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 THE CITY OF SEATTLE—CITY LIGHT DEPARTMENT REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) - 24 - 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City Light Department (the Department) is the public electric utility of The City of Seattle (the City). The Department is an enterprise fund of the City. The Department owns and operates certain generating, transmission, and distribution facilities and supplies electricity to approximately 423,000 residential, commercial, and public customers in the city of Seattle. The Department also supplies electrical energy to other City agencies at rates prescribed by City ordinances, and to certain neighboring communities under franchise agreements. The establishment of the Department’s rates is within the exclusive jurisdiction of the Seattle City Council. A requirement of Washington State law provides that rates must be fair, nondiscriminatory, and fixed to produce revenue adequate to pay for operation and maintenance expenses and to meet all debt service requirements payable from such revenue. The Department pays occupation taxes to the City based on total revenues. The Department’s revenues for services provided to other City departments were $18.0 million and $18.8 million in 2015 and 2014, respectively, and $2.2 million and $3.0 million for non-energy services, respectively. The Department receives certain services from other City departments and paid $64.8 million in 2015 and $50.8 million in 2014, for such services. Amounts paid include central cost allocations from the City for services received including treasury services, risk financing, purchasing, data processing systems, vehicle maintenance, personnel, payroll, legal, administrative, and building rentals, including for the Department’s administrative offices. The Department’s receivables from other City departments totaled $3.5 million and $1.5 million at December 31, 2015, and 2014, respectively. The Department’s payables to other City departments totaled $11.0 million and $10.9 million at December 31, 2015, and 2014, respectively. The balances receivable and payable are the result of transactions incurred in the normal course of operations. Basis of Presentation and Accounting Standards—The financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America as applied to governmental units. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The Department has applied and is current through 2015 with all applicable GASB pronouncements. Effective January 1, 2015, the Department adopted GASB Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27 and Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – an amendment of GASB Statement No. 68. Statement Nos. 68 and 71 establish new accounting and financial reporting requirements for state and local governments related to pensions, including changes to the recognition of liabilities, expenses, deferred outflows of resources, and deferred inflows of resources. See Note 11 Seattle City Employees’ Retirement System for more information related to Statement Nos. 68 and 71. The GASB has issued GASB Statement No. 72, Fair Value Measurement and Application, which provides guidance for determining a fair value measurement for reporting purposes, applying fair values to certain investments, and disclosures related to all fair value measurements. Statement No. 72 is the only new statement effective for the Department in 2016 and the Department is currently evaluating the impact that adoption of this statement will have on its 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 - 25 - 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 unbilled revenue within Retail power revenues. 24