RAIDROAD COMMISSION OF David Porter, Chairman Christi Craddick, Commissioner Ryan Sitton, Commissioner Financial Services INTERNAL MEMORANDUM A TO: John E. Caudle, Dire lor ?y Surface Mining and I ation Division (SMRD) THROUGH: Bob Hopper, Financial Reporting Manager% Financial Services . Railroad Commission of Texas FROM: Adriaan Kanaar RECEIVED Financial Services FEB 0 3 2016 DATE: February 3, 2016 Surface Mining Division SUBJECT: Texas Municipal Power Agency (TMPA) Gibbons Creek Mine, Permit No. 38D 2015 Financial Information Review (Year Ending September 30, 2015) Texas Munici alPowerA enc TMPA As requested in your memorandum dated January 4th, 2016, Financial Services has reviewed the audited annual ?nancial statements for Texas Municipal Power Agency (TMPA) to determine if TMPA meets the ?nancial requirements for its $10,000,000.00 self-bond for the Gibbons Creek Mine, Permit No. 38D. In accordance with GASB Statement 63 and 65, Net Position can be substituted for Net Worth when conducting a ?nancial review for governmental or not for pro?t entities. audited ?nancial statements for its ?scal year ended September 30, 2015, show that TMPA does not meet the requirements of 16 TEX. ADMIN. CODE and does meet the requirements of 16 TEX. ADMIN. CODE 12.3 Attached is a worksheet showing that TMPA does not meet the ?nancial requirements of 16 TEX. ADMIN. CODE To meet the requirements of 16 TEX. ADMIN. CODE an applicant?s amount of self?bonds cannot exceed 25% of the applicant?s tangible net worth in the United States. audited ?nancial statements for its ?scal year ended September 30, 2015, show that current self-bond for $10,000,000 is 30.09% of tangible net worth. Therefore, TMPA submitted documentation showing that it does not meet the requirements of 16 TEX. ADMIN. CODE Also attached are pages 1 2 from the General Certi?cate certifying that most recent bond issuance ratings were from Standard Poor?s and A2 from Moody?s Investor Service, thus ful?lling the requirements of 16 TEX. ADMIN. CODE Therefore, TMPA has submitted documentation showing that it meets the requirements of 16 TEX. ADMIN. CODE Please contact Adriaan Kanaar at (512) 463-8850 if you have any questions regarding this review. cc: Kathy Keils, Of?ce of General Counsel Fine ',-ial Information Review Texas Municipal Power Agency - Audited Financial Statements 09I30I2015 Section 12.309lill2llC) Applicant must meet one or more of the following: Criterion #1 Current rating for its most recent bond issuance of or higher as issued by either Moody's Investor Service or Standard and Poor's Corporation General Certificate pg. Meets Current Rating 1&2 S&PlMoody Does Meet the requirements of 16 TAC Criterion #2 Must meet all of the following requirements: I MEETS IRequiremant 1 Tangible net worth of at least $10 million Net Worth/Net Position (Owner's Equity) 34,076,000 7 A-B Intangibles (842,000) 24 C-D Goodwill total assets - total iabilities=net worth (owner's equity) *less intangibles goodwill Tangible net worth 33,234,000 Calculation I FAILS IRequirement 2 Ratio of total liabilities to net worth of 2.5 times or less Total Liabilities 919,123,000 p7 Net Worth 34,076,000 7 AB Ratio LiabilitiesINet Worth 26.97 I FAILS IRequirement 3 Ratio of current assets to current liabilities of 1.2 times or greater Current Assets 68,335,000 p7 Current Liabilities 149,772,000 p7 Ratio Current AssetILiabilities 0.46 DOES nor Meet the requirements of 16 TAC Criterion #3 Must meet all of the following requirements: TMPA 2015 - Financial Info Self-Bond Permit 38D-part 2 I MEETS IRequirement# 1 Fixed assets in US total at least $20 million Fixed Assets 436,468,000 I FAILS IRequirement 2 Ratio of total liabilities to net worth of 2.5 times or less Total Liabilities 919,123,000 Net Worth 34,076,000 Ratio Liabilities/Net Worth 26.97 I FAILS IRequirement 3 Ratio of current assets to current liabilities of 1.2 times or greater Current Assets 68,335,000 Current Liabilities 149,772,000 Ratio Current Asset/Liabilities 0.46 noes NOT Meet the requirements of 16 TAC Criterion #4 Must meet ?rst requirement and either two or three; Requirement 1 Has investment-grade rating for its most recent bond issuance of "Baa3" or higher from Moody's Investor Service and or Meets higher from Standard and Poor's Corporation Investment-Grade Rating Requirement 2 Must meet all of the following requirements: #1 I [Tangible net worth of at least $10 million Tangible net worth #2 I MEETS IFixed assets in US total at least $20 million Fixed Assets #3 p7G p7 7A-B p7E p7F General Certificate pg. 1&2 33,234,000 Calculated Above 436,468,000 Ratio of total liabilities to net worth of 2'5 times or less OR less than industry median reported by Dun and Bradstreet for FAILS applicant's primary SIC code Did Not Submit Total Liabilities 919,123,000 Net Worth 34,076,000 TMPA 2015 - Financial Info - Self-Bond Permit 38D?part 2 p7G p7B Ratio LiabilitiesINet Worth #4 26.97 Ratio of current assets to current liabilities that is equal or greater than industry median reported by Dun and Bradstreet for applicant's primary SIC code OR current credit rating of or FAILS higher from industry median Did Not Submit Current Assets 68,335,000 Current Liabilities 149,772,000 Ratio Current AssetILiabilities 0.46 Current Credit Rating NIA OR Requirement 3 Must meet all of the following requirements: I FAILS Net worth of at least $100 million Net worth 34,076,000 I MEETS Fixed assets in US total at least $200 million Fixed Assets 436,468,000 I FAILS IE3 Has outstanding securities pursuant to the provision of the Securities Act of 1933 and subject to periodic ?nancial reporting requirements established by the Securities Act of 1934 No #4 I IApplicant's present and proposed self-bonds and guaranteed self-bonds for surface mining and reclamations operations not exceed 16.67% of the guarantor's net worth in US Bonds Net Worth 16.67% Test DOES NOT Meet the requirements of 16 TAC Section Limit on Amount of Self-Bonds Applicant's present and proposed self-bonds for surface mining and reclamation operations may not exceed 25% of the applicant's tangible net worth in US. I IBonds 34,076,000 29.35% Tangible Net Worth 25% Test TMPA 2015 - Financial Info - Self-Bond Permit 38D-part 2 10,000,000 33,234,000 30.09% p7E Did Not Submit Memo 7 A-B Memo Calculation DOES NOT Meet the requirements of 16 TAC TMPA 2015 - Financial Info - Self-Bond Permit 38D-part 2 Texas Municipal Power Agency Statements of Net Position (Dollars in Thousands) Assets and Deferred Outflows of Resources Assets Current Assets Current Unrestricted Assets Current Restricted Assets Total Current Assets Noncurrent Assets Electric Plant Other Assets Total Noncurrent Assets Total Assets Deferred Outflows of Resources Una mortized Excess Cost on Advance Refunding of Debt Total Deferred Outflows of Resources Total Assets and Deferred Outflows of Resources Liabilities and Net Position Liabilities Current Liabilities Cu rrent Liabilities Total Current Liabilities Noncurrent Liabilities Long Term Debt Noncurrent Liabilities Other Than Debt Total Noncu rrent Liabilities Total Liabilities Net Position Net Investment in Capital Assets Restricted for Insurance Claims Unrestricted Total Net Position Total Liabilities and Net Position Statement of Net Position in FY 2014 was modified to correspond with the current year presentation September 30, 2015 2014 2013 59,547 63,658 55,004 8,788 10,784 11,260 68,335 74,442 66,264 436,468 444,747 454,447 321,425 432,882 545,021 757,893 877,629 999,468 826,228 952.071 1,065,732 9,471 7,995 12,354 9,471 7,995 12,354 835,699 960,066 149,772 143,036 132,834 149,772 143,036 132,834 497,649 618,536 699,778 154,202 157.551 190,361 651,851 776,087 890,139 801,623 919,123 1,022,973 (10,836) (10,860) 1,206 4,426 7,635 9,529 40,486 44,168 44,378 34,076 40,943 55,113 835,699 960,066 1,078,086 Three years presented as required by GASB 34 Electric plant components, net of accumulated depreciation as of September 30, 2015 and 2014 are as follows (in thousands): Summary of Additions, Less Transfers and Retirements to Plant Oct. 1, 2014 Additions Transfers Retirements Sept. 30, 2015 Electric Plant Generation 685,633 1,307 1,553 - 688,493 Transmission 270,081 8,986 (6,341) 272,726 Mine?Related 52,632 - - - 52,632 General Plant 104,175 - 104,175 Other 10,775 - 10,775 Intangible Assets 918 - - - 918 Total Electric Plant 1,124,214 1,307 10,539 (6,341) 1,129,719 he Accumulated Depreciation Generation (473,526) (14,714) - (488,240) Transmission (116,861) (5,773) - 5,093 (117,541) Mine?Related (37,355) - - (37,355) General Plant (62,530) (1,128) (63,658) Other (1,348) (1,348) Intangible Assets (62) L14) - (76) Total Accumulated (691,682) (21,629) - 5,093 (708,218) Depreciation Construction Work in Progress 12,215 13,291 (10,539) - 14,967 Total Electric Plant, Net of Accumulated Depreciation 444,747 (7,031) (1,248) 436,468 Oct. 1, 2013 Additions Transfers Retirements Sept. 30, 2014 Electric Plant Generation 687,905 1,190 20 (3,482) 685,633 Transmission 265,252 - 6,030 (1,201) 270,081 Mine?Related 52,632 52,632 General Plant 104,178 - - (3) 104,175 Other 10,775 - - - 10,775 Intangible Assets 918 - - - 918 Total Electric Plant 1,121,660 1,190 6,050 (4,686) 1,124,214 Accumulated Depreciation Generation (459,651) (13,875) - - (473,526) Transmission (112,165) (5,623) 927 (116,861) Mine?Related (37,355) - - (37,355) General Plant (61,402) (1,128) - (62,530) Other (1,348) - - (1,348) Intangible Assets (47) (15) - (62) Total Accumulated (671,968) (20,641) 927 (691,682) Depreciation Construction Work in Progress 4,755 13,510 (6,050) 12,215 Total Electric Plant, Net of Accumulated Depreciation 454,447 (5,941) - (3,759) 444,747 24 GENERAL CERTIFICATE THE STATE OF TEXAS- COUNTY OF GRIMES I, the undersigned, General Manager ofthe Texas Municipal Power Agency (the ?Agency?), D0 HEREBY CERTIFY as follows: 1. This certi?cate is given in connection with the execution and delivery of the Amended and Restated Letter of Credit Numbers NZ8564256 and NZSS 64257 issued by the Wells Fargo Bank, NA. (the ?Bank?) to the Railroad Commission of Texas for the account of the Agency. 2. The Agency was created and established by concurrent ordinances adopted by the governing bodies of the Cities of Bryan, Denton', Garland and Greenville, Texas (such ordinances having been adopted on the 18th day of July, 1975) following the publication, in each of said cities, of a notice of intent to adopt such concurrent ordinances (such publication having been accomplished in each of two successive weeks, the date of the ?rst publication having been at least fourteen (14) days prior to the date of the adoption of the concurrent ordinance in each of said cities). 3. The Attorney General of Texas has heretofore approved all previously issued bonds of the Agency and all of such bonds have been registered by the Comptroller of Public Accounts of the State of Texas. 4. The validity of the creation of the Agency has been upheld in two quo warranto pro'Ceedings instituted by the County Attorney of Grimes County, Texas, such cases being styled: State of Texas, ex rel Grimes County Taxnavers Association v. Texas Municipal Power Agency. 565 258 (Tex.Civ.App. 1978) writ dismissed and State of Texas v. Texas Municipal Power Agency, cause number 22,936, in the 12th Judicial District Court, Grimes County, Texas; and the judgment in each case has become ?nal. 5. Attached to this General Certi?cate as Exhibit A hereto is a true and complete copy of the Rules and Regulations of the Agency and (ii) as Exhibit hereto is a true and complete copy of the General Policy of the Agency, which Rules and Regulations and General Policy are in full force and effect on the date hereof. 6. The Power Sales Contract, as amended, remains in full force and effect on the date hereof. The validity of the Power Sales Contract has been upheld in the case styled Ex Parte: Texas Municipal Power Agency. Cause No. 97?0737}; in the 345th Judicial District Court of Travis County, Texas, in a judgment dated November 5, 1997, which judgment has become ?nal and non-appealable. 7. The senior lien Revenue Bond debt of the Agency has a rating of A2 by Moody?s, a rating of by Standard Poor?s, and a rating of AA- by Fitch. Such ratings have been the same at all times since September 30," 2015. The subordinate lien Revenue Bond debt of the Agency has a rating of A2 by Moody?s, a rating of by Standard Poor?s, and a rating of by Fitch. 8. The balance sheet of the Agency as at September 30, 2015, and the related statements of income and retained earnings of the Agency for the ?scal year then ended, copies of which have been furnished to the Bank, fairly present the ?nancial condition of the Agency as at such date and the results of the operations of the Agency for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied, and since September 30, 2015, there has been no material adverse change in such ?nancial condition or operations. 9. In executing each Application for Amendment to Letter of Credit, I am exercising my authority as General Manager granted to me pursuant to the Rules and Regulations of the Agency, attached hereto as Exhibit A. 10. The following are the duly quali?ed and acting members and of?cers of the Board of Directors of the Agency: RATLIF PRESIDENT DAVID DREILING VICE PRESIDENT DAVID BAIRRINGTON SECRETARY-TREASURER KEAN REGISTER DIRECTOR TOM JEFFERIES DIRECTOR CHRIS WATTS DIRECTOR BILL CHEEK, JR. DIRECTOR SUE ANN HARTING DIRECTOR and Tracy Stracener is an Assistant Secretary to the Board of Directors. 1 1. The following are the duly quali?ed and acting of?cials of the Agency: BOB KAHN GENERAL MANAGER TRACY STRACENER ASSISTANT SECRETARY TO THE BOARD OF DIRECTORS 12. Under Article IV, Section 7 of the Rules and Regulations of the Agency, the General Manager has been designated by the Agency?s Board of Directors as the Agency?s agent for service of process in this state.