant, net

$

$

Additions

25,156 5,732 10,848 41,736

$

$

230 (34,991) (34,761)

Disposals

$

-

$

-

25,386 5,732 34,499 65,617

379,673 226,034 68,134 57,488 26,297 47,019 76,301 880,946

10,876 10,876

3,389 15,138 8,587 4,217 129 3,325 34,785

(1,226) (1,384) (95) (2,705)

383,062 239,946 76,721 60,321 26,426 50,249 87,177 923,902

(220,809) 660,137 701,873

(27,854) (16,978) 41,664

34,785 24

2,659 (46) (46)

(246,004) 677,898 743,515

$

4.4. Participation Participation in in Joint Joint Powers PowersAgencies Agencies

58,642 58,642

Transfers

Balance December 31, 2007

$

$

$

transmission agreements, which provide TID with 19 MW of transmission during normal operating conditions between Tesla and Midway.

Transmission Agency of Northern California TID is a member of the Transmission Agency of Northern California (TANC), a JPA consisting of fifteen municipal utilities. TANC is a participant, with a 79.3% share of the California-Oregon Transmission Project (COTP) and other facilities power TANCTID develops, TID is a member of the Transmission Agency of for electric Under thetransmission. TANC agreements, is responsible operates and manages these projects. The COTP provides electric transmission between the Pacific Northern California (TANC), a JPA consisting of for TANC’s development, operating and debt Northwest and California. TID's entitlement share of TANC’s portion of the COTP and other facilities fifteen municipal utilities. TANC is a 171 participant, service costs on a take-or-pay basis proportionate is 12.5%, representing approximately megawatts (MW) of transmission capacity. TID also has a 6.3%aentitlement share of California-Oregon TANC’s transmission under thetoSouth of Tesla transmission agreements, with 79.3% share of the its entitlement share. During 2008 and 2007, which provideProject TID with 19 MW and of transmission during normal operating conditions between Tesla and Transmission (COTP) other facilities TID’s total expenses in connection with its Midway.

Transmission Agency of Northern California

for electric power transmission. TANC develops, TANC agreements, included in purchased power operates manages these projects. The COTP for TANC’s expense, totaled $8,973 and $5,336, respectively. Under theand TANC agreements, TID is responsible development, operating and debt service costs on transmission a take-or-paybetween basis proportionate share. During 2008 and 2007, provides electric the Pacific to its entitlement At December 31, 2008 and 2007, TID has an TID’s total expenses in connection with its TANC agreements, included in purchased power expense, Northwest andand California. entitlement affiliate obligation payable totaled $8,973 $5,336, TID’s respectively. At December 31, 2008 and 2007, TID has to anTANC affiliateof $5,066 obligation payableportion to TANC of $5,066 relating to certain relating non-cash share of TANC’s of the COTPand and$3,246, other respectively, and $3,246, respectively, to certain nonexpenses and other cumulative differences between expenses recognized for accounting purposes facilities is 12.5%, representing approximately cash expenses and other cumulative differences and cash payments made to the Agency. 171 megawatts (MW) of transmission capacity. between expenses recognized for accounting TID also has a 6.3% entitlement share of purposes and cash payments made to the Agency. TANC’s transmission under the South of Tesla

(dollars in thousands) -24-

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

30 T


Turlock Irrigation District Subsequent to December 31, 2008, TID

The Geothermal Project continues to experience lower than expected steam production from the (dollars in thousands) portion of the COTP and other facilities geothermal wells on its leasehold properties. to 15.1%, which increased TID’s share of Therefore, NCPA operates the facility at lower Subsequent to December 31, 2008, TID increased its entitlement share of TANC’s portion of the transmission during normal operating conditions output levels than originally planned, which COTP and other facilities to 15.1%, which increased TID’s share of transmission during normal to 206 MW. TID also increased its entitlement increases the cost of power per unit. Although operating conditions to 206 MW. TID also increased its entitlement share of TANC’s transmission share of TANC’s transmission under the South of to 22 the under the South of Tesla transmission agreements MW.cost of power from the Geothermal Project Tesla transmission agreements to 22 MW. is higher than that supplied from other sources, Northern California Power Agency TID is obligated to pay its contractual take-orTID is a member of the Northern California Power Agency (NCPA), a JPA consisting of seventeen Northern California Power Agency pay underand its transmission agreement with member agencies. NCPA develops and operates projects forobligations the generation of NCPA until they are fully satisfied, regardless of resulting electric power. TID is a member of the Northern California cost or availability of energy. Management plans TID has a 6.3% entitlement share in the capacity and energy from NCPA Geothermal Plants l and 2 Power Agency (NCPA), a JPA consisting of to continue to include the Geothermal Project (the “Geothermal Project”). TID is responsible for development, operating and debt service costs on seventeen member agencies. NCPA develops its long-term as such, its a take-or-pay basis in proportion to its entitlement share. inTID’s expensesresource relating plan to theand, Geothermal Project, included in purchased power expense, were $4,081 andcosts $3,491 2008 and 2007,in TID’s rates. and operates projects for the generation and related areinfully recoverable respectively. At December 31, 2008 and 2007, TID has prepaid expenses related to the Geothermal transmission of electric power. Project to NCPA of $1,247 and $990, respectively, which is included in prepaid expenses and other As described in Note 12, TID purchases natural current assets on the balance sheets. TID has a 6.3% entitlement share in the capacity gas and pays related transmission costs to NCPA The Geothermal Project continues to experience lower than from the natural and energy from NCPA Geothermal Plants l and for expected delivery ofsteam naturalproduction gas to some of TID’s geothermal wells on its leasehold properties. Therefore, NCPA operates the facility at lower output 2 (the “Geothermal responsiblethe cost ofgas firedper power Suchthe natural gaspower purchases levels than originallyProject”). planned, TID whichis increases power unit.plants. Although cost of for development, operating and service and transmission expenses to pay $6,492 from the Geothermal Project is debt higher than that supplied from other sources, TID is amounted obligated to its contractual take-or-pay under its agreement with NCPA fullyDecember satisfied, 31, costs on a take-or-pay basisobligations in proportion to its and $4,822 foruntil the they yearsare ended regardless of resulting cost or availability of energy. Management plans to continue to include the entitlement share. to the respectively, included in generation Geothermal ProjectTID’s in its expenses long-termrelating resource plan and, as2008 such,and its 2007, related costs are fully recoverable Geothermal Project, included in purchased power and fuel expenses on the consolidated statements in TID’s rates. expense, were $4,081 and $3,491 in 2008 and of revenues, expenses and changes in net assets. As described in Note TID purchases 2007, respectively. At 12, December 31, 2008natural and gas and pays related transmission costs to NCPA for delivery of natural gas to some of TID's natural gas fired power plants. Such natural gas purchases 2007,transmission TID has prepaid expenses related to to $6,492 the Financial of NCPA and31, TANC and expenses amounted and $4,822 for the Summary years ended December 2008 and 2007, respectively, included in generation and fuel expenses on the consolidated statements of Geothermal Project to NCPA of $1,247 and $990, revenues, and changes in net expenses assets. respectively,expenses which is included in prepaid The combined summarized financial information of and other current assets on the balance sheets. NCPA and TANC is as follows at December 31: Financial Summary of NCPA and TANC

Notes to Consolidated Financial Statements increased its entitlement share of TANC’s December 31, 2008 and 2007

The combined summarized financial information of NCPA and TANC is as follows at December 31:

2008 (unaudited)

2007 (unaudited)

Total assets

$ 1,335,413

$ 1,288,554

Total liabilities Total net assets

$ 1,291,442 43,971

$ 1,262,631 25,923

$ 1,335,413

$ 1,288,554

$

$

Excess of revenues over expenses for the year

30,456

14,197

The long-term debt of TANC and NCPA is collateralized by a pledge and assignment of net revenues (dollars in thousands) of each JPA, supported by the take-or-pay commitments of TID and other members. As such, TID is contingently obligated for its proportionate share of TANC’s liabilities of $476,599 and NCPA’s debt TURLOCK IRRIGATION DISTRICT

Consolidated Financial Statements–December 31, 2008 and 2007

-25-

31 T


The long-term debt of TANC and NCPA is and would be entitled to the same proportion of collateralized by a pledge and assignment of net additional power production or transmission. revenues of each JPA, supported by the take-orTurlock Irrigation District pay commitments of TID and other members. Walnut Energy Center Authority Notes to Consolidated Financial Statements As such, TID is contingently obligated for December 31, 2008 and 2007 (dollars in thousands) its proportionate share of TANC’s liabilities TID and Merced Irrigation District formed of $476,599 and NCPA’s debt related to the the Authority for the principal purpose of related to the Geothermal Project of $52,124 at December 31, 2008. Should other of gas Geothermal Project of $52,124 at owning and operating a 250members MW natural TANC and NCPA default on their obligations to these JPAs, TID would be required to make “step up” December 31, 2008. Should other members of fueled generation facility that is blended into payments, up to 25% of its proportionate share, to cover a portion of the defaulted payments and TANC NCPA to default on their obligations and reported as aorcomponent unit of TID. All would and be entitled the same proportion of additional power production transmission. to these JPAs, TID would be required to make operations of the Authority are consolidated Walnut Energy Center Authority “step up” payments, up to 25% of its proportionate into TID’s financial statements. The Authority’s TID and Merced Irrigation District formed the Authority for the principal purpose of owning and share, to cover a portion of the defaulted payments financial information is summarized as follows: operating a 250 MW natural gas fueled generation facility that is blended into and reported as a component unit of TID. All operations of the Authority are consolidated into TID's financial statements. The Authority’s financial information is summarized as follows: 2008

Summarized Balance Sheets

2007

Current assets Noncurrent assets

$

3,523 289,218

$

3,579 283,431

Total assets

$

292,741

$

287,010

Current liabilities Long-term debt, net of current portion

$

86,144 206,597

$

80,058 206,952

Total liabilities

$

292,741

$

287,010

Summarized Statements of Revenues, Expenses and Changes in Net Assets Operating revenues Operating expenses Operating income

$

126,625 114,990 11,635

$

95,718 83,138 12,580

Nonoperating revenues and expenses, net Changes in net assets

(11,635) $

-

(12,580) $

-

5. Cash, Cash Equivalents and Investments

are unconditionally guaranteed by the U.S. Government or its agencies or instrumentalities; TID’sinvestment investmentpolicies policiesare aregoverned governed by the Californiadirect Government Codes and its Bond Indenture, TID’s and general obligations of the State of which restricts TID’s investment securities to obligations which are unconditionally guaranteed by thethe by the California Government Codes and California (State) or any local agency within U.S. Government or its agencies or instrumentalities; direct and general obligations of the State of itsCalifornia Bond Indenture, restricts TID’s State; bankers’ acceptances; commercial (State) orwhich any local agency within the State; bankers’ acceptances; commercial paper;paper; investment to time obligations which certificates of deposit; time certificates of deposit; certificatessecurities of deposit; certificates of deposit; repurchase agreements; medium-term corporate

5. Cash, Cash Equivalents and Investments

notes; shares of beneficial interest; mortgage pass-through securities; and deposits with the LAIF and CAMP. Investments in CAMP and LAIF are unregistered, pooled funds.

(dollars in thousands)

TID’s investment policy includes restrictions for investments relating to maximum amounts invested as a percentage of total portfolio and with a single issuer, maximum maturities, and minimum credit TURLOCK IRRIGATION DISTRICT ratings. Consolidated Financial Statements–December 31, 2008 and 2007

32 T


repurchase agreements; medium-term corporate notes; shares of beneficial interest; mortgage pass-through securities; and deposits with the LAIF and CAMP. Investments in CAMP and LAIF are unregistered, pooled funds.

Credit Risk

To mitigate the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment, TID limits investments to those rated, at a minimum, “A1” or equivalent for mediumTurlock Irrigation District TID’s policy includes restrictions term notes and “A” for commercial paper by a Notes toinvestment Consolidated Financial Statements December 31, 2008 and (dollars thousands) for investments relating to 2007 maximum amounts nationally recognized ratingin agency. The following invested as a percentage of total portfolio and schedules present the credit risk at December 31, with a single issuer, maximum maturities, and 2008 and 2007. The credit ratings listed are from Credit Risk minimum ratings. Standard Poor’s. toNR rated and To mitigatecredit the risk that an issuer of an investment will not fulfill itsand obligation themeans holdernot of the investment, TID limits investments to those rated, at a minimum, “A1” equivalent medium-term TSY refers toor U.S. Treasuryfor securities. notes and "A" for commercial paper by a nationally recognized rating agency. The following schedules present the credit risk at December 31, 2008 and 2007. The credit ratings listed are from Standard and Poor’s. NR means not rated and TSY refers to U.S. Treasury securities. Credit Rating

2008

2007

Cash and cash equivalents: Deposits Commercial paper U.S. Treasury bill Government sponsored enterprises Repurchase agreements Local Agency Investment Fund

NR NR TSY AAA NR NR

Short-term investments: Corporate notes Government sponsored enterprises U.S. Treasury Notes

AA,AAAAA TSY

3,489 9,223 12,712

1,418 6,539 7,957

AAA NR

11,815 4,135 15,950

11,488 4,135 15,623

AAA TSY AAA, AA, AA-, A+

34,372 4,915 15,041 54,328 134,382

42,666 10,519 15,078 68,263 145,082

Cash and cash equivalents restricted for long-term purposes: California Asset Management Program Local Agency Investment Fund Long-term investments: Government sponsored enterprises U.S. Treasury notes Corporate notes

$

$

29,809 5,157 7,659 8,767 51,392

$

$

32,247 12 7,654 7,508 5,818 53,239

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

33 T


Turlock Irrigation District Notes to Consolidated Turlock IrrigationFinancial District Statements

Notes The schedule belowand presents restricted and December 2008 2007 to31, Consolidated Financial Statements unrestricted balances of cash, cash equivalents and December 31, 2008 and 2007

(dollars in thousands) (dollars in thousands)

investments as of December 31, 2008 and 2007:

The schedule below presents restricted and unrestricted balances of cash, cash equivalents and investments as of December 31, 2008 and 2007: The schedule below presents restricted and unrestricted balances of cash, cash equivalents and investments as of December 31, 2008 and 2007:

General operating funds: Operating accounts General operating funds: Funds designated for rate stabilization Operating accounts Funds designated for capital improvements Funds designated for rate stabilization Funds designated for capital improvements

$

Restricted funds: Construction funds Restricted funds: Reserve funds Construction funds Debt service funds Reserve funds Debt service funds

$

2008

2007

2008 29,710 $ 47,200 $ 29,710 7,791 47,200 84,701 7,791 84,701

2007 28,566 55,200 $ 28,566 12,791 55,200 96,557 12,791 96,557

31,375 18,306 31,375 49,681 18,306 134,382 49,681$

12 30,338 12 18,175 30,338 48,525 18,175 145,082 48,525

$

$

134,382

145,082

Custodial Credit Risk ThisCustodial is the risk Credit that in the event of the failure of a depository financial institution or counterparty to a Risk transaction, TID’s deposits may not of bethe returned will not befinancial able to recover theorvalue of its This is the risk that in the event failureor ofTID a depository institution counterparty to a deposits, investments or collateral securities that are in the possession of another party. TID does transaction, TID’s deposits may not be returned or TID will not be able to recover the value of its not have aCredit deposit policy for risk. that At December 31, 2008increased and cash, cash Custodial Risk their standard deposits, investments or custodial collateral credit securities are in temporarily the possession of 2007, another party. TIDcoverage does equivalents and investments, excluding the LAIF and CAMP, totaling $109,665 and $124,346, not have a deposit policy for custodial credit risk. At December 31, 2008 and 2007, cash, cash from $100 to $250 for deposits in interest respectively, areand collateralized withexcluding securitiesthe held by and the pledging bank’s $109,665 trust department in TID’s equivalents investments, LAIF CAMP, totaling and $124,346, name; This is the risk that in the event of the failure of a bearing accounts until December 31, 2009. of which $11,074 and $705, respectively, are also insured by the FDIC; and investments the For respectively, are collateralized with securities held by the pledging bank’s trust department ininTID’s LAIF and CAMP at December 31,$705, 2008 and 2007,toofare $24,717 and $21,441, and depository institution or counterparty non-interest accounts therewere is unlimited name; of financial which $11,074 and respectively, also insured by bearing the respectively, FDIC; and investments in the uninsured and uncollateralized. Under the Temporary Liquidity Program (TLGP) announced in a LAIF transaction, TID’satdeposits may31, not2008 be returned insurance Decemberand 31,were 2009 for and CAMP December and 2007, of $24,717 andcoverage $21,441,until respectively, October 2008, and the FDIC has temporarily increased their standard coverage from $100announced to $250 forin uncollateralized. Under theofTemporary Liquidity Program (TLGP) oruninsured TIDinwill not be able toaccounts recover the value institutions participating in the TLGP. Also deposits interest bearing until December 31, 2009. For non-interest bearing accounts October 2008, the FDIC has temporarily increased their standard coverage from $100 to $250 for there is unlimited insurance coverage until December 31, 2009 for institutions participating in the to itsdeposits deposits, investments or collateral securities under the TLGP, the FDIC has in interest bearing accounts until December 31, 2009. For non-interest bearingagreed accounts TLGP. Also under the TLGP, the FDIC has agreed to guarantee new senior unsecured bank debt that areisinunlimited the possession of another party. guarantee senior unsecured bank there insurance coverage untilTID December 31, 2009 fornew institutions participating in debt the issued issued through June 30, 2009. The guarantee under the program terminates at the earlier of maturity TLGP. Also under the TLGP, the FDIC has agreed to guarantee new senior unsecured bank debt not or have a deposit policy for custodial credit through June 30, 2009. The guarantee under the of does the debt June 30, 2012. Under the guarantee TLGP, TIDunder has athe total of $3,294 in interest andofnonissued through June 30, 2009. The program terminates at bearing the earlier maturity risk. At December 31, 2008$7,780 and 2007, cash, cash at December program terminates at the of maturity of interest bearing accounts in investments 2008, which areearlier guaranteed of the debt or June 30,and 2012. Under the TLGP, TID has a total31, of $3,294 in interest bearing andbynontheequivalents FDIC under the TLGP. and investments, excluding the LAIF the debt or June 30, 2012. Under the TLGP,by interest bearing accounts and $7,780 in investments at December 31, 2008, which are guaranteed theCAMP, FDIC under the $109,665 TLGP. and $124,346, and totaling TID has a total of $3,294 in interest bearing Concentration of Credit Risk respectively, collateralized with held and investment non-interestin bearing and $7,780 This is the risk are of loss to thesecurities magnitude of an entity’s a singleaccounts issuer. TID Concentration ofattributed Credit Risk places no limit on the amounts invested in any one issuer for federal agency securities, except forwhich byThis the is pledging department TID’s of an in investments at December 2008, the riskbank’s of losstrust attributed to the in magnitude entity’s investment in a single31, issuer. TID are mortgage pass through securities, which may not exceed 20% of TID's portfolio. For disclosure places limit$11,074 on the amounts invested in any one issuer for federal securities, except for name; of no which and $705, respectively, guaranteed byagency the FDIC under the TLGP. purposes, investments issued or explicitly guaranteed by the U.S. government and investment in mortgage pass through securities, which may not exceed 20% of TID's portfolio. For disclosure are also insured by the FDIC; and investments mutual funds and external investment pools are not required beU.S. evaluated for concentration of in purposes, investments issued or explicitly guaranteed byto the government and investment credit risk. The following are the concentrations of risk representing 5% or greater in a single issuer inmutual the LAIF and CAMP at December 31, 2008 Concentration of Credit Risk funds and external investment pools are not required to be evaluated for concentration of in either year: and 2007, of $24,717 and $21,441, respectively, of risk representing 5% or greater in a single issuer credit risk. The following are the concentrations in either year: and were uninsured and uncollateralized. Under Investment type the Temporary Liquidity Program (TLGP) Investment type Home Loan Bank* announcedFederal in October 2008, the FDIC has

This of loss attributed to the magnitude 2008is the risk 2007 of an entity’s investment in a single issuer. TID 2008 2007 17% no limit on 20% places the amounts invested in any

Federal National Mortgage Association* 13%17% Federal Home Loan Bank* Federal Home Loan Mortgage 6% 13% Federal National Mortgage Coporation* Association* Federal Farm Credit Bank* 6% Federal Home Loan Mortgage Coporation* 6% (dollars in thousands) FederalaFarm Credit Bank* 6% * Indicates government sponsored enterprise * Indicates a government sponsored enterprise

7% 20% 8% 7% 6% 8% 6%

TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007 -28-

-28-

34 T


October 2008, the FDIC has temporarily increased their standard coverage from $100 to $250 for deposits in interest bearing accounts until December 31, 2009. For non-interest bearing accounts there is unlimited insurance coverage until December 31, 2009 for institutions participating in the TLGP. Also under the TLGP, the FDIC has agreed to guarantee new senior unsecured bank debt issued through June 30, 2009. The guarantee under the program terminates at the earlier of maturity of the debt or June 30, 2012. Under the TLGP, TID has a total of $3,294 in interest bearing and noninterest and $7,780 in investmentsand at December guaranteed one issuer forbearing federalaccounts agency securities, except investment31, in 2008, mutualwhich fundsare and external by the FDIC under the TLGP.

for mortgage pass through securities, which investment pools are not required to be evaluated may Concentration not exceed 20% of of Credit TID’s portfolio. For for concentration of credit risk. The following Risk This is the risk of loss attributed to the magnitude of an entity’s investment in single issuer. TID disclosure purposes, investments issued or are the concentrations of arisk representing 5% or places no limit on the amounts invested in any one issuer for federal agency securities, except for explicitly guaranteed by the U.S. government greater in a single issuer in either year: mortgage pass through securities, which may not exceed 20% of TID's portfolio. For disclosure purposes, investments issued or explicitly guaranteed by the U.S. government and investment in mutual funds and external investment pools are not required to be evaluated for concentration of credit risk. The following are the concentrations of risk representing 5% or greater in a single issuer in either year: Investment type Federal Home Loan Bank* Federal National Mortgage Association* Federal Home Loan Mortgage Coporation* Federal Farm Credit Bank*

2008

2007

17% 13% 6% 6%

20% 7% 8% 6%

* Indicates a government sponsored enterprise

-28-

Interest Rate Risk

Although TID has restrictions as to the maturities of some of the investments, it does not have a formal policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increases in interest rates. Of TID’s total portfolio at December 31, 2008 and 2007, all of TID’s cash and cash equivalents have maturities of 90 days or less. The remaining investments mature between one to three years.

In accordance with provisions of the credit agreements relating to certain of TID’s long-term debt obligations, restricted funds are maintained at levels set forth in the agreements to provide for debt service reserve and project funding requirements. These funds are held by trustees and are invested in U.S. Government securities and related instruments with maturities no later than the expected date of the use of the funds.

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

35 T


2007, all of TID’s cash and cash equivalents have maturities of 90 days or less. The remaining investments mature between one to three years. In accordance with provisions of the credit agreements relating to certain of TID's long-term debt obligations, restricted funds are maintained at levels set forth in the agreements to provide for debt service reserve and project funding requirements. These funds are held by trustees and are invested U.S. Government securities and related instruments with maturities no later than the expected date 6. in Long-term Debt of the use of the funds.

Long-term debt consists of the following at December 31:

6. Long-term Debt

Long-term debt consists of the following at December 31: 2008 Revenue bonds, fixed interest rates of 4.0% to 6.25%, maturing through 2034

$

2007

254,045

$

263,100

Revenue bonds, variable interest rates, maturing through 2034

64,840

65,660

Certificates of participation, fixed interest rates of 4.5% to 5.0%, maturing through 2033

26,785

26,785

Certificates of participation, variable interest rates, maturing through 2031

34,700

35,600

380,370

391,145

(11,215) 7,106 (3,565)

(10,775) 7,673 (4,092)

Total long-term debt outstanding Less: Current portion Unamortized premiums and discounts, net Deferred losses on bond refundings, net Total long-term debt, net

$

372,696

$

383,951

Turlock Irrigation District

Notes to Consolidated Financial Statements 31, 2008 2007long-term debt December The summarized activityand of TID’s

(dollars in thousands)

during 2008 and 2007 is presented below:

The summarized activity of TID's long-term debt during 2008 and 2007 is presented below: December 31, 2007 Revenue bonds Certificates of participation

$

Total Less: Unamortized premiums and (discounts), net Deferred losses on bond refundings, net Total long-term debt, net

(dollars in thousands)

Revenue bonds Certificates of participation Total

328,760 62,385

Payments and amortization $

(9,875) (900)

$

$

318,885 61,485

$

10,115 1,100

$

11,215

391,145

(10,775)

380,370

7,673

(567)

7,106

(4,092)

527

(3,565)

-29-

394,726

$

(10,815)

Amounts Due Within One Year

December 31, 2008

$

383,911

Amounts Payments and December 31, Due Within amortization One Year TURLOCK 2007 IRRIGATION DISTRICT

December 31, 2006

Consolidated Financial Statements–December 31, 2008 and 2007 $

337,900 63,285 401,185

$

(9,140) (900) (10,040)

$

328,760 62,385 391,145

$

$

9,875 900 10,775

36 T


(discounts), net Deferred losses on bond refundings, net Total long-term debt, net

7,673

(567)

(4,092) $

394,726

527 $

December 31, 2006 Revenue bonds Certificates of participation Total Less: Unamortized premiums and (discounts), net Deferred losses on bond refundings, net Total long-term debt, net

$

337,900 63,285 401,185

(4,672) 404,768

(10,815)

Payments and amortization $

8,255

$

7,106

(9,140) (900) (10,040)

(3,565) $

580 (10,042)

Amounts Due Within One Year

December 31, 2007 $

(582)

$

383,911

328,760 62,385 391,145

$ $

9,875 900 10,775

7,673

$

(4,092) 394,726

Variable Rate Debt

Variable Rate Debt General TID’s variable rate revenue bonds bear interest at weekly auction rates, which had an average

effective rate of 3.5% on outstanding obligations at December 31, 2008. TID can elect to change the interest rate period or fix the interest with certain limitations. theTID event of a failed auction, TID’s variable rate revenue bonds bearrate, interest The COPsInand revenue bonds are the interest rate resets to a maximum rate of 12.0%. While other municipal issuers of variable rate debt athave weekly auction rates, which had an average collateralized by a pledge of, and a lien on, the recently experienced failed auctions, TID has experienced no failed auctions to date. TID's effective rate of 3.5% on outstanding obligations revenues ofinterest the electric system deducting remaining variable rate bonds and certificates of participation bear at daily andafter weekly rates, had an31, average effective obligations of 0.7% Decembercosts, 31, 2008. atwhich December 2008. TID can rate electon to outstanding change maintenance andatoperation as defined in

the interest rate period or fix the interest rate, the bond resolutions. The COPs are subordinate TID has two letters of credit totaling $42,977 with a bank, which expire in April 2011. These facilities with certain limitations. event of failedvariable rate to the TID bonds revenueand bonds commercial provide liquidity support In forthe a portion of aTID’s revenue all ofand TID’s variable paper. rate Certificates of Participation The credit rating of the bank is AA- (Standard & Poor's) as auction, the interest rate resets to (COPs). a maximum TID’s bond resolutions contain various covenants of December 31, 2008. rate of 12.0%. While other municipal issuers of that include requirements to maintain minimum variable rate debt have recently experienced failed debt service coverage ratios, certain financial auctions, TID has experienced no failed auctions ratios, stipulated minimum funding of revenue to date. TID’s remaining variable rate bonds bond reserves, and various other requirements. and certificates of participation bear interest at Certain of TID’s bonds are enhanced by daily and weekly rates, which had an average bond insurance provided by two different -30effective rate on outstanding obligations of 0.7% counterparties. The credit quality of these two at December 31, 2008. bond insurers has declined in the past several months. However, the impact on the District’s TID has two letters of credit totaling $42,977 current liquidity is mitigated because the bonds with a bank, which expire in April 2011. These cannot be put to TID before their maturity dates. facilities provide liquidity support for a portion of TID’s variable rate revenue bonds and all of Authority revenue bonds are part of the TID’s variable rate Certificates of Participation consolidated debt structure for financial (COPs). The credit rating of the bank is AAstatement purposes. The debt service that is a (Standard & Poor’s) as of December 31, 2008. result of these bonds is part of the cost of power paid by TID to the Authority.

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

37 T


resolutions contain various covenants that include requirements to maintain minimum debt service coverage ratios, certain financial ratios, stipulated minimum funding of revenue bond reserves, and various other requirements. Certain of TID's bonds are enhanced by bond insurance provided by two different counterparties. The credit quality of these two bond insurers has declined in the past several months. However, the impact on the District's current liquidity is mitigated because the bonds cannot be put to TID before their maturity dates.

TID has a surety bond of $4,102 with a bank, in 2010. Additionally, fixed rate revenue bonds Authority revenue bonds are part of the consolidated debt structure for financial statement purposes. servicereserve that is fund a result of these bonds the cost of power by TIDmay to the inThe lieu debt of funding requirements for is part of totaling $23,705 andpaid $125,410 be subject to Authority. certain revenue bonds, as allowed by the bond redemption during 2013 and 2014, respectively, resolution. surety bond expireswith concurrent by TID reserve withoutfund a premium or discount. COPs TID has aThe surety bond of $4,102 a bank, in lieu of funding requirements for certain with the related revenue bonds. $34,700 may concurrent be subject to redemption by revenue bonds, as allowed by No the amounts bond resolution. Thetotaling surety bond expires with the related bonds. No amounts on the bond to date. have beenrevenue drawn on the surety bond to have date. been drawn TID atsurety any interest date without a premium or Additionally, COPs totaling Variable rate bonds totaling $64,840 may be subject to discount. redemption by TID at any interest date$26,785 without Variable rate bonds totalingFixed $64,840 be bonds totaling may$56,370 be subject tobe redemption TID during a premium or discount. rate may revenue may subject toby redemption by TID in 2009 at a premium of 1% and without premium or discount beginning in 2010. Additionally, subject to redemption by TID at any interest 2013 without a premium or discount. fixed rate revenue bonds totaling $23,705 and $125,410 may be subject to redemption during 2013 date without a premium or discount. Fixed rate and 2014, respectively, by TID without a premium or discount. COPs totaling $34,700 may be revenue totaling $56,370 may subjectdate without TID’s scheduled future annual principalCOPs subjectbonds to redemption by TID at anybeinterest a premium or discount. Additionally, $26,785 mayin be2009 subject redemption 2013and without a premium or are discount. tototaling redemption by TID at atopremium of by TID during maturities estimated interest as follows at 1% and without premium or discount beginning December 31, 2008: TID’s scheduled future annual principal maturities and estimated interest are as follows at December 31, 2008: Estimated Interest

Principal 2009 2010 2011 2012 2013 2014-2018 2019-2023 2024-2028 2029-2033 2034

$

$

11,215 12,480 15,520 15,140 13,715 68,810 77,035 78,280 74,885 13,290 380,370

$

$

Total

16,020 15,423 15,021 14,277 13,889 61,384 45,980 29,448 13,653 632 225,727

$

$

27,235 27,903 30,541 29,417 27,604 130,194 123,015 107,728 88,538 13,922 606,097

TIDused used theinterest interestrates rates effectasas 2008, to estimate the future interest Irrigation District Turlock TID the inineffect ofof December 31,At December 31, 2008 and 2007, the estimated requirements for its variable rate debt,Statements included in the table above. Notes to Consolidated Financial December 31, 2008, to estimate the future fair values of TID’s long-term debt, calculated December 31, 2008for and in value thousands) interest requirements its 2007 variable rate debt, by determining the(dollars net present using included in the table above. appropriate maturity dates of future debt service payments the calculated bond buyer’s At December 31, 2008 and 2007, the estimated fair values of TID'sdiscounted long-term at debt, by revenue -31- maturity determining the net present value using appropriate future service payments bonddates index of rate, are debt as follows: discounted at the bond buyer’s revenue bond index rate, are as follows:

2008

2007

Carrying amount

$

383,911

$

394,726

Fair value

$

404,322

$

421,368

(dollars in thousands)

7. Commercial Paper TURLOCK IRRIGATION DISTRICT 38 TID has two commercial paper programs, one established in December 2006 for various financing Consolidated Financial Statements–December 31, 2008 and 2007 T needs up to $100,000. The outstanding balance under this commercial paper program at December 31, 2008 and 2007 was $74,500 and $45,500, respectively. The effective interest rate for the notes outstanding at December 31, 2008 and 2007 was 0.61% and 3.25%, respectively. The


At December 31, 2008 and 2007, the estimated fair values of TID's long-term debt, calculated by determining the net present value using appropriate maturity dates of future debt service payments discounted at the bond buyer’s revenue bond index rate, are as follows:

7. Commercial Paper

adequate liquidity to fulfill its commercial paper 2008 2007 obligations.

TIDCarrying has two amount commercial paper programs, $ 383,911 $ 394,726 one Fair established in December 2006 for various The other commercial paper program is used to value $ 404,322 $ 421,368 financing needs up to $100,000. The outstanding finance capital expenditures. At balance under this commercial paper program at December 31, 2008 and 2007, the balance December 31, 2008 and 2007 was $74,500 and outstanding under TID’s other commercial paper 7. Commercial Paper $45,500, respectively. The effective interest program was $79,569 and $73,920, respectively, TIDfor has commercial paper programs, one established in December various rate thetwo notes outstanding at of which $53,9192006 and for $48,270 wasfinancing taxable, needs up to $100,000. The outstanding balance under this commercial paper program at December 31, 2008 and 2007 was 0.61% and respectively. The effective interest rate for the December 31, 2008 and 2007 was $74,500 and $45,500, respectively. The effective interest rate for 3.25%, respectively. Theataverage term31, for 2008 these and 2007 was notes0.61% outstanding at December 31, 2008 the notes outstanding December and 3.25%, respectively. Theand notes at December 31, 2008 and 2007 was 5 and 2007 was 1.88% and 4.06%, respectively, average term for these notes at December 31, 2008 and 2007 was 5 and 43 days, respectively. and TID the a $108,876 letter of creditato$108,876 support these notes andterm incurs an13 annual feedays, for this service. 43maintains days, respectively. TID maintains average was and 49 respectively. There has not been a term advance under the letter of credit, which expires in December 2009. The letter of credit to support these notes and incurs A letter of credit of $87,200 supports the sale counterparty to the letter of credit is a large national bank whose credit rating is A+ Negative an(Standard annual fee& for this service. There has of not been of these outstanding notes andtoTID incurs Poor's). Upon expiration the existing letter of credit facility, TID plans extend the an or solicitunder offersthe forletter alternative credit support. In the event extensions or has alternatives a facility term advance of credit, which annual feethat forsuch this service. There not been a are not available at acceptable terms, TID believes it has adequate liquidity to fulfill its commercial expires in December 2009. The counterparty term advance under the letter of credit, which paper obligations. to the letter of credit is a large national bank expires in September 2012. The counterparty to The other program is used&to financethe capital At December 31, 2008 whose creditcommercial rating is A+paper Negative (Standard letterexpenditures. of credit is a national bank whose credit and 2007, theexpiration balance outstanding under TID's paper program was $79,569 and Poor’s). Upon of the existing letter of other commercial rating is AANegative (Standard & Poor’s). $73,920, respectively, of which $53,919 and $48,270 was taxable, respectively. The effective interest credit facility, TID plans to extend the facility31, or 2008 and 2007 was 1.88% and 4.06%, respectively, rate for the notes outstanding at December solicit offers for alternative support. Inrespectively. the The consolidated of TID’s commercial and the average term wascredit 13 and 49 days, A letter of creditactivity of $87,200 supports the sale of these outstanding notes and TID incurs an annual fee for this service. There has not been a event that such extensions or alternatives are not paper during 2008 and 2007 is presented below: term advance under the letter of credit, which expires in September 2012. The counterparty to the available at acceptable terms, TID believes it has letter of credit is a national bank whose credit rating is AA- Negative (Standard & Poor's). The consolidated activity of TID's commercial paper during 2008 and 2007 is presented below: 2008

2007

Balance, beginning of year Additions Payments

$

119,420 34,808 (159)

$

86,050 36,170 (2,800)

Balance, end of year

$

154,069

$

119,420

-32-

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

39 T


Turlock Irrigation District

Notes to Consolidated Financial Statements December 31, 2008 and 2007 (dollars in thousands) 8. Regulatory Deferrals in regulatory assets and credits. 8. TID’s Board has taken various regulatory actions Deferred Regulatory Assets Regulatory Deferrals that result in differences between recognition of TID’s Board has taken regulatory actions that in differences recognition revenues and expenses forvarious rate-making purposes result Deferred regulatorybetween assets consist of the of revenues and expenses for rate-making purposes as reflected in these consolidated financial asstatements reflected inand these financial following at December 31: asconsolidated incurred. These actions result in regulatory assets and credits. Turlock Irrigation District statements and as incurred. These actions result

Notes to Consolidated Financial Statements Deferred Regulatory Assets December 31, 2008assets and 2007 Deferred regulatory consist of the following at December 31:

(dollars in thousands)

2008 2007 8. Regulatory Deferrals Deferred power supply adjustment $ 16,950 $ 9,122 TID’s Board has taken various regulatory actions that result in differences between recognition of revenues and expenses for rate-making purposes as reflected in these consolidated financial statements and as incurred. These actions result in regulatory assets and credits. Power Supply Adjustment TID’s RateRegulatory Schedule PSA (Power Supply Adjustment) billing factor provides for an adjustment to the Deferred Assets kilowatt-hour (KWh) portion of customer to reflect variations 31: in the variable cost of power supply, Deferred regulatory assets consist of thebills following at December which comprises purchased power, fuel used for generation of electric energy andcollected gas field from costsretail Power Supply Adjustment which the energy revenues including related capital costs, reduced by revenue from wholesale sales of gas and energy to other 2008 (or more 2007 TID’s RateThe Schedule PSAis (Power Supply customers are less than)reset the actual entities. PSA rate reset semi-annually in June and December. Thethan Board has limited amounts to billing ($0.005) to $0.01 per KWh. maintained an amount by the in Adjustment) factor provides for an A balancing account cost ofispower supply.inDeficiencies (orwhich excesses) Deferred powercollected supply adjustment $ than) 16,950 $ cost 9,122 energy revenues from retail customers are less than (or more the actual of power adjustment to the kilowatt-hour (KWh) portion the balancing account are adjusted by increasing supply. Deficiencies (or excesses) in the balancing account are adjusted by increasing (or ofdecreasing) customer bills reflect variations (or decreasing) the deficiency PSA billing On thetoPSA billing factor. in Onthe December 31, 2008 and 2007, the in factor. the balancing variable cost of $16,950 power supply, which comprises December 31, 2008 and 2007, the deficiency in account was and $9,122, respectively. Power Supply Adjustment TID’s Rate Schedule PSAfor (Power Supply factor provides an$16,950 adjustment the purchased power, fuel used generation ofAdjustment) billing the balancing accountfor was and to $9,122, Deferred Regulatory Credits kilowatt-hour (KWh) portion of customer bills to reflect variations in the variable cost of power supply, electric energy and gas field costs including respectively. Deferred regulatory credits consist theused following at December 31: energy and gas field costs which comprises purchased power,offuel for generation of electric related capital costs,capital reduced by revenue including related costs, reducedfrom by revenue from wholesale sales of gas and energy to other entities. sales The of PSA reset semi-annually in June December. The2008 Board has limited reset wholesale gasrate andisenergy to other and Deferred Regulatory Credits 2007 amounts to PSA ($0.005) $0.01semi-annually per KWh. A balancing account is maintained in an amount by which the entities. The rate to is reset energy revenues collected from retail customers are less than (or more the actual of power rate stabilization $ than) 13,124 $ cost 21,124 insupply. JuneElectric andDeficiencies December. Theexcesses) Board hasinlimited Deferred regulatory consist (or the balancing account are adjusted bycredits increasing (orof the Public benefit 5,008 5,222 reset amounts to ($0.005) to $0.01 KWh. A 31, 2008 following at December 31: in the balancing decreasing) the PSA billing factor.perOn December and 2007, the deficiency Unrealized gain on investments 1,628 825 account account was $16,950 and $9,122, balancing is maintained in anrespectively. amount by $ 19,760 $ 27,171 Deferred Regulatory Credits Deferred regulatory credits consist of the following at December 31:

Electric Rate Stabilization 2007 Prior to 2003, TID deferred interest earnings on net assets designated for 2008 electric rate stabilization. These amounts are recognized as increases in income in future periods based on a rate program approved by rate the Board of Directors which releases rate stabilization amounts under identified Electric stabilization $ 13,124 $ 21,124 circumstances. During 2008, the Board directed the use of $8,000 from the Electric Rate Stabilization Public benefit 5,008 5,222 account to stabilize current electric utility rates, which is included in interest income in the Unrealized gain on investments 1,628 825 consolidated statements of revenues, expenses and changes in net assets. $ 19,760 $ 27,171 Public Benefit TID’s Board has specified a component of its rates, 2.85%, to be committed to public benefit expenditures. Public benefit expenditures consist of non-capital and capital expenditures for energy Electric Rate Stabilization efficiency programs and renewable energy resources. Differences between amounts collected, as a Prior to 2003, interest earningsfor on public net assets designated for electric rate stabilization. component of TID ratesdeferred and amounts expended benefit, are included in this regulatory account. These amounts are recognized as increases in income in future periods based on a rate program approved by the Board of Directors which releases rate stabilization amounts under identified (dollars in thousands) circumstances. During 2008, the Board directed the use of $8,000 from the Electric Rate Stabilization account to stabilize current electric utility rates, which is included in interest income in the TURLOCK IRRIGATION DISTRICT 40 consolidated statements of revenues, expenses-33and changes in net assets. Consolidated Financial Statements–December 31, 2008 and 2007 T Public Benefit TID’s Board has specified a component of its rates, 2.85%, to be committed to public benefit expenditures. Public benefit expenditures consist of non-capital and capital expenditures for energy


Electric Rate Stabilization Prior to 2003, TID deferred interest earnings on net assets designated for electric rate stabilization. These amounts are recognized as increases in income in future periods based on a rate program approved by the Board of Directors which releases rate stabilization amounts under identified circumstances. During 2008, the Board directed the use of $8,000 from the Electric Rate Stabilization account to stabilize current electric utility rates, which is included in interest income in the consolidated statements of revenues, expenses and changes in net assets.

Public Benefit TID’s Board has specified a component of its rates, 2.85%, to be committed to public benefit expenditures. Public benefit expenditures consist of non-capital and capital expenditures for energy efficiency programs and renewable energy resources. Differences between amounts collected, as a component of rates and amounts expended for public benefit, are included in this regulatory account.

Unrealized Gain on Investments TID defers unrealized holding gains and losses on its investments until such investments mature or are sold which is consistent with TID’s rate setting process.

9. Derivative Financial Instruments

TID enters into contracts for the purchase of electricity to meet the expected needs of its retail customers and for the purchase, transportation and storage of natural gas to meet its generation needs. TID also enters into hedging transactions to reduce the price volatility of some of these agreements. Many of these contracts are considered derivative financial instruments under the provisions of SGAS 53. For those contracts, substantially all of the electricity contracts and most of the gas related contracts qualify as normal purchases or normal sales under SGAS 53 because TID takes or makes delivery under the related contract, and as a result, the contracts are not required to be recorded at fair value. As described in Note 2, TID adopted SGAS 53 in 2008. In 2007 derivatives were accounted for under SFAS 133. Balances presented below reflect derivative accounting under those standards. The impact of restating 2007 to conform with SGAS 53 was not material to the financial statements taken as a whole, and as such the 2007 amounts are not adjusted from those reported in the prior year.

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

41 T


TID enters into contracts for the purchase of electricity to meet the expected needs of its retail TID enters into for the purchase of electricity to meetofthe expected retail customers andcontracts for the purchase, transportation and storage natural gas toneeds meet of itsits generation customers and for enters the purchase, transportation andtostorage natural to meet its generation needs. TID also into hedging transactions reduceofthe price gas volatility of some of these needs. TID also enters into hedging transactions to reduce the price volatility of some of these agreements. Many of these contracts are considered derivative financial instruments under the agreements. Many of these contracts are considered derivative financial instruments under provisions of SGAS 53. For those contracts, substantially all of the electricity contracts andthe most of provisions of SGAS 53. For thoseas contracts, substantially all of the electricity most TID of the gas related contracts qualify normal purchases or normal sales under contracts SGAS 53and because the gasor related as normal or normal salesthe under SGASare 53not because TIDto takes makescontracts delivery qualify under the related purchases contract, and as a result, contracts required takes or makes under the relatedincontract, and adopted as a result, the contracts areInnot required to recorded at delivery fair value. As described Note 2, TID SGAS 53 in 2008. 2007 derivatives Thebefair values of TID’s derivative instruments be recorded at fair value. As described in Note 2, TID adopted SGAS 53 in 2008. In 2007 derivatives were accounted for under SFAS 133. Balances presented below reflect derivative accounting under that areaccounted not considered normal purchase normal were forThe under SFAS Balances presented reflect53 derivative under those standards. impact of133. restating 2007 to conformbelow with SGAS was not accounting material to the those Thetaken impact 2007 conform withamounts SGAS 53are was material to the financial statements asofa restating whole, and as to such the 2007 notnot adjusted from those sale are standards. as follows: financial a whole, and of as TID’s such derivative the 2007 amounts are that not adjusted from those reportedstatements in the priortaken year. as The fair values instruments are not considered reported in the prior year. The fair values of TID’s derivative instruments that are not considered normal purchase normal sale are as follows: normal purchase normal sale are as follows: December 31, December 31,2007 2008 2008 2007 Derivative financial instrument assets: Derivative financial instrument assets: Gas related contracts $ 5,184 $ 1,979 Gas related contracts $ 5,184 - $ 1,979 Electric related contracts 2,694 Electric related contracts 2,694 Total derivative financial instruments 5,184 4,673 Total financial instruments 5,184 4,673 Lessderivative current portion (5,184) (3,765) Less current portion (5,184) (3,765) $ - $ 908 $ - $ 908 Derivative financial instrument liabilities: Derivative financial instrument liabilities: Gas related contracts Gas related contracts Electric related contracts Electric related contracts Total derivative financial instruments Total financial instruments Lessderivative current portion Less current portion

$ $

$ $

14,970 $ 14,970 - $ 14,970 14,970 (14,828) (14,828) 142 $ 142 $

2,691 2,691 408 408 3,099 3,099 (2,823) (2,823) 276 276

The fair value balances and notional amounts of derivative instruments outstanding as of The fair value and notional amounts derivative instruments outstanding as of December 31,balances 2008, classified by type, are asoffollows: December 31, 2008, classified by type, are as follows:

The fair value balances and notional amounts

Turlock Irrigation of derivative instruments District outstanding as of

Notes to Consolidated Statements December 31, 2008, classifiedFinancial by type, are as follows: December 31, 2008 and 2007

Classification Investment Derivatives: Gas related contracts Gas related contracts Net investment derivatives gain

Investment Revenue Investment Revenue

Cash Flow Hedges Gas related contracts Gas related contracts Net deferred outflow

Deferred Inflow Deferred Outflow

Total derivative contracts loss

(dollars in thousands) December 31, 2008 Fair Value $

-34-34-

$

Notional

4,022 (3,420) 602

1,592,000 MMBtu 1,419,000 MMBtu

1,162 (11,550) (10,388)

2,400,000 MMBtu 4,072,000 MMBtu

(9,786)

The investment derivatives are gas contracts that do not meet the definition of effective hedges as defined in SGAS 53. Changes in the fair value of these contracts are recorded in the statement of revenues, expenses and changes in net assets. The deferred gain related to hedged derivative financial instruments of $1,162 is included in accounts payable and accrued expenses on the balance sheet at December 31, 2008. Of the $11,550 deferred loss related to hedged derivative financial (dollars in thousands) instruments at December 31, 2008, $11,408 is included as a component of prepaid expenses and other current assets on the balance sheet and the remaining $142 is included as a component of debt 42 TURLOCK IRRIGATION DISTRICT issuance costs and other assets on the balance sheet. Consolidated Financial Statements–December 31, 2008 and 2007 T Objective and Terms of Hedging Derivative Instruments The following table displays the classification and terms of TID’s derivative instruments outstanding at


Net investment derivatives gain

602

Cash Flow Hedges Gas related contracts Gas related contracts Net deferred outflow

Deferred Inflow Deferred Outflow

1,162 (11,550) (10,388)

2,400,000 MMBtu 4,072,000 MMBtu

The investment derivatives are gas contracts that a component of debt issuance costs and other Total derivative contracts loss $ (9,786) do not meet the definition of effective hedges as assets on the balance sheet. defined in SGAS 53. Changes in the fair value The investment contracts that do meet the definition effectiveDerivative hedges as of these contractsderivatives are recordedare in gas the statement not Objective and Terms ofofHedging defined in SGAS 53. Changes in the fair value of these contracts are recorded in the statement of of revenues, expenses and changes in net assets. Instruments revenues, expenses and changes in net assets. The deferred gain related to hedged derivative The deferred gain related to hedged derivativein accounts payable and accrued expenses on the balance financial instruments of $1,162 is included financial of $1,162 in deferred The following table displays the classification sheet at instruments December 31, 2008. isOfincluded the $11,550 loss related to hedged derivative financial instruments at December 31,expenses 2008, $11,408 a component of prepaidinstruments expenses and accounts payable and accrued on the is included andasterms of TID’s derivative other current assets on the balance sheet and the remaining $142 is included as a component of debt balance sheet at December 31, 2008. Of the outstanding at December 31, 2008, along with issuance costs and other assets on the balance sheet. $11,550 deferred loss related to hedged derivative the credit rating of the associated counterparty. Objective and Terms of Hedging Derivative Instruments financial instruments at December 31, 2008, All of the hedge contracts are designed to hedge The following tableas displays the classification of TID’s derivative $11,408 is included a component of prepaid and terms against changes in cashinstruments flows due tooutstanding market priceat December 31, 2008, along with the credit rating of the associated counterparty. All of the hedge expenses current the balance fluctuations related to expected of contractsand areother designed to assets hedgeonagainst changes in cash flows due to market price purchases fluctuations sheet and remaining $142 is included natural gas,inand were initiated in 2008. related tothe expected purchases of naturalasgas, and were initiated 2008.

Type

Classification

Notional Amount

Maturity Date

Commodity forward contract (gas sales)

Investment Derivative (ineffective hedge)

1,692,000 MMBtu

0-12 months

Fixed Price & Basis

Commodity forward contract (gas purchases)

Investment Derivative (ineffective hedge)

1,319,000 MMBtu

0-12 months

Fixed Price

Commodity forward contract (gas sales)

Effective Hedge

328,000 MMBtu

0-12 months

Basis

Commodity forward contract (gas purchases)

Effective Hedge

5,960,000 MMBtu

0-12 months

Fixed Price & Basis

Commodity forward contract (gas purchases)

Effective Hedge

184,000 MMBtu

12-24 months

Fixed Price

Total derivative contracts gain (loss)

Terms

Value

$

Credit risk

TID is exposed to credit risk on hedging derivative instruments that are in asset positions. To minimize its exposure to loss related to credit risk, TID’s policy is to establish a credit limit for each counterparty with a maximum

-35-

3,996

A-, BBB

(3,394)

A-,

83

(10,329)

(142) $

Counterparty Credit Rating

A AAA, AA-, A, A-, BBB

AAA

(9,786)

limit of $5,000 and no single counterparty can account for more than 15% of the total exposure to TID without approval from the Board. When a counterparty does not have a credit rating, a written guarantee is required from the counterparty’s parent company which must have an acceptable credit rating.

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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TID’s agreements generally require netting whenever it has entered into more than one derivative instrument transaction with a counterparty. Under the terms of these agreements, should one party become insolvent or otherwise default on its obligations, closeout netting provisions permit the nondefaulting party to accelerate and terminate all outstanding transactions and net the transactions’ fair values so that a single sum will be owed by, or owed to, the nondefaulting party. The aggregate fair value of hedging derivative instruments in a net asset position at December 31, 2008 totaled $747 and was with a single counterparty. TID has a guarantee from that counterparty’s parent company and the parent company has a S&P credit rating of A as of December 31, 2008.

Basis risk

TID is exposed to basis risk on some of its commodity forward contracts because the expected commodity purchase being hedged will price based on a pricing point different than the pricing point at which the forward contract is expected to settle. The majority of these exposures relate to gas contracts that settle at NYMEX whereas the hedged gas purchase will be delivered at PG&E Citygate. At December 31, 2008, prices at those delivery points were $5.71 and $6.08, respectively.

Termination risk

TID or its counterparties may terminate a derivative instrument if the other party fails to perform under the terms of the contract. If at the time of termination, a hedging derivative instrument is in a liability position, TID would be liable to the counterparty for a payment equal to the liability, subject to netting arrangements.

10. Pension Plan

TID has a single-employer group defined benefit pension plan (the “Retirement Plan”) which provides retirement benefits covering substantially all its employees who have completed one year of continuous service. Employees may retire after age 55 with benefits based on compensation and years of service to actual retirement date. The Retirement Plan also provides death benefits for those employees having reached age 55.

TID, through the action of its Board may amend or establish Retirement Plan provisions. The Board has appointed third parties to carry out substantially all administrative responsibilities, including custody of the Retirement Plan assets and as a result, excludes the pension trust funds from these financial statements. The Retirement Plan is a governmental plan under section 414(d) of the Internal Revenue Code (IRC). Copies of the Retirement Plan’s annual financial report may be obtained from TID’s executive office at 333 East Canal Drive, Turlock, California 95381. The Retirement Plan’s annual financial report is the responsibility of TID.

Funding Policy

To participate in the Retirement Plan, employees who are not members of a bargaining unit are required to contribute 1.25% of their earnings and employees who are members of a bargaining unit are required to contribute 2.25% of their earnings. Under the Retirement Plan provisions established by the Board, the Retirement Plan is to be funded in amounts equal to the normal costs of the Retirement Plan plus an amortization of the past service liability. Contributions made by the employees vest immediately.

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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Turlock Irrigation District

Notes to Consolidated Financial Statements Contributions madeand by TID are fully vested after December 31, 2008 2007 five years of participation.

• Discount rate(dollars applied tointhe pension benefit thousands) obligation of 8.5% per year;

• Salary increases of 4.5% per year; and vest immediately. Contributions made employees Effective January 1, 2009 employees who are not by TID are fully vested after five years of participation. • Cost of living adjustment of 3.5% per year. members of a bargaining unit are required to contribute 2.25%1,of2009 theiremployees earnings and employees Effective January who are not members of a bargaining unit are required to contribute 2.25% of their earnings and employees who are members of a bargaining unit are required who are members of a bargaining unit are Realized and unrealized gains are phased in to to contribute 3.25% of their earnings. required to contribute 3.25% of their earnings. the actuarial value of Retirement Plan assets Annual Pension Cost over a three year period, and may be adjusted so annual required contributions for 2008 and 2007 were determined by actuarial valuations using The Annual Pension Cost that the actuarial value the frozen entry age actuarial cost method. The actuarial assumptions utilized for of theRetirement January 1,Plan assets 2008 and 2007 actuarial valuations were as follows: are not less than 80% or more than 120% of the The annual required contributions for 2008 and fair market value of the Retirement Plan’s assets • were Investment rate of applied to assets of 8.5% per year; 2007 determined byreturn actuarial valuations as of the current valuation date. The unfunded • the Discount applied to the pension benefit obligation of 8.5% per year; using frozenrate entry age actuarial cost method. actuarial accrued liability (UAAL) is being • Salary increases of 4.5% per year; and The actuarial assumptions utilized for the • Cost of living adjustment of 3.5% per year. amortized as a portion of annual pension cost. January 1, 2008 and 2007 actuarial valuations Realized unrealized gains are phased in to the actuarial value of Retirement Plan assets over a were as and follows: TID’s pension Plan cost and net are pension three year period, and may be adjusted so that the actuarial valueannual of Retirement assets not obligation for 2008 and 2007, less than 80% or more than 120% of the fair market value of the Retirement Plan’s assetsbased as ofon thevaluations • Investment of return applied toactuarial assets ofaccrued liability (UAAL) is being amortized as a current valuationrate date. The unfunded as of January 1, 2008 and 2007, respectively, are 8.5% per year; portion of annual pension cost. as follows: TID’s annual pension cost and net pension obligation for 2008 and 2007, based on valuations as of January 1, 2008 and 2007, respectively, are as follows: 2008 Annual required contribution Interest on net pension obligation Adjustment to annual required contribution

$

Annual pension cost Contributions made Decrease in net pension obligation

6,331 (52) 73

$

5,988

6,371

6,995 (1,007)

(617) $

6,002 33 (47)

6,352 (19)

Net pension (prepaid balance) obligation, beginning of period Net pension prepaid balance end of period

2007

(636)

390 $

(617)

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007 -37-

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Turlock Irrigation District

Notes to Consolidated Financial Statements Summarized Historical Trend Information December 31, 2008 and 2007

(dollars in thousands)

Three year trend information is presented below:

Summarized Historical Trend Information Turlock Irrigation District Three year trend information is presented below:

Notes to Consolidated Financial Statements December 31, 2008 and 2007 Fiscal Annual Period Pension Summarized Historical Trend Information Ending Cost (APC) Three year trend information is presented below:

Percentage of APC Contributed

(dollars in thousands) Net Pension Obligation (Asset)

12/31/08 $ 6,352 100% $ (636) Net 12/31/07 $ 5,988 117% $ (617) Fiscal Annual Percentage Pension 12/31/06 $ 5,976 108% $ 390 Period Pension of APC Obligation Ending Cost (APC) Contributed (Asset) The schedule of funding progress presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for 12/31/08 $progress 6,352 $The schedule (636) benefits. The schedule fundingpresents is presented accrued below 100% and is required supplementary The schedule of fundingofprogress liability for benefits. 12/31/07 $ 5,988 117% $ (617) information: multiyear trend information about whether the of funding progress is presented below and is 12/31/06 $ 5,976 108% $ 390 actuarial value of plan assets is increasing or required supplementary information: Actuarial Actuarial Accrued Unfunded UAAL as a decreasing overoftime relative to thepresents actuarial The schedule funding trend information whether Percentage the actuarialof Actuarial Value ofprogress Liability (AAL)multiyear AAL Funded about Covered value of plan assets is increasing or decreasing over time relative to the actuarial liability for Valuation Assets Entry Age (UAAL) Ratio Payrollaccrued Covered Payroll benefits. is presented and is required Date The schedule (a) of funding progress (b) (b-a) below (a/b) (c)supplementary ([b-a]/c) information: 12/31/08 12/31/07 Actuarial 12/31/06 Valuation Date

$ 107,968 $Actuarial 128,028 of $Value 116,104 Assets (a)

$ 164,590 Actuarial Accrued $ 154,223 Liability (AAL) $ 142,708 Entry Age (b)

$ 56,622 $Unfunded 26,195 $ AAL 26,604 (UAAL) (b-a)

65.6% 83.0% Funded 81.4% Ratio (a/b)

$ 32,705 173.1% UAAL as a $ 30,327 86.4% Covered Percentage $ 27,728 95.9% of Payroll Covered Payroll (c) ([b-a]/c)

Deferred Compensation Plan 12/31/08 $ 107,968 $ 164,590 $ 56,622 65.6% $ 32,705 173.1% In addition, TID offers its employees a deferred compensation plan (the “Deferred Plan”), which 12/31/07 $ 128,028 $ 154,223 $ 26,195 83.0% $ 30,327 86.4% provides employees the option to defer part of their compensation until termination, retirement, death, 12/31/06 $ 116,104 $ 142,708 $ 26,604 81.4% $ 27,728 95.9% or unforeseeable emergency. TID makes no contribution to the Deferred Plan. TID has the duty of reasonable care in the selection of investment alternatives, but neither TID nor its directors or officers have any liability for losses under the Deferred Plan. TID holds all deferred compensation assets in the name Compensation of the Deferred Plan, Deferred Plan and accordingly, the Deferred Plan assets and corresponding liability areaddition, not recorded in theitsaccounts of TID. In TID offers employees a deferred compensation plan (the “Deferred Plan”), which provides Deferredemployees Compensation Plan to defer part of their compensation investmentuntil alternatives, but retirement, neither TID nor its the option termination, death, or unforeseeable emergency. TID makes no contributiondirectors to the Deferred Plan. the duty of or officers haveTID anyhas liability for losses 11. Other Post Employment Benefits reasonable care in the selection of investment alternatives, but neither TID nor its directors or officers In addition, TID offers its employees a deferred under the Deferred Plan. TID holds all deferred have any liability for losses under the Deferred Plan. TID holds all deferred compensation assets in compensation plan (the “Deferred which compensation assets incorresponding the name of the Deferred In 2007, adopted SGAS No.and 45Plan”), (SGAS 45), Accounting and Financial Reporting by Employers for the nameTID of the Deferred Plan, accordingly, the Deferred Plan assets and liability provides employees the option to defer part of Plan, and accordingly, the Deferred Plan assets Postnot Employment other than Pensions (OPEB), which establishes standards of accounting are recorded inBenefits the accounts of TID. and reporting fortermination, OPEB expense and related OPEB liabilities or assets. OPEB arises from in theirfinancial compensation until retirement, and corresponding liability are not recorded an exchange of salaries and benefits for employee services rendered. TID considers post death, or unforeseeable TID makes the accounts of TID. healthcareemergency. benefits to be OPEB costs. 11. employment Other Post Employment Benefits

no contribution to the Deferred Plan. TID has

TID provides post-retirement medical benefits in Accounting accordanceand withFinancial TID policy to qualified retirees andfor the2007, duty of reasonable care inNo. the45 selection of45), In TID adopted SGAS (SGAS Reporting by Employers their spouses through TID’s Employee Health Care Plan ( the “Health Plan”) until the retiree and Post Employment Benefits other than Pensions (OPEB), which establishes standards of accounting participating reach age 65. The Health Plan isOPEB a single-employer group, for which TID is the and financial spouse reporting for OPEB expense and related liabilities or assets. OPEB arises from administrator and through thebenefits action of itsemployee Board may amendrendered. or establish Health Plan post provisions. an exchange of salaries and for services TID considers (dollars in thousands) The qualification requirements fortothese benefits are the same as those under TID’s Retirement Plan. employment healthcare benefits be OPEB costs. TURLOCK IRRIGATION DISTRICT TID provides post-retirement medical benefits in accordance with TID policy to qualified retirees and Consolidated Financial Statements–December 31, 2008 and 2007 their spouses through TID’s Employee Health Care -38- Plan ( the “Health Plan”) until the retiree and participating spouse reach age 65. The Health Plan is a single-employer group, for which TID is the administrator and through the action of its Board may amend or establish Health Plan provisions.

46 T


11. Other Post Employment Benefits

In 2007, TID adopted SGAS No. 45 (SGAS 45), Accounting and Financial Reporting by Employers for Post Employment Benefits other than Pensions (OPEB), which establishes standards of accounting and financial reporting for OPEB expense and related OPEB liabilities or assets. OPEB arises from an exchange of salaries and benefits for employee services rendered. TID considers post employment healthcare benefits to be OPEB costs.

TID provides post-retirement medical benefits in accordance with TID policy to qualified retirees and their spouses through TID’s Employee Health Care Plan ( the “Health Plan”) until the retiree and participating spouse reach age 65. The Health Plan is a single-employer group, for which TID is the administrator and through the action of its Board may amend or establish Health Plan provisions. The qualification requirements for these benefits are the same as those under TID’s Retirement Plan. The Board has appointed third parties to carry out certain administrative responsibilities. TID contributes the full cost of coverage for retirees; however, retirees contribute the estimated health care cost of dependents. However, at the time of retirement an employee may utilize the remaining balance of unused sick leave, at the rate defined in the employee’s applicable employee contract for one month’s medical coverage for an eligible dependent. Covered retirees are also responsible for personal deductibles and co-payments. Currently, 126 retirees and surviving dependents are receiving post-employment health care benefits.

Actuarial Methods and Assumptions

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. 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 January 1, 2007 actuarial valuation the entry age actuarial cost method was used. The actuarial assumptions included a 7.75 percent investment rate of return and an annual healthcare cost trend rate of 10 percent initially, reduced by decrements to an ultimate rate of 5 percent after ten years. The UAAL is being amortized as a level percentage of projected payroll basis. The remaining amortization period in the latest actuary report, was twenty-nine years.

Funding Policy

Through 2007, the District’s funding policy was to make contributions in amounts equal to the current costs of premiums for those

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

47 T


receiving benefits, on a pay-as-you-go basis. In December 2008, TID joined the CALPERS Pre-funding OPEB Plan, which is an irrevocable multi-employer trust and plan consisting of an aggregation of single-employer plans, with pooled administrative and investment functions. At that time TID made a incremental contribution of $5,000 to the CALPERS Pre-funding OPEB Plan.

During 2008 and 2007, TID’s post-retirement health care benefit contributions were $6,242 and $700, respectively, net of premiums received from retirees for eligible dependents. Funding Status and Funding Progress

As of the latest actuary report, January 1, 2007, the actuarially determined accumulated post-retirement health care Turlock Irrigation District obligation was approximately $19,000. There Notes Financial Statements were to no Consolidated assets as of the latest actuary report December 31, 2008 and 2007 and therefore the entire amount is considered unfunded, however as noted above TID made a

contribution of $5,000 subsequent to the latest actuary valuation. The covered payroll (annual payroll of active employees covered by the plan) is $30,838. The ratio of UAAL to covered payroll is approximately 52%.

Annual OPEB Cost and Net OPEB Obligation

TID’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 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover 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 December 31, 2008 and 2007, TID’s annual OPEB expense of $1,647 and $1,567, respectively, was equal to the ARC. The following table shows the components of TID’s annual OPEB cost for the year, the (dollars intothousands) amount actually contributed the plan, and changes in TID’s net OPEB obligation:

expense of $1,647 and $1,567, respectively, was equal to the ARC. The following table shows the components of TID’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in TID's net OPEB obligation: 2008 Annual required contribution

$

Annual OPEB cost Contributions made (Decrease) increase in net OPEB obligation Net OPEB obligation, beginning of year

2007

1,647

$

1,647

1,567

6,242

700

(4,595)

867

867

Net OPEB (prepaid) obligation, end of year

$

1,567

(3,728)

$

867

TID's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the years ended 2008 and 2007 is as follows: Fiscal Period (dollars in thousands) Ending 12/31/08 12/31/07

Annual OPEB Cost (AOC)

Percentage of AOC Contributed

Net OPEB Obligation (Asset)

TURLOCK IRRIGATION DISTRICT $ Consolidated 1,647 379% $ 2008 (3,728) Financial Statements–December 31, and 2007 $ 1,567 45% $ 867

48 T


(Decrease) increase in net OPEB obligation

(4,595)

Net OPEB obligation, beginning of year

867

Net OPEB (prepaid) obligation, end of year

867

$

TID’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and

(3,728)

$

867

the net OPEB obligation for the years ended 2008 and 2007 is as follows:

TID's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the years ended 2008 and 2007 is as follows: Fiscal Period Ending

Annual OPEB Cost (AOC)

12/31/08 12/31/07

$ $

12. 12.Commitments Commitments

Percentage of AOC Contributed

1,647 1,567

379% 45%

Net OPEB Obligation (Asset) $ $

(3,728) 867

City and County of San Francisco

Power Sales Agreement

TID Power Agreement District TID and the City andpower County San Francisco hasSales a power sales agreement with Merced Irrigation (MeID) to sell on of a full (CCSF) have a power salesservice agreement requirements basis of all the energy and capacity that MeID uses to provide electric to itswhich retail customers over and above MeID’s Base Supply (“Electric System Requirement”) which expires TID has a power sales agreement with Merced allocates a share of excess Hetch Hetchy Project in 2009. TID receives an energy payment based on a formula, as defined in the agreement, based in Irrigation District (MeID) to sell power on a full capacity and energy to TID through 2015. part on a California power price index. TID also receives a capacity payment based on a formula, as requirements of all the energy andthis capacity TID $37,332 purchased $4,368 and in $6,338 power in defined in the basis agreement. Sales under agreement totaled and $30,961 2008 of and 2007, respectively. that MeID uses to provide electric service to its 2008 and 2007, respectively, under the CCSF retail customers over and above MeID’s Base agreement. Power Purchase Agreements Supply System Requirement”) which TID has (“Electric two long-term power purchase agreements with other power producers to purchase capacity and associated energy to meet its load requirements, which expire through December 2024. expires in 2009. TID receives an energy payment Gas Purchase Agreements Capacity and certain energy is purchased on a take-or-pay basis. Power purchased under these based on a formula, as defined in the agreement, agreements totaled $20,298 and $18,816 in 2008 and 2007, respectively. based in part on a California power price index. TID has two long-term natural gas supply TIDand alsoCounty receivesofa San capacity payment based on a agreements with two companies to meet the City Francisco TID and the City and County of San Francisco (CCSF) have a power sales which formula, as defined in the agreement. Sales under consumption needagreement of its natural gas fired power allocates a share of excess Hetch Hetchy Project capacity and energy to TID through 2015. TID this agreement totaled $37,332 and $30,961 in plants, which expire through January 2011. purchased $4,368 and $6,338 of power in 2008 and 2007, respectively, under the CCSF agreement. 2008 and 2007, respectively. TID can purchase up to 27,000 million British Thermal Units (MMBtu) per day from NCPA Power Purchase Agreements (see note 5); the other contract is with another -40counterparty, which allows for the purchase of TID has two long-term power purchase all required natural gas for the Walnut Energy agreements with other power producers to Center not to exceed 55,000 MMBtu per day. purchase capacity and associated energy to meet Pricing for both contracts are indexed to certain its load requirements, which expire through natural gas indexes, or a mutually agreed upon December 2024. Capacity and certain energy price, as defined in the gas purchase agreements. is purchased on a take-or-pay basis. Power Fuel purchased under both agreements totaled purchased under these agreements totaled $68,730 and $47,218 in 2008 and 2007, $20,298 and $18,816 in 2008 and 2007, respectively. respectively. (dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

49 T


District Turlock Irrigation District

to GasConsolidated Transportation Financial Capacity andStatements Storage During this time period, TID was both a seller and d Financial Notes Statements d 2007 December 31, 2008 and 2007 (dollars in thousands)a buyer in the (dollars Agreements markets. in Thethousands) Administrative Law

Judge (ALJ) assigned to the proceedings, among TID has nine long-term gas transportation other issues, addressed the calculation of refunds ents Gas Purchase Agreements capacity agreements and one gasconsumption and identification of the currently owed to atural gas supply TIDagreements has two long-term with twonatural companies gaslong-term supply to meet agreements the with two companies to meet theamount consumption storage agreement with Canadian and U.S. supplier (withTID separate quantitiesupdue from red power plants, need which of its expire natural through gas fired January power 2011. plants, TID which can purchase expire through up each January 2011. can purchase Thermal Units (MMBtu) to 27,000 per million day from British NCPA Thermal (see Units note (MMBtu) 5); the other per contract day from is NCPA (see note 5); the other contract is companies to transport natural gas to TID’s each entity) by the California ISO, the investor ty, which allowswith for the another purchase counterparty, of all required whichnatural allows gas for the for purchase the Walnutof all required natural gas for the Walnut natural gasPricing fired plants from gas andare theindexed State ofto California. ceed 55,000 MMBtu Energy perCenter day. not to power exceed for both 55,000 contracts MMBtu aresupply indexed per day.toPricing certainowned for bothutilities, contracts certain In basins in Alberta, gas transportation December 2002, the ALJagreements. issued his Certification a mutually agreed natural upon gas price, indexes, as defined orCanada. a mutually in the The gasagreed purchase uponagreements. price, as defined in the gas purchase oth agreementsFuel totaled purchased $68,730 under and $47,218 both agreements in 2008 and totaled 2007, $68,730 respectively. and $47,218 in 2008 and 2007, respectively. capacity agreements complement TID’s gas of Proposed Findings (the “Findings”) and found purchase agreements, described above, but expire that TID owes $1,243 in refunds for these sales. apacity and Storage Gas Transportation Agreements Capacity and Storage Agreements in years 2010 through 2033. Payments under In and March FERCgas revised its ruling to include gas transportation TIDcapacity has nineagreements long-term gas andtransportation one long-termcapacity gas storage agreements one2003, long-term storage an and U.S. companies agreement to agreements transport with Canadian natural and gas U.S. to TID’s companies gas fired natural gas toofTID’s natural gas fired these totaled $3,514 andnatural $3,932to intransport the impact gas price mitigation to be applied upply basins in power Alberta, plants Canada. from The gas supply gas transportation basins in Alberta, capacity Canada. The gas transportation capacity 2008 and 2007, respectively. to sales into the California ISO and PX market t TID’s gas purchase agreements agreements, complement described TID’sabove, gas purchase but expire agreements, in years 2010 described above, but expire in years 2010 retroactively. In July 2004, the2007, California ISO s under these agreements through 2033. totaled Payments $3,514under and $3,932 these agreements in 2008 and totaled 2007, $3,514 and $3,932 in 2008 and The approximate future minimum obligations for completed the calculation of revised Mitigated respectively. the above described power purchase, gas supply, Market Clearing Prices (MMCPs) for the refund minimum obligations The approximate for the above future described minimum power obligations purchase, forgas the supply, above described power purchase, gas supply, and gas and storage contracts using31, the 2008: methodology that had been and storage contracts and gas aretransportation astransportation follows at and December storage 31, contracts 2008: are are as follows atperiod December as follows at December 31, 2008: developed by the administrative process at FERC, including mitigated gas pricing. TID’s potential Amount Amount refund liability under the MMCPs increased to 2009 $ 22,052 22,052 approximately$ $3,600.

2010 2011 2012 2013 Thereafter

22,201 22,019 22,138 20,373 156,684

$

265,467

ttlements 13. Contingencies and Settlements

13. Contingencies and Settlements

22,201 22,019 On September 6, 2005 the Ninth Circuit Court 22,138 of Appeals issued its decision regarding FERC’s 20,373 authority regarding the imposing of refunds on 156,684

non public utilities. The Court concluded that $ 265,467 FERC does not have authority over non public authorities making sales in wholesales energy markets. The California Parties petitioned the US Supreme Court for review of the decision, but on December 10, 2007 were denied.

ket Refund Proceedings California Energy Market Refund Proceedings ed an order establishing In July 2001, evidentiary FERC issued hearings an order for theestablishing purpose of determining evidentiary hearings for the purpose of determining amount California EnergyifMarket Refund Proceedings f any, due to customers the of the of refunds, California any, ISO and due PX to customers organized of spot themarkets California ISO and PX organized spot markets selling into those from markets marketfor participants the periodselling October into 2,those 2000 markets through June for the20, period October 2000 through June to 20,be liable for In any event,2,TID does not expect . During this time 2001 period, (the refund TID was period). both a During seller and this a time buyer period, in the TID markets. was both a seller and a buyer in the markets. In July 2001, FERC issued an order establishing any refunds because TID’s final refund liability, Judge (ALJ) assigned The Administrative to the proceedings, Law Judge among (ALJ) other assigned issues,toaddressed the proceedings, among other issues, addressed evidentiary hearings for the purpose of if any,owed wouldtolikely require a cash payment; s and identification the calculation of the amount of refunds currently and owed identification to each supplier of the amount (with currently eachnot supplier (with theISO, amount of refunds, if by any, dueCalifornia toand theISO, rather it wouldowned probably be fully offset from each entity) separate bydetermining the California quantities due from the investor each entity) owned utilities, the the investor utilities, and the against ecember 2002, State the ALJ of California. issued his Certification In December of 2002, Proposed the ALJ Findings issued (the his Certification of Proposed Findings (the customers of the California ISO and PX organized amounts owed by the California ISO to TID of at TID owes $1,243 “Findings”) in refunds and for found these thatsales. TID owes In March $1,243 2003, in refunds FERC revised for these sales. In March 2003, FERC revised spot to markets from market participants $4,340. TID into has recorded an allowance mpact of gas price its ruling mitigation include to be the applied impact to sales of gasinto price theselling mitigation CaliforniatoISO be and applied to sales the California ISO andof $3,820 into those markets for the period October 2, against the amount owed by the In July 2004, the PX California market retroactively. ISO completed In July the 2004, calculation the California of revised ISO completed the calculation of revised California ISO ng Prices (MMCPs) Mitigated for theMarket refundClearing period Prices (MMCPs) methodology the that refund had period using 2000 through June 20,using 2001the (the refund for period). related tothe themethodology uncertainty ofthat thehad ultimate amount administrative process been developed at FERC,by including the administrative mitigated gas process pricing. at FERC, TID’s including mitigated gas pricing. TID’s under the MMCPs potential increased refund to approximately liability under the $3,600. MMCPs increased to approximately $3,600.

(dollars in thousands) he Ninth CircuitOn Court September of Appeals 6, 2005 issued theitsNinth decision Circuit regarding Court ofFERC's Appeals issued its decision regarding FERC's mposing of refunds authority on non regarding public utilities. the imposing The Court of refunds concluded on non that public FERC utilities. The Court concluded that FERC TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007 -41-

-41-

50 T


that it will collect. TID believes such allowance is sufficient to cover its refund obligation, if any, and accordingly, no liability has been recorded.

California Parties vs. Government Entities Complaint for Damages for 2000 and 2001 Power Sales

Following the 9th Circuit Court of Appeals ruling that FERC could not order refunds in the California Refund proceeding, TID and other publicly owned utilities were sued in U.S. District Court on March 16, 2006, by PG&E, California Edison Company and California Electricity Oversight Board and on March 21, 2006, by San Diego Gas & Electric (collectively the “California Parties”). In April 2007, the U.S. District Court dismissed the claims and the California Parties have appealed, which is still pending. Additionally, the California Parties filed a similar lawsuit in California Superior Court, which is currently in the discovery phase. The claims are for damages arising from sales of wholesale power and ancillary services from May 1, 2000 through June 20, 2001. No actual dollar damage amounts were cited in the complaints. The complaints state they are based upon the same facts as were included in the FERC and 9th Circuit Court cases. However, unlike the California Refund proceeding, the complaints extend the period in dispute back five months making the starting date May 1, 2000, instead of October 2, 2000. During the May 1, 2000 through October 1, 2000 period TID made no sales to the California ISO. Thus, the transactions in dispute in the California Parties’ Complaints are believed to be the same transactions in dispute in the California Refund proceeding before FERC. District management believes it is reasonably possible, but not probable, that TID will ultimately incur a liability in this matter due

to the strength of its legal defenses and because these complaints are a result of the California parties’ defeat in the 9th Circuit Court of Appeals and addresses the same issues raised in those proceedings. Consistent with the offsetting impacts of the receivables and potential liabilities described in the FERC-related proceeding described above, District management believes that any settlement would not involve cash outflows by TID. As such, no liability has been recorded.

General Contingencies

In the normal course of operations, TID is party to various claims, legal actions and complaints, including possible liability for environmental matters. Although the ultimate outcome of these matters is not presently determinable, TID’s management believes the resolution of all such pending matters will not have a material adverse effect on TID’s financial position or results of operations.

14. Pending Acquisition

During 2008, TID and the Authority formed a JPA, the Tuolumne Wind Project Authority (TWPA) for the purpose of purchasing a wind farm in the State of Washington. In December 2008, the TWPA entered into an agreement to purchase the membership interest in a 136.6 MW wind farm, consisting of 62-wind turbine generators located in Klickitat County, Washington for an agreed upon amount of $385,000. Execution of the pending acquisition is subject to the achievement of certain conditions specified in the agreement concerning completion of construction and related financing of the project. Such conditions were not completed in 2008.

(dollars in thousands) TURLOCK IRRIGATION DISTRICT Consolidated Financial Statements–December 31, 2008 and 2007

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