Sunflower Electric Power Corporation · TRAITS Our company’s culture is the theme of this...
Transcript of Sunflower Electric Power Corporation · TRAITS Our company’s culture is the theme of this...
ANNUAL REPORT2004
Sunflower ElectricPower CorporationSunflower ElectricPower Corporation
ANNUAL REPORT2004
T R A I T SOur company’s culture is the theme of
this year’s annual report. TRAITS is an
acronym that stands for Technical
Competency, Respect and Dignity,
Accountability, Integrity,
Trustworthiness, and Servant
Leadership. At Sunflower Electric Power
Corporation these core values drive
every decision. Sunflower people expect
one another to behave in ways that
consistently exhibit these TRAITS. Join
us as we journey through the past,
present, and future to explore the
TRAITS that continue to define
Sunflower.
CONTENTSCompany Profile .................. 3Executive Report ................. 4Board of Directors ............... 6Sunflower Leadership ......... 8The Year in Review ........... 10Auditors’ Report ................. 15Financial Statements ......... 16System Map ...................... 30Generation Facilities.......... 31
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COMPANY PROFILESunflower’s primary mission is to provide a reliable, long-term power supply and
transmission services to its Member systems at the lowest possible cost consistent withsound business and cooperative principles.
Organized in 1957, Sunflower is a nonprofit, non-stock membership corporationoperated cooperatively by a federation of six rural electric distribution cooperatives servingpeople in 34 western Kansas counties.
Sunflower’s Members provide distribution services to approximately 50,000 meteringpoints and indirectly serve another 10,000 meters as wholesale power suppliers to citiesand towns in the region. A substantial amount of electric power and energy is alsoprovided to other utilities in the region.
The power generated by Sunflower’s six power plants is delivered across a highvoltage transmission network consisting of 27 substations and more than 1,150 miles of69-kV, 115-kV, and 345-kV transmission line.
As a member of the Southwest Power Pool and the Mid-Continent Area Power Pool,Sunflower supports, and is supported by, the regional power grid. This regional systemexists to enhance the reliability of electric service in the region and helps Sunflowermaintain its reputation to provide a highly-reliable power supply.
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Sunflower Electric Pow
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T R A I T STechnical Competency –Being the most knowledgeableabout our specific job orprofession; the quality of beingwell qualified physically andintellectually to undertake atask; being committed tomaintaining and improving ourlevel of proficiency.
EXECUTIVE REPORT
Sunflower Electric PowerCorporation has been temperedover the years by the challenges ofnegative equity, fiscal constraintsfrom debt reorganization, ruraldemographics, and more recently,transitional market developmentsas a consequence of federalmandates. There have also beentransmission constraints,environmental impositions, and theinevitable aging of the plant.
These have been significantdrivers for both the day-to-day andlong-term focus of the company.
Sunflower has made significant strides in addressing,overcoming, and moving beyond impediments by claimingopportunities and exercising innovation in the industry. Asa leader in the industry, Sunflower continues to work hardto faithfully serve its Member systems.
It is important to recognize that these businessaccomplishments are directly related to staff competencyand employee dedication. The annual employeerecognition underscores the degree of faithfulness to acompany with significant challenges. The awardspresented reflect notable longevity throughout thecompany. This particular dynamic has become a focus forthe past year with the intentional development of thecompany culture. A culture statement identifying core
Charles McK. Ayers and L. Earl Watkins, Jr.
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values for the company. “Sunflower people value, and expect one another to behave inways that consistently exhibit the following characteristics: Technical Competency,Respect and Dignity, Trustworthiness, Integrity, Accountability, and Servant Leadership.”During the past year, significant time has been spent increasing understanding anddeveloping skills related to these core values.
The individual members who are served at the end of the line are the reason forSunflower’s existence. Consistent with the company’s culture, Sunflower considerspeople the primary resource for the success of its business. An organizational reviewmight start with the competent and experienced Board of Directors working effectivelywith mature and qualified administrative staff. Management is supported by effectiveleadership at all levels of the company with emphasis on responsibility, accountability,and communication. Understanding that outreach is a part of who we are, Sunflowerpeople seek to be leaders, not just in the industry, but in the communities where we liveand serve.
As in the past, there have been many accomplishments in 2004 for the company.The mortgage structure negotiated in 2002 allowed for the refinancing of a significantportion of long-term debt, at highly competitive rates, saving Sunflower approximately$60 million. The refinancing was an innovative and coordinated effort betweencommercial financial markets and traditional cooperative financial sources. Sunflowerhas initiated and managed two projects exploring new methods for emissions control;one focused on mercury and the other on nitrogen oxides. Sunflower was recognized bythe Electric Power Research Institute (EPRI) breakfast during the National RuralElectric Cooperative Association (NRECA) annual meeting for its work with mercurycontrols. A required rate case before the Kansas Corporation Commission (KCC) wasreceived and approved with compliments to the efficiency, accuracy, andresponsiveness of the Sunflower staff. An important rail contract was secured with theassistance of Western Fuels Association, ensuring long-term competitive rates for theHolcomb plant and future units. Experiencing a minimum of unscheduled outages, theHolcomb plant continues to operate with high levels of availability.
Sunflower continues with intentional commitment to serve the retail customersthrough its owner cooperatives. Led and supported by people committed to its mission,Sunflower has worked creatively, faithfully, and with clear purpose to achieve the resultsreflected in this year’s annual report.
Charles McK. Ayers L. Earl Watkins, Jr.Chairman President & CEO
Sunflower Electric Pow
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T R A I T SRespect – A feeling or attitudeof admiration and deferencetowards another person;treating someone with con-sideration and thoughtfulness.Dignity – Seriousness, re-spectfulness, or formality in aperson’s behavior and bearing.
BOARD OF DIRECTORS
The Sunflower Board of Directors is comprised ofbusinessmen from across western Kansas whowillingly spend time away from their families andbusinesses to direct the activities of the company onbehalf of their member cooperatives. Collectively,they have served Sunflower for 179 years.
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Charles Ayers Loren Ochs Larry Evans Terry JansonChairman Vice Chairman Director DirectorWheatland Victory Western Victory
Leoti Jetmore Gove Dodge City5 Years 26 Years 10 Years 5 Years
Dave Jesse Robert Johnson Allan Miller Neil NormanDirector Director Director DirectorPioneer Prairie Land Prairie Land WheatlandUlysses McDonald Norton Scott City15 Years 21 Years 16 Years 16 Years
Sunflower Electric Pow
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Perry Rubart Dave Schneider Paul Seib, Jr. Earl SteffensDirector Director Director DirectorPioneer Western Lane-Scott Lane-ScottUlysses WaKeeney Ness City Dighton20 Years 15 Years 26 Years 4 Years
T R A I T SAccountability – Adopting thecore values, and in a construc-tive manner, helping eachother live up to our commit-ments and responsibilities;being invitingly and willinglyresponsible to help others livethem as well.
SUNFLOWER LEADERSHIP
Front center – Earl Watkins,President and Chief ExecutiveOfficer, Hays, 27 years of service.Back from left – Mark Calcara,General Counsel, Great Bend, 25years of service; Sid Severson,Executive Vice President and CFO,Hays, 21 years of service; JimHanks, Senior Vice President,Administration, Hays, 20 years ofservice.
Front center – Jerry Herman, Manager, InformationSystems, Hays, 21 years of service. Back from left –Jana Horsfall, Manager, Purchasing and MaterialControl, Holcomb, 24 years of service; Steve Miller,Senior Manager, External Affairs, Hays, 21 years ofservice; Clare Gustin, Manager, EconomicDevelopment and Member Services, Hays, 7 years ofservice.
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Front center – Jayne Clarke,Senior Manager, FinancialServices, Hays, 16 years of service.Back from left – Bob Johnson,Senior Manager, Engineering &Energy Services, Hays, 19 years ofservice; Wayne Penrod, SeniorManager, Environment/ProductionPlanning, Garden City, 16 years ofservice; Tom Hestermann,Manager, Regulatory Relations,Hays, 24 years of service.
From left – Kyle Nelson, SeniorManager, Generation Engineering,Garden City, 15 years of service;Brad Schimke, Senior Manager,Power Production, Holcomb, 22 yearsof service; Steve Moss, Manager,Production Operations andMaintenance, Holcomb, 5 yearsof service.
From left – Keith Overland,Senior Manager, CorporateSecurity and TransmissionOperations and Maintenance,Garden City, 17 years of service;Carroll Waggoner, SeniorManager, Transmission Policy,Hays, 18 years of service;Noman Williams, SeniorManager, Transmission Services,Hays, 16 years of service.
Sunflower Electric Pow
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T R A I T SIntegrity – Consistently doingwhat I say I am going to do.This value includes the qualityof possessing and steadfastlyadhering to high moral prin-ciples and professional stan-dards. It is a state of beingcomplete, sound and reliable.
THE YEAR IN REVIEW
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The past year continuedwith positive changes andpresented opportunities forSunflower to continue to meetthe needs of its Membersystems.
Debt RefinancingTransaction
One example of positivechange occurred whenSunflower refinanced $213million of its debt with theRural Utilities Service (RUS)through National Rural UtilitiesCooperative FinanceCorporation (CFC) loaning
Sunflower $138 million and Lehman Brothers facilitatingthe private placement of $75 million in debt. Thistransaction will save Sunflower’s Member systems $60million in interest expense they would have otherwisepaid over the life of the loans.
At a meeting with Sunflower’s Board of Directors,Congressman Jerry Moran was thanked for his support ofthis transaction and the work he does to help ruralcommunities in Kansas overcome the obstacles eachface. Senators Roberts and Brownback have also beensupportive of and instrumental in Sunflower’s successand continue to advise Sunflower staff on matters ofnational importance to Sunflower, its Members, and theircustomers.
BNSF Rail AgreementAfter a long period of negotiation, a new rail
transportation agreement for coal deliveries to Holcomb
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Station was completed in 2004. In addition to the new rail agreement, the Board requestedthat Western Fuels begin a transition from steel rail cars to aluminum rail cars for coaldeliveries, thereby allowing Sunflower’s coal to Holcomb to be hauled in fewer trips fromthe mines.
Rate CaseDuring 2004, Sunflower also received approval of the rate case it filed with the KCC.
This case was filed as required by the KCC during Sunflower’s 2002 corporatereorganization activities. As requested by Sunflower, the case was settled in Novemberwith no change in Sunflower’s revenue or rate design.
Leadership ChangeEarl Watkins was selected by Sunflower’s Board of Directors to succeed Chris Hauck
who retired after dedicating 16 years as Sunflower’s Chief Executive Officer. BoardChairman Charles Ayers said, “Earl knows the company well, shares the Board’senthusiasm for the future, and has the dogged persistence to claim it.”
In remarks to Sunflower employees, Watkins said, “It is indeed my honor to serve theMember cooperatives that own Sunflower. I am convinced Sunflower is positioned toovercome the obstacles we will face as we work together to meet our Members’ needs inways that will help them effectively serve their western Kansas consumers.”
21st Century Leadership ProgramOne of the opportunities for Sunflower’s continuing success is a cooperative-wide
commitment to living a culture based on the core values featured throughout this report.The 21st Century Leadership program features training for all employees and involves notonly initial education, but also a system to help everyone deal with the challenges theyface each day as they participate in an industry constantly undergoing significant change.
Annual MeetingDuring the annual meeting in May 2004, Charles Ayers was re-elected Chairman of the
Board and Loren Ochs was elected Vice President. Also in 2004, the retiring Stan Braywas replaced by Katherine Lewis who joined Sunflower’s Board of Directors in Septemberas an Alternate Director representing Lane-Scott Electric Cooperative.
GenerationSunflower’s Holcomb unit set a record in 2004.The 2,596,608 MWhs produced
exceeded the previous record by nearly 2,000 MWhs. The unit experienced a Net CapacityFactor of 82.11%, which was just short of the record of 82.28%, but was much better thanthe 68.1% experienced by units similar to Holcomb throughout the North American ElectricReliability Council (NERC) reporting region.
The annual maintenance outage was conducted between April 23 and May 8. Onehundred fifty contractors and Sunflower employees made substantial repairs to many of
Sunflower Electric Pow
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T R A I T STrustworthiness – Reliablydemonstrating that I am per-forming my function to the bestof my ability for the company,to merit the trust and confi-dence of my colleagues, andto be dependable.
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the major component systems at Holcomb Station, thus ensuring the continuation of itssuperior operating performance. The demonstration of the technical competency ofSunflower’s workforce and its vendors made the outage a complete success.
In addition to other capitaladditions, Sunflower completednegotiations with EmersonProcess Management for thereplacement of the controlssystem at Holcomb. This $10.4million project began in 2004with Phase 1 being scheduledfor completion during the 2005spring outage. The project willbe completed with Phase 2installations in 2006.
Environmental ActivitiesSunflower continued to
demonstrate its leadership in theindustry through two projectsinvolving EPRI, the Department
of Energy (DOE), and other utilities. For several years,Sunflower has worked to find new technologies thatwould help powerplants burning low sulfur coal fromWyoming reduce their emissions of nitrogen oxides(NO ), and to discover innovative ways to reduce theemission of mercury.
For its efforts, Sunflower was presented the EPRI’sTechnology Achievement award for 2004. This nationalaward honors electric cooperatives that havedemonstrated leadership in the development, technologytransfer, application, and use of EPRI products andservices.
In addition to the work with DOE and EPRI, Sunflowerhelped form the Kansas Landfill Association, a grassrootsorganization created from the desire of landfill owners toshare information with one another and with regulatoryand legislative organizations. Similarly, Sunflower wasone of the founding members of the Kansas WaterSu
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Congress, a group of agricultural, industrial, and municipal water users from acrossKansas who are working together to ensure good water policy continues in Kansas.
TransmissionSunflower’s transmission operations are comprised of many departments at work
around-the-clock to make certain the power produced is reliably and safely delivered. In2004, the entire department worked on many major efforts like the Jameson-Dobson-Morris re-pole project completed in July.
The Pioneer-Walkemeyer-Hugoton transmission line project involving the constructionof a new line between Walkemeyer and the Hugoton substation was completed in 2004.Considerable progress was also made on the construction of a new 115-kV line betweenthe Hugoton and Pioneer substations. The project is forecast to be completed in 2005.
Relays were replaced on the Mingo-Red Willow portion of the 345-kV line and a year-long effort to finish the under-frequency load shedding system, as required by the SPP,was completed. This accomplishment represented a significant cooperative effort betweenSunflower and its Member systems. This system will provide for the shedding of as muchas 30% of the summer peak load if necessary.
Planning for the $1.7 million upgrade of Sunflower’s microwave system to digitaltechnology began in earnest during 2004. Phase 1 of this project is forecast to becompleted in 2005 with Phase 2 completion expected in 2007.
As always, the transmission system endured a stormy year. One storm producedwinds of up to 108 miles per hour, but miracuously, only two poles were broken. Onanother occasion, substantial vandalism was revealed on a line segment betweenRansom and Gove.
On a lighter note, Sunflower’s transmission personnel provided assistance to theGarden City Zoo in the construction of a new shade structure for their elephants. This wasjust one of many activities Sunflower undertook to use its assets to help others improvewestern Kansas.
Regional Development and Grassroots ActivitiesOther opportunities to help western Kansas were highlighted in Sunflower’s support of
the HorseThief Reservoir project and sponsorship of the regional electric car races at FortHays State University. While these activities may not result in the direct sale of power, theydo aid cooperatives across Kansas in their commitment to the communities they serve asrequired by their boards and as encouraged through involvement in the nationalTouchstone Energy program.
As a result of joint actions by Sunflower’s Members and its staff, two United StatesDepartment of Agriculture (USDA) loans were approved in 2004. These ongoing loanprograms represent another grassroots campaign among rural utilities working together toassist businesses that continue to invest in cooperative service areas.
Sunflower Electric Pow
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T R A I T SServant Leadership – Work-ing to serve the legitimateneeds of others to empower orotherwise enable others tooptimally perform their jobresponsibilities, including ad-herence to Sunflower’s culturalnorms; it is an approach toleadership development thatemphasizes the leader’s roleas steward of the resources(human, financial, and other-wise) provided by theorganization to him or her forpurposes of accomplishing themission.
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Sunflower was honored to be one of four finalists chosen from 286 nominees by theKansas Department of Commerce for the Governor’s Award of Excellence. Sunflower’sPresident and CEO, Earl Watkins, noted that, “This honor resulted from the vision of ourBoard of Directors and our culture of accountability and servant leadership.” He said, “Thepartnership among our electric cooperative owners is a great example of what can beaccomplished when we live our commitment of working together.”
Sunflower joined with other Kansas public utilities as participants in Transmission SummitII, a gathering designed to improve regional transmission infrastructure. The meeting wasorganized by State Representative Tom Sloan and featured Federal Energy RegulatoryCommission (FERC) Chairman Pat Wood as the keynote speaker.
Sand Sage PowerThe development of the Sand Sage Power, LLC project, also referred to as Holcomb 2,
continues to progress. While this project began in 2001, steady progress has been made asSunflower and its development team work to bring this project to a successful conclusion. As
the marketplace has changed with the exit of energytraders, Sunflower has modified its offers to interestedutilities in the region to ensure that the project can meettheir needs. Changes in the regional transmissionmarketplace with the emergence of regional transmissionorganizations have required extensive meetings withstakeholders. These meetings helped to ensure theproject maintains competitive transmission paths withrates that do not unfairly burden Sunflower’s Membersystems or the customers of the project. The KansasDepartment of Heath and Environment also extended theexpiration date of the construction air permit to October2005.
Sunflower management remains quite optimisticabout the probability of reaching financial closing of thisproject in 2005. Holcomb 2 remains one of the bestopportunities for coal-fired power delivered by aworkforce with a proven ability to operate assets of thisnature in a manner that consistently outperformsgenerating units of similar size and vintage.
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KPMG LLPSuite 2700707 Seventeenth StreetDenver, CO 80202
Independent Auditors’ Report
The Board of DirectorsSunflower Electric Power Corporation:
We have audited the accompanying combined balance sheets of Sunflower Electric PowerCorporation, Sunflower Electric Holdings, Inc., and subsidiaries, collectively Sunflower, as ofDecember 31, 2004 and 2003, and the related combined statements of operations, member and patrondeficit, and cash flows for the years then ended. These combined financial statements are theresponsibility of Sunflower’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the UnitedStates of America. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. An audit includesconsideration of internal control over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of Sunflower’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, thecombined financial position of Sunflower as of December 31, 2004 and 2003, and the results of theiroperations and their cash flows for the years then ended in conformity with accounting principlesgenerally accepted in the United States of America.
Denver, ColoradoMarch 23, 2005
KPMG LLP, a U.S. limited liability partnership, is the U.S.member firm of KPMG International, a Swiss cooperative.
Sunflower Electric Pow
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Combined Balance SheetsDecember 31, 2004 and 2003
Utility plant, at cost:In service Less accumulated depreciation
Construction work in progressTotal utility plant (note 2)
Investments and other assets:Capital term certificates of the National Rural Utilities Cooperative Finance CorporationInvestments in associated organizationsEscrowed funds
Total investments and other assetsCurrent assets:
Cash and cash equivalentsAccounts receivable: Members Nonmembers Other
Inventories: Fuel Materials and supplies
Prepayments and other current assetsTotal current assets
Deferred charges (note 1(n))
Assets, Pledged (Note 3) 2004
581,322,898(300,300,756)281,022,142
369,945281,392,087
21,953,5823,379,671
522,51325,855,766
5,466,459
5,864,102 3,775,940
449,51310,089,555
2,162,7017,008,3009,171,001
922,42625,649,441
5,716,939338,614,233
2003
579,033,235(288,808,301)290,224,934
1,813,239292,038,173
2,193,6843,543,730
518,0186,255,432
2,419,657
518,9193,118,493
240,6863,878,098
2,754,1437,012,1789,766,321
978,67617,042,752
3,287,247318,623,604
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Combined Balance SheetsDecember 31, 2004 and 2003
Capitalization and Liabilities
Capitalization:Long-term obligations, less current maturities (note 3)Obligations under capital leases, less current portion (note 5)Member and patron deficit:
MembershipsDonated capitalAccumulated deficit
Total member and patron deficitTotal capitalization
Current liabilities:Current maturities of long-term obligations (note 3)Current portion of obligations under capital leases (note 5)Accounts payableInterest payableAccrued liabilities:
Taxes other than income taxesOther (note 7)
Total current liabilities
Deferred creditsCommitments and contingencies (notes 3, 4, 5, 6, 7 and 8)
2004
390,461,78610,254,468
9904,852,989
(89,213,735)(84,359,756)316,356,498
10,809,995 458,421
3,407,144 722,250
3,104,527 2,801,398
21,303,735
954,000
338,614,233
2003
380,353,06610,357,650
99077,989
(95,780,101)(95,701,122)295,009,594
13,606,923439,414
2,634,258—
3,131,8482,847,567
22,660,010
954,000
318,623,604
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Total (96,729,254)
1,028,132(95,701,122)
6,566,366
4,775,000(84,359,756)
Accumulateddeficit
(96,808,233) 1,028,132
(95,780,101) 6,566,366
—(89,213,735)
Donatedcapital
77,989—
77,989 —
4,775,0004,852,989
Combined Statements of Member and Patron DeficitYears ended December 31, 2004 and 2003
Combined Statements of OperationsYears ended December 31, 2004 and 2003
Operating revenue:Member power salesNonmember power salesOther
Total operating revenueOperating expenses:
Operations:Production and other power supplyTransmission
Maintenance:ProductionTransmission
Administrative and generalDepreciationOther taxes
Total operating expensesElectric operating margin
Less interest expense (note 3)Other deletions, net
Operating marginsNonoperating margins:
Investment incomeOther, net
Total nonoperating marginsNet margins
2004
78,171,79234,023,9614,700,295
116,896,048
51,617,6645,890,129
10,369,812 1,581,545 6,909,11611,961,773
28,434 88,358,47328,537,575
(22,867,765) (278,188)
5,391,622
509,864 664,880
1,174,7446,566,366
See accompanying notes to combined financial statements.
Balance, December 31, 2002Net marginsBalance, December 31, 2003Net marginsCapital contributions from members (note 1(j))Balance, December 31, 2004
Memberships990—
990—
—990
2003
79,103,61035,629,8454,681,340
119,414,795
55,977,1926,412,998
9,296,3491,528,0596,691,443
11,953,07028,750
91,887,86127,526,934
(27,141,882)(93,235)291,817
138,838597,477736,315
1,028,132
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$
$
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2003
1,028,132
11,953,070(11,584)
1,603,981(496,526)
54,297(390,296)
(1,489,861) —
1,020,79612,243,87713,272,009
(2,341,082)800
(182,000)(5,775)
275,233(2,252,824)
—(10,310)
——
(12,537,062)(12,547,372)
(1,528,187) 3,947,844 2,419,657
2004
6,566,366
11,961,773(69,511)
(6,211,457)595,32056,250
(2,429,692) 772,886722,250(73,490)
5,324,32911,890,695
(1,388,588)409
(226,838)(4,495)
460,408(1,159,104)
4,775,000(11,683)
213,277,800(213,277,800)(12,448,106)(7,684,789)3,046,8022,419,657 5,466,459
Cash flows from operating activities:Net marginsAdjustments to reconcile net margins to net cash provided
by operating activities:DepreciationPatronage capital creditsDecrease (increase) in accounts receivableDecrease (increase) in inventoriesDecrease in prepayments and other current assetsIncrease in deferred chargesIncrease (decrease) in accounts payableIncrease in interest payableIncrease (decrease) in accrued liabilities
Total adjustmentsNet cash provided by operating activities
Cash flows from investing activities:Capital expendituresProceeds from utility plant dispositionsPurchase of investmentsPayments of escrowed fundsSale of investments
Net cash used in investing activities
Cash flows from financing activities:Capital contributions from membersPrincipal payments under capital lease obligationsProceeds from refinancing of debtPayments to refinance debtPrincipal payments on debt
Net cash used in financing activitiesNet increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of yearCash and cash equivalents, end of year
Supplemental information:Sunflower recorded net reductions in capital lease obligations according to RUS guidelines in theamounts of $72,492 and $422,546 in 2004 and 2003, respectively.
Sunflower paid $22,145,515 and $27,141,882 in cash for interest during 2004 and 2003,respectively.
During 2004, Sunflower entered into an agreement with the National Rural Utilities CooperativeFinance Corporation in which Sunflower purchased $19,759,898 of equity in return for LCTC Notesfor the same amount.
See accompanying notes to combined financial statements.
Combined Statements of Cash FlowsYears ended December 31, 2004 and 2003
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(1) Nature of Operations and Summary of Significant Accounting Policies
(a) Nature of Operations and Liquidity
Sunflower Electric Power Corporation (Sunflower) is an electric generation and transmissioncorporation. Sunflower is responsible for the electric power requirements of its six distributioncooperative members operating within Western Kansas: Lane-Scott Electric Cooperative, Inc.,Pioneer Electric Cooperative, Inc., Prairie Land Electric Cooperative, Inc., Victory ElectricCooperative Association, Inc., Western Cooperative Electric Association, Inc., and WheatlandElectric Cooperative, Inc. Rates to Sunflower’s members are subject to approval by the KansasCorporation Commission (KCC) and the Rural Utilities Service (RUS or the Government).
Sunflower’s primary resource for supplying the needs of its members is the Holcomb Station.Holcomb Station is a coal-fired generating facility with a net rating of 360 megawatts. Sunflower’saccredited generation with the Southwest Power Pool totals 642 megawatts, and includes allgeneration assets available. Sunflower purchases all of its coal from Western Fuels Association,Inc. (Western Fuels). During 2004 and 2003, Sunflower’s purchases from Western Fuels totaled$20.8 million and $27.1 million, respectively. During 2004, coal transportation purchases from otherstotaled approximately $5.1 million. Representatives from Sunflower’s board of directors andmanagement are members of Western Fuel’s board of directors.
At December 31, 2004, Sunflower had working capital, current assets less current liabilities, ofapproximately $4.3 million. Sunflower is also dependent on cash flows from member and nonmemberlong-term power supply contracts to meet its current obligations. Sunflower’s management isunaware of any significant changes to these contracts in the upcoming year that are expected tosignificantly impact its cash flows from power sales.
(b) The Financial Reporting Entity
On November 26, 2002, Sunflower Electric Holdings, Inc. (SEHI) completed negotiations torestructure its debt and signed the Agreement and Consent to Sunflower Restructuring, Dated asof September 30, 2002, By and Among Sunflower, SEP, HCF, the Government, CFC, Co Bank, andOther Creditors (the Consent Agreement). The Consent Agreement transferred all assets andliabilities, except for the long-term debt, from SEHI to SEP Corporation in exchange for certaindebt issued by SEP Corporation as noted in note 3. SEP Corporation legally changed its name toSunflower Electric Power Corporation (Sunflower) in March 2003. Sunflower is a nonprofitcorporation, operated on a cooperative basis. The ownership of Sunflower is in the same proportionas that of SEHI. Substantially all of Sunflower’s assets, contracts, and revenue are pledged assecurity under the mortgage provided for in the Consent Agreement.
As part of the November 2002 transaction, Holcomb Common Facilities, LLC (HCF) was createdas a wholly owned subsidiary of SEHI for the purpose of holding specific assets located at HolcombStation Unit No. 1 Power Plant (Holcomb Station). These assets are capital leased to Sunflower.Sunflower has three wholly owned subsidiaries: Sand Sage Power, LLC (Sand Sage); SunflowerRail Company, LLC (Sunflower Rail); and SEPC, LLC. Sand Sage and Sunflower Rail were createdfor future activities and currently do not hold any assets or liabilities. SEPC, LLC was formed topurchase and lease a communications tower in 2003. This tower is a capital lease to Sunflower aspart of the operation of the generation and transmission facilities.
The accompanying combined financial statements include the combined transactions of the aboveentities, collectively referred to as Sunflower. Intercompany balances and transactions have beeneliminated in combination.
Notes to Combined Financial StatementsDecember 31, 2004 and 2003
(Continued)
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Notes to Combined Financial StatementsDecember 31, 2004 and 2003
(Continued)
(c) Basis of Presentation
The accompanying combined financial statements have been prepared using the accrual basis ofaccounting in accordance with accounting principles generally accepted in the United States ofAmerica. Transactions have been classified in accordance with the Uniform System of Accountsprescribed by the RUS.
(d) Use of Estimates
The preparation of combined financial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the combined financial statements and the reported amounts of operatingrevenue, expenses, and other items during the reporting period. Actual results could differ significantlyfrom those estimates.
(e) Utility Plant
Utility plant is stated at cost and accounted for in accordance with the Uniform System of Accountsprescribed by the RUS. The cost of maintenance and repairs, including renewals of minor items, ischarged to operating expenses. Expenditures for replacement of property units are recorded asutility plant. The cost of units replaced or retired, including cost of removal, net of any salvagevalue, is charged to accumulated depreciation.
Depreciation is provided on the composite straight-line method over the estimated useful lives ofthe assets. The method and rates are approved by the RUS. The average annual depreciationrates are:
Steam production plant 2.12 %Other production plant 1.82 %Transmission plant 2.45 %General plant 1.08 %
(f) Investments
Investments in associated organizations are stated at cost plus Sunflower’s share of patronagecapital credits allocated, reduced by distributions received. Sunflower’s ownership percentage inthese associated investments is less than 20%.
Capital term certificates and escrowed funds are carried at cost. Cost is estimated to approximatefair value due to the nature of the certificates and the underlying short-term investments held inescrow.
(g) Cash and Cash Equivalents
Cash and cash equivalents include cash deposits in banks and short-term investments with originalmaturities of three months or less. Included in short-term investments are overnight repurchaseagreements and treasury bills.
(h) Inventories
Inventories are recorded at the lower of cost or market and are expensed on an average-costbasis.
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(i) Prepayments and Other Current Assets
Prepayments and other current assets consist primarily of prepaid insurance, which is expensedratably over the life of the service period.
(j) Patronage Capital
All net margins are required to offset any losses incurred during the current or any prior fiscal year.Remaining net margins, if any, are allocated to members based on energy purchases. At December31, 2004 and 2003, no portion of equity had been allocated or assigned.
Under provisions of the mortgage with RUS, patronage capital cannot be distributed withoutapproval from certain long-term creditors. Sunflower allocates patronage capital on a tax basis.
During 2004, members contributed approximately $4.8 million in cash to improve Sunflower’sliquidity.
(k) Income Taxes
Sunflower is a taxable cooperative. Income taxes generally apply to Sunflower to the extent thattaxable income or losses are allocated to nonpatron activity. Sunflower accounts for income taxesattributable to nonpatron activity under Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes (Statement 109). Under the asset and liability method of Statement109, deferred tax assets and liabilities are recognized for the future tax consequences attributableto differences between the combined financial statement carrying amounts of existing assets andliabilities and their respective tax bases. Deferred tax assets and liabilities are measured usingenacted tax rates expected to apply to taxable income from nonpatron sales in the years in whichthose temporary differences are expected to be recovered or settled. Under Statement 109, theeffect on deferred tax assets and liabilities of a change in tax rates is recognized in operations inthe period that includes the enactment date.
(l) Deferred Credits
Deferred credits consist of unearned revenue from contracts with power customers.
(m) Revenue and Fuel Expense Recognition
Electric energy sales and the related fuel expenses are recorded at the time electric energyis delivered.
(n) Deferred Charges
Deferred charges at December 31, 2004 and 2003, include legal and engineering fees incurred bySunflower for the potential construction of a new electric power generating station to be contiguousto the Holcomb Station. All charges are expected to be reimbursed by the development fundingentity. At December 31, 2004, deferred charges also include legal and filing fees incurred to refinanceits Secured “A” Notes in 2004. These charges are amortized over the life of the refinanced notes.
(o) Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable. Long-lived assets to bedisposed of are reported at the lower of carrying amount or fair value. For the years ended December31, 2004 and 2003, management believes there has been no impairment of Sunflower’s long-livedassets.
Notes to Combined Financial StatementsDecember 31, 2004 and 2003
(Continued)
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2003420,487,64214,158,831
116,749,27818,445,390
569,841,141
(288,808,301)
281,032,840
9,192,0941,813,239
292,038,173
(Continued)
Notes to Combined Financial StatementsDecember 31, 2004 and 2003
(p) Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
(2) Utility Plant
Utility plant balances by major class of asset are as follows at December 31, 2004 and 2003:
Steam production plantOther production plantTransmission plantGeneral plant
Total depreciable assets
Less accumulated depreciation
Net depreciable assets
LandConstruction work in progress
Total utility plant
2004422,322,50314,158,831
116,879,93018,769,540
572,130,804
(300,300,756)
271,830,048
9,192,094369,945
281,392,087
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$
$
2004
—
67,500,000
137,677,801
54,673,310
30,268,856
81,378,197
10,099,459
—
19,674,158
401,271,781
(10,809,995)
390,461,786
Notes to Combined Financial StatementsDecember 31, 2004 and 2003
(Continued)
(3) Long Term Debt
(a) Outstanding Notes PayableThe outstanding note balances are as follows as of December 31, 2004 and 2003:
Secured “A” Notes, interest ranging from 2% to10%, due in quarterly principal and interestinstallments through 2016
Secured “A-1” Notes, 4.28% interest, due insemi-annual principal and interest installmentsthrough 2011
Secured “A-2” Notes, interest ranging from 2.8% to5.5%, due in quarterly principal and interestinstallments through 2016
Unsecured “A” Participation Notes, 8% interest,due in quarterly principal and interestinstallments through 2016
Secured “B” Notes, bearing no stated interest rate,quarterly installments applied 2 for 1, effectiveinterest rate of 3.8% through 2016.
Residual Value Notes, bearing no stated interestrate, lump sum payment due December 31,2016, effective interest rate of 3.59%
Unsecured “B” Notes, bearing no stated interestrate, due in quarterly installments through2027, effective interest rate of 5.3%
Western Fuels, Inc. Note, bearing variable interestrate, due in monthly installments until fullyamortized
National Rural Utilities Cooperative FinanceCorporation Loan Capital Term Certificate(LCTC) Notes, interest ranging from 2.8% to5.5%, due in quarterly principal and interestinstallments through 2016
Less current maturities of long-term obligations
Long-term obligations, less current maturities
2003
215,656,546
—
—
57,398,260
32,183,130
78,518,965
10,033,618
169,470
—
393,959,989
(13,606,923)
380,353,066
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$
$
Notes to Combined Financial StatementsDecember 31, 2004 and 2003
(Continued)
On April 22, 2004, Sunflower completed a refinancing of the outstanding Secured “A” Notes, primarilyto reduce the interest rate. The Secured “A” Note debt was refinanced with the proceeds from theissuance of the Secured “A-1” and Secured “A-2” Notes. Upon the refinancing, all outstanding Secured“A” Note debt was extinguished. No gain or loss was recorded on the extinguishment given thecarrying amount of the extinguished debt was equivalent to the reacquisition price.
Prior to April 22, 2004, all Secured “A” Notes had interest ranging from 2% to 10%, with principal andinterest payable quarterly through 2016. Subsequent to the refinancing, the Secured “A-1” Notes, inthe amount of $75,000,000, bear interest at 4.28%, payable in semi-annual installments. The Secured“A-2” Notes, in the amount of $138,277,800, consist of 13 separate notes, with one note due eachyear beginning March 31, 2005 through March 31, 2016. The last note is due on December 31,2016. The Secured “A-2” Notes bear interest ranging from 2.8% to 5.5%.
The Secured “B” Notes were issued in November 2002, in the amount of $89,888,660, without astated interest rate. The quarterly principal payments are applied to reduce the outstanding notebalance on a 2 for 1 basis; for every $1 paid, the outstanding note balance is reduced by $2, resultingin expected future cash outflows of $37,826,448 as of December 31, 2004. For financial statementreporting purposes, the expected future quarterly payments have been discounted assuming aneffective interest rate of 3.8%, resulting in carrying amounts of $30,268,856 and $32,183,130 as ofDecember 31, 2004 and 2003, respectively.
The Residual Value Notes were issued for the greater of $125,000,000 or 43% of the fair value ofHolcomb Station on December 31, 2016, without a stated interest rate, payable in one lump sumamount on December 31, 2016. The Consent Agreement provides the terms for determining the fairvalue of 43% of Holcomb Station upon the December 31, 2016, appraisal date. The Residual ValueNotes contain a prepayment provision that is to be used upon prepayment of the notes or upon thesale of the Holcomb Unit 1 facility. The December 31, 2002 Stipulated Value of $75,760,193 outlinedin this prepayment provision grows to $148,181,482 through September 30, 2016. This amountexceeds the stated minimum amount due of $125,000,000, the excess of which is considered aprepayment premium. For financial statement reporting purposes, the note is reflected at an accretedcarrying amount originally equivalent to the beginning Stipulated Value of $75,760,193, fully accretingto $125,000,000 as of December 31, 2016. This results in interest at an effective interest rate of3.59% per year. Any amount that might be paid on this note in excess of $125,000,000 has beentreated as a contingent amount and, as such, is not currently recognized due to the uncertainties ofprepayment, sale of the Holcomb Unit 1 facility, or appraised fair value of the Holcomb Station as ofDecember 31, 2016.
Unsecured “B” Notes were issued in November 2002, totaling $17,997,972, without a stated interestrate, payable in quarterly installments through June 30, 2027. For financial statement reportingpurposes, the expected future quarterly payments have been discounted assuming an effectiveinterest rate of 5.3%, resulting in carrying amounts of $10,099,459 and $10,033,618 as of December31, 2004 and 2003, respectively.
The LCTC Notes were issued in the amount of $19,759,898, or 14.29% of the Secured “A-2” Notes,as part of the 2004 refinancing to the National Rural Utilities Cooperative Finance Corporation (CFC).Like the Secured “A-2” Notes, there are 13 separate notes, with one note due each year beginningMarch 31, 2005 through March 31, 2016. The last note is due on December 31, 2016. The LCTCNotes bear interest ranging from 2.8% to 5.5%. Required as part of CFC loan policy, Sunflowerpurchased an equity interest in CFC. The proceeds from these notes were used solely to purchaseCFC capital term certificates in an amount originally equivalent to the LCTC Note balance.
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The equity term certificates are reflected as capital term certificates of the National Rural UtilitiesCooperative Finance Corporation on Sunflower’s balance sheet. CFC repays the capital termcertificates to Sunflower as Sunflower’s outstanding Secured “A-2” Notes and LCTC Notes are repaid.Quarterly payments on the LCTC Notes, like the original borrowing, are equivalent to 14.29% of thequarterly payments made on the Secured “A-2” Notes.
At December 31, 2004, scheduled maturities of the long-term debt are as follows:
Year ending December 31: 2005 $ 10,809,995 2006 11,025,349 2007 18,920,291 2008 20,609,475 2009 23,647,942Thereafter 316,258,729
$ 401,271,781
Notes to Combined Financial StatementsDecember 31, 2004 and 2003
(Continued)
(b) Contingent Notes
The November 26, 2002 Consent Agreement modified the Sunflower reporting entity. The ConsentAgreement transferred assets and liabilities, except for Sunflower Electric Holdings, Inc. (SEHI)long-term debt and the legal title to the Holcomb Common Facilities (Common Facilities) and RetainedInfrastructure, to SEP Corporation in exchange for debt issued by Sunflower. The Common Facilitiesand Retained Infrastructure included property necessary to operate one or more additional units ifbuilt on the Holcomb Station site. If additional generation units are constructed, rental payments foruse of the Common Facilities and Retained Infrastructure are to be paid to the creditors of SEHI.Although discussions continue in an effort to develop the plant site, no construction activities foradditional generating units have begun as of December 31, 2004; thus, SEHI’s contingent long-termdebt is not considered probable as to payment and, accordingly, is not reflected in the accompanyingcombined financial statements.
An Unsecured “B” Contingent Note was issued to one creditor in connection with the November 26,2002 transaction with payment terms contingent upon receipt by Sunflower of cash flows from thelease of property that would be used to build additional generating units on the Holcomb Station siteif the site is ever to be developed. As of December 31, 2004, no construction activities for additionalgenerating units have begun; thus, the Unsecured “B” Contingent Note is not considered probableas to payment and, accordingly, is not reflected in the accompanying combined financial statements.
Holcomb 3 Contingent Notes, totaling $3,145,000, were issued in connection with the November26, 2002 transaction. These are contingent notes bearing no interest through January 1, 2008, andaccruing interest at 5% thereafter until paid. The principal and accrued interest are payable in fullupon the commercial operation date of a third unit (Holcomb Unit 3) located on the Holcomb Stationsite. If commercial operation does not commence prior to December 31, 2021, or if Sunflower is notan owner or operator of Holcomb Unit 3, the notes, including accrued interest, are canceled. As ofDecember 31, 2004, no construction activities for additional generating units have begun; thus, theHolcomb 3 Contingent Notes are not considered probable as to payment and, accordingly, are notreflected in the accompanying combined financial statements.
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(4) Income Taxes
The tax effects of temporary differences that give rise to significant portions of the deferred taxassets and liabilities at December 31, 2004 and 2003 are presented below:
2004 2003Deferred tax assets:
Property and equipment, principally due to safe harborleasing transactions $ 11,683,321 12,019,667
Accrued vacation for financial reporting purposes 137,750 126,167Debt, principally due to differences in effective
interest rates — 5,184,999Investment in SEHI notes 752,992 784,055Net operating loss carryforwards 27,384,064 2,954,381
Total gross deferred tax assets 39,958,127 21,069,269
Less valuation allowance (18,413,459) (18,421,915)Deferred tax assets, less allowance 21,544,668 2,647,354
Deferred tax liabilities:Property and equipment, principally due to differences
in depreciation 1,851,617 2,042,874Debt, principally due to differences in effective
interest rates 19,100,985 —
Other 592,066 604,480
Total gross deferred tax liabilities 21,544,668 2,647,354
Net deferred tax assets $ — —
Management allocates deferred tax assets and liabilities based on average annual nonpatronkilowatthour sales percentages.
Although the table above presents the deferred tax assets and liabilities on a combined basis, SEHIand Sunflower each file separate income tax returns. As of December 31, 2004, SEHI hasapproximately $228 million of net operating loss carryforwards for regular and alternative minimumtax purposes that, if not utilized, begin to expire after 2013 through 2025. As of December 31, 2004,Sunflower has approximately $2.7 million of net operating loss carryforwards for regular and alternativeminimum tax purposes that, if not utilized, begin to expire after 2022 through 2024.
Management does not believe the deferred tax assets will be utilized; accordingly, it has provided avaluation allowance to reduce the net deferred tax assets to zero.
Notes to Combined Financial StatementsDecember 31, 2004 and 2003
(Continued)
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(5) Leases
Sunflower is obligated under various leases for plant facilities, transmission lines, and equipmentwhich are accounted for as capital leases. The following is a schedule of the future minimum leasepayments under capital leases together with the present value of the minimum lease payments asof December 31, 2004:
Year ending December 31:2005 $ 1,085,9192006 1,085,9192007 1,083,0182008 1,070,3842009 1,070,384Thereafter 13,551,908
18,947,532
Less amount representing interest (implicit rates of 4.0% to 8.9%) 8,234,643Present value of minimum lease payments 10,712,889
Less current portion 458,421Long-term obligations under capital leases $10,254,468
Sunflower has several types of operating leases. One type is for leases of transmission lines fromseveral of Sunflower’s Member systems. The payment for the transmission leases are reducedover time as certain facilities are fully amortized while other leases provide for continued paymentsover time. Another type is a lease with Western Fuels for the use of steel railcars. Western Fuelshas leased two 115 steel car train sets. The two different railcar leases expire at the end of 2006 and2008, respecitvely. Also, as a result of the new rail contract with Burlington Northern Santa Fe(BNSF), Western Fuels leased an additional 32 steel railcars to Sunflower to supplement the existing115 steel car train sets to achieve the preferred train size of 128 cars plus spares. In addition to thelease payment for the supplemental lease, the agreements include a high mileage penalty of $0.025per mile that each rail car exceeds 60,000 miles per year. The supplemental lease for the steelrailcars expires in September 2005. Sunflower does have other operating leases but these renewon a yearly term, and are not included in the future minimum lease payments below. Future minimumlease payments under noncancelable operating leases as of December 31, 2004, are as follows:
Year ending December 31:2005 $ 4,694,1032006 4,676,8402007 4,453,2152008 4,417,5052009 4,056,959Thereafter 49,724,668
$ 72,023,290
Total expense associated with operating leases was $2,623,371 and $1,010,118 for the years endedDecember 31, 2004 and 2003, respectively.
(Continued)
Notes to Combined Financial StatementsDecember 31, 2004 and 2003
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Notes to Combined Financial StatementsDecember 31, 2004 and 2003
(6) Pension Plan
All Sunflower employees are covered by a defined benefit pension plan that is funded throughparticipation in the National Rural Electric Cooperative Association Retirement and Security Program,a multiple employer plan. Employees vest in the plan after one year of service. Information on theaccumulated benefits and plan assets are not determined or allocated by the employer. Pensionexpense for the years ended December 31, 2004 and 2003, was approximately $2,254,980 and$1,703,000, respectively. Sunflower did not incur any past service costs during 2004 and 2003.
(7) Postretirement Benefit Obligations
Sunflower provides health care benefits to eligible retirees under a multiple employer plan. Generally,the medical plan covers a portion of the retirees’ medical expenses, reduced by deductibles andother coverages. Sunflower retains the right, subject to existing agreements, to change or eliminatethese benefits. In order for retirees to be eligible for health care benefits, the participant must paythe premium cost associated with the coverage.
Sunflower accounts for postretirement health benefits under the provisions of Statement of FinancialAccounting Standards No. 106, Employers’ Accounting for Postretirement Benefits Other ThanPensions (Statement 106). Statement 106 requires that companies accrue the projected future costof providing postretirement benefits during the period that employees render the services necessaryto be eligible for such benefits. Sunflower elected to amortize its unrecognized, unfunded accumulatedpostretirement benefit obligation at the date Statement 106 was adopted over the average estimatedremaining service periods of the participants of 20 years.
As of December 31, 2004 and 2003, the accrued postretirement benefit obligation was approximately$1,162,823 and $954,384, respectively. The postretirement benefit obligation is unfunded.Contributions (premiums paid) from retired employees were approximately $107,700 and $100,800for the years ended December 31, 2004 and 2003, respectively. Benefits paid to eligible participantswere approximately $93,133 and $113,900 for the years ended December 31, 2004 and 2003,respectively.
Postretirement benefit expense was approximately $208,400 and $98,400 for the years endedDecember 31, 2004 and 2003, respectively. The weighted average discount rate used in determiningthe accumulated postretirement benefit obligation was 6.0% and 7.25% at December 31, 2004 and2003, respectively. A 10.0% annual rate of increase in the per capita cost of covered health carebenefits was assumed for 2004; the rate was assumed to decrease gradually to 5.0% by 2009 andremain at that level thereafter. If the annual rate changed by 1%, the effect would be insignificant.
(8) Commitments and Contingencies
In 2000, Sunflower and four of its six distribution cooperative members began self-insuring theirhealth plans. The Kansas Electric Cooperative Health Insurance Trust (KECHIT) was established tofinance the health plans. KECHIT is self-insured for up to $75,000 per individual loss and iscommercially insured up to 120% of actuarially-determined expected claims for the upcoming year.Sunflower has discretion over the amount of the premium it will subsidize for its employees, and issubsidizing part of the premium for active employees as of December 31, 2004. Retirees areresponsible for their entire premium payment. During 2004 and 2003, Sunflower paid premiums ofapproximately $2,466,000 and $2,424,000, respectively, to KECHIT. As of December 31, 2004 and2003, no amounts were owed to KECHIT by Sunflower. It is possible that claims incurred by Sunfloweremployees will exceed the amount funded by Sunflower in KECHIT.
(Continued)
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Notes to Combined Financial StatementsDecember 31, 2004 and 2003
Sunflower has multi-year contracts to acquire and transport coal for Holcomb Station. Sunflower’scosts for both coal and transportation purchases were approximately $26.5 million and $27.1 millionfor the years ended December 31, 2004 and 2003, respectively.
Sunflower is a defendant in litigation matters and a party to various claims arising from its normalactivities. In management’s opinion, these actions will not result in a material adverse effect on thefinancial position, results of operations, or liquidity of Sunflower.
Beginning in 2004, Sunflower maintains a $6.9 million operating line of credit with CFC. Thesefunds are used periodically throughout the year to manage seasonal fluctuations of cash flows. Aspart of the terms, Sunflower can have up to $4.0 million in letters of credit issued against the line ofcredit. Sunflower did not have any funds borrowed or letters of credit issued against this operatingline of credit on December 31, 2004.
As part of the 2004 refinancing, RUS required Sunflower to issue a $3.1 million letter of credit for itsbenefit, through the earlier of January 15, 2017, or the date upon which Sunflower satisfies itsSecured “B” Note obligation to the Government. Sunflower is in compliance with the terms of theGovernment’s note and no draw was or has been made on the letter of credit as of December 31,2004.
As part of a tax benefit transfer transaction entered into in the early 1980s, Sunflower was requiredto maintain a letter of credit for the benefit of the tax lessor in the unlikely event that Sunflower’sactions might give rise to the potential loss of benefits sold. On December 31, 2004, the maximumamount that could be drawn upon the letter of credit was $15,575,792. As of December 31, 2004,events have not occurred that might give rise to the potential loss of benefits sold, and accordingly,no draw was or has been made on the letter of credit.
30
SERVICEAREA MAP
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Sunflower’s Transmission System221 Miles of 345-kV Transmission Line837 Miles of 115-kV Transmission Line96 Miles of 69-kV Transmission Line27 Substations64 System Control and Data Acquisition (SCADA) units14 Microwave sites (for SCADA and other system uses)
Sunflower’s PeopleColby ............................3Hays ...........................34Garden City ................53Holcomb ................... 130
Total ............220
Holcomb StationCapacity: 360 MegawattsFuel source: Sub-bituminous coalPurpose: Base LoadPlaced into service: 1983
S-2 Steam TurbineCapacity: 99 MegawattsFuel source: Natural GasPurpose: Intermediate LoadPlaced into service: 1973
S-3 Gas TurbineCapacity: 13 MegawattsFuel source: Natural Gas/OilPurpose: Black Start/Emergency PowerPlaced into service: 1973
S-4 Gas TurbineCapacity: 58 MegawattsFuel source: Natural Gas/OilPurpose: Peaking, ReservePlaced into service: 1976
S-5 Gas TurbineCapacity: 55 MegawattsFuel source: Natural Gas/OilPurpose: Peaking, ReservePlaced into service: 1979
GC-3 Steam TurbineCapacity: 10 MegawattsFuel source: Natural Gas/OilPurpose: PeakingPlaced into service: 1962
31
Generation Facilities – 595 MW (net)
Sunflower Electric Pow
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Sunflower Electric Power Corporation Visit Sunflower on the web at: http://www.sunflower.net
or contact any of the addresses listed below:
Hays Office: Holcomb Station:(785) 628-2845 (620) 277-2590P.O. Box 1020 P.O. Box 430301 West 13th Street 2440 Holcomb LaneHays, KS 67601 Holcomb, KS 67851
Colby Office: Garden City Complex:(785) 462-6458 (620) 275-01611970 Thielen Avenue P.O. Box 1649Colby, KS 67701 2075 West St. John Street
Garden City, KS 67846
A Touchstone Energy® Cooperative