Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Page 61 Page 62 Page 63 Page 64 Page 65 Page 66 Page 67 Page 68 Page 69 Page 70 Page 71 Page 72 Page 73 Page 74 Page 75 Page 76 Page 77 Page 78 Page 79 Page 80 Page 81 Page 82 Page 83 Page 84 Page 85 Page 86 Page 87 Page 88 Page 89 Page 90Seattle City Light 2015 Annual Report 23 - 23 - THE CITY OF SEATTLE—CITY LIGHT DEPARTMENT STATEMENTS OF CASH FLOWS - RECONCILIATION FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 ($ in millions) 2015 2014 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Operating income 110.9 $ 152.3 $ Adjustments to reconcile operating income to net cash provided by operating activities: Non-cash items included in operating income: Depreciation 118.3 108.1 Amortization of other liabilities (0.9) (0.6) Amortization of other assets 24.3 22.7 Bad debt expense 3.0 2.1 Power revenues (31.5) (48.4) Power expenses 32.9 49.1 Provision for injuries and damages 0.6 (0.3) Other non-cash items 7.6 5.8 Change in: Accounts receivable (5.6) (10.7) Unbilled revenues (5.9) 14.2 Materials and supplies (7.6) 6.6 Prepayments, interest receivable, and other receivables (0.8) 0.6 Other assets 2.7 (2.9) Provision for injuries and damages and claims payable 1.4 (13.8) Accounts payable and other payables 2.1 8.4 Rate stabilization unearned revenue (23.4) 4.4 Total adjustments 117.2 145.3 Net cash provided by operating activities 228.1 $ 297.6 $ SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES: In-kind capital contributions 1.4 $ 3.6 $ Amortization of debt related costs—net 9.2 7.4 Allowance for funds used during construction 8.9 5.8 Power exchange revenues 17.0 25.3 Power exchange expenses (17.6) (25.6) Power revenue netted against power expenses 6.5 6.1 Power expense netted against power revenues (8.5) (17.1) See notes to financial statements. THE CITY OF SEATTLE—CITY LIGHT DEPARTMENT NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 Fair Value Measurements—Descriptions of the Department’s accounting policies on fair value measurements for items reported on the balance sheets at December 31, 2015 and 2014, are as noted in the following paragraph, Note 5 Accounts Receivable, and Note 17 Long-Term Purchased Power, Exchanges, and Transmission. Fair Value of Financial Instruments—The Department’s financial instruments reported on the balance sheets at December 31, 2015 and 2014, as Restricted assets and Cash and equity in pooled investments are measured at fair value. These instruments consist primarily of the Department’s share of the City- wide pool of investments (see Note 4 Cash and Equity in Pooled Investments and Investments). Gains and losses on these financial instruments are reflected in Investment income in the statements of revenues, expenses, and changes in net position. Long-term debt at December 31, 2015 and 2014, is disclosed at fair value (see Note 8 Long-Term Debt). Net Position—The Department classifies its net position into three components as follows: ● Net investment in capital assets—This component consists of capital assets, net of accumulated depreciation and amortization, reduced by the net outstanding debt balances related to capital assets net of unamortized debt expenses. ● Restricted—This component consists of net position with constraints placed on use. Constraints include those imposed by creditors (such as through debt covenants and excluding amounts considered in net capital, above), grants, or laws and regulations of other governments, or by enabling legislation, The City of Seattle Charter, or by ordinances legislated by the Seattle City Council. ● Unrestricted—This component consists of assets, deferred outflows of resources, liabilities, and deferred inflows of resources that do not meet the definition of Net investment in capital assets or Restricted. Restricted and Unrestricted Net Position—The Department’s policy is to use restricted net position for specified purposes and to use unrestricted net position for operating expenses. The Department does not currently incur expenses for which both restricted and unrestricted net position is available. Assets Held for Future Use—These assets include property acquired but never used by the Department in electrical service and therefore, held for future service under a definitive plan. Also included is property previously used in service but retired and held pending its reuse in the future under a definitive plan. As of December 31, 2015 and 2014, Assets held for future use included the following electrical plant assets: land for future substations, ducts and vaults, transmission lines, and plans for additional hydraulic generating capacity totaling $60.8 million and $71.8 million, respectively. Materials and Supplies—Materials and supplies are generally used for construction, operation and maintenance work, not for resale. They are valued utilizing the average cost method and charged to construction or expense when used. Revenue Recognition—Service rates are authorized by City ordinances. Billings are made to customers on a monthly or bimonthly basis. Revenues for energy delivered to customers between the last billing date and the end of the year are estimated and reflected in the accompanying financial statements as