6.1a2 ERMUSR 05-09-2023Minnesota Municipal Power
Agency
Independent Auditor's Report
and Financial Statements
December 31, 2022 and 2021
F A
137
Minnesota Municipal Power Agency
December 31, 2022 and 2021
Contents
Independent Auditor's Report...............................................................................................1
Management's Discussion and Analysis.............................................................................4
Financial Statements
Statements of Net Position....................................................................
Statements of Revenues, Expenses, and Changes in Net Position ........
Statements of Cash Flows.....................................................................
Notes to Financial Statements...............................................................
10
11
12
13
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FORWS
1248 O Street, Suite 1040 / Lincoln, NE 68508
P 402.473.7600 / F 402.473.7698
forvis.com
Independent Auditor's Report
Board of Directors
Minnesota Municipal Power Agency
Minneapolis, Minnesota
Opinion
We have audited the financial statements of Minnesota Municipal Power Agency (the Agency),
as of and for the years ended December 31, 2022 and 2021, and the related notes to the financial
statements, which collectively comprise the Agency's basic financial statements as listed in the
table of contents.
In our opinion, the accompanying financial statements referred to above present fairly, in all
material respects, the financial position of the Agency, as of December 31, 2022 and 2021, and
the changes in financial position and its cash flows for the years then ended in accordance with
accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America (GAAS). Our responsibilities under those standards are further described in
the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our report. We
are required to be independent of the Agency and to meet our other ethical responsibilities, in
accordance with the relevant ethical requirements relating to our audits. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Emphasis of Matter
As discussed in Note 1 to the financial statements, during the year ended December 31, 2022,
the Agency adopted Governmental Accounting Standards Board Statement No. 87, Leases. Our
opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements
in accordance with accounting principles generally accepted in the United States of America and
for 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.
FORVIS is a trademark of FORVIS, LLP, registration of which is pending with the U.S. Patent and Trademark Office
139
PRAXITY
�� mpowering Business Globally
In preparing the financial statements, management is required to evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the Agency's
ability to continue as a going concern for 12 months beyond the financial statement date, including
any currently known information that may raise substantial doubt shortly thereafter.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's
report that includes our opinion. Reasonable assurance is a high level of assurance but is not
absolute assurance and therefore is not a guarantee that an audit conducted in accordance with
GAAS will always detect a material misstatement when it exists. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control. Misstatements are considered material if there is a substantial likelihood that,
individually or in the aggregate, they would influence the judgment made by a reasonable user
based on the financial statements.
In performing an audit in accordance with GAAS, we:
• Exercise professional judgment and maintain professional skepticism throughout the
audit.
• Identify and assess the risks of material misstatement of the financial statements, whether
due to fraud or error, and design and perform audit procedures responsive to those risks.
Such procedures include examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit 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 Agency's internal control. Accordingly,
no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluate the overall
presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the
aggregate, that raise substantial doubt about the Agency's ability to continue as a going
concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit, significant audit findings, and certain internal
control -related matters that we identified during the audit.
140
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the
management's discussion and analysis as listed in the table of contents be presented to
supplement the basic financial statements. Such information is the responsibility of management
and, although not part of the basic financial statements, is required by the Governmental
Accounting Standards Board, who 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 supplementary information
in accordance with GAAS, 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.
FOKV 15, l--P
Lincoln, Nebraska
April 19, 2023
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141
Management's Discussion and Analysis
This discussion and analysis of Minnesota Municipal Power Agency's (the Agency) financial performance
provides an overview of the Agency's activities for the fiscal years ended December 31, 2022 and 2021. The
information presented should be read in conjunction with the basic financial statements and the accompanying
notes to the basic financial statements.
Minnesota Municipal Power Agency is a municipal corporation and a political subdivision of the State of
Minnesota whose purpose is to secure an adequate, economical, and reliable supply of electric energy for its
member municipalities. The Agency currently comprises 12 Minnesota municipalities.
Financial Statements Overview
The Agency follows the Uniform System of Accounts prescribed by the Federal Energy Regulatory
Commission (FERC). The basic financial statements are prepared on the accrual basis of accounting in
accordance with U.S. generally accepted accounting principles. The Agency's basic financial statements
include the statements of net position, the statements of revenues, expenses, and changes in net position, the
statements of cash flows, and notes to the basic financial statements.
The statements of net position provide information about the nature and amount of assets and deferred outflows
of resources, and obligations (liabilities) and deferred inflows of resources of the Agency as of the end of each
year reported. The statements of revenues, expenses, and changes in net position report revenues and expenses.
The statements of cash flows report cash receipts, cash payments, and net changes in cash resulting from
operating, noncapital financing, capital and related financing activities, and investing activities.
Financial Highlights
Comparison of 2022 with 2021
The following table summarizes the financial position of the Agency as of December 31:
Capital and lease assets, net
Current assets
Other noncurrent assets
Total assets
Deferred outflows of resources
Condensed Statements of Net Position
Dollar Percentage
2022 2021 Change Change
(Restated)
S 271,838,721 S 276,717,878
108,893,016 93,507,067
46,323,695 53,383,628
427,055,432
2,535,719
Total assets and deferred outflows S 429,591,151
423,608,573
1,081,069
S 424,689,642
S (4,879,157)
(1.8)%
15,385,949
16.5
(7,059,933)
(13.2)
3,446,859
0.8
1,454,650
134.6
4,901,509 1.2
142
4
Condensed Statements of Net Position
Dollar Percentage
2022 2021 Change Change
(Restated)
Current liabilities
$ 25,231,122
$ 23,779,979
$ 1,451,143
6.1 %
Long-term liabilities
169,984,921
181,468,013
(11,483,092)
(6.3)
Total liabilities
195,216,043
205,247,992
(10,031,949)
(4.9)
Deferred inflows of resources
43,883,594
35,968,649
7,914,945
22.0
Total liabilities and deferred inflows
239,099,637
241,216,641
(2,117,004)
(0.9)
Net position
Net investment in capital assets
102,905,604
97,520,100
5,385,504
5.5
Restricted
3,717,962
4,161,561
(443,599)
(10.7)
Unrestricted
83,867,948
81,791,340
2,076,608
2.5
Total net position
Total liabilities, deferred
inflows, and net position
190,491,514 183,473,001 7,018,513 3.8
$ 429,591,151 $ 424,689,642 $ 4,901,509 1.2
Condensed statement of net position highlights are as follows:
• The assets and deferred outflows of resources of the Agency exceeded its liabilities and deferred inflows
of resources at the close of 2022 by approximately $190.5 million (net position) as compared with
$183.5 million at the end of 2021. Net position provides necessary liquidity to the Agency and supports its
investment -grade credit rating.
• Capital and lease assets, net decreased by approximately $4.9 million during 2022, primarily the result of
depreciation and amortization on capital and lease assets in service. This was partially offset by capital asset
construction expenditures of $11.7 million in 2022.
• Current assets increased by approximately $15.4 million from 2021 to 2022. Cash and cash equivalents
increased by $15.5 million, primarily related to the Agency's change in net position during the year.
• Other noncurrent assets, which include restricted cash, cash equivalents, and investments, prepaid expenses,
and future recoverable costs, decreased by $7.1 million from 2021 to 2022, primarily the result of the
$6.7 million decrease in future recoverable costs related to the levelization of depreciation and amortization,
bond interest, and costs associated with the Agency's generating resources. In 2021, the Agency began
amortizing its remaining deferred cost balance of approximately $50 million over a seven-year period.
• Deferred outflows of resources increased by approximately $1.5 million from 2021 to 2022, primarily as a
result of the Agency's risk management activities and amortization of the Agency's deferred loss on bond
refunding.
• Current liabilities increased by approximately $1.5 million from 2021 to 2022, primarily the result of a $1.5
million change in the value of the Agency's derivative instruments in 2022.
• Long-term liabilities decreased by approximately $11.5 million from 2021 to 2022, primarily the result of
the Agency's principal payments on debt.
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143
• Deferred inflows of resources increased by $7.9 million from 2021 to 2022, primarily the result of a $6.6
million net increase in the Agency's energy adjustment accrual, and net contribution of $1.3 million to its
plant major maintenance accrual.
Comparison of 2021 with 2020
The following table summarizes the financial position of the Agency as of December 31:
Capital and lease assets, net
Current assets
Other noncurrent assets
Total assets
Deferred outflows of resources
Total assets and deferred
outflows
Current liabilities
Long-term liabilities
Total liabilities
Deferred inflows of resources
Total liabilities and deferred inflows
Net position
Net investment in capital assets
Restricted
Unrestricted
Total net position
Total liabilities, deferred inflows
and net position
Condensed Statements of Net Position
Dollar
Percentage
2021
2020*
Change
Change
(Restated)
$ 276,717,878
$ 283,493,313
$ (6,775,435)
(2.4)%
93,507,067
71,004,869
22,502,198
31.7
53,383,628
66,870,974
(13,487,346)
(202)
423,608,573
421,369,156
2,239,417
0.5
1,081,069 1,166,169 (85,100)
$ 424,689,642 $ 422,535,325 $ 2,154,317
$ 23,779,979 $ 19,383,765 $ 4,396,214
181,468,013 192,501,584 (11,033,571)
205,247,992 211,885,349 (6,637,357)
35,968,649
241,216,641
97,520,100
4,161,561
81,791,340
183,473,001
$ 424,689,642
39,503,190
251,388,539
94,288,936
3,984,725
72,873,125
171,146,786
$ 422,535,325
*Amounts have not been restated due to the adoption of GASB 87.
Condensed statement of net position highlights are as follows:
(3,534,541)
(10,171,898)
3,231,164
176,836
8,918,215
12,326,215
$ 2,154,317
(7.3)
0.5
22.7
(5.7)
(3.1)
(8.9)
(4.0)
3.4
4.4
12.2
7.2
0.5
• The assets and deferred outflows of resources of the Agency exceeded its liabilities and deferred inflows
of resources at the close of 2021 by approximately $183.5 million (net position) as compared with
$171.1 million at the end of 2020. Net position provides necessary liquidity to the Agency and supports its
investment -grade credit rating.
• Capital and lease assets, net decreased by approximately $6.8 million during 2021, primarily the result of
depreciation and amortization on capital and lease assets in service. This was partially offset by a net lease
asset remeasurement of $5.9 million due to the adoption of GASB 87 and a $2.5 million land purchase in
2021.
M.
144
• Current assets increased by approximately $22.5 million from 2020 to 2021. Cash and cash equivalents
increased by $18.6 million, primarily related to the Agency's change in net position during the year, and
lower debt service payments because of the 2010A bond redemption in 2020. Power sales and other
receivables increased by $3.9 million primarily because of higher rates to members in 2021.
• Other noncurrent assets, which include restricted cash, cash equivalents, and investments, prepaid expenses,
and future recoverable costs, decreased by approximately $13.5 million from 2020 to 2021, primarily the
result of the $13.1 million decrease in future recoverable costs related to the levelization of depreciation
and amortization, bond interest, and costs associated with the Agency's generating resources. This includes
the $5.9 million decrease of future recoverable costs for the net lease asset remeasurement of $5.9 million
in 2021 due to the adoption of GASB 87. In 2021, the Agency began amortizing its remaining deferred
cost balance of approximately $50 million over a seven-year period.
• Deferred outflows of resources decreased by $0.1 million from 2020 to 2021, primarily as a result of the
Agency's risk management activities and amortization of the Agency's deferred loss on bond refunding.
• Current liabilities increased by approximately $4.4 million from 2020 to 2021, primarily the result of a $4.1
million increase of accounts payable and accrued liabilities from higher operating expenses at the end of
2021.
• Long-term liabilities decreased by approximately $11.0 million from 2020 to 2021, primarily the result of
the Agency's principal payments on debt.
• Deferred inflows of resources decreased by $3.5 million from 2020 to 2021, primarily the result of a $4.4
million usage of the Agency's rate stabilization fund for the February 2021 extreme cold weather event.
This was partially offset by a net increase of $1.8 million in the Agency's energy adjustment accrual, and
net reduction of $0.9 million to its plant major maintenance accrual.
The following table summarizes the changes in financial position of the Agency for the years ended December
31, 2022 and 2021:
Condensed Statements of Revenues, Expenses, and Changes in Net Position
Dollar
Percentage
2022
2021
Change
Change
Operating revenues, power sales
$ 181,242,697
$ 164,036,101
$ 17,206,596
10.5 %
Other nonoperating revenues
966,885
298,991
667,894
223.4
Total revenues
182,209,582
164,335,092
17,874,490
10.9
Operating expenses
161,589,053
137,453,638
24,135,415
17.6
Other nonoperating expenses
6,921,592
7,350,704
(429,112)
(5.8)
Total expenses
168,510,645
144,804,342
23,706,303
16.4
Future recoverable costs
(6,680,424)
(7,204,535)
524,111
(7.3)
Change in net position
7,018,513
12,326,215
(5,307,702)
(431)
Beginning net position
183,473,001
171,146,786
12,326,215
7.2
Ending net position
$ 190,491,514
$ 183,473,001
$ 7,018,513
3.8
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Condensed statements of revenues, expenses, and changes in net position highlights are as follows:
• Operating revenues — power sales increased by approximately $17.2 million between 2022 and 2021,
primarily the result of increased energy sales and higher average rates in 2022 compared to 202 1. Operating
revenues — power sales consist primarily of member power sales revenue, power sales to nonmembers, and
transmission revenue.
• Other nonoperating revenues increased by approximately $0.7 million between 2022 and 2021, primarily
related to higher investment income of $1.1 million because of higher interest rates earned on cash and cash
equivalents in 2022. This was partially offset by a net decrease of $0.6 million in the fair value of
investments in 2022.
• Operating expenses increased by approximately $24.1 million between 2022 and 2021, primarily the result
of a $21.8 million increase in power acquisition expense, and a $2.3 million increase in transmission
expense. These increases are primarily attributable to higher energy market prices in 2022.
• Other nonoperating expenses decreased by approximately $0.4 million between 2022 and 2021, related to
$0.4 million lower interest expense in 2022.
• Future recoverable costs increased by approximately $0.5 million between 2022 and 2021, primarily the
result of the application of the Agency's policy regarding the levelization of costs for generating assets
financed by debt and the application of the Agency's policy of not recognizing the change in value of
investments for ratemaking purposes. In 2021, the Agency began amortizing its remaining deferred cost
balance of approximately $50 million over a seven-year period.
The following table summarizes the changes in financial position of the Agency for the years ended
December 31, 2021 and 2020:
Condensed Statements of Revenues, Expenses, and Changes in Net Position
Dollar
Percentage
2021
2020*
Change
Change
Operating revenues, power sales
$ 164,036,101
$ 136,821,879
$ 27,214,222
19.9 %
Other nonoperating revenues
298,991
4,772,085
(4,473,094)
(93.7)
Total revenues
164,335,092
141,593,964
22,741,128
16.1
Operating expenses
137,453,638
103,048,593
34,405,045
33.4
Other nonoperating expenses
7,350,704
11,950,760
(4,600,056)
(38.5)
Total expenses
144,804,342
114,999,353
29,804,989
25.9
Future recoverable costs
(7,204,535)
3,952,859
(11,157,394)
(282.3)
Change in net position
12,326,215
30,547,470
(18,221,255)
(59.6)
Beginning net position
171,146,786
140,599,316
30,547,470
21.7
Ending net position
$ 183,473,001
$ 171,146,786
$ 12,326,215
7.2
*Amounts have not been restated due to the adoption of GASB 87.
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146
Condensed statements of revenues, expenses, and changes in net position highlights are as follows:
• Operating revenues — power sales increased by approximately $27.2 million between 2021 and 2020,
primarily the result of increased energy sales and higher average rates in 2021 compared to 2020. Operating
revenues — power sales consist primarily of member power sales revenue, power sales to nonmembers, and
transmission revenue.
• Other nonoperating revenues decreased by approximately $4.5 million between 2021 and 2020, primarily
related to the recognition of $1.8 million in proceeds received for the termination of a purchased power
agreement, and a $1.5 million gain on the sale of investments in connection with the 2010A bond
redemption, both occurring in 2020. In addition, the Agency had lower investment income of $1.1 million,
because of lower interest rates earned on cash and cash equivalents in 2021.
• Operating expenses increased by approximately $34.4 million between 2021 and 2020, primarily the result
of a $25.1 million increase in power acquisition expense, a $4.0 million increase in transmission expense,
and a $3.4 million increase in other operating expenses. These increases are primarily attributable to higher
energy market prices and increased demand in 2021.
• Other nonoperating expenses decreased by approximately $4.6 million between 2021 and 2020, primarily
related to $3.0 million lower interest expense in 2021 because of the 2010A bond redemption in 2020. In
addition, there was a lower net decrease of $0.8 million in the fair value of investments, and no loss on
extinguishment of debt in 2021.
• Future recoverable costs decreased by approximately $11.2 million between 2021 and 2020, primarily the
result of the application of the Agency's policy regarding the levelization of costs for generating assets
financed by debt and the application of the Agency's policy of not recognizing the change in value of
investments for ratemaking purposes. In 2021, the Agency began amortizing its remaining deferred cost
balance of approximately $50 million over a seven-year period.
Debt Administration
As of December 31, 2022 and 2021, the Agency had long-term debt outstanding of approximately
$149.7 million and $158.3, respectively.
On October 1, 2020, the Agency redeemed the remaining Series 2010A bonds in the amount of $67.8 million.
The Agency continued to hold an Al rating from Moody's in 2022. Fitch upgraded the Agency's bond rating
from A+ to AA- in 2022.
Other Factors
During February 2021, a polar vortex resulted in persistent and extreme cold weather that covered most of the
United States, including the Midcontinent Independent System Operator (MISO) region. This weather event
led to an increase in energy demand while some generating facilities faced fuel -supply issues and equipment
failures that stressed the bulk electric system. As a result of these factors, the market experienced extreme price
volatility for utilities buying or selling energy during this weather event. During this period, the Agency
incurred some higher than anticipated costs to provide energy to its members, and utilized approximately $4.4
million from its rate stabilization fund to help mitigate the impact of these additional costs.
Contact Information
This financial report is designed to provide a general overview of the Agency's finances. Questions concerning
any of the information provided in this report or requests for additional information should be addressed to
Avant Energy, Inc., 220 South Sixth Street, Suite 1300, Minneapolis, Minnesota 55402.
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147
Minnesota Municipal Power Agency
Statements of Net Position
December 31, 2022 and 2021
Assets and Deferred Outflows of Resources
Current Assets
Cash and cash equivalents
Restricted cash and cash equivalents
Accrued interest receivable
Power sales and other receivables
Fuel inventory
Plant inventory — spares
Prepaid expenses
Total current assets
Noncurrent Assets
Capital and lease assets
Electric generation assets
Land
Less: accumulated depreciation and amortization
Property and equipment, net
Construction in progress
Total capital and lease assets, net
Restricted cash, cash equivalents, and investments
Prepaid expenses
Future recoverable costs
Total noncurrent assets
Total assets
Deferred Outflows of Resources
Deferred outflows of resources — other
Total assets and deferred outflows of resources
Liabilities, Deferred Inflows of Resources and Net Position
Current Liabilities
Accounts payable and accrued liabilities
Accrued interest payable
Long-term debt due within one year
Lease liability due within one year
Derivative instruments — futures
Total current liabilities
Noncurrent Liabilities
Long-term debt, net
Lease liability, net
Total noncurrent liabilities
Total liabilities
Deferred Inflows of Resources
Rate stabilization
Other
Total liabilities and deferred inflows of resources
Net Position
Net investment in capital assets
Restricted for debt service
Unrestricted
Total net position
Total liabilities, deferred inflows of resources and net position
2022 2021
$ 84,540,189
3,717,962
80,056
13,541,148
1,311,252
4,011,136
1,691,273
108,893,016
421,997,302
10,893,841
(170 6R7 0711
9,629,651
271,838,721
(Restated)
$ 69,052,676
4,161,561
79,220
14,064,722
1,034,789
3,594,346
1 510 751
419,860,782
10,224,212
(1 ';A 075Z 1561
711,040
276,717,878
10, 501, 812
10, 846, 803
406,168
440,686
35,415,715
42,096,139
318,162,416
330,101,506
427,055,432
423,608,573
2,535,719
1,081,069
$ 429,591,151 $ 424,689,642
$ 11,630,095 $ 12,078,506
1,713,704
1,808,471
8,988,333
8,613,333
1,349,140
1,274,619
1,549,850
5,050
I5 111 1 11)
1 q 770 070
157,353,3 86
12,631,535
167,487,339
13,980,674
169,984,921
181,468,013
195,216,043
205,247,992
28,671,000 28,671,000
15,212,594 7,297,649
710 000 F17 7d1 71 F CA
102,905,604
3,717,962
83,867,948
100AQ1 51d
$ 429,591,151
97, 520,100
4,161,561
81,791,340
1 RZ d7z Ml'1
$ 424,689,642
See Notes to Financial Statements
10
Minnesota Municipal Power Agency
Statements of Revenues, Expenses, and Changes in Net Position
Years Ended December 31, 2022 and 2021
Operating Revenues
Power sales to members
Power sales to nonmembers
Total operating revenues
Operating Expenses
Power acquisition expense
Transmission
Other operating expenses
Depreciation and amortization
Total operating expenses
Operating income
Nonoperating Revenues (Expenses)
Interest expense
Investment income
Other
Total nonoperating revenues (expenses), net
Change in net position before future recoverable costs
Future Recoverable Costs
Change in net position
Net Position, Beginning of Year
Net Position, End of Year
2022
2021
(Restated)
$ 179,379,170
$ 162,539,641
1,863,527
1,496,460
181,242,697
164, 03 6,101
87,143,584
65,321,061
27,169,825
24,901,889
30,671,727
30,774,486
16,603,917
16,456,202
161,589,053
137,453,638
19,653,644
26,582,463
(6,921,592)
(7,350,704)
966,885
235,991
-
63,000
(5,954,707)
(7,051,713)
13,698,937
(6,680,424)
7,018,513
183,473,001
$ 190,491,514
19,530,750
(7,204,535)
12,326,215
171,146,786
$ 183,473,001
See Notes to Financial Statements
149
11
Minnesota Municipal Power Agency
Statements of Cash Flows
Years Ended December 31, 2022 and 2021
2022
2021
(Restated)
Cash Flows from Operating Activities
Receipts from power sales
$ 181,766,271
$ 155,855,648
Payments for power acquisition/production and operating expenses
(138,650,041)
(116,121,534)
Net cash provided by operating activities
43,116,230
39,734,114
Cash Flows from Noncapital Financing Activities
Other nonoperating receipts
-
63,000
Net cash provided by noncapital financing activities
-
63,000
Cash Flows from Capital and Related Financing Activities
Construction of capital assets
(11,423,575)
(3,678,388)
Principal payments on electric revenue bonds
(8,613,334)
(8,268,333)
Principal payments on lease
(1,274,618)
(1,205,524)
Payment of interest
(8,071,828)
(8,494,587)
Net cash used in capital and related financing activities
(29,383,355)
(21,646,832)
Cash Flows from Investing Activities
Proceeds from sales of investments
13,740,255
11,640,636
Purchase of investments
(11,640,256)
(11,640,636)
Interest received
1,602,537
477,646
Net cash provided by investing activities
3,702,536
477,646
Net change in cash and cash equivalents
17,435,411
18,627,928
Cash and cash equivalents, beginning of year
73,269,678
54,641,750
Cash and cash equivalents, end of year
$
90,705,089
$
73,269,678
Composition of Cash and Cash Equivalents
Cash and cash equivalents
$
84,540,189
$
69,052,676
Restricted cash and cash equivalents
6,164,900
4,217,002
Cash and cash equivalents, end of year
$
90,705,089
$
73,269,678
Reconciliation of Operating Income to Net Cash Provided by
Operating Activities
Operating income
$
19,653,644
$
26,582,463
Adjustments to reconcile operating income to net cash
provided by operating activities:
Depreciation and amortization
16,603,917
16,456,202
Change in deferred inflows of resources — rate stabilization
-
(4,400,000)
Change in deferred inflows of resources — other
7,914,945
865,459
Changes in current assets and liabilities
Power sales and other receivables
523,574
(3,780,453)
Fuel inventory
(276,463)
89,990
Plant inventory — spares
(416,790)
8,977
Prepaid expenses
(137,002)
(34,730)
Accounts payable and accrued liabilities
(749,595)
3,946,206
Total adjustments
23,462,586
13,151,651
Net cash provided by operating activities
$
43,116,230
$
39,734,114
Supplemental Cash Flows Information
Amortization of premium on electric revenue bonds
$
1,145,619
$
1,145,619
Capital and lease assets in accounts payable and accrued liabilities
424,900
129,394
Change in fair value of investments
(765,617)
(241,505)
See Notes to Financial Statements
150
12
Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 1: Organization and Significant Accounting Policies
Organization and Operation
Minnesota Municipal Power Agency (the Agency) was created as a municipal corporation and a political
subdivision of the State of Minnesota by an agency agreement recorded with the Secretary of the State
of Minnesota on May 11, 1992. The Agency's purpose is to secure an adequate, economical, and reliable
supply of electric energy for its member municipalities. As of December 31, 2022, the Agency comprises
12 Minnesota municipalities.
The accompanying financial statements present the Agency and its component units, entities for which
the Agency is considered to be financially accountable. Blended component units, although legally
separate entities, are, in substance, part of the Agency's operations.
Blended Component Units: The Agency owns 100% of Minnesota Renewable Energy, LLC. Minnesota
Renewable Energy, LLC owns 100% of Oak Glen Wind Farm, LLC and 100% of Hometown BioEnergy,
LLC. Oak Glen Wind Farm, LLC is responsible for the operation of Oak Glen Wind Farm, a 44 megawatt
(MW) wind project located in Steele County, Minnesota. Hometown BioEnergy, LLC is responsible for
the operation of the Hometown BioEnergy project, an 8 MW renewable energy project located in Le
Sueur, Minnesota. The Agency owns 100% of Hometown GeoPower, LLC. Hometown GeoPower, LLC
provides services to residents of the Agency's member municipalities. The Agency owns 100% of
MMPA Transmission LLC. MMPA Transmission LLC holds the Agency's transmission -related assets.
Complete unaudited financial statements for each of the individual component units may be obtained
from the Agency. Separate audited financial statements for MMPA Transmission LLC may also be
obtained from the Agency.
The Agency sells power to its members under long-term power sales contracts. Ten of the Agency's
power sales contracts with members have a term that expires December 31, 2050. Two of the Agency's
power sales contracts with members have a term that expires October 31, 2040. Under the terms of these
contracts, the Agency is obligated to furnish, and each member is obligated to take and pay for, the total
power and energy required by each member.
The Agency has entered into agreements with various providers to purchase accredited power and energy
during 2022. The power capacity charge for 2022 is approximately $2.5 million. Capacity commitments
and charges include 41 MW of capacity purchased pursuant to an agreement with the City of Chaska, a
member of the Agency. Under the terms of that agreement and its amendment, the Agency has agreed to
make certain payments to the City of Chaska in exchange for the peaking power capacity provided by
specified generation facilities owned by the City of Chaska in an amount at least sufficient, together with
certain available interest income, to pay the principal of and interest on the bonded indebtedness issued
by the City of Chaska for the construction of the generation facility.
13
151
Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 1: Organization and Significant Accounting Policies - Continued
Organization and Operation -Continued
Minimum commitments under the terms of the power sales agreements to purchase power capacity for
the next five years are as follows:
Megawatts
Year ending December 31:
2023 121
2024 126
2025 131
2026 131
2027 136
The Agency purchases transmission services from the Midcontinent Independent System Operator, Inc.
(MISO) at tariff -based rates.
The Agency enters into contracts in connection with the purchase, generation, and sale of electric power
to or from its member cities, MISO, and other wholesale market participants. A substantial portion of
these contracts are for the purchase of natural gas at power plants owned and operated by the Agency
and for the physical delivery of power to designated interconnection points on the electric grid as a normal
course of business. Substantially all of the Agency's power purchases and sales are with MISO. The
Agency also enters into futures or forward contracts to manage exposure to unfavorable trends in the
prices of fuel (natural gas) and electric power, which are directly related to the business of the Agency.
Open positions at the end of the year are carried at fair value in the Agency's financial statements with
an offsetting deferral amount to reflect the effectiveness of the risk management activity.
Additionally, the Agency has agreements for dispatching, billing, maintenance services, and other
general administration. The Agency has a contract with Avant Energy, Inc. to manage the Agency, which
terminates on December 31, 2030. The Agency has no employees.
Basis of Accounting
The Agency follows the FERC's Uniform System of Accounts and maintains accounting records on an
accrual basis in conformity with U.S. generally accepted accounting principles, including the application
of Governmental Accounting Standards Board (GASB) Codification Section ReIO, Regulated
Operations. The guidance allows for the deferral of revenues and expenses to future periods in which
the revenues are earned or the expenses are recovered through the rate -making process.
14
152
Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 1: Organization and Significant Accounting Policies - Continued
Capital Assets
The Agency follows a preventative and predictive approach to its maintenance of the Faribault Energy
Park (FEP) facility. In doing so, it inspects the combustion turbine and steam turbine and performs major
maintenance at intervals suggested by the turbine manufacturers. Periodically, one set of combustion
parts is removed from the turbine and a replacement set is rotated into the turbine. The parts that have
been removed are refurbished and are then ready to be rotated back into the turbine at the next major
maintenance cycle. The Agency is depreciating the cost of the combustion turbine spare parts over the
remaining life of the FEP asset. The amount on the statements of net position is the gross acquisition
cost, with depreciation associated with the parts included in accumulated depreciation.
Equipment is recorded at cost and consists of telecommunication equipment, transportation equipment,
and certain maintenance/testing equipment. Depreciation is provided over the estimated useful lives of
the property and equipment by use of the straight-line method. Generally, the estimated useful life is
30 years for electric plant, 40 years for transmission assets, and 5 years for telecommunications
equipment and transportation equipment. Other specialized equipment may differ.
Lease Assets
Lease assets are initially recorded at the initial measurement of the lease liability, plus lease payments
made at or before the commencement of the lease term, less any lease incentives received from the lessor
at or before the commencement of the lease, plus initial direct costs that are ancillary to place the assets
into service. Lease assets are amortized on a straight-line basis over the shorter of the lease term or the
useful life of the underlying asset.
Capital and Lease Asset Impairment
The Agency evaluates capital and lease assets for impairment whenever events or circumstances indicate
a significant, unexpected decline in the service utility of a capital or lease asset has occurred. If a capital
or lease asset is tested for impairment and the magnitude of the decline in service utility is significant
and unexpected, the capital or lease asset historical cost and related accumulated depreciation or
amortization are decreased proportionately such that the net decrease equals impairment loss. No asset
impairment was recognized during the years ended December 31, 2022 and 2021.
Restricted Cash, Cash Equivalents, and Investments
The Agency's bond resolution requires the segregation of bond proceeds and prescribes the application
of the Agency's revenues. Amounts classified as restricted cash and cash equivalents on the statements
of net position represent cash and cash equivalents whose use is restricted by the bond resolution. It is
the Agency's policy to use restricted resources first for debt service and then unrestricted resources as
they are needed.
15
153
Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 1: Organization and Significant Accounting Policies - Continued
Investments and Investment Income
The Agency's investments in money market accounts are carried at cost, which approximates fair value.
All other investments are reported at fair value based on quoted market prices. Investment income
consists of interest and dividend income, the net change for the year in the fair value of investments
carried at fair value, and realized gains and losses from sales and maturities of investment securities.
Regulated Operations
Future Recoverable Costs
Rates charged to members include amounts sufficient to pay levelized principal and interest payments
on long-term debt. For financial reporting purposes, the Agency recognizes depreciation and
amortization pertaining to capital and lease assets and other assets financed by long-term debt in
addition to interest paid on such debt. As permitted by the application of GASB Codification Section
Re10, Regulated Operations, the Agency defers the current depreciation, amortization, and interest
costs in excess of levelized principal and interest costs on long-term debt for assets placed into service
prior to September 24, 2013 and after December 15, 2015. These costs will be recovered through rates
charged to members in future periods when the levelized costs of principal and interest on long-term
debt exceed the then current depreciation and amortization and interest costs related to such issues.
In December 2020, the Agency's Board of Directors approved amortizing these remaining deferred
costs, which amounted to approximately $50 million at December 31, 2020, over a seven-year period
beginning in 2021. In accordance with GASB Codification Section ReIO, Regulated Operations, this
amortization is factored into the Agency's rate -setting process.
For financial reporting purposes, the Agency also reports investments and restricted investments at
fair value. As permitted by the application of GASB Codification Section ReIO, Regulated
Operations, the Agency defers changes in the fair value of investments and restricted investments that
the Agency intends to hold to maturity.
Deferred Inflows of Resources Rate Stabilization
In setting rates, the Agency has from time to time deferred revenues from a current period to a future
period to support the Agency's goal of providing stable long-term rates to members. These deferred
revenues are reported as deferred inflows of resources — rate stabilization on the Agency's statements
of net position.
The Agency's Board of Directors approved the use of $4.4 million of the rate stabilization fund to
cover higher energy costs related to the extreme cold weather event that occurred in February 2021.
16
154
Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 1: Organization and Significant Accounting Policies - Continued
Deferred Inflows of Resources Other
Deferred inflows of resources — other includes the amount accrued by the Agency for future major
maintenance of its combustion turbine and steam turbine generation resources. As permitted by the
application of GASB Codification Section Re 10, Regulated Operations, the Agency recognizes major
maintenance expense for combustion turbine and steam turbine generation resources both on a
per -start basis and over time. These expenses are accrued as a deferred inflow of resources. The
accrued amount is reduced when the Agency performs major maintenance on its combustion turbine
and steam turbine generation resources.
Deferred inflows of resources — other also includes the amount accrued by the Agency related to the
operation of its Energy Adjustment Clause.
Unamortized Debt Premium
The Agency's debt premium is amortized over the repayment period of the related issues using the
straight-line method, which approximates the effective -interest method.
Cash and Cash Equivalents
For purposes of the statements of cash flows, cash equivalents are cash and equivalents and investments
having an initial maturity of three months or less when purchased.
Power Sales Receivables
Power sales receivables represent power sales for the period between the last billing date and the end of
the period that are accrued in the period earned.
Fuel Inventory and Plant Inventory — Spares
Fuel inventory and plant inventory — spares are valued on a cost basis, using the first -in, first -out
(FIFO) method, which does not exceed market.
Deferred Outflows of Resources
Deferred outflows of resources include the unamortized difference between reacquisition price and net
carrying amount related to the Agency's bond refunding activities. The deferred outflows of resources
related to the bond refunding activities will be amortized through 2034. Deferred outflows of resources
also include the offsetting deferral amount to reflect the effectiveness of the Agency's hedging derivative
instruments.
17
155
Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 1: Organization and Significant Accounting Policies - Continued
Derivative Instruments - Futures
The Agency engages in certain futures market activities to manage future energy acquisition cost risk.
The Agency may enter into energy financial futures contracts to buy or sell energy in order to manage
the risk of volatility in the market price of anticipated energy transactions. The Agency does not enter
into derivative instruments for speculative purposes. Fair value is estimated by comparing contract prices
to forward market prices quoted by independent third -party pricing services. The Agency's derivative
instruments are considered effective and are recorded as either an asset or liability on the statement of
net position, with an offsetting deferred inflow or outflow of resources.
Rates
Rates and charges for providing wholesale power supply are reviewed and adopted by the Agency's
board of directors. Power supply services provided by the Agency are not subject to state or federal rate
regulation.
Revenue Recognition
The Agency recognizes revenue on sales when the electricity is provided to and used by the customers.
The Agency reports only the net amount of operating revenues — power sales and power purchases
expense resulting from its transactions with MISO as revenue.
Operating Revenues and Expenses
Operating revenues result from exchange transactions associated with the principal activity of the
Agency, the sale of electricity. Reported operating revenues are affected by contributions to or
distributions from the rate stabilization account. Operating expenses are defined as expenses directly
related to, or incurred in support of, the production and transmission of electricity to the participating
members. All other expenses are classified as nonoperating expenses.
Income Taxes
The Agency is exempt from federal and state income taxes as it is a political subdivision of the State of
Minnesota.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets,
deferred outflows of resources, liabilities and deferred inflows of resources and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the 2021 financial statements to conform to the 2022 financial
statement presentation. These reclassifications had no impact on the change in net position.
18
156
Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 1: Organization and Significant Accounting Policies - Continued
Change in Accounting Principles
During 2022, the Agency adopted GASB Statement No. 87, Leases (GASB 87). This statement
supersedes portions of GASB Statement No. 62 and establishes new requirements for calculating and
reporting the Agency's lease activities. The adoption date of GASB 87 is reflected as of January 2021
and required the Agency to remeasure its lease asset to agree to the related lease liability balance at the
lease adoption date of January 1, 2021. This remeasurement increased the beginning balance of capital
assets by $5,883,103 and decreased the beginning balance of future recoverable costs by an equal amount.
This remeasurement had no impact on the Agency's previously reported change in net position.
Note 2: Cash, Cash Equivalents, and Investments
The agency agreement that established the Agency and the bond resolution, under which the Electric
Revenue Bonds were issued, provides for the creation and maintenance of certain funds and accounts.
The funds and accounts consist principally of deposits and investments in accordance with the agency
agreement, bond resolution, and applicable state law. Funds and accounts are reported in the financial
statements as follows:
Current assets
Cash and cash equivalents
Restricted cash and cash equivalents
Noncurrent assets
Restricted cash and cash equivalents
Restricted investments
Total
December 31
2022
2021
$ 84,540,189
$ 69,052,676
3,717,962
4,161,561
88,258,151
73,214,237
2,446,938
55,441
8,054,874
10,791,362
10,501,812
10,846,803
$ 98,759,963 $ 84,061,040
157
19
Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 2: Cash, Cash Equivalents, and Investments - Continued
hi accordance with its investment policy, the Agency invests in the following types of investments,
subject to the limitations and requirements of Minnesota statutes:
• Interest bearing checking accounts
• U.S. Treasury bills, bonds, and notes
• U.S. government agencies and instrumentalities securities
• State and local securities
• Minnesota Joint Powers Investment Trusts
• Certificates of deposit
• Banker's acceptances of U.S. banks eligible for purchase by the Federal Reserve System
• Commercial paper issued by U.S. corporations or their Canadian subsidiaries, of the highest quality
and maturing within 270 days
• Money market mutual funds — open-end, no-load
• Guaranteed investment contracts
• Repurchase agreements fully (100%) collateralized by U.S. securities
Interest Rate Risk
Interest rate risk is the risk that the fair value of investments will be adversely affected by a change in
interest rates.
The Agency had the following investments and maturities as of December 31, 2022 and 2021:
Maturities in Years
Carrying
Less
More
Value
Than 1 1 - 5 6 - 10
Than 10
December 31, 2022
U.S. government agencies
$ 8,054,874
$ 5,878,794 $ - $ -
$
2,176,080
Money market accounts
90,705,089
90,705,089 -
-
$ 98,759,963
$ 96,583,883 $ - $ -
$
2,176,080
December 31, 2021
U-S_ government agencies
$ 10,791,362
$ 8,048,824 $ - $ -
$
2,742,538
Money market accounts
73,269,678
73,269,678 -
-
$ 84,061,040
$ 81,318,502 $ - $ -
$
2,742,538
20
158
Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 2: Cash, Cash Equivalents, and Investments - Continued
Credit Risk
Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations.
Credit risk is measured using credit quality ratings of investments in debt securities as described by
nationally recognized rating agencies such as Standard & Poor's and Moody's. The certificates of deposit
are FDIC insured. The money market accounts are invested in short-term U.S. government securities
and commercial paper.
The following tables list the credit quality ratings per Standard & Poor's and/or Moody's of the Agency's
investments as of December 31, 2022 and 2021:
December 31, 2022
Quality ratings
Carrying
Value AA AAA Unrated
Investment type
U.S. government agencies $ 8,054,874 $ 8,054,874-
Money market accounts 90,705,089 - 6,164,900 84,540,189
Total $ 98,759,963 $ 8,054,874 $ 6,164,900 $ 84,540,189
December 31, 2021
Quality ratings
Carrying
Value AA AAA Unrated
Investment type
U-S_ government agencies $ 10,791,362 $ 10,791,362 $ - $ -
Money market accounts 73,269,678 - 4,217,002 69,052,676
Total $ 84,061,040 $ 10,791,362 $ 4,217,002 $ 69,052,676
Custodial Credit Risk
Custodial credit risk is the risk that, in the event of the failure of a counterparty, the Agency will not be
able to recover the value of the investments, collateral securities, or deposits that are in the possession of
the counterparty. The Agency's investment policy addresses, among other things, custodial credit risk.
At December 31, 2022 and 2021, all of the Agency's investments are insured and registered and are held
by the counterparty's trust department or agent in the Agency's name.
21
159
Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 2: Cash, Cash Equivalents, and Investments - Continued
Concentration of Credit Risk
Concentration of credit risk is the risk associated with the amount of investments the Agency has with
any one issuer that exceeds 5% or more of its total investments. Investments issued or explicitly
guaranteed by the U.S. Government are excluded from this requirement. The Agency does not have an
investment policy related to investing 5% or more of the Agency's portfolio in the securities of a single
issue. At December 31, 2022 and 2021, the Agency had the following investment concentrations:
Portfolio Composition
December 31,
2022 2021
Federal Home Loan Mortgage Corporation 6.0% 7.1%
Investment Income
Investment income was comprised of the following for the years ended December 31, 2022 and 2021:
Interest and dividend income
Net decrease in the fair value of investments
Realized gains on sales of investments
Net investment income
2022 2021
$ 1,603,373
(765,617)
129.129
$ 477,496
(241,505)
$ 966,885 $ 235,991
160
22
Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 3: Capital and Lease Assets
Capital and lease assets activity was as follows:
2022
Beginning
Ending
Balance
Additions
Retirements Transfers
Balance
Nondepreciable capital and lease assets
Constructi on work in progress
$ 711,040
$ 11,723,975
$ $ (2,805,364)
$ 9,629,651
Land
10,224,212
785
668,844
10,893,841
Depreciable capital and lease assets
Telemetering and telecommunication
1,341,705
-
-
1,341,705
Lease asset
17,300,349
-
-
17,300,349
Electric plant
391,374,523
-
- 2,136,520
393,511,043
Rotable combustion turbine parts
9,844,205
-
- -
9,844,205
Less accuniAated depreciation and
amortization for
Lease assets in service
(1,655,639)
(1,676,219)
- -
(3,331,857)
Electric plant assets in service
(152,422,518)
(14,927,698)
- -
(167,350,216)
Capital and lease assets, net
$ 276,717,878
$ (I 879,157)
$ - $ -
$ 271,938,721
2021
Beginning
Ending
Balance*
Additions
Retirements Transfers
Balance
Nondepreciable capital assets
Construction work in progress
$ 1,143,638
$ 3,778,414
$ $ (4,211,012)
$ 711,040
Land
7,693,006
19,250
2,511,956
10,224,212
Depreciable capital and lease assets
Telemetering and telecommunication
1,341,705
-
-
1,341,705
Lease asset
16,460,817
-
839,532
17,300,349
Electric plant
390,514,999
-
859,524
391,374,523
Rotable combustion turbine parts
9,844,205
-
- -
9,844,205
Less accurnulated depreciation and
amortization for
Lease assets in service
-
(1,655,638)
- -
(1,655,638)
Electric plant assets in service
(137,621,954)
(14,800,564)
- -
(152,422,518)
Capital and lease assets, net
$ 289,376,416
$ (12,658,538)
$ - $ -
$ 276,717,878
*As restated due to adoption of GASB 87.
161
23
Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 4: Long -Term Liabilities
The Agency has issued the following Electric Revenue Bonds to finance its construction activities:
Series 2009A, 1.40%, due October 1, 2009 to 2023
Series 2013, 3.00%5.00%, due October 1, 2014 to 2023
Series 2014, 2.00%-5.00%, due October 1, 2015 to 2044
Series 2014A, 3.50%5.00%, due October 1, 2016 to 2035
Series 2016, 2.13%-5.00%, due October 1, 2018 to 2047
Total bonds outstanding
Less current maturities
Add unamortized premium
Debt service requirements on the outstanding bonds are as follows:
Year
2022 2021
$ 333,333
2,180,000
33,315,000
56,125,000
57,700,000
149,653,333
(8,988,333)
16,688,386
$ 157,353,386
$ 666,667
4,275,000
35,180,000
59,225,000
58,920,000
158,266,667
(8,613,333)
17,834,005
$ 167,487,339
incipal Interest Total
2023
$ 8,988,333
$ 6,854,810
$ 15,843,143
2024
6,760,000
6,449,944
13,209,944
2025
7,105,000
6,111,944
13,216,944
2026
7,435,000
5,780,094
13,215,094
2027
7,810,000
5,408,344
13,218,344
2028-2032
44,575,000
21,486,287
66,061,287
2033-2037
34,015,000
11,179,075
45,194,075
2038-2042
15,170,000
6,428,800
21,598,800
2043-2047
17,795,000
2,689,450
20,484,450
$ 149,653,333
$ 72,388,748
$ 222,042,081
24
162
Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 4: Long -Term Liabilities - Continued
The Agency has an agreement with the City of Chaska to purchase capacity, described more fully in
Note 1. The agreement is without collateral. A portion of the payments under this agreement are
accounted for as a lease. The Agency also has an equipment lease agreement with the City of Chaska.
Future minimum payments under these agreements are as follows:
Year
2023
2024
2025
2026
2027
2028-2031
Pr
$ 1,349,140
1,428,066
1,511,659
1,600,198
1,693,975
6,397,637
$ 13,980,675
Interest
$ 763,430
684,504
600,910
512,372
418,595
644,264
$ 3,624,075
Executory
Costs
$ 435,808
435,808
435,808
435,808
435,808
1,504,324
$ 3,683,364
$ 2,548,378
2,548,378
2,548,377
2,548,378
2,548,378
8,546,225
$ 21,288,114
Long-term liability activity for the years ended December 31, 2022 and 2021 was as follows:
Beginning Ending Due Within
December 31. 2022 Balance Additions Reductions Balance One Year
Long-term bonds
$
158,266,667
$
$ (8,613,334)
$
149,653,333
$
8,988,333
Add unamortizedpremium
17,834,005
(1,145,619)
16,688,386
-
Long-term bonds, net
176,100,672
(9,758,953)
166,341,719
8,988,333
Lease liability
15,255,293
(1,274,618)
13,980,675
1,349,140
Total long-term liabilities
$
191,355,965
$
$ (11,033,571)
$
180,322,394
$
10,337,473
Beginning
Ending
Due Within
December 31, 2021
Balance
Additions
Reductions
Balance
One Year
Long-term bonds
$
166,535,000
$
$ (8,268,333)
$
158,266,667
$
8,613,333
Add unamortizedpremium
18,979,624
(1,145,619)
17,834,005
-
Long-term bonds, net
185,514,624
(9,413,952)
176,100,672
8,613,333
Lease liability
16,460,817
(1,205,524)
15,255,293
1,274,619
Total long-term liabilities
$
201,975,441
$
$ (10,619,476)
$
191,355,965
$
9,887,952
25
163
Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 5: Derivatives and Financial Instruments
The Agency has entered into financial futures contracts to manage the risk of volatility of future cash
flows associated with the purchase of energy because of commodity price volatility. By entering into
these arrangements, the Agency will receive and make payments based on market prices without actually
entering into the related commodity transactions. These arrangements are considered derivative
instruments under the provisions of GASB Codification Section D40, Derivative Instruments. In
accordance with this guidance, as the Agency's derivative instruments are considered effective hedges,
the accumulated change in fair value of these derivative instruments is recognized as a deferred inflow
or outflow of resources on the statements of net position. The fair value of these contracts is determined
by comparing the contract price to the forward market prices quoted by an independent external pricing
service. Realized gains and losses from derivative instruments are recognized as power acquisition
expense on the statements of revenues, expenses and changes in net position in the month the contract
expires.
Notional Values — As of December 31, 2022 and 2021, the Agency had 200 and 63 total outstanding
contracts, respectively. These contracts are structured with a standard quantity of 10,000 MMBtu per
contract.
Credit risk — Credit risk is the risk that results when counterparties or the clearing agent are unable or
unwilling to fulfill their obligations. The Agency addresses this risk with the counterparties by executing
these contracts using an independent clearing agent, which requires collateral and will spread any unfilled
obligations across all participants utilizing their services. The risk of default by the clearing agent is
mitigated by their membership in the commodities clearing house, which requires collateral and guaranty
funds by each clearing agent to be used to offset any socialized unfilled obligations between member
clearing agents.
Basis risk— Basis risk is the risk that arises when variable rates or prices of a derivative instrument and
the risk exposure being managed are based on different reference rates. The Agency is exposed to this
risk because of a difference in commodity value between different generating sites and delivery points
or between cash market prices and the pricing points used in the MISO financial market.
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Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 6: Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Fair value measurements must
maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy
of three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities
Level Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3 Unobservable inputs supported by little or no market activity and are significant to the fair
value of the assets or liabilities
The Agency's investment in money market accounts are carried at cost and thus are not included within
the fair value hierarchy.
Valuation Methodologies
U.S. Government Securities: The fair value of U. S. government securities is derived from quoted prices
on similar assets in active or non -active markets, from other observable inputs such as interest rates, yield
curves, or credit spreads, and inputs that are derived from or corroborated by observable market data.
U.S. treasury and other federal agency securities are included as Level 2 assets.
Derivative Instruments: Energy financial futures contracts uses the market approach based on monthly
quoted prices from an independent external pricing service using market quotes. The market is not active
to the point where identical contracts are available on a regular basis. These derivative instruments are
included as Level 2 liabilities.
Note 7: Power Acquisition Expense
Power acquisition expense consists primarily of power purchases, production fuel, and related expenses.
The Agency sells substantially all of the power and energy produced by its generating facilities into the
MISO market and purchases substantially all of its power and energy needs for sales to members and
others from the MISO market. The Agency reports its purchases from and sales to MISO on a net basis.
The components of power acquisition expense are as follows:
Power purchases
Production fuel
Total power acquisition expense
2022 2021
$ 52,413,418 $ 42,624,643
34,730,166 22,696,418
$ 87,143,584 $ 65,321,061
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Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 8: Credit Facilities
The Agency entered into a $20.0 million credit facility on May 1, 2016. The commitment fee is 0.50%
per annum; interest on outstanding balances is tied to LIBOR through March 2022, when this index was
changed to the Bloomberg Short -Term Bank Yield (BSBY). The facility was renewed on May 1, 2019
and again on April 1, 2022 and expires on May 6, 2025, and is secured by a pledge of the net revenues
of the Agency. There were no amounts outstanding as of December 31, 2022 or 2021.
Note 9: Risk Management
The Agency is exposed to various risks of loss related to torts; theft of, damage to, and destruction of
assets; errors and omissions; and natural disasters.
The Agency participates in a public entity risk pool related to public officials' liability. The Agency has
a $60,000 deductible per occurrence, with a $200,000 annual maximum deductible for its liability
coverage. The Agency also purchases municipal automobile coverage from the same public entity risk
pool with a $1,000 deductible per occurrence.
The public entity risk pool has purchased a reinsurance policy to guard against excessive losses.
The Agency also carries commercial insurance for its risks of property loss, business interruption, and
general liability. The Agency's property loss has varying deductibles based on the equipment insured
that range from $250,000 to $1,500,000. The Agency's business interruption insurance has a 60 day
deductible.
The Agency also has an umbrella policy related to its municipal automobile insurance and general
liability insurance.
Settled claims have not exceeded insurance coverage in any of the past three years for any of the
Agency's insurance policies.
Note 10: Contingencies
The Agency is a party to various contracts for the sale, purchase, and transmission of power. In the
ordinary course of business, contractual disputes sometimes occur between the Agency and its
counterparties. The Agency does not expect the outcome of any existing dispute resolution proceedings
to have a material adverse impact on financial position, results of operations, or cash flows.
The Agency is a market participant in the MISO "Day 2" electricity markets. MISO does not provide
final settlement results for a trading day until 105 days after a trading day. The financial statements reflect
the Agency's best estimates of final settlement results.
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Minnesota Municipal Power Agency
Notes to Financial Statements
December 31, 2022 and 2021
Note 11: Concentrations
Major Customers
Sales to four customers were approximately 77% and 75% of total operating revenues for the years ended
December 31, 2022 and 2021, respectively. Approximately 74% and 71% of total accounts receivable
were owed from four customers at December 31, 2022 and 2021, respectively.
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