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HomeMy WebLinkAbout2014 - 27245 LBWL Lansing Board of Water and Light 0614 Final Hometown People. Hometown Power. Board of Water and Light - City of Lansing, Michigan Financial Report with Additional Information June 30, 2014 Board of Water and Light - City of Lansing, Michigan Contents Report Letter 1-2 Management's Discussion and Analysis 3-5 Basic Financial Statements Statement of Net Position 6-7 Statement of Revenues, Expenses, and Changes in Net Position 8 Statement of Cash Flows 9-10 Pension Trust Funds - Statement of Net Position I I Pension Trust Funds - Statement of Changes in Net Position 12 Notes to Financial Statements 13-50 Required Supplemental Information 51 Defined Benefit Plan Schedule 52 Retiree Benefit Plan and Trust Schedule 53 Additional Information 54 Income Available for Revenue Bond Debt Retirement 55 Detail of Statement of Revenues and Expenses 56-57 Detail of Statement of Changes in Net Position 58 Pension Trust Funds - Detail of Statement of Net Position 59 Pension Trust Funds - Detail of Statement of Changes in Net Position 60-61 Independent Auditor's Report To the Honorable Mayor, Members of the City Council, and Commissioners of the Board of Water and Light City of Lansing, Michigan Report on the Financial Statements We have audited the accompanying financial statements of the Enterprise Fund and Pension Fiduciary Funds of the Board of Water and Light - City of Lansing, Michigan (the "BWL") as of and for the years ended June 30, 2014 and 2013, and the related notes to the financial statements, which collectively comprise the BWL's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.Accordingly,we express no such opinion.An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Enterprise Fund and Pension Fiduciary Funds of the BWL as of June 30, 2014 and 2013 and the respective changes in its financial position and cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America. I To the Honorable Mayor, Members of the City Council, and Commissioners of the Board of Water and Light City of Lansing, Michigan Emphasis of Matter As discussed in Note 16 to the financial statements, in 2014, Plan adopted GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, and GASB Statement No. 67, Financial Reporting for Pension Plans. Our opinion is not modified with respect to this matter. Other Matters Required Supplemental Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, defined benefit plan schedule, and retiree benefit plan and trust schedule, as identified on the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, which considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplemental information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the BWL's basic financial statements. The accompanying additional information, as identified in the table of contents, is presented for the purpose of additional analysis and is not a required part of the basic financial statements. The additional information, as identified in the table of contents, is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the additional information, as identified in the table of contents, is fairly stated in all material respects in relation to the basic financial statements as a whole. ti 2t�, P L L C. September 4, 2014 2 Board of Water and Light - City of Lansing, Michigan Management's Discussion and Analysis This section explains the general financial condition and results of operations for the Lansing Board of Water and Light (the "BWL"). The BWL includes the consolidated operations of the electric, water, steam, and chilled water utilities. The notes to financial statements following this section are essential reading for a complete understanding of the financial and operational results for fiscal year 2014. Overview of Business The BWL owns and operates an electric system which generates, purchases, and distributes electric power and energy and provides electric service to over 95,000 residential, commercial, and industrial customers in the greater Lansing area. The BWL generated 64 percent of its retail and wholesale sales from existing generation assets and purchased additional electric generation through its participation in the MISO markets, membership in the Michigan Public Power Agency, which includes the BWL's partial ownership of Detroit Edison's Belle River Plant, and through its landfill gas renewable energy purchase agreement with Granger Electric of Lansing. The BWL owns and operates water wells, a raw water transmission system, water conditioning facilities, and an extensive water distribution system serving potable water to over 55,000 residential, commercial, and industrial customers in the greater Lansing area. The BWL owns and operates steam generation boilers, a steam transmission and distribution system serving over 162 customers, and a chilled water facility and distribution piping system serving 16 customers in the City of Lansing. Capital Expenditures Capital expenditures are driven by the need to replace, expand, or maintain the generation, transmission, and distribution systems of the BWL to meet customer utility needs and to maintain a satisfactory level of service reliability. The BWL invests essentially all revenues not paid out for operations and maintenance expense, nonoperating expenses, or debt service back into capital improvements for the water, electric, steam, and chilled water systems. Gross capital expenditures were $59.1 and $133.0 million in fiscal years 2014 and 2013, respectively. The BWL generally pays the major portion of the cost of its capital improvements from internally generated funds and a lesser portion from the proceeds of revenue bonds that are issued from time to time. Detailed financial information for the separate utilities of water, electric, steam, and chilled water can be found in the additional information section beginning on page 51. 3 Board of Water and Light - City of Lansing, Michigan Management's Discussion and Analysis (Continued) Condensed Financial Information (dollars in millions) June 30 %Change 2014 2013 2012 2013 to 2014 Assets Utility plant $ 699.3 $ 684.1 $ 607.1 2.2 Other assets 349.6 372.9 443.6 (6.2) Total assets 1,048.9 1,057.0 1,050.7 (0.8) Deferred Outflows of Resources 1.2 1.7 1.6 (29.4) Liabilities Long-term liabilities 383.2 403.4 423.5 (5.0) Other liabilities 69.5 71.4 65.1 (2.7) Total liabilities 452.7 474.8 488.6 (4.7) Deferred Inflows of Resources 18.9 8.1 6.6 133.3 Net Position Net investment in capital assets 342.7 342.1 352.7 0.2 Restricted for debt service 76.0 69.7 71.5 9.0 Unrestricted 159.8 163.9 132.9 (2.5) Net position $ 578.5 $ 575.7 $ 557.1 0.5 Utility plant increased by $48 million due to normal construction; however, this was offset by depreciation, thus net plant only increased by$14 million. The BWL's REO Town Headquarters and natural gas cogeneration plant went into commercial operations on July 1, 2013. This $182 million project was completed on schedule and on budget. The facility also helped the BWL conform to its Corporate Sustainability Policy as it received its Gold LEED certification. The BWL was also awarded the American Public Power Association's Energy Innovator Award for the REO Town Cogeneration facility. This facility is among the cleanest and most efficient to operate in the United States. Other assets decreased by $23 million. The decrease is largely attributable to the disbursement of revenue bond funds during the year to pay for costs associated with construction of the combined-cycle cogeneration plant. The decrease in other assets due to construction spending was partially offset by cash flows generated from operations. 4 Board of Water and Light - City of Lansing, Michigan Management's Discussion and Analysis (Continued) Condensed Financial Information (dollars in millions) (Continued) Year Ended June 30 %Change 2014 2013 2012 2013 to 2014 Results of Operations Operating revenues $ 348.0 $ 331.7 $ 320.1 4.9 Operating expenses 306.8 295.7 286.6 3.8 Nonoperating expense- Net (38.4) (17.3) (11.0 (122.0) Changes in Net Position $ 2.8 $ 18.7 $ 22.5 (85.0) Operating revenues increased over last year's due to higher wholesale sales. Operating expenses increased by $1 1 million from fiscal year 2013 primarily as a result of higher fuel costs associated with electric and steam generation and costs associated to the ice storm that took place in December 2013. Budget - The BWL commissioners approved a $268.8 million operating expense budget (excluding depreciation and impairment) for fiscal year 2014. Actual expenses (excluding depreciation) were $267.8 million or .41 percent less than budget. The net capital improvement budget was $84 million for fiscal year 2014 and actual net capital expenditures were approximately$56.8 million. Financing Activities - During fiscal year 2014, there were no significant financing activities. Other Significant Items - The BWL was recognized by the American Public Power Association with a Reliable Public Power Provider (RP3) Diamond Status designation. The APPA Diamond Status demonstrates the BWL's dedication to providing safe and reliable electric service to our customers. 5 Board of Water and Light - City of Lansing, Michigan Statement of Net Position June 30 2014 2013 Assets Current Assets Restricted cash and cash equivalents (Notes 4 and 1 1) $ 51,773,756 $ 45,456,683 Cash and cash equivalents(Notes 4 and 1 1) 51,545,956 51,922,898 Investments(Notes I and 1 1) 91,030,822 77,555,125 Accounts receivable- Net(Note 1) 23,602,383 21,749,752 Estimated unbilled accounts receivable(Note 1) 17,157,806 16,095,243 Inventories (Note 1) 23,474,266 22,745,993 Other 3,617,737 1,437,259 Total current assets 262,202,726 236,962,953 Other Assets Recoverable energy asset(Note 6) 2,797,695 10,554,421 Recoverable revenue of Central Utilities Complex(Note 6) (4,255,372) (1,684,590) Recoverable environmental remediation (Note 6) 23,626,611 28,971,996 Special deposit 14,225,000 14,225,000 Other 4,220,485 4,155,712 Total other assets 40,614,419 56,222,539 Noncurrent Restricted Assets (Investments) (Notes 4 and 1 1) 46,828,045 79,685,578 Utility Plant (Note 1) Water 288,627,287 263,328,526 Electric 773,262,520 758,023,493 Steam 64,685,056 61,507,777 Chilled water 32,917,461 32,798,019 Common facilities 75,026,577 70,715,557 Central Utilities Complex 76,079,000 76,079,000 Total 1,310,597,901 1,262,452,372 Less accumulated depreciation 624,749,511 591,349,081 Net 685,848,390 671,103,291 Construction in progress(Note 3) 13,439,221 12,975,857 Total utility plant 699,287,611 684,079,148 Total assets 1,048,932,801 1,056,950,218 Deferred Outflows of Resources- Bond refunding loss being amortized 1,228,706 1,699,745 See Notes to Financial Statements. 6 Board of Water and Light - City of Lansing, Michigan Statement of Net Position (Continued) June 30 2014 2013 Liabilities and Net Position Current Liabilities Accounts payable $ 32,120,138 $ 35,435,303 Current portion of long-term debt(Note 5) 17,824,253 17,180,543 Accrued payroll and related taxes 3,725,544 3,300,986 Customer deposits 2,674,858 2,373,334 Accrued compensated absences(Note 1) 3,916,658 3,797,080 Accrued interest 9,261,217 9,307,268 Total current liabilities 69,522,668 71,394,514 Compensated Absences-Less current portion (Note 1) 7,182,984 7,170,015 Other Long-term Liabilities Workers'compensation 2,000,000 2,000,000 Environmental remediation liability(Note 9) 10,356,249 11,288,468 Other 2,327,615 2,696,072 Total other long-term liabilities 14,683,864 15,984,540 Long-term Debt- Less current portion(Note 5) 361,310,213 380,247,920 Total liabilities 452,699,729 474,796,989 Deferred Inflows of Resources- Regulated operations- Revenue intended to cover future costs(Note 6) 18,944,163 8,127,886 Net Position Net investment in capital assets 342,717,240 342,072,313 Restricted for debt service(Note 4) 76,037,706 69,720,633 Unrestricted 159,762,669 163,932,142 Total net position $ 578,517,615 $ 575,725,088 See Notes to Financial Statements. 7 Board of Water and Light - City of Lansing, Michigan Statement of Revenues, Expenses, and Changes in Net Position Year Ended June 30 2014 2013 Operating Revenues (Note 1) Water $ 37,246,939 $ 37,444,107 Electric 289,154,465 277,157,446 Steam 16,324,128 12,029,340 Chilled water 5,397,411 5,139,836 Total operating revenues 348,122,943 331,770,729 Operating Expenses Production: Fuel, purchased power, and other operating expenses 165,199,058 158,093,248 Maintenance 17,045,140 18,584,274 Transmission and distribution: Operating expenses 1 1,829,786 6,835,706 Maintenance 1 1,262,716 8,81 1,048 Administrative and general 62,484,318 65,095,731 Depreciation and impairment (Note 1) 38,997,186 38,297,875 Total operating expenses 306,818,204 295,717,882 Operating Income 41,304,739 36,052,847 Nonoperating Income (Expenses) Investment income 1,866,462 1,094,077 Other (expense) income (5,974,385) 1,676,960 System capacity fee 9,222,989 9,221,651 Bonded debt interest expense (15,334,915) (5,998,530) Amortization - Central Utilities Complex (7,642,715) (7,247,715) Return on equity (Note 7) (20,608,093) (16,120,694) Other interest expense (41,555) (20,908) Total nonoperating expenses - Net (38,512,212) (17,395,159) Net Income (Changes in Net Position) 2,792,527 18,657,688 Net Position - Beginning of year -As restated (Note 16) 575,725,088 557,067,400 Net Position - End of year $ 578,517,615 $ 575,725,088 See Notes to Financial Statements. 8 Board of Water and Light - City of Lansing, Michigan Statement of Cash Flows Year Ended June 30 2014 2013 Cash Flows from Operating Activities Cash from customers: Water $ 37,669,771 $ 37,998,434 Electric 296,772,164 268,056,697 Steam 14,041,374 13,358,109 Chilled water 4,960,008 4,405,844 Total cash from customers 353,443,317 323,819,084 Cash paid to suppliers: Suppliers of coal,freight,and purchased power (134,722,274) (129,845,471) Other suppliers (85,526,501) (70,529,633) Total cash paid to suppliers (220,248,775) (200,375,104) Cash paid to employees (51,598,018) (48,938,729) Return on equity(Note 7) (20,608,093) (16,120,694) Cash from customer deposits 301,524 186,526 Interest on customer deposits (41,555) (20,908) Net cash provided by operating activities 61,248,400 58,550,175 Cash Flows from Capital and Related Financing Activities Proceeds from new borrowings 208,084 26,137,817 Planned, bonded, and annual construction (59,277,580) (120,345,859) Principal payments on debt (18,031,042) (43,485,322) System capacity fees 9,222,989 9,221,651 Interest on debt (15,380,966) (6,041,299) Net cash used in capital and related financing activities (83,258,515) (134,513,012) Cash Flows from Noncapital Financing Activities Proceeds from the sale of emissions allowances 25,826 1,365 Proceeds from the Belle River Project and other 6,676,122 1,168,346 Net cash provided by noncapital financing activities 6,701,948 1,169,711 Cash Flows from Investing Activities Proceeds from the sale and maturity of investments 160,1 16,297 240,558,194 Interest received 3,696,174 3,817,729 Purchase of investments (142,564,173) (164,278,663) Net cash provided by investing activities 21,248,298 80,097,260 Net Increase in Cash and Cash Equivalents 5,940,131 5,304,134 Cash and Cash Equivalents - Beginning of year 97,379,581 92,075,447 Cash and Cash Equivalents - End of year $ 103,319,712 $ 97,379,581 See Notes to Financial Statements. 9 Board of Water and Light - City of Lansing, Michigan Statement of Cash Flows (Continued) Year Ended June 30 2014 2013 Balance Sheet Classifications Restricted cash and cash equivalents $ 51,773,756 $ 45,456,683 Cash and cash equivalents 51,545,956 51,922,898 Cash and Cash Equivalents- End of year $ 103,319,712 $ 97,379,581 Reconciliation of Operating Income to Net Cash from Operating Activities: Year Ended June 30 2014 2013 Operating income $ 41,304,739 $ 36,052,847 Adjustments to reconcile operating income to net cash from operating activities: Payment in lieu of taxes(Note 7) (20,608,093) (16,120,694) Depreciation and impairment 38,997,186 38,297,875 Sewerage collection fees 977,373 893,905 Interest on customer deposits (41,555) (20,908) Decrease(increase) in assets: Accounts receivable(Note 1) (276,896) (31,487) Unbilled accounts receivable(Note 1) (1,062,563) 197,959 Inventories (728,273) 4,396,806 Customer deposits 301,524 186,526 Special deposit - (1,600,000) Other 5,51 1,475 (9,224,299) (Decrease) increase in liabilities: Accounts payable and other accrued expenses (2,771,029) 5,817,264 Other (355,488) (295,619) Total adjustments 19,943,661 22,497,328 Net cash provided by operating activities $ 61,248,400 $ 58,550,175 See Notes to Financial Statements. 10 Board of Water and Light - City of Lansing, Michigan Pension Trust Funds - Statement of Net Position June 30 2014 2013 Assets Receivable- Investment interest receivable $ 331,781 $ 299,604 Investments at fair value: Money market collective trust fund 8,904,375 11,708,441 U.S.government obligations 23,639,025 21,320,442 Corporate bonds and notes 32,558,775 31,490,049 Mutual funds 133,962,556 113,004,660 Stable value 33,607,203 32,243,585 Equities 165,310,705 136,587,441 Current liability (13,000) - Self-directed brokerage account 1,147,041 859,599 Participant notes receivable 4,082,709 3,909,080 Total investments 403,199,389 351,123,297 Net Position - Held in trust for pension and other employee benefits $ 403,531,170 $ 351,422,901 See Notes to Financial Statements. I I Board of Water and Light - City of Lansing, Michigan Pension Trust Funds - Statement of Changes in Net Position Year Ended June 30 2014 2013 Increases Investment income: Net appreciation in fair value of investments $ 53,252,318 $ 34,227,455 Interest and dividend income 10,1 12,195 7,689,588 Net investment income 63,364,513 41,917,043 Employer contributions 14,734,353 19,539,305 Participant rollover contributions 1,053,879 2,395,693 Other 270,989 249,450 Total increases 79,423,734 64,101,491 Decreases Benefits paid to participants 25,452,920 26,398,589 Loan defaults 119,694 120,280 Participants' note and administrative fees 1,742,851 1,418,106 Total decreases 27,315,465 27,936,975 Net Increase in Net Position Held in Trust 52,108,269 36,164,516 Net Position Held in Trust for Pension and Other Employee Benefits Beginning of year 351,422,901 315,258,385 End of year $ 403,531,170 $ 351,422,901 See Notes to Financial Statements. 12 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I - Significant Accounting Policies The following is a summary of the significant accounting policies used by the Board of Water and Light (the "BWL"): Reporting Entity - The BWL, a related organization of the City of Lansing, Michigan (the "City"), is an administrative board established by the City Charter. The City Charter grants the BWL full and exclusive management of the electric, water, steam, and chilled water services of the City. The commissioners of the governing board are appointed by the mayor with approval of the City Council. The BWL provides water, steam, chilled water, and electric services to the City and surrounding townships. The governing board (Board of Commissioners) has the exclusive authority to set rates for the services provided. The financial statements include the financial activities of the electric, water, steam, and chilled water operations of the BWL. The financial statements also include the financial activities of the BWL Pension Trust Funds. The BWL is exempt from taxes on income because it is a municipal entity. Fund Accounting - The BWL accounts for its activities in two different fund types, in order to demonstrate accountability for how we have spent certain resources - separate funds allow us to show the particular expenditures that specific revenues were used for. The funds are aggregated into two fund types: Proprietary fund includes the enterprise fund (which provides goods or services to users in exchange for charges or fees). Fiduciary funds • The Defined Contribution Plan and Defined Benefit Plan, which accumulate resources for benefit payments to retirees • The VEBA, which accumulates resources for future retiree health care payments to retirees Basis of Accounting - Proprietary funds and fiduciary funds use the economic resources measurement focus and the full accrual basis of accounting. Revenue is recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. In addition, the utilities meet the criteria and, accordingly, on July 1, 2012, the BWL adopted the accounting and reporting requirements of GASB 62, paragraphs 476-500. 13 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I - Significant Accounting Policies (Continued The BWL follows the accounting and reporting requirements of GASB 62, paragraphs 476-500, which require that the effects of the ratemaking process be recorded in the financial statements. Such effects primarily concern the time at which various items enter into the determination of net income in order to follow the principle of matching costs and revenues. Accordingly, the BWL records various regulatory assets and liabilities to reflect the regulator's actions (see Note 6). Management believes that the BWL meets the criteria for continued application of GASB 62 paragraphs 476-500, but will continue to evaluate its applicability based on changes in the regulatory and competitive environment. System of Accounts - The BWL's accounts are maintained substantially in accordance with the Uniform Systems of Accounts of the Federal Energy Regulatory Commission for its electric and steam systems and in accordance with the Uniform Systems of Accounts of the National Association of Regulatory Utility Commissioners for the water and chilled water systems. The chart of accounts dictates how the BWL classifies revenue and expense items in the statement of revenues, expenses, and changes in net assets as operating and nonoperating. Operating Classification - Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the principal ongoing operations. The principal operating revenues are charges to customers for sales and services. Operating expenses include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Report Presentation - This report includes the fund-based statements of the BWL. In accordance with government accounting principles, a government-wide presentation with program and general revenues is not applicable to special purpose governments engaged only in business-type activities. Specific Balances and Transactions Cash and Cash Equivalents - The BWL considers demand deposits and current restricted funds, which consist of cash and highly liquid investments with an original maturity of 90 days or less, as cash and cash equivalents for financial statement purposes. 14 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I - Significant Accounting Policies (Continued) Investments - The BWL has established special purpose funds designated to meet anticipated operating requirements. In addition, BWL management has established a future construction fund designated to meet future construction requirements. These funds consist principally of commercial paper and United States government securities and are segregated as follows: Carrying Value 2014 2013 Designated purpose: Coal inventory fluctuation $ 4,529,062 $ 4,456,466 Litigation, environmental, and uninsured losses 18,306,887 18,013,360 Future water facilities 3,688,651 3,629,487 Subtotal 26,524,600 26,099,313 Special purpose - Future construction 64,188,452 51,763,674 Total $ 90,713,052 $ 77,862,987 Accounts Receivable - Accounts receivable are stated at net invoice amounts. A general valuation allowance is established based on an analysis of the aged receivables and historical loss experience. All amounts deemed to be uncollectible are charged to expense in the period that determination is made. Accounts receivable are not deemed uncollectible until they are approximately 270 days past due and have remained completely unpaid throughout the BWL's collection policy. The components of accounts receivable for 2014 and 2013 are as follows: 15 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I - Significant Accounting Policies (Continued 2014 2013 Customer receivables $ 20,102,775 $ 19,325,882 Sewerage collections 2,545,497 2,412,270 Combined sewer overflow - City of Lansing (944,583) (944,583) Miscellaneous 3,898,694 2,456,183 Less allowance for doubtful accounts (2,000,000) (1,500,000) Net $ 23,602,383 $ 21,749,752 Special Deposit - The BWL contracted with Consumer's Energy to install a new gas pipeline. The BWL funded construction of this pipeline and incurred $15,900,000. The BWL will subsequently be reimbursed for all but $1,675,000 of those costs provided minimum consumption requirements are met over the subsequent five-year period. The remaining $14,225,000 has been recorded as a long-term other asset which is anticipated to be refunded over the next five years based on current projections indicating that actual consumption will be much larger than minimum requirements. Inventories - Inventories are stated at weighted average cost and consist of the following at June 30: 2014 2013 Coal $ 8,234,376 $ 10,521,548 Gas 1,162,717 437,276 Materials and supplies 14,077,173 11,787,169 Total $ 23,474,266 $ 22,745,993 Utility Plant - The utility plant is stated on the basis of cost, which includes expenditures for new facilities and those which extend the useful lives of existing facilities and equipment. Expenditures for normal repairs and maintenance are charged to maintenance expense as incurred. Depreciation of the utility plant is computed using the straight-line method based on estimated useful lives, except for depreciation related to the Central Utilities Complex, which is computed in accordance with GASB 62 paragraphs 476-500. The resulting provisions for depreciation in 2014 and 2013, expressed as a percentage of the average depreciable cost of the related assets, are as follows: 16 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I - Significant Accounting Policies (Continued) Average Rate (Percent) Life (Years) 2014 2013 Classification of utility plant: Water 4-100 1.9 1.9 Electric 4-50 3.5 2.6 Steam 5-50 3.3 1.4 Chilled water 5-50 3.5 3.5 Common facilities 4-50 5.7 4.8 Central Utilities Complex 15 6.7 6.7 When units of property are retired, their costs are removed from the utility plant and charged to accumulated depreciation. The tables below reflect the capital asset activity of the utility plant categories for the years ended June 30, 2014 and 2013: Capital Asset Activity for Year Ended June 30,2014 Capital Assets Capital Assets FY Start Transfers Acquisition Retirement FY End Water $ 263,328,526 $ (1,348) $ 27,554,400 $ (2,254,291) $ 288,627,287 Electric 758,023,493 (6,830,315) 27,644,816 (5,575,474) 773,262,520 Steam 61,507,777 (1,653,867) 5,302,400 (471,254) 64,685,056 Chilled 32,798,019 - 119,442 - 32,917,461 Common 70,715,557 8,485,530 4,784,103 (8,958,613) 75,026,577 CUC 76,079,000 - - - 76,079,000 Total $ 1,262,452,372 $ - $ 65,405,161 $ (17,259,632) $ 1,310,597,901 Accumulated Depreciation for Year Ended June 30,2014 Deprc./Amort. Accum.Deprc. Depreciation and Impairment Depreciation Accum. Deprc. FY Start Transfer for Year Retirement FY End Water $ (81,568,989) $ (460) $ (5,154,328) $ 1,739,165 $ (84,984,612) Electric (398,329,070) (1,599) (26,428,251) 4,284,173 (420,474,747) Steam (10,489,756) 14,807 (2,092,601) 15,708 (12,551,842) Chilled (6,751,047) - (1,136,593) - (7,887,640) Common (38,418,953) (12,748) (4,185,413) 4,629,643 (37,987,471) CUC (55,791,266) - (5,071,933) - (60,863,199) Total $ (591,349,081) $ - $ (44,069,1 19) $ 10,668,689 $ (624,749,511) 17 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I - Significant Accounting Policies (Continued Capital Asset Activity for Year Ended June 30,2013 Capital Assets Capital Assets FY Start Transfers Acquisition Retirement FY End Water $ 256,836,079 $ - $ 8,1 19,310 $ (1,626,863) $ 263,328,526 Electric 651,857,854 63,584,1 10 96,213,133 (53,631,604) 758,023,493 Steam 46,152,972 11,458,595 16,788,641 (12,892,431) 61,507,777 Chilled 32,733,046 - 64,973 - 32,798,019 Common 66,654,196 (75,042,705) 87,229,497 (8,125,431) 70,715,557 CUC 76,079,000 - - 76,079,000 Total $ 1,130,313,147 $ $ 208,415,554 $ (76,276,329) $ 1,262,452,372 Accumulated Depreciation for Year Ended June 30,2013 Accum. Deprc. Depreciation Deprc./Amort. Depreciation Accum. Deprc. FY Start Transfer for Year Retirement FY End Water $ (77,917,659) $ - $ (4,939,545) $ 1,288,215 $ (81,568,989) Electric (421,192,359) (2,698,365) (27,337,107) 52,898,761 (398,329,070) Steam (24,528,042) 2,698,365 (1,502,446) 12,842,367 (10,489,756) Chilled (5,618,264) - (1,132,783) - (6,751,047) Common (42,814,977) - (3,404,044) 7,800,068 (38,418,953) CUC (50,719,333) - (5,071,933) (55,791,266) Total $ (622,790,634) $ - $ (43,387,858) $ 74,829,411 $ (591,349,081) Accrued Compensated Absences - The BWL records a liability for estimated compensated absences that are attributable to services already rendered and that are not contingent on a specific event that is outside the control of the BWL and its employees. This liability is accrued as employees earn the rights to such benefits. The BWL estimates the total current and noncurrent portions of the liability to be $1 1,099,642 and $10,967,095 as of June 30, 2014 and 2013, respectively. Capital Contributions - Capital contributions represent nonrefundable amounts received for the purpose of construction for the utility plant. These contributions are from third parties, including amounts from customers, grant programs, and insurance proceeds from damage. Electric, water, and steam contributions are credited against the related assets or recorded as a separate regulatory liability and will offset the depreciation of the related assets over the estimated useful lives. This treatment is consistent with the BWL's ratemaking policy and is thus permitted under GASB 62 paragraphs 476-500. 18 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I - Significant Accounting Policies (Continued) Deferred Outflows/Inflows of Resources - In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expense/expenditure) until then. The BWL has one item that qualifies for reporting in this category. The deferred outflows of resources relates to deferred losses on refunding. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period and so will not be recognized as an inflow of resources (revenue) until that time. The BWL has the following items that qualify for reporting in this category: the deferred inflows of resources related to costs that have been incurred and will be billed to customers in the future related to the renewable energy plan and energy optimization, chiller plant, and Wise Road items described in Note 6. Net Position - Equity is classified as net position and displayed in three components: • Net Investment in Capital Assets (net of related debt) - Consists of capital assets, net of accumulated depreciation, and reduced by the outstanding balances of any bonds that are attributable to the acquisition, construction, or improvement of those assets. • Restricted for Debt Service - Consists of net position with constraints placed on their use by revenue bond resolution. • Unrestricted - All other net position that does not meet the definition of "restricted" or "net investment in capital assets." Net Position Flow Assumption - Sometimes the BWL will fund outlays for a particular purpose from both restricted (e.g., restricted bond) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the BWL's policy to consider restricted net position to have been depleted before unrestricted net position is applied. 19 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I - Significant Accounting Policies (Continued) Unbilled Accounts Receivable and Revenue - Unbilled accounts receivable at June 30, 2014 and 2013 represents the estimated amount of accounts receivable for services that have not been billed as of the balance sheet date. The amounts are a result of a timing difference between the end of the financial statement cycle (month end) and the billing cycle (various dates within the month for each billing period). Accordingly, the current year revenue from customers whose billing period ends after June 30 for services rendered prior to June 30 will be recognized in the current period. Interutility Transactions - The water, electric, steam, and chilled water operations of the BWL bill each other for services provided and these services are reported as revenue to the generating operation and expense to the consuming operation. Such internal billings aggregated $9,037,781 and $8,036, 147 in 2014 and 2013, respectively, and are not eliminated in the statement of revenues, expenses, and changes in net assets. Emissions Allowance - The Environmental Protection Agency has granted emission allowances to the BWL related to the emission of certain pollutants. No amounts are recorded at the date of the grant. The BWL estimates the allowances needed for future years. As appropriate, the BWL may purchase additional allowances or sell the estimated future excess allowances. The purchase and sale of allowances by emission type are accounted for separately and are not offset against transactions involving allowances of different emission types. Purchased allowances net of proceeds from the sale of related allowances are recorded as an asset and will be expensed during the applicable period. Proceeds from the sale of allowances are recognized as income at the time of sale. The BWL recognized a gain of $25,826 and $1,365 as of June 30, 2014 and 2013, respectively, from the sale of allowances and has recorded an intangible asset of$0 as of June 30, 2014 and 2013 for purchased allowances related to future periods. Significant Customers - The BWL has one customer which accounts for approximately 9 percent of the BWL's total revenue for the years ended June 30, 2014 and 2013. 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. 20 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I - Significant Accounting Policies (Continued) Reclassifications - Certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year's presentation. See Note 16 for further information. Note 2 - Rate Matters Rates charged to customers are established solely by the governing board. The BWL has agreed to set rates sufficient to meet certain requirements of the bond resolutions for the outstanding revenue bonds. Note 3 - Construction in Progress Construction in progress consists of projects for expansion or additions to the utility plant. The estimated additional cost to complete various projects is approximately $52,122,000 and $27,765,000 at June 30, 2014 and 2013, respectively, including commitments on existing construction contracts approximating $19,257,000 and $2,541,000 at June 30, 2014 and 2013, respectively. These projects will be funded through operational cash flow, including the project funds reported as other assets. There are additional commitments on projects in the process of being constructed that are not included above. Refer to Note 9 for these commitments. 21 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 4 - Restricted Assets Restricted assets are required under the 2002B, 2003A, 2005A, 2008A, 2011 A, 2012A, and 2013A Revenue Bond resolutions and the related Nonarbitrage and Tax Compliance Certificates. These assets, which consist of cash, commercial paper, and United States government securities, are segregated into the following funds: Carrying Value Required at June 30, 2014 2014 2013 Current: Operations and Maintenance Fund $ 28,714,000 $ 80,126,021 $ 74,999,639 Bond and Interest Redemption Fund 23,059,756 23,193,691 22,379,942 Total current 51,773,756 103,319,712 97,379,581 Noncurrent: 201 IA Construction Fund 22,564,095 22,564,095 55,421,628 Bond Reserve Fund 24,263,950 24,263,950 24,263,950 Total noncurrent 46,828,045 46,828,045 79,685,578 Total $ 98,601,801 $ 150,147,757 $ 177,065,159 The carrying value in excess of the required value for the current portion is reported as cash and cash equivalents or investments for the year ended June 30, 2014. The restrictions of the various funds are as follows: • Operations and Maintenance Fund - By the end of each month, this fund shall include sufficient funds to provide for payment of the succeeding month's expenses. • Bond and Interest Redemption Fund - Restricted for payment of the current portion of bond principal and interest on the 2002B, 2003A, 2005A, 2008A, 2009A, 201 IA, 2012A, and 2013A Revenue Bonds. • 2011 A Construction Fund - Restricted for payment of costs of the bonded projects and costs of issuance of the bonds. • Bond Reserve Fund - Shall include sufficient funds to cover the maximum annual principal and interest requirements of the 2002B, 2003A, 2005A, 2008A, 201 IA, 2012A, and 2013A Revenue Bonds. The Nonarbitrage and Tax Compliance Certification stipulates that the amount in the fund shall be valued at amortized cost to meet this requirement. As of June 30, 2014, the cost basis in the fund was $24,581,720. 22 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 5 - Long-term Debt Long-term debt as of June 30 consists of the following: 2014 2013 Water Supply, Steam, Chilled Water, and Electric Utility System Revenue Bond, Series 2013A, due in annual principal installments beginning July 1, 2013 through July 1, 2026, plus interest at rates ranging from 2.00%to 5.00% $ 21,085,000 $ 21,085,000 Water Supply, Steam, Chilled Water, and Electric Utility System Revenue Bond, Series 2012A, due in annual principal installments beginning July 1, 2013 through July 1, 2018, plus interest at rates ranging from 2.00%to 5.00% 16,960,000 17,370,000 Water Supply, Steam, Chilled Water, and Electric Utility System Revenue Bond, Series 201 IA, due in annual principal installments beginning July 1, 2015 through July 1, 2041, plus interest at rates ranging from 3.00%to 5.50% 250,000,000 250,000,000 Water Supply, Steam, Chilled Water, and Electric Utility System Revenue Bond, Series 2009A, due in annual principal installments due serially through July 1, 2016, plus interest at a rate of 5.34% 18,985,000 26,360,000 Water Supply Utility System Revenue Bonds, Series 2008A, due serially beginning July 1, 2012 and continuing through July 1, 2032, plus interest at rates ranging from 3.00% to 5.00% 39,990,000 39,995,000 Water Supply, Steam, and Electric Utility System Revenue Bonds, Series 2005A, due serially beginning July 1, 2011 and continuing through July 1, 2014, plus interest at rates ranging from 4.00%to 5.00% 5,520,000 8,240,000 Water Supply, Steam, and Electric Utility System Revenue Bonds, Series 2003A, due serially through July 1, 2026, plus interest at rates ranging from 4.00%to 5.00% - 465,000 23 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 5 - Long-term Debt (Continued 2014 2013 Water Supply, Steam, and Electric Utility System Revenue Refunding Bonds, Series 2002B, due serially through July 1, 2013, plus interest at rates ranging from 3.50%to 3.75% $ - $ 2,410,000 Promissory note, due to the City of Lansing in semi-annual installments through October 1, 2024, plus interest at a rate of 2.50% 10,173,301 10,784,894 Promissory note, due in monthly installments of$25,177.37 including interest at 4.85%, with final payment on December 31, 2013 - 148,950 Township contract water service obligation with interest due semiannually at 6.00% and portions of principal due annually, with final payment in May 2015 40,000 75,000 Granger III Corporation for ash hauling services due in monthly installments ranging from $150,000 to$250,000 4,650,712 7,472,628 City of Lansing Agreement for the Enhancement of the Flood warning system $10,000 annually with final payment in 2016. 20,000 - Total 367,424,013 384,406,472 Less current portion (17,824,253) (17,180,543) Plus current portion of premium on bonds 966,576 1,077,185 Plus unamortized premium 10,743,877 11,944,806 Total long-term portion $ 361,310,213 $ 380,247,920 The fair value of the long-term debt based on the quoted market prices for similar issues for debt of the same remaining maturities is estimated to be $423,049,941 and $41 1,284,231 at June 30, 2014 and 2013, respectively. The unamortized premium and deferral on refunded bonds is being amortized over the life of the bonds, using the effective-interest method. 24 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 5 - Long-term Debt (Continued) Aggregate principal and interest payments applicable to long-term debt are as follows: Principal Interest Total 2015 $ 17,824,253 $ 17,636,333 $ 35,460,586 2016 13,299,345 16,875,993 30,175,338 2017 11,523,300 16,224,949 27,748,249 2018 8,860,005 15,765,701 24,625,706 2019 9,244,935 15,491,004 24,735,939 2020-2024 42,101,433 73,004,662 1 15,106,095 2025-2029 53,034,691 62,21 1,940 1 15,246,631 2030-2034 66,21 1,051 48,162,503 1 14,373,554 2035-2039 83,750,000 30,364,750 1 14,1 14,750 2040-2042 61,575,000 6,894,250 68,469,250 Total $ 367,424,013 $ 302,632,085 $ 670,056,098 The 2002B, 2003A, 2005A, 2008A, 201 IA, 2012A, and 2013A bonds require the BWL to establish a reserve account equal to the highest annual principal and interest requirements of such issues. As of June 30, 2014, the balance of this reserve account was $24,581,720 (see Note 4). The 2009A bonds were a private placement issue and have no reserve requirement. All Water Supply and Electric Utility System Revenue Bonds were issued by authority of the BWL. Except for the Series 2009A Subordinate Lien Revenue Refunding Bond, all bonds were issued on a parity basis and are payable solely from the net revenue of the combined water, electric, chilled water, and steam operations of the BWL. During the fiscal year ended June 30, 2013, the BWL issued $21,085,000 Water Supply, Steam, Chilled Water, and Electric Utility System Revenue Bond Series 2013A with an interest rate of 2.0 to 5.0 percent. The proceeds of these bonds, which were issued at a premium of about $3.3m, were used to advance refund $25,730,000 of outstanding 2003A revenue bonds with an interest rate of 4.125 to 5.0 percent. The net proceeds of $24,326,835 (after payment of $321 ,138 in underwriting fees, insurance, and other issuance costs) plus an additional $2,012,607 of Bond reserve and Bond Redemption Fund monies were used to purchase U.S. government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the original bonds. As a result, the bonds are considered to be defeased and the liability for the bonds has been removed from the BWL's long-term debt obligations. The advance refunding reduced total debt service payments over the next 14 years by$7,017,944, which represents an economic gain of$3,921,686. 25 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 5 - Long-term Debt (Continued The 2012A Bond is payable in annual installments in the years 2013 to 2018, inclusive, and shall not be subject to optional redemption prior to maturity. The Series 201 IA Bond is payable in annual installments in the years 2015 to 2022, inclusive, and shall not be subject to optional redemption prior to maturity. The Bonds maturing on or after July 1, 2022 shall be subject to redemption at the option of the BWL as a whole or in part at any time and by lot within a maturity at par plus interest accrued to the redemption date. The Series 2009A Bond is payable in annual installments in the years 2010 to 2016, inclusive, and shall not be subject to optional redemption prior to maturity. The BWL has defeased several bond issues in prior years. The proceeds of the new bonds were placed in an escrow deposit fund to provide for all future debt service payments on the old bonds. Accordingly, the escrow deposit fund assets and the liability for the defeased bonds are not included in the financial statements. The outstanding balance of all defeased liabilities is $0 and $25,730,000 at June 30, 2014 and 2013, respectively. The Series 2008A Bonds maturing in the years 2012 to 2028, inclusive, shall not be subject to optional redemption prior to maturity. The bonds, or portions of bonds in multiples of $5,000 maturing in the years 2019 to 2032, inclusive, shall be subject to redemption at the option of the BWL in such order of maturity as the BWL shall determine and within a single maturity by lot on any date on or after July 1, 2018, at par plus accrued interest to the date fixed for redemption. The BWL may redeem certain outstanding Water Supply and Electric Utility System Revenue Bonds prior to maturity. The Series 2005A Bonds maturing in the years 2011 to 2014, inclusive, shall not be subject to redemption prior to maturity. The Series 2003A Bonds maturing in the years 2004 to 2013, inclusive, shall not be subject to redemption prior to maturity. Series 2003A Bonds due on or after July 1, 2014 to 2026, inclusive, were redeemed through the proceeds of the Series 2013A Bond issuance. The Series 2002B Bonds shall not be subject to redemption prior to maturity. Series 2002A Bonds due on or after July 1, 2013 were redeemed through the proceeds of the 2012A Bond issuance. 26 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 5 - Long-term Debt (Continued) The long-term debt activity for the year ended June 30, 2014 is as follows: Revenue Other Bonds Notes Total Beginning balance $ 378,946,991 $ 18,481,472 $ 397,428,463 Additions - 208,084 208,084 Reductions (14,696,528) (3,805,553) (18,502,081) Ending balance $ 364,250,463 $ 14,884,003 $ 379,134,466 Due within one year $ 14,155,000 $ 3,669,253 $ 17,824,253 The BWL has pledged substantially all revenue, net of operating expenses, to repay the revenue bonds. Proceeds from the bonds provided financing for the construction of the utility plant. The bonds are payable solely from the net revenues of the BWL. The remaining principal and interest to be paid on the bonds total $670,056,098. During the current year, net revenues of the BWL were $57,320,261 compared to the annual debt requirements of$28,719,915. Note 6 - Costs/Credits Recoverable in Future Years Central Utilities Complex The BWL accounts for amortization of its Central Utilities Complex (CUC), which is a separate operating unit of the BWL, under the regulatory basis of accounting as per GASB 62. The BWL has recorded recoverable (revenue) amortization of $(4,255,372) and $(1,684,590) at June 30, 2014 and 2013, respectively. Under an agreement with a BWL customer, the bonded debt related to the construction of the CUC will be reimbursed through payments to be received from this customer through 2017. The recoverable (revenue) amortization balance represents the difference between calculated straight-line amortization expense and the reimbursement payments received from the customer at year end. Environmental Remediation The GASB 49 environmental remediation liability related to a landfill site operated by the BWL was approved for regulated entity accounting under GASB 62 during the year ended June 30, 2004. As of June 30, 2014 and 2013, $20,848,000 in total costs has been recoverable as a regulatory asset. An increase in the asset and liability was made during the years ended June 30, 2014 and 2013 of$7,000,000. 27 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 6 - Costs/Credits Recoverable in Future Years (Continued) As of June 30, 2014 and 2013, the amounts remaining to be recovered in rates were $1,470,035 and $7,030,823, respectively. The BWL reviews the adequacy of its rates to recover its cost of service on an annual basis. During the year ended June 30, 2006, the GASB 49 environmental remediation liability related to a second landfill was approved for regulated entity accounting under GASB 62. The balance of the regulatory asset at June 30, 2014 and 2013 was $17,793,606. A reduction in the asset and liability was made during the year ended June 30, 2013 of $4,400,000. The BWL reviews the adequacy of its rates to recover its cost of service on an annual basis. During the year ended June 30, 2009, regulatory accounting as per GASB 62 was authorized by the Board of Commissioners to collect rates for all environmental remediation sites. The balance as of June 30, 2014 and 2013 for additional sites was $4,362,970 and $4, 147,567, respectively. Recoverable Cost Adjustments During the year ended June 30, 2005, the Board of Commissioners approved the use of regulatory accounting as per GASB 62 in accounting for the BWL's energy cost adjustment (ECA), power chemical adjustment (PCA), and fuel cost adjustment (FCA). These affect the amount to be billed to retail electricity, water, and steam customers to reflect the difference between the BWL's actual material costs and the amounts incorporated into rates. This resulted in recoverable assets of $2,797,695 and $10,554,421 at June 30, 2014 and 2013, respectively. This amount represents costs to be billed to customers in future years because actual costs of providing utilities were higher than the costs incorporated into the BWL's rates. Renewable Energy Plan (REP) and Energy Optimization (EO) During the year ended June 30, 2010, the Board of Commissioners approved the implementation of regulatory accounting as per GASB 62 to account for Public Act 295 of 2008 (PA. 295). PA. 295 set forth requirements for all Michigan utilities to meet the new renewable energy standards and undertake energy optimization programs. As a municipally owned electric utility, the BWL was required to file a proposed energy plan with the Michigan Public Service Commission (MPSC) and this plan was approved on July 1, 2009. These changes will affect the amount to be billed to electric customers. This resulted in deferred inflow of resources of $6,421,464 and $5,484,627 as of June 30, 2014 and 2013, respectively. 28 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 6 - Costs/Credits Recoverable in Future Years (Continued) Chiller Plant During the year ended June 30, 2010, the BWL chose to use regulatory accounting as per GASB 62 to recognize the contribution in aid of construction (CIAC) for the development of a new chilled water plant. This resulted in recoverable inflow of resources of $2,422,987 and $2,643,259 as of June 30, 2014 and 2013, respectively. The BWL will recognize this as revenue monthly over the life of the new chilled water plant to offset depreciation expense. Wise Road During the year ended June 30, 2012, the BWL chose to use regulatory accounting as per GASB 62 to recognize the insurance proceeds for the damaged equipment at the Wise Road Water Conditioning Plant (see Note 14). This resulted in recoverable inflow of resources of $10,099,712 as of June 30, 2014 when the related capital asset was moved into depreciable assets. The BWL will recognize this as revenue monthly over the life of the new equipment to offset depreciation expense. Note 7 - Transactions with the City of Lansing, Michigan Operations - The BWL recognized revenue of$8,075,705 and $9,160,105 in 2014 and 2013, respectively, for water, electric, and steam services provided to the City. The BWL incurred expenses for sewerage services purchased from the City of$924,809 and $601,664 in 2014 and 2013, respectively. Additionally, the BWL bills and collects sewerage fees for the City. In connection with these services, the BWL received sewerage collection fees of$968,545 and $898,269 in 2014 and 2013, respectively, included in other income. Payment in Lieu of Taxes - Effective July 1, 1992, the BWL entered into an agreement with the City to provide an annual payment of a return on equity in accordance with a formula based on net billed retail sales from its water, steam heat, and electric utilities for the preceding 12-month period ending May 31 of each year. Effective March 1, 2002, the formula to calculate the amount owed to the City for payment in lieu of taxes will also include wholesale revenue generated from the BWL's electric, water, steam, and chilled water utilities for the preceding 12-month period ending May 31 of each year. Subject to the provisions of Act 94 Public Acts of 1933, as amended, and the BWL's various bond covenants, this amount is payable to the City no later than June 30 of each year. Under terms of this agreement, the BWL paid to the City$20,608,093 in 2014 and $16,120,694 in 2013 of operational cash flow in excess of debt service requirements. 29 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 8 - Retirement Plans The BWL has three retirement plans. The BWL administers a tax-qualified, single- employer, noncontributory, defined benefit public employee retirement pension plan (the "Defined Benefit Plan"), and the BWL has a tax-qualified, single-employer, noncontributory, defined contribution public employee retirement pension plan (the "Defined Contribution Plan"). The BWL also has a tax-qualified, single-employer, defined benefit plan to administer and fund retiree healthcare benefits (the "Retiree Benefit Plan and Trust"). Defined Benefit Plan The Defined Benefit Plan was established by the BWL in 1939 under Section 5-203 of the City Charter and has been revised several times, with the latest revision taking effect on July 1, 2010. The Defined Benefit Plan, by resolution of the Board of Commissioners, was closed to employees hired subsequent to December 31, 1996, and the Defined Contribution Plan was established for employees hired after December 31, 1996. Effective December 1, 1997, all active participants in the Defined Benefit Plan were required to make an irrevocable choice to either remain in the Defined Benefit Plan or move to the newly established Defined Contribution Plan. Those participants who elected to move to the Defined Contribution Plan received lump-sum distributions from the Defined Benefit Plan, which were rolled into their accounts in the new Defined Contribution Plan. Of the 760 employees who were required to make this election, 602 elected to convert their retirement benefits to the newly established Defined Contribution Plan. The Plan for Employees' Pensions of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to the Board of Water and Light, Chief Financial Officer, P.O. Box 13007, Lansing, Michigan 48901-3007. A participant's interest is fully vested when the participant has been credited with seven years of vesting service. The Defined Benefit Plan provides for an annual benefit upon normal retirement equal to the total number of years of credited service multiplied by 1.65 percent of the average annual pay during the last 10 years of service, paid in equal monthly installments. Effective July 1, 1996, the Defined Benefit Plan was amended to provide active employees as of the effective date an annual benefit upon normal retirement equal to the total number of years of credited service multiplied by 1.8 percent of the highest annual pay during the last 10 years of service, paid in equal monthly installments. 30 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 8 - Retirement Plans (Continued) Effective July 1, 1999, the Defined Benefit Plan was amended to include a medical benefit component, in addition to the normal retirement benefits, to fund a portion of the postretirement obligations for certain retirees and their beneficiaries. The funding of the medical benefit component is limited to the amount of excess pension plan assets available for transfer, as determined by the actuary. No medical benefits were paid by the Defined Benefit Plan during the years ended June 30, 2014 and 2013. Basis of Accounting - The Defined Benefit Plan's financial statements are prepared using the accrual method of accounting in accordance with Governmental Accounting Standards Board (GASB) Statement No. 67, Financial Reporting for Pension Plans. Benefits are recognized when due and payable in accordance with the terms of the Defined Benefit Plan. Investment Valuation and Income Recognition - The Defined Benefit Plan investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales price. Investments that do not have an established market are reported at estimated fair values. Funding Policy and Annual Pension Cost - The BWL's funding policy provides for periodic employer contributions at actuarially determined rates that, expressed as percentages of annual covered payroll, are designed to accumulate sufficient assets to pay benefits when due. The normal cost and amortization payment for the years ended June 30, 2014, 2013, and 2012 were determined using an attained age projected unit credit actuarial funding method. Overfunded actuarial accrued liabilities were amortized as a level dollar reduction of contributions over a period of 15 years in 2014, 2013, and 2012. No participant contributions are required. Regulatory Status - The Defined Benefit Plan is not subject to the reporting requirements of the Employee Retirement Income Security Act of 1974 (ERISA) as it has been established for the benefit of a governmental unit. The annual pension cost was determined as part of an actuarial valuation of the Defined Benefit Plan as of February 28, 2014, 2013, and 2012. Significant actuarial assumptions used in determining the annual pension cost include (a) rate of return on the investment of present and future assets of 7.5 percent in 2014, 2013, and 2012, compounded annually, (b) projected salary increases ranging from 6.44 to 10.26 percent in 2014, 2013, and 2012, compounded annually, depending on age, attributable to inflation, and (c) the assumption that benefits will not increase after retirement. 31 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 8 - Retirement Plans (Continued Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of the occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the cost of living adjustments. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. 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. The pension cost for the three most recent years is as follows: 2014 2013 2012 Annual pension cost $ - $ - $ - Percentage of APC contributed n/a n/a n/a Net pension obligation - - - Employer contributions were made in accordance with contribution requirements determined by an actuarial valuation of the Defined Benefit Plan and consisted of the following: 2014 2013 2012 Normal cost $ 333,022 $ 397,079 $ 477,418 Amortization of the (overfunded)/ underfunded actuarial accrued liability (7,916,950) (6,840,144) (1,190,311) Total target contribution (7,583,928) (6,443,065) (712,893) Interest factor 1.0750 1.0750 1.0750 Annual required contribution $ - $ - $ - Based on the overfunded status of the Defined Benefit Plan through June 30, 2014, no employer contributions were required. 32 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 8 - Retirement Plans (Continued) Three-year Trend Information (in thousands) - Assets available at market, actuarial accrued liability - projected unit cost method (AAL), unfunded actuarial accrued liability (UAAL), and negative UAAL indicate a funding excess. UAAL as a Actuarial Percentage Asset Funded Covered of Covered Valuation Date Values AAL UAAL Ratio Payroll Payroll 2/28/201 1 $ 85,587 $ 74,292 $ (11,295) 1 15.20% $ 2,398 (471.0) 2/28/2012 79,142 72,302 (6,840) 109.46% 2,101 (325.6) 2/28/2013 76,395 68,478 (7,917) 1 1 1.56% 1,684 (470.1) 2/28/2014 80,182 70,042 (10,140) 1 14.48% 1,225 (827.8) AAL - Actuarial Accrued Liability (Projected Unit Credit Accrued Liability) UAAL - Unfunded Actuarial Accrued Liability, negative UAAL indicates a funding excess Defined Contribution Plan The Defined Contribution Plan was established by the BWL in 1997 under Section 5-203 of the City Charter. The Defined Contribution Plan covers substantially all full-time employees hired after December 31, 1996. In addition, 602 employees hired before January 1, 1997 elected to convert their retirement benefits from the Defined Benefit Plan effective December 1, 1997. The Plan for Employees' Pensions of the Board of Water and Light - City of Lansing, Michigan - Defined Contribution Plan issues a publicly available financial report. That report may be obtained by writing to the Board of Water and Light, Chief Financial Officer, P.O. Box 13007, Lansing, Michigan 48901-3007. The Defined Contribution Plan operates as a money purchase pension plan and meets the requirements of Sections 401(a) and 501(a) of the IRC of 1986, as amended from time to time. 33 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 8 - Retirement Plans (Continued) For employees hired before January 1, 1997, the BWL is required to contribute 15.0 percent of the employees' compensation. For employees hired after January 1, 1997, the BWL is required to contribute 8.1 percent of the employees' compensation. In addition, the BWL is required to contribute 3.0 percent of the employees' compensation for all employees who are not eligible to receive overtime pay and 0.5 percent of the employees' compensation for all nonbargaining employees. No participant contributions are required. During the years ended June 30, 2014 and 2013, the BWL contributed $5,467,824 and $5,494,101, respectively. The BWL's contributions are recognized in the period that the contributions are due. Basis of Accounting - The Defined Contribution Plan's financial statements are prepared using the accrual method of accounting in accordance with Governmental Accounting Standards Board (GASB) Statement No. 67, Financial Reporting for Pension Plans. Valuation of Investments and Income Recognition - The Defined Contribution Plan investments are stated at market value based on closing sales prices reported on recognized securities exchanges on the last business day of the year, or, for listed securities having no sales reported and for unlisted securities, upon the last reported bid prices on that date. The mutual funds are valued at quoted market prices, which represent the net asset values of shares held by the Defined Contribution Plan at year end. Purchases and sales of investments are recorded on a trade-date basis. Interest income is accrued when earned. Dividend income is recorded on the ex-dividend date. Regulatory Status - The Defined Contribution Plan is not subject to the reporting requirements of the Employee Retirement Income Security Act of 1974 (ERISA) as it has been established for the benefit of a governmental unit. Retiree Benefit Plan and Trust The Retiree Benefit Plan and Trust (the "Plan") is a single-employer defined benefit healthcare plan. The Plan provides medical, dental, and life insurance benefits in accordance with Section 5-203 of the City Charter. Substantially all of the BWL's employees may become eligible for healthcare benefits and life insurance benefits if they reach normal retirement age while working for the BWL. There were 698 participants eligible to receive benefits at June 30, 2014 and 692 participants eligible at June 30, 2013. 34 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 8 - Retirement Plans (Continued) In October 1999, the BWL formed a Voluntary Employee Benefit Administration (VEBA) trust for the purpose of accumulating assets sufficient to fund retiree healthcare insurance costs in future years. During the years ended June 30, 2014 and 2013, the cost to BWL of maintaining the Retiree Benefit Plan was $9,266,529 and $14,045,204, respectively, of which $0 and $4,521,084, respectively, was contributed to the VEBA trust and $9,266,529 and $9,524,120, respectively, was incurred as direct costs of benefits. The Retiree Benefit Plan and Trust of the Board of Water and Light - City of Lansing, Michigan issues a publicly available financial report. That report may be obtained by writing to the Board of Water and Light, Chief Financial Officer, P.O. Box 13007, Lansing, Michigan 48901-3007. Basis of Accounting - The plan statements are prepared using the accrual basis of accounting. Investment Valuation and Income Recognition - Plan investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales price. Purchases and sales of investments are recorded on a trade-date basis. Appreciation or depreciation of investments is calculated based on the beginning of the period's fair value of investments. Funding Policy - The BWL adopted a process for funding the retiree benefits using both a VEBA trust and, to the extent permitted by law, excess pension assets in the Defined Benefit Pension Plan. Additional contributions to the VEBA trust from BWL operating funds to supplement Section 420 transfers will not exceed the recommended annual contribution amount required to cover current service of active participants and amortize the unfunded accrued liability over 30 years. The required contribution is based on a projected pay-as-you-go financing requirement with an additional amount to prefund benefits. No participant contributions are required. The Plan's annual other postemployement benefit (OPEB) cost is calculated based on the annual required contribution (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities over a period of 30 years. 35 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 8 - Retirement Plans (Continued Actuarial Assumptions - Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of the occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. 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, consistent with the long- term perspective of the calculations. The Plan has calculated the accrued actuarial liability and required contribution using certain methods and assumptions. Benefit payments have been computed using the individual entry age normal method. The assets have been valued in the actuary report using the fair market value. The healthcare cost trend rates used range from 5.0 to 9.0 percent for the years ended June 30, 2014 and 2013. Contribution trend information is as follows (in thousands): Percentage of Annual OPEB Fiscal Year Annual OPEB Annual OPEB Cost Net OPEB Ended Cost Contributed Contributed Obligation 6/30/201 1 $ 17,300 $ 17,236 100% $ (150) 6/30/2012 15,744 15,854 101% (260) 6/30/2013 13,994 14,045 100% (31 1) 6/30/2014 9,202 9,268 101% (377) 36 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 8 - Retirement Plans (Continued) Funded Status and Funding Progress - Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of the occurrence of events far into the future. Significant actuarial assumptions used in determining the annual OPEB cost include (a) rate of return on the investments of present and future assets of 7.5 percent, compounded annually, (b) projected healthcare trend rates ranging from 5.0 percent to 9.0 percent, and (c) amortization method level dollar over a 30-year period. Funding status and funding progress trend information is as follows (in thousands): Unfunded Actuarial Actuarial Actuarial Accrued Accrued Funded Valuation Date Asset Value Liability Liability Ratio 2/28/2011 $ 100,604 $260,097 $ 159,493 38.68% 2/28/2012 110,029 245,418 135,389 44.83% 2/28/2013 123,195 207,864 84,669 59.27% 2/28/2014 148,307 194,365 46,058 76.30% Other Postretirement Benefits The BWL offers its employees a deferred compensation plan, created in accordance with IRC 457, which is administered by a trustee, the ICMA Retirement Corporation. The BWL makes contributions of $1,000 annually for the employees as of January I of each year, during the month of January. The BWL also will match employee contributions at one dollar for every one dollar up to $1,250 in a calendar year. Note 9 - Commitments and Contingencies At June 30, 2014 and 2013, the BWL has two letters of credit in the amounts of $817,220 and $1,000,000 issued to the Michigan Department of Natural Resources. The letters of credit were issued to satisfy requirements of the Michigan Department of Natural Resources to provide financial assurance to the State of Michigan for the cost of closure and postclosure monitoring and maintenance of a landfill site operated by the BWL. 37 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 9 - Commitments and Contingencies (Continued) Through monitoring tests performed on the landfill sites operated by the BWL, it has been discovered that the sites are contaminating the groundwater. The contamination does not pose a significant health risk, but does lower the quality of the groundwater. The BWL is currently in the process of applying for approval from the State of Michigan to remediate the sites. The BWL has estimated the total cost for remediation, including closure and postclosure cost of the landfills, and has recorded a liability of $10,312,492 and $1 1,244,715 for the years ended June 30, 2014 and 2013, respectively. Certain remediation activities have commenced and are in progress. The landfill sites are no longer receiving waste products. Landfill closure and postclosure requirements are associated with the Michigan Department of Environmental Quality. Annual postclosure costs of these landfill sites are not expected to exceed $380,000 annually and are included in the liability above. Estimates will be revised as approvals are received from the State. In accordance with the regulatory basis of accounting as per GASB 62 (see Note 1), the BWL recorded a corresponding regulatory asset (see Note 6). The BWL previously announced a program to upgrade existing lead pipes throughout the BWL service area. The program is scheduled to be complete in three years at an estimated remaining cost of $10,669,000. There is no legal obligation to replace the pipes, therefore no liability has been recorded. The BWL has obtained financing to build a new combined-cycle cogeneration facility. The project has an estimated cost to complete of $22,225,000, including commitments on this project of$3,172,000. This project was funded through the 201 IA Bond. The BWL is subject to various laws and regulations with respect to environmental matters such as air and water quality, soil contamination, solid waste disposal, handling of hazardous materials, and other similar matters. Compliance with these various laws and regulations could result in substantial expenditures. The BWL has established a Designated Purpose Fund (see Note 1), of which one of the purposes of the fund is to meet extraordinary expenditures resulting from responsibilities under environmental laws and regulations. Management believes that all known or expected responsibilities to these various laws and regulations by the BWL will be sufficiently covered by the Designated Purpose Fund and the environmental remediation liability. The BWL is involved in various other legal actions which have arisen in the normal course of business. Such actions are usually brought for claims in excess of possible settlement or awards, if any, that may result. After taking into consideration legal counsel's evaluation of pending actions, management has recorded an adequate reserve as of June 30, 2014 and 2013 in regard to specific pending legal cases. 38 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 9 - Commitments and Contingencies (Continued) The BWL has entered into contracts to purchase coal totaling $14,197,917 through December 31, 2016. In addition, the BWL has entered into contracts for the rail services related to shipping the coal. Commitments for future rail services to be purchased are approximately$34,256,250 through December 2016. Note 10 - Power Supply Purchase In 1983, the BWL entered into 35-year power supply and project support contracts with the Michigan Public Power Agency (MPPA), of which the BWL is a member. Under the agreement, the BWL has the ability to purchase power from MPPA, will sell power to MPPA at an agreed-upon rate, and will purchase 64.29 percent of the energy generated by MPPA's 37.22 percent ownership in Detroit Edison's Belle River Unit #1 (Belle River), which became operational in August 1984. Under the terms of its contract, the BWL must make minimum annual payments equal to its share of debt service and its share of the fixed operating costs of Belle River. The estimated required payments presented below assume no early calls or refinancing of existing revenue bonds and a 3.0 percent annual inflation of fixed operating costs, which include expected major maintenance projects. Estimated Debt Fixed Total Year Service Operating Costs Required 2015 $ 17,675,374 $ 12,389,478 $ 30,064,852 2016 17,675,628 12,678,894 30,354,522 2017 17,676,913 12,976,026 30,652,939 2018 8,838,770 13,126,548 21,965,318 Total $ 61,866,685 $ 51,170,946 $ 1 13,037,631 In addition to the above required payments, the BWL must pay for fuel, other operating costs, and transmission costs related to any kilowatt hours (KWHs) purchased under these contracts. 39 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 10 - Power Supply Purchase (Continued) The BWL recognized expenses for 2014 and 2013 of $52,549,164 and $52,914,412, respectively, to purchase power under the terms of this contract. The price of this power was calculated on a basis, as specified in the contracts, to enable MPPA to recover its production, transmission, and debt service costs. In connection with the Belle River purchase, in December 2002, MPPA issued $280,180,000, principal amount, of its Belle River Project Refunding Revenue Bonds, 2002 Series A, with rates ranging from 2. 125 percent to 5.25 percent to advance refund $330,850,000 of outstanding 1993A and B bonds. The BWL has entered into agreements with Granger Electric Company to purchase power generated from landfill gases. The agreements will expire as of June 30, 2028 and September 30, 2028. The minimum power to be purchased in the contract is 3.2 megawatts, with the option to purchase up to 12 megawatts depending on capacity. The price of the electricity is based on the BWL's cost of electricity generation. The total amount of electricity expected to be purchased from these contracts is estimated at $140,000,000. Note 1 I - Cash, Investments, and Fair Value Disclosure Michigan Compiled Laws Section 129.91 (Public Act 20 of 1943, as amended) authorizes local governmental units to make deposits and invest in the accounts of federally insured banks, credit unions, and savings and loan associations that have offices in Michigan. A local unit is allowed to invest in bonds, securities, and other direct obligations of the United States or any agency or instrumentality of the United States; certificates of deposit, savings accounts, deposit accounts, or depository receipts of an eligible financial institution; repurchase agreements; bankers' acceptances of United States banks; commercial paper rated within the two highest classifications, which matures not more than 270 days after the date of purchase; obligations of the State of Michigan or its political subdivisions, which are rated as investment grade; and mutual funds composed of investment vehicles that are legal for direct investment by local units of government in Michigan. 40 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I I - Cash, Investments, and Fair Value Disclosure (Continued) The operating cash investment policy adopted by the BWL in accordance with Public Act 20, as amended, and the Lansing City Charter has authorized investment in bonds and securities of the United States government, certificates of deposit, time deposits, and bankers' acceptances of qualified financial institutions, commercial paper rated AI by Standard & Poor's and P 1 by Moody's, repurchase agreements using bonds, securities, and other obligations of the United States or an agency or instrumentality of the United States, and liquid asset accounts managed by a qualified financial institution using any of these securities. The BWL's deposits and investment policies are in accordance with statutory authority. The BWL's cash and investments are subject to several types of risk, which are examined in more detail below: Risks at June 30, 2014 Custodial Credit Risk of Bank Deposits - Custodial credit risk is the risk, that in the event of a bank failure, the BWL's deposits may not be returned to it. The BWL requires that financial institutions must meet minimum criteria to offer adequate safety to the BWL. At year end, the BWL had $12,590,239 of bank deposits that were uninsured and uncol lateral ized. The BWL evaluates each financial institution with which it deposits funds and only those institutions meeting minimum established criteria are used as depositories. Custodial Credit Risk of Investments - Custodial credit risk is the risk that, in the event of the failure of the counterparty, the BWL will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The BWL does not have a policy for custodial credit risk. At year end, the following investment securities were uninsured and unregistered, with securities held by the counterparty or by its trust department or agent, but not in the BWL's name: Type of Investment Cost Basis How Held U.S. government or agency bond or notes $ 102,168,958 Counterparty 41 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I I - Cash, Investments, and Fair Value Disclosure (Continued) Interest Rate Risk - Interest rate risk is the risk that the value of investments will decrease as a result of a rise in interest rates. The BWL's investment policy restricts investments to a maximum maturity of five years unless matched to a specific cash flow. At year end, the average maturities of investments are as follows: Less than Fair Value I Year 1-5 Years 6-10 years Pooled investment funds(if not 2a-7) $ 59,126,052 $ 59,126,052 $ - $ - U.S.government or agency bond or note 101,633,888 5,753,547 94,780,419 1,099,922 Commercial paper 29,003,071 29,003,071 - - Interest Rate Risk - Pension Trust Funds Weighted Average Investment Fair Value Maturity(in years) U.S. government or agency bond $ 23,639,025 11.87 Money market trust funds 8,662,335 Less than I year Corporate bonds 32,558,775 14.02 Credit Risk - State law limits investments in commercial paper to the top two ratings issued by nationally recognized statistical rating organizations. As of year end, the credit quality ratings of debt securities (other than the U.S. government) are as follows: Rating Investment Fair Value Rating Organization Pooled investment funds $ 59,126,052 AAA S&P Commercial paper 1,365,956 AI/PI S&P 4,994,396 Al +/P I S&P 2,996,083 AI/PI S&P 4,993,739 AI/PI S&P 1,313,050 AI/PI S&P 3,246,733 AI/PI S&P 4,098,924 Al +/P I S&P 2,997,393 Al +/P I S&P 2,996,798 AI/PI S&P 42 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I I - Cash, Investments, and Fair Value Disclosure (Continued) Concentration of Credit Risk - As of year end, no more than 5 percent of the BWL's investments are invested in any one commercial paper issue. Credit Risk - Pension Trust Funds Rating Investment Fair Value Rating Organization Mutual funds $ 133,962,556 Not Rated Not Rated Government or agency bond 7,354,686 Not Rated Not Rated Stable value 33,607,203 AA S&P Corporate bonds - Not Rated Not Rated Corporate bonds 3,689,662 AAA S&P Corporate bonds 12,190,600 AA+ S&P Corporate bonds 627,423 AA S&P Corporate bonds 518,898 AA- S&P Corporate bonds 1,426,951 A+ S&P Corporate bonds 2,412,053 A S&P Corporate bonds 3,918,625 A- S&P Corporate bonds 2,300,585 BBB+ S&P Corporate bonds 1,884,206 BBB S&P Corporate bonds 1,392,016 BBB- S&P Corporate bonds 217,513 BB+ S&P Corporate bonds 315,865 BB S&P Corporate bonds 171,619 BB- S&P Corporate bonds 80,813 B+ S&P Corporate bonds 63,000 B S&P Corporate bonds 142,363 B- S&P Corporate bonds - CCC+ S&P Corporate bonds 1,141,078 CCC S&P Corporate bonds 65,505 D S&P Foreign Currency Risk - The BWL holds no investments in foreign entities, currency, or debt. 43 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I I - Cash, Investments, and Fair Value Disclosure (Continued) Risks at June 30, 2013 Custodial Credit Risk of Bank Deposits - Custodial credit risk is the risk' that in the event of a bank failure, the BWL's deposits may not be returned to it. The BWL requires that financial institutions must meet minimum criteria to offer adequate safety to the BWL. At June 30, 2013, the BWL had $27,131,331 of bank deposits that were uninsured and uncol lateral ized. The BWL evaluates each financial institution with which it deposits funds and only those institutions meeting minimum established criteria are used as depositories. Custodial Credit Risk of Investments - Custodial credit risk is the risk that, in the event of the failure of the counterparty, the BWL will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The BWL does not have a policy for custodial credit risk. At year end, the following investment securities were uninsured and unregistered, with securities held by the counterparty or by its trust department or agent, but not in the BWL's name: Type of Investment Cost Basis How Held U.S. government or agency bond or notes $ 93,329,047 Counterparty Interest Rate Risk - Interest rate risk is the risk that the value of investments will decrease as a result of a rise in interest rates. The BWL's investment policy restricts investments to a maximum maturity of five years unless matched to a specific cash flow. At year end, the average maturities of investments are as follows: Less than Fair Value I Year 1-5 Years 6-10 years Pooled investment funds (if not 2a-7) $ 96,294,877 $ 96,294,877 $ - $ - U.S.government or agency bond or note 92,055,388 46,321,200 44,618,641 1,1 15,547 Commercial paper 29,431,740 29,431,740 - - 44 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I I - Cash, Investments, and Fair Value Disclosure (Continued) Interest Rate Risk - Pension Trust Funds Weighted Average Investment Fair Value Maturity (in years) U.S. government or agency bond $ 21,320,442 12.18 Money market trust funds 8,820,848 Less than I year Corporate bonds 31,490,049 14.67 Credit Risk - State law limits investments in commercial paper to the top two ratings issued by nationally recognized statistical rating organizations. As of year end, the credit quality ratings of debt securities (other than the U.S. government) are as follows: Rating Investment Fair Value Rating Organization Pooled investment funds $ - AAA S&P Commercial paper 1,527,287 A-I S&P 3,997,333 A-I S&P 2,995,227 A-2 S&P 1,357,949 A-I S&P 4,992,636 A-I S&P 3,960,314 A-I S&P 1,514,926 A-I S&P 1,083,610 A-2 S&P 3,007,291 A-I S&P 4,995,167 A-I S&P Concentration of Credit Risk - As of year end, no more than 5 percent of the BWL's investments are invested in any one commercial paper issue. 45 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note I I - Cash, Investments, and Fair Value Disclosure (Continued) Credit Risk - Pension Trust Funds Rating Investment Fair Value Rating Organization Mutual funds $ 1 13,004,660 Not Rated Not Rated Government or agency bond 21,320,442 Not Rated Not Rated Stable value 32,243,585 AA S&P Corporate bonds - Not Rated Not Rated Corporate bonds 4,331,818 AAA S&P Corporate bonds 1 1,451,540 AA+ S&P Corporate bonds 420,815 AA S&P Corporate bonds 609,309 AA- S&P Corporate bonds 1,853,758 A+ S&P Corporate bonds 2,142,513 A S&P Corporate bonds 3,433,41 1 A- S&P Corporate bonds 1,139,634 BBB+ S&P Corporate bonds 2,610,419 BBB S&P Corporate bonds 1,1 16,359 BBB- S&P Corporate bonds 295,014 BB+ S&P Corporate bonds 354,566 BB S&P Corporate bonds 256,563 BB- S&P Corporate bonds 19,350 B+ S&P Corporate bonds 179,601 B S&P Corporate bonds 254,321 B- S&P Corporate bonds - CCC+ S&P Corporate bonds 973,371 CCC S&P Corporate bonds 47,687 CC S&P Foreign Currency Risk - The BWL holds no investments in foreign entities, currency, or debt. 46 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 12 - Estimated Liability for Excess Earnings on Water Supply and Electric Utility System Revenue Bonds In accordance with Section 148(f)(2) of the IRC of 1986, as amended, the BWL is required on each anniversary date (July 1) of the Water Supply, Electric Utility, and Steam Utility System Revenue Bonds, Series 2002A and B, 2003A, 2005A, 2008A, 201 IA, 2012A, and 2013A to compute amounts representing the cumulative excess earnings on such bonds. That amount essentially represents a defined portion of any excess of interest earned on funds borrowed over the interest cost of the tax-exempt borrowings. Expense is charged (credited) annually in an amount equal to the estimated increase (decrease) in the cumulative excess earnings for the year. On every fifth anniversary date and upon final maturity of the bonds, the BWL is required to remit to the Internal Revenue Service the amount of any cumulative excess earnings computed on the date of such maturity plus an amount equal to estimated interest earned on previous years' segregated funds. The estimated liability for excess earnings was $0 at June 30, 2014 and 2013. In accordance with the requirements of the bond indenture, the BWL is required to set aside any current year additions to this estimated liability in a rebate fund within 60 days of the anniversary date of the bonds. Note 13 - Risk Management and Insurance The BWL is exposed to various risks of loss related to property loss, torts, errors and omissions, and employee injuries (workers' compensation), as well as medical benefits provided to employees. The BWL has purchased commercial insurance for certain general liability, business auto, excess liability, property and boiler and machinery, public officials and employee liability claims, specific excess health insurance claims, and specific excess workers' compensation claims, subject to policy terms, limits, limitations, and deductibles. The BWL is self-insured for most workers' compensation and health insurance claims. Settled claims relating to the commercial insurance have not exceeded the amount of insurance coverage in any of the past three fiscal years. 47 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 13 - Risk Management and Insurance (Continued) The BWL estimates the liability for self-insured workers' compensation and health insurance claims that have been incurred through the end of the fiscal year, including claims that have been reported as well as those that have not yet been reported. Changes in the estimated liability for the past two fiscal years were as follows: Workers'Compensation Health Insurance 2014 2013 2012 2014 2013 2012 Unpaid claims- Beginning ofyear $ 2,000,000 $ 2,000,000 $ 2,300,000 $ 1,590,814 $ 1,606,994 $ 1,520,649 Incurred claims, incurred but not reported 864,854 1,077,383 1,150,867 18,340,955 18,644,371 18,766,360 Claim payments (864,854) (1,077,383) (1,450,867) (18,294,493) (18,660,551) (18,680,015) Unpaid claims- End of year $2,000,000 $2,000,000 $2,000,000 $ 1,637,276 $ 1,590,814 $ 1,606,994 Note 14 - Wise Road Reconstruction Project In July 2011, the Wise Road water treatment plant was damaged by a chemical spill. The piping and electrical systems were damaged and are being replaced or repaired. The estimate to replace or repair the damaged equipment is approximately $23 million; substantially all will be recouped from our insurance carrier. To date $20,193,626 in funds are committed, of which $18,865,256 have been expended. Note 15 - Upcoming Pronouncements In June 2012, the GASB issued GASB Statement No. 68, Accounting and Financial Reporting for Pensions. Statement No. 68 requires governments providing defined benefit pensions to recognize their unfunded pension benefit obligation as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. This net pension asset that will be recorded on the statements will be computed differently than the current unfunded actuarial accrued liability, using specific parameters set forth by the GASB. The statement also enhances accountability and transparency through revised note disclosures and required supplementary information (RSI). The BWL is currently evaluating the impact this standard will have on the financial statements when adopted. The provisions of this statement are effective for financial statements for the year ending June 30, 2015. 48 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 16 - Change in Accounting During the current year, the BWL adopted GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. The objective of this statement is to establish standards that reclassify certain items that were previously reported as assets and liabilities and instead to classify them as deferred inflows of resources, deferred outflows of resources, or as outflows of resources. As a result of implementing this statement, the following assets and liabilities have been reclassified, as indicated: New Classification Prior Reporting After Adoption of As of June 30, As of June 30, As of July 1, Classification/ GASB Statement Item 2014 2013 2012 Treatment No.65 Deferred amounts on Adjustment to Deferred outflow debt refundings the bonds ofresources $ 1,228,706 $ 1,699,745 $ - payable liability Bond issuance costs Adjustment to Outflow of the bonds resources - 321,138 2,450,931 payable liability (an expense) Regulated operations- Liability Deferred inflow of Revenue intended to resources cover future costs 8,844,451 18,944,163 - 49 Board of Water and Light - City of Lansing, Michigan Notes to Financial Statements June 30, 2014 and 2013 Note 16 - Change in Accounting (Continued) As this statement is applied retroactively, the financial statements for the years ended June 30, 2013 and 2012 have been restated to apply the changes noted associated with bond issuance costs. The effect of this change is as follows: Net Position-July 1,2012,as originally reported $ 559,518,331 GASB 65 adjustment to write off unamortized bond issuance costs as of July 1,2012 (included in long-term debt liability) (1,624,079) GASB 65 adjustment to write off unamortized bond issuance as of July 1,2012 (included in utility plant asset) (826,852) Net Position-July 1,2012,as restated $ 557,067,400 Net Income-Year ended June 30,2013,as originally reported $ 18,787,670 GASB 65 adjustment to eliminate amortization of bond issuance costs for the year ended June 30,2013(included in bonded debt interest expense) 173,108 GASB 65 adjustment to eliminate depreciation expense related to bond issuance costs included in utility plant asset for the year ended June 30,2013 (included in depreciation and impairment expense) 18,048 GASB 65 adjustment to eliminate new bond issuance costs recorded as an adjustment to the long-term debt liability during the year ended June 30,2013 (included in bonded debt interest expense) (321,138) Net Income-Year Ended June 30,2013,as restated $ 18,657,688 During the current year, the BWL and Pension Plan adopted GASB Statement No. 67, Financial Reporting for Pension Plans. This statement required changes to the actuarial valuations resulting in a different measurement of the liability of the employer to plan members for benefits provided through the pension plan. As a result, the disclosures within the footnotes of the separately issued Defined Benefit Pension Plan statements have changed considerably along with the related schedules in the required supplemental information of the separately issued statements. 50 Required Supplemental Information 51 Board of Water and Light - City of Lansing, Michigan Required Supplemental Information Defined Benefit Plan Schedule Years Ended June 30, 2014 and 2013 The schedule of funding progress as determined by an actuarial valuation used for purposes of determining the annual required contribution is as follows: UAAL as a Actuarial Percentage Asset Funded Covered of Covered Valuation Date Values AAL UAAL Ratio Payroll Payroll 2/28/201 1 $ 85,587 $ 74,292 $ (11,295) 1 15.20% $ 2,398 (471.0) 2/28/2012 79,142 72,302 (6,840) 109.46% 2,101 (325.6) 2/28/2013 76,395 68,478 (7,917) 1 1 1.56% 1,684 (470. 1) 2/28/2014 80,182 70,042 (10,140) 1 14.48% 1,225 (827.8) 52 Board of Water and Light - City of Lansing, Michigan Required Supplemental Information Retiree Benefit Plan and Trust Schedule Years Ended June 30, 2014 and 2013 The schedule of funding progress is as follows: Unfunded Actuarial Actuarial Actuarial Accrued Accrued Funded Valuation Date Asset Value Liability Liability Ratio 2/28/2011 $ 100,604 $260,097 $ 159,493 38.68% 2/28/2012 110,029 245,418 135,389 44.83% 2/28/2013 123,195 207,864 84,669 59.27% 2/28/2014 148,307 194,365 46,058 76.30% 53 Additional Information 54 Board of Water and Light - City of Lansing, Michigan Income Available for Revenue Bond Debt Retirement Year Ended June 30 2014 2013 Income - Before capital contributions per statement of revenues, expenses, and changes in net assets $ 2,792,527 $ 18,657,688 Adjustments to Income Depreciation and impairment 38,997,186 38,297,875 Interest on long-term debt: Notes 41,555 20,908 Revenue bonds 15,334,915 5,998,530 Total additional income 54,373,656 44,317,313 Income Available for Revenue Bonds and Interest Redemption $ 57,166,183 $ 62,975,001 Debt Retirement Pertaining to Revenue Bonds Principal $ 13,385,000 $ 12,770,000 Interest 15,334,915 5,998,530 Total $ 28,719,915 $ 18,768,530 Percent Coverage of Revenue Bonds and Interest Requirements 199 336 55 Board of Water and Light - City of Lansing, Michigan Combined Water 2014 2013 2014 2013 Operating Revenues Water $ 37,246,939 $ 37,444,107 $ 37,246,939 $ 37,444,107 Electric: Retail 257,333,075 261,815,172 - - Sales for resale 31,821,390 15,342,274 Steam 16,324,128 12,029,340 Chilled water 5,397,411 5,139,836 - - Total operating revenues 348,122,943 331,770,729 37,246,939 37,444,107 Operating Expenses Production: Fuel,purchased power,and other operating expenses 165,199,058 158,093,248 8,957,388 8,532,692 Maintenance 17,045,140 18,584,274 2,981,167 2,943,693 Transmission and distribution: Operating expenses 11,829,786 6,835,706 1,478,877 1,521,023 Maintenance 11,262,716 8,811,048 3,554,104 2,822,156 Administrative and general 62,484,318 65,095,731 10,834,267 10,332,105 Depreciation and impairment 38,997,186 38,297,875 6,529,406 5,959,530 Total operating expenses 306,818,204 295,717,882 34,335,209 32,1 11,199 Operating Income 41,304,739 36,052,847 2,91 1,730 5,332,908 Nonoperating Income(Expenses) Investment income 1,866,462 1,094,077 279,183 57,828 Other income (5,974,385) 1,676,960 (199,915) 961,528 System capacity fee 9,222,989 9,221,651 807,934 807,817 Bonded debt interest expense (15,334,915) (5,998,530) (2,299,249) (2,643,682) Amortization-Central Utilities Complex (7,642,715) (7,247,715) (669,502) (634,900) Payment in lieu of taxes (20,608,093) (16,120,694) (2,230,811) (1,856,000) Other interest expense (41,555) (20,908) (4,039) (123) Total nonoperating expense (38,512,212) (17,395,159) (4,316,399) (3,307,532) Net Income(Loss) $ 2,792,527 $ 18,657,688 $ (I,404,669) $ 2,025,376 56 Detail of Statement of Revenues and Expenses Years Ended June 30, 2014 and 2013 Electric Steam Chilled Water 2014 2013 2014 2013 2014 2013 257,333,075 261,815,172 - 31,821,390 15,342,274 - - - - - 16,324,128 12,029,340 - - - - - - 5,397,41 1 5,139,836 289,154,465 277,157,446 16,324,128 12,029,340 5,397,41 1 5,139,836 145,645,050 141,537,166 9,019,050 6,457,153 1,577,570 1,566,237 13,322,981 14,647,008 548,042 705,815 192,950 287,758 10,057,156 5,056,249 293,753 258,434 - - 7,262,321 5,629,850 421,252 337,623 25,039 21,419 50,286,259 52,038,554 1,109,538 2,278,476 254,254 446,596 28,887,165 29,383,080 2,200,476 1,641,827 1,380,139 1,313,438 255,460,932 248,291,907 13,592,111 11,679,328 3,429,952 3,635,448 33,693,533 28,865,539 2,732,017 350,012 1,967,459 1,504,388 1,386,482 848,321 123,840 168,915 76,957 19,013 (2,846,705) 521,021 (2,920,159) (14,410) (7,606) 208,821 7,712,263 7,711,144 702,792 702,690 - - (1 1,828,91 1) (1,731,534) (428,751) (114,947) (778,004) (1,508,367) (6,390,838) (6,060,539) (582,375) (552,276) - (17,200,740) (13,477,441) (849,248) (530,710) (327,294) (256,543) (37,516) (20,783) (2) - (29,205,965) (12,209,81 1) (3,953,901) (340,740) (1,035,947) (1,537,076) $ 4,487,568 $ 16,655,728 $ (1,221,884) $ 9,272 $ 931,512 $ (32,688) 57 Board of Water and Light - City of Lansing, Michigan Detail of Statement of Changes in Net Position Combined Water Electric Steam Chilled Water Net Position-July I,2012,as originally reported $ 559,518,331 $ 92,447,575 $ 471,460,023 $ (3,706,473) $ (682,794) GASB 65 Adjustment(Note 16) (2,450,931) (416,140) (1,613,506) (322,535) (98,750) Net Position-July 1,2012,as restated 557,067,400 92,031,435 469,846,517 (4,029,008) (781,544) Income(loss) before contributions,as restated 18,657,688 2,218,843 16,714,403 25,920 (301,478) Net Position -June 30,2013,as restated 575,725,088 94,250,278 486,560,920 (4,003,088) (1,083,022) Income(loss)before contributions 2,792,527 (1,404,669) 4,487,568 (1,221,884) 931,512 Net Position-June 30,2014 $ 578,517,615 $ 92,845,609 $ 491,048,488 $ (5,224,972) $ (151,510) 58 Board of Water and Light - City of Lansing, Michigan Pension Trust Funds - Detail of Statement of Net Position June 30,2014 Defined Defined Benefit Contribution Plan Plan VEBA Total Assets Receivable-Investment interest receivable $ - $ 120,156 $ 21 1,625 $ 331,781 Investments at fair value: Money market collective trust fund - 3,192,936 5,71 1,439 8,904,375 U.S.government obligations - 7,354,686 16,284,339 23,639,025 Corporate bonds and notes - 1 1,844,906 20,713,869 32,558,775 Mutual funds 130,442,786 1,260,129 2,259,641 133,962,556 Stable value 33,607,203 - - 33,607,203 Equities - 56,770,168 108,540,537 165,310,705 Current liability - (13,000) - (13,000) Self-directed brokerage account 1,147,041 - - 1,147,041 Participant notes receivable 4,082,709 - - 4,082,709 Total investments 169,279,739 80,409,825 153,509,825 403,199,389 Net Position-Held in trust for pension and other employee benefits $ 169,279,739 $ 80,529,981 $ 153,721,450 $ 403,531,170 June 30,2013 Defined Defined Benefit Contribution Plan Plan VEBA Total Assets Receivable-Investment interest receivable $ - $ 113,980 $ 185,624 $ 299,604 Investments at fair value: Money market collective trust fund - 3,209,522 8,498,919 11,708,441 U.S.government obligations - 8,301,126 13,019,316 21,320,442 Corporate bonds and notes - 12,168,664 19,321,385 31,490,049 Mutual funds 109,882,178 1,171,547 1,950,935 1 13,004,660 Stable value 32,243,585 - - 32,243,585 Equities - 50,459,178 86,128,263 136,587,441 Current liability - - - - Self-directed brokerage account 859,599 - - 859,599 Participant notes receivable 3,909,080 - - 3,909,080 Total investments 146,894,442 75,310,037 128,918,818 35 I,123,297 Net Position-Held in trust for pension and other employee benefits $ 146,894,442 $ 75,424,017 $ 129,104,442 $ 351,422,901 59 Board of Water and Light - City of Lansing, Michigan Pension Trust Funds - Detail of Statement of Changes in Net Position Year Ended June 30, 2014 Defined Defined Contribution Plan Benefit Plan VEBA Total Increases Investment income: Net appreciation in fair value of investments $ 17,907,856 $ 12,570,312 $ 22,774,150 $ 53,252,318 Interest and dividend income 5,545,714 1,672,852 2,893,629 10,1 12,195 Net investment income 23,453,570 14,243,164 25,667,779 63,364,513 Employer contributions 5,467,824 - 9,266,529 14,734,353 Participant rollover contributions 1,053,879 - - 1,053,879 Other 270,989 - - 270,989 Total increases 30,246,262 14,243,164 34,934,308 79,423,734 Decreases Benefits paid to participants 7,645,1 16 8,541,275 9,266,529 25,452,920 Loan defaults 1 19,694 - - 119,694 Participants'note and administrative fees 96,155 595,925 1,050,771 1,742,851 Total decreases 7,860,965 9,137,200 10,317,300 27,315,465 Net Increase in Net Position Held in Trust 22,385,297 5,105,964 24,617,008 52,108,269 Net Position Held in Trust for Pension and Other Employee Benefits Beginning of year 146,894,442 75,424,017 129,104,442 351,422,901 End of year $ 169,279,739 $ 80,529,981 $ 153,721,450 $ 403,531,170 60 Board of Water and Light - City of Lansing, Michigan Pension Trust Funds - Detail of Statement of Changes in Net Position Year Ended June 30, 2013 Defined Defined Contribution Plan Benefit Plan VEBA Total Increases Investment income: Net appreciation in fair value of investments $ 12,924,636 $ 8,364,770 $ 12,938,049 $ 34,227,455 Interest and dividend income 3,1 10,985 1,805,077 2,773,526 7,689,588 Total investment income 16,035,621 10,169,847 15,71 1,575 41,917,043 Employer contributions 5,494,101 - 14,045,204 19,539,305 Participant rollover contributions 2,395,693 - 2,395,693 Other 249,450 - 249,450 Total increases 24,174,865 10,169,847 29,756,779 64,101,491 Decreases Benefits paid to participants 9,097,209 7,777,260 9,524,120 26,398,589 Loan defaults 120,280 - - 120,280 Participants'note and administrative fees 83,978 535,567 798,561 1,418,106 Total decreases 9,301,467 8,312,827 10,322,681 27,936,975 Net Increase in Net Position Held in Trust 14,873,398 1,857,020 19,434,098 36,164,516 Net Position Held in Trust for Pension and Other Employee Benefits Beginning of year 132,021,044 73,566,997 109,670,344 315,258,385 End of year $ 146,894,442 $ 75,424,017 $ 129,104,442 $ 351,422,901 61