A History of Looking Forward - Salt River Project

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MANAGEMENT’S FINANCIALAND OPERATIONAL SUMMARYA History of Looking ForwardEnergy Risk Management ProgramThe District’s mission to serve its retail customers is thecornerstone of its risk management approach. The Districtbuilds or acquires resources to serve retail customers, notthe wholesale market. However, as a summer-peakingutility, there are times during the year when the District’sresources or reserves are in excess of its retail load, thusgiving rise to wholesale activity. The District has an EnergyRisk Management Program to limit exposure to risks inherentin retail and wholesale energy business operations byidentifying, measuring, reporting and managing exposure tomarket, credit and operational risks. To meet the goals of theEnergy Risk Management Program, the District uses physicaland financial instruments, including forward contracts,futures, swaps and options. Certain of these transactionsare accounted for under Accounting Standards Codification(ASC) 815, originally Statement of Financial AccountingStandards No. 133, “Accounting for Derivative Instrumentsand Hedging Activities.” For a detailed explanation of theeffects of ASC 815 on the District’s financial results, seeNote 3 in the notes to the Combined Financial Statements.addition, the District has established a credit reserve for itsactivity in wholesale markets. The District believes that itsexisting risk management structure is appropriate and thatany exposures are adequately covered by existing reserves.Electricity PricingThe District has a diversified customer base, with no singleretail customer providing more than 2% of its retail electricrevenues. The District has implemented projects andprograms geared toward enhancing customer satisfactionDEBT RATIO51.6%50.9%50.6%48.9%45.7%The Energy Risk Management Program is managedaccording to a policy approved by the District’s Board ofFY07 FY08 FY09 FY10 FY11Directors and overseen by the Risk Oversight Committee.The policy covers market, credit and operational risks andincludes portfolio strategies, authorizations, value-at-risklimits, stop-loss limits, and notional and duration limits. TheRisk Oversight Committee is composed of senior executives.The District maintains an Energy Risk ManagementDepartment, separate from the energy marketing area,that regularly reports to the Risk Oversight Committee. Inby offering customers a range of pricing and service options.Moreover, the District is one of the low-price leaders inthe Southwest.18SRP 2011 ANNUAL REPORT
The District is a summer-peaking utility and has made aneffort to balance the summer-winter load relationshipsthrough seasonal price differentials. In addition, theDistrict offers prices on a time-of-use basis for residential,commercial and industrial customers.SRP’s retail electric prices consist of three components: baseprices, a Fuel and Purchased Power Adjustment Mechanism(FPPAM) and an Environmental Programs Cost AdjustmentFactor (EPCAF). Base prices can be changed only throughDEBT SERVICE COVERAGE RATIO3.09*2.82*2.782.482.33On March 11, 2010, the District Board approved anoverall 4.9% system average increase effective with theMay 2010 billing cycle. The increase was expectedto generate approximately $117.4 million in FY11. Ofthe increase, $244 million was an adjustment to baseprices and $26.5 million was related to an adjustment tothe EPCAF, both of which were offset by a $153 milliondecrease in the FPPAM. There were no further pricingactions taken in FY11.Capital Improvement ProgramThe Capital Improvement Program is driven by theneed to sustain the generation, transmission anddistribution systems of the District to meet customerelectricity needs and maintain a satisfactory level ofservice reliability. FY11 capital spending levels weresomewhat below original expectations. Generationprojects, 37% of the year’s expenditures, includespending for the Coronado Emission Controls project,which experienced lower expenditures because of morecompetitive prices for mechanical and electrical elementsthan originally forecasted.FY07 FY08 FY09 FY10 FY11*Includes adjustments for Rate Stabilization Fund transactionsa formal public price process, while the FPPAM and EPCAFcan be changed during a price process or with Boardapproval outside of a formal price process, but not morethan once per quarter.Expansion of the electrical distribution system to meet futuregrowth and replace aging underground cable accountedfor 29% of FY11 capital expenditures. Slightly more thanone-quarter of the distribution system spending was for NewBusiness projects. The addition of new transmission facilitiesmade up 14% of the year’s capital expenditures. FY11transmission spending included support for the SoutheastValley transmission project as well as construction costs for ahigh-voltage transmission line.SRP 2011 ANNUAL REPORT19
Page 1 and 2: SRP 2011 Annual ReportA History of
Page 3 and 4: CONTENTSLETTER TO ELECTRIC CUSTOMER
Page 5 and 6: will rebound with even more opportu
Page 7 and 8: Another major challenge before us i
Page 9 and 10: System additions bolster reliabilit
Page 11 and 12: Reservoir reborn to supplement supp
Page 13 and 14: Plan increases commitment to sustai
Page 15 and 16: Smart technology boosts efficiencyS
Page 17 and 18: Contributions, volunteers make a di
Page 22 and 23: SRP BOARDS AND COUNCILS A History o
Page 24 and 25: CORPORATE INFORMATION A History of
Page 26: CONNECT WITH US ONLINE A History of

A History of Looking Forward - Salt River Project

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