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MSR Energy Authority

MEETING OF THE COMMISSION

Wednesday, June 17, 2015, 12:30 p.m. Navigant Consulting, Inc.

35 Iron Point Circle, Suite 225 Folsom, CA 95630

AGENDA Distribution:

Commissioners & Alternate Commissioners Others Modesto:

Lisa Gast

Greg Salyer Steve Gross Toxie Burriss (Alt) Alan Hockenson Santa Clara:

Toxie Burriss Ed Oborn Cindy Worley Scott Van Vuren

John Roukema1 (V.P.) Martin Hopper1 Pat Kolstad (Alt) Jan Pepper Redding:

Joyce Kinnear Pete Scanlon

Barry Tippin, President 1 Margie Walker1 Rock Bosetti (Alt) file/er/msrea Ann Czerwonka1

1 Please post agenda.

M‐S‐R Energy Authority

MEETING OF THE COMMISSION

Wednesday, June 17, 12:30 p.m. Navigant Consulting, Inc.

35 Iron Point Circle, Suite 225 Folsom, CA 95630

REMOTE TELEPHONIC MEETING LOCATION

Redding Electric Utility 3611 Avtech Parkway Redding, CA 96049

Dial-In:

https://global.gotomeeting.com/join/443719429 Dial +1 (657) 220-3412

Access Code: 443-719-429

AGENDA

Any member of the public who desires to address the Commission on any item considered by the Commission at this meeting before or during the Commission’s consideration of that item shall so advise the Chair and shall thereupon be given an opportunity to do so.

1. Call to Order

2. Roll Call

3. Approve meeting minutes of January 28, 2015 (attached)

4. Report on summary of invoices paid totaling $32,931.07 (attached)

5. June 2015 M‐S‐R EA General Manager’s Report (attached, Martin Hopper)

6. June 2015 Outside Services Budget Versus Actual Report (attached, Martin Hopper)

7. Discussion and Possible Action Regarding M‐S‐R Energy Authority 2014 Audited Financials (attached, Scott Van Vuren/Bethany Ryers)

8. Public Comment

9. Confirm date and time of next meeting

10. Adjourn

M-S-R Energy Authority Agenda Page 2 June 17, 2015

Alternate formats of this agenda will be made available upon request to qualified individuals with disabilities.

Note: It is the policy of MSR Energy Authority to not discriminate in admissions, provisions of services, hiring, training and employment practices on the basis of color, national origin, sex, religion, age or disability including AIDS and related conditions. Equal Opportunity Employer.

The meeting location is accessible to people with disabilities. Every reasonable effort will be made to accommodate participation of the disabled in all of the Authority’s public meetings. If particular accommodations for the disabled are needed (i.e., disability‐related aids or other services), please contact the General Manager at least 24 hours in advance of the meeting.

M-S-R ENERGY AUTHORITY DRAFT MINUTES

MEETING OF THE COMMISSION JANUARY 28, 2015

The Commission of the M-S-R Energy Authority (M-S-R EA) met on January 28, 2015,

at the offices of Navigant Consulting, Inc. (NCI), 35 Iron Point Circle, Suite 225, Folsom,

California, 95630. Present from Modesto Irrigation District (MID) were Roger VanHoy,

Greg Salyer, and Scott Van Vuren; present from Santa Clara were Alan Kuratori, and

John Roukema; and present from Redding was Barry Tippin. Also present were

Consultant Alan Hockenson; General Counsel Steve Gross; and General Manager Martin

R. Hopper.

Chair Salyer called the meeting to order at 1:54 P.M. A quorum was attained with the

voting representatives being Mr. Salyer, Mr. Roukema, and Mr. Tippin.

The Commission then reviewed the minutes of its November 19, 2014, meeting. It was

moved by Commissioner Roukema and seconded by Commissioner Tippin to approve

the minutes. The motion carried unanimously.

The Commission then reviewed the invoices listed under Item No. 4 on the Agenda

which have previously been paid pursuant to pre-existing delegations of authority.

The Commission then considered the proposed election of officers. Mr. Hopper reminded

the Commission that when it adopted Resolution 2013 – 01 regarding the election and

duties of officers, it was suggested that the Commission rotate the officers through the

membership of the Commission on an ongoing basis. It was moved by Commissioner

Tippin and seconded by Commissioner Roukema to nominate and elect Commissioner

Tippin to the office of President and Commission Roukema to the office of Vice-

President. Upon the call of the roll, the motion carried unanimously.

DRAFT Minutes M-S-R Energy Authority Meeting of January 28, 2015 Page 2 of 3

Mr. Hopper then briefed the Commission on the January 2015 Budget v. Actual Report.

He recommended the Commission note and file the report.

Mr. Hopper then addressed the Commission regarding the annual disbursements of

excess moneys in the Natural Gas Project Debt Service Fund. A total of $0.60 million

was verified by the Trustee and has been transferred to the Members.

Mr. Hopper then addressed the Commission regarding the proposed extension of the

Consulting Agreement For M-S-R Energy Authority Professional Financial Advisor

Services” with Montague DeRose and Associates, LLC. The agreement with Montague

DeRose and Associates LLC is for a three-year term with three optional one-year

extensions. The services provided by Montague DeRose and Associates LLC have

continued to meet the Authority’s requirements and the Financial Management

Committee has recommended exercising the third extension of the agreement. It was

moved by Commissioner Roukema and seconded by Commissioner Salyer that the

Commission approve a one-year extension of the “Consulting Agreement For M-S-R

Energy Authority Professional Financial Advisor Services” with Montague DeRose and

Associates, LLC for the period January 1, 2015, through December 31, 2015. The motion

carried unanimously.

Mr. Van Vuren then addressed the Commission regarding the 2015 M-S-R EA

Investment Policy Guidelines. He noted that there have been a number of changes in

State Law, including the allowance of certain supra-national investments. The M-S-R EA

Investment Policy Guidelines are modeled on the MID guidelines which underwent a

peer review in 2014 and were modified accordingly. The proposed 2015 M-S-R EA

Investment Policy Guidelines thus have been modified to reflect changes in State law and

the recommendations of the MID peer review. It was moved by Commissioner Roukema

and seconded by Commissioner Tippin to adopt the 2015 M-S-R EA Investment Policy

Guidelines. The motion carried unanimously.

DRAFT Minutes M-S-R Energy Authority Meeting of January 28, 2015 Page 3 of 3

The Chair then called for Public Comment and there being none, the Chair announced

that next regular meeting of the Commission will be Wednesday, March 18, 2015, at

12:30 PM, to be held at NCI’s offices in Folsom, CA. The meeting was then adjourned

by the Chair at 1:58 P.M.

Martin R. Hopper

Assistant Secretary

Macintosh HD:Users:martinhopper:My Laptop Documents:M-S-R Energy Authority:Administrative:Commission:Minutes:2015

Minutes:MSR EA Minutes 0115.doc

Payee DescriptionPeriod

Covered Amount MID Administrattive & Accounting Services Dec-14 $ 1,847.85 Porter Simon Legal Services Jan-15 $ 1,025.50 MID Administrattive & Accounting Services Jan-15 $ 609.31 Martin Hopper Energy General Manager Services Jan-15 $ 4,000.00 Martin Hopper Energy General Manager Services Feb-15 $ 4,000.00 Montague DeRose & Assoc. Financial Advisor Jan-15 $ 2,050.00 MID Administrattive & Accounting Services Feb-15 $ 702.60 Martin Hopper Energy General Manager Services Mar-15 $ 4,000.00 Porter Simon Legal Services Mar-15 $ 220.00 Baker Tilly Annual Audit Mar-15 $ 9,932.00 MID Administrattive & Accounting Services Mar-15 $ 543.81 Martin Hopper Energy General Manager Services Apr-15 $ 4,000.00

to Commission 6/17/15 $ 32,931.07

of 1

M-S-R Energy Authority

Staff Report Date: June 11, 2015 From: Martin R. Hopper, General Manager To: M-S-R EA Commission Subject: June 2015 General Manager’s Report Examination of Series 2009 C Bonds The examination of the Series 2009 C Bonds by the Internal Revenue Service remains uncompleted. In-person meetings were held last October and additional information was provided to the Internal Revenue Service in response to their third data request. No activity has occurred sine that time. Macintosh HD:Users:martinhopper:My Laptop Documents:M-S-R Energy Authority:Administrative:General Manager:June 2015 MSR EA General Manager's Report.doc

M-S-R ENERGY AUTHORITY

Staff Report Date: June 11, 2015 From: Martin R. Hopper, General Manager To: M-S-R EA Commission Subject: June 2005 Outside Services Budget versus Actual Report Major Providers Reporting Are: General Manager: Through: May 31, 2015 Porter Simon: Through May 31, 2015 KBT LLC: Through May 31, 2015 Modesto Irrigation District: Through Apr 30, 2015 Baker Tilly: Through Apr 30, 2015 Orrick Herrington: Through May 31, 2015 Detailed charts of monthly budget versus actual cost comparisons for each provider are attached in their usual format. I recommend the Commission note and file this report. Macintosh HD:Users:martinhopper:My Laptop Documents:M-S-R Energy Authority:Budgets:2015:March 2015 EA Outside Services Budget v Actual Report.doc

M-S-R EAOutside Services Summary

6/10/15 2015 EA Outside and Financial Services Expenses.xlsx

Month of: May-2015

By ProviderBudget Current Month

Actual Current Month

Positive Variance

Actual v. Budget % By Provider Budget Year

to DateActual Year

to DatePositive Variance

Actual v. Budget %

General Manager 4,000 4,000 0 100% General Manager 20,000 20,000 0 100%General Counsel 500 0 500 0% General Counsel 2,500 1,246 1,255 50%KBT 167 0 167 0% KBT 833 0 833 0%MID 1,167 0 1,167 0% MID 5,833 2,060 3,773 35%Baker Tilly 1,717 0 1,717 0% Baker Tilly 8,583 14,842 (6,259) 173%Orrick 5,000 0 5,000 0% Orrick 25,000 0 25,000 0%Total 12,550 4,000 8,550 32% Total 62,750 38,148 24,602 61%

-‐

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Jan-‐2015 Feb-‐2015 Mar-‐2015 Apr-‐2015 May-‐2015 Jun-‐2015 Jul-‐2015 Aug-‐2015 Sep-‐2015 Oct-‐2015 Nov-‐2015 Dec-‐2015

Outside Services -‐ Total

CUMMULATIVE BUDGET

CUMMULATIVE ACTUAL

M-S-R EAGeneral Manager Summary


Month of: May-2015

Budget Current Month


Positive Variance

Actual v. Budget %

Admin 4,000 4,000 0 100%Total 4,000 4,000 0 100%

Budget Year to Date

Actual Year to Date

Positive Variance

Actual v. Budget %

Admin 20,000 20,000 0 100%Total 20,000 20,000 0 100%

-‐

10,000

20,000

30,000

40,000

50,000

60,000

Jan-‐2015

Feb-‐2015

Mar-‐2015

Apr-‐2015

May-‐2015

Jun-‐2015

Jul-‐2

015

Aug-‐2015

Sep-‐2015

Oct-‐201

5

Nov-‐2015

Dec-‐201

5

General Manager -‐ Total

CUMMULATIVE BUDGET

CUMMULATIVE ACTUAL

M-S-R EAGeneral Counsel Summary


Month of: May-2015



Positive Variance

Actual v. Budget %

Admin 500 0 500 0%Total 500 0 500 0%

Budget Year to Date

Actual Year to Date

Positive Variance

Actual v. Budget %

Admin 2,500 1,246 1,255 50%Total 2,500 1,246 1,255 50%

-‐

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Jan-‐2015

Feb-‐2015

Mar-‐2015

Apr-‐2015

May-‐2015

Jun-‐2015

Jul-‐2

015

Aug-‐2015

Sep-‐2015

Oct-‐201

5

Nov-‐2015

Dec-‐201

5

General Counsel -‐ Total

CUMMULATIVE BUDGET

CUMMULATIVE ACTUAL

M-S-R EAKBT Summary


Month of: May-2015



Positive Variance

Actual v. Budget %

Admin 167 0 167 0%Total 167 0 167 0%

Budget Year to Date

Actual Year to Date

Positive Variance

Actual v. Budget %

Admin 833 0 833 0%Total 833 0 833 0%

-‐

500

1,000

1,500

2,000

2,500

Jan-‐2015

Feb-‐2015

Mar-‐2015

Apr-‐2015

May-‐2015

Jun-‐2015

Jul-‐2

015

Aug-‐2015

Sep-‐2015

Oct-‐201

5

Nov-‐2015

Dec-‐201

5

KBT -‐ Total

CUMMULATIVE BUDGET

CUMMULATIVE ACTUAL

M-S-R EAMID Summary


Month of: May-2015



Positive Variance

Actual v. Budget %

Admin 1,167 0 1,167 0%Total 1,167 0 1,167 0%

Budget Year to Date

Actual Year to Date

Positive Variance

Actual v. Budget %

Admin 5,833 2,060 3,773 35%Total 5,833 2,060 3,773 35%

-‐ 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

Jan-‐2015

Feb-‐2015

Mar-‐2015

Apr-‐2015

May-‐2015

Jun-‐2015

Jul-‐2

015

Aug-‐2015

Sep-‐2015

Oct-‐201

5

Nov-‐2015

Dec-‐201

5

MID -‐ Total

CUMMULATIVE BUDGET

CUMMULATIVE ACTUAL

M-S-R EABaker Tilly Summary


Month of: May-2015



Positive Variance

Actual v. Budget %

Admin 1,717 0 1,717 0%Total 1,717 0 1,717 0%

Budget Year to Date

Actual Year to Date

Positive Variance

Actual v. Budget %

Admin 8,583 14,842 (6,259) 173%Total 8,583 14,842 (6,259) 173%

-‐

5,000

10,000

15,000

20,000

25,000

Jan-‐2015

Feb-‐2015

Mar-‐2015

Apr-‐2015

May-‐2015

Jun-‐2015

Jul-‐2

015

Aug-‐2015

Sep-‐2015

Oct-‐201

5

Nov-‐2015

Dec-‐201

5

Baker Tilly -‐ Total

CUMMULATIVE BUDGET

CUMMULATIVE ACTUAL

M-S-R EAOrrick Summary


Month of: May-2015



Positive Variance

Actual v. Budget %

Admin 5,000 0 5,000 0%Total 5,000 0 5,000 0%

Budget Year to Date

Actual Year to Date

Positive Variance

Actual v. Budget %

Admin 25,000 0 25,000 0%Total 25,000 0 25,000 0%

-‐

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Jan-‐2015

Feb-‐2015

Mar-‐2015

Apr-‐2015

May-‐2015

Jun-‐2015

Jul-‐2

015

Aug-‐2015

Sep-‐2015

Oct-‐201

5

Nov-‐2015

Dec-‐201

5

Orrick-‐ Total

CUMMULATIVE BUDGET

CUMMULATIVE ACTUAL

6/10/15 2015 Input 2015 EA Outside and Financial Services Expenses.xlsx

Authority Admin - 2015 2015 Budget Jan-2015 Feb-2015 Mar-2015 Apr-2015 May-2015 Jun-2015 Jul-2015 Aug-2015 Sep-2015 Oct-2015 Nov-2015 Dec-2015 Total Average Year-End Notes 12/31/128.33% 16.67% 25.00% 33.33% 41.67% 50.00% 58.33% 66.67% 75.00% 83.33% 91.67% 100.00% Projection

General ManagerAdmin 48,000 4,000 4,000 4,000 4,000 4,000 20,000 4,000 48,000 48,000

48,000 4,000 4,000 4,000 4,000 4,000 - - - - - - - 20,000 4,000 48,000 8.33% 16.67% 25.00% 33.33% 41.67% 41.67% 41.67% 41.67% 41.67% 41.67% 41.67% 41.67% 100%

General CounselAdmin 6,000 1,026 - 220 - - 1,246 249 2,989 4,062

6,000 1,026 - 220 - - - - - - - - - 1,246 249 2,989 17.09% 17.09% 20.76% 20.76% 20.76% 20.76% 20.76% 20.76% 20.76% 20.76% 20.76% 20.76% 50%

KBTAdmin 2,000 - - - - - - - -

2,000 - - - - - - - - - - - - - - - 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0%

MIDAdmin 14,000 609 703 544 204 2,060 515 6,180 20,248

14,000 609 703 544 204 - - - - - - - - 2,060 515 6,180 4.35% 9.37% 13.26% 14.71% 14.71% 14.71% 14.71% 14.71% 14.71% 14.71% 14.71% 14.71% 44%

- - Baker Tilly

Admin 20,600 - - 9,932 4,910 14,842 3,711 44,526 17,503 20,600 - - 9,932 4,910 - - - - - - - - 14,842 3,711 44,526

0.00% 0.00% 48.21% 72.05% 72.05% 72.05% 72.05% 72.05% 72.05% 72.05% 72.05% 72.05% 216%

Bank Fees 1,200 - - - - 4,081 1,200 - - - - - - - - - - - - - - -

0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0%

Total Agency Admin 91,800 5,635 4,703 14,696 9,114 4,000 - - - - - - - 38,148 8,475 101,695 6.14% 11.26% 27.27% 37.20% 41.56% 41.56% 41.56% 41.56% 41.56% 41.56% 41.56% 41.56% 111%

Debt Admin - 2015

Bond Counsel Orrick 30,000 - - - - - - - - 30,000 - - - - - - - - - - - - - - -

0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0%

- Financial Services Montague 10,000 2,050 - - 2,050 683 8,200

Fitch 10,000 - - - - Standard & Poors 15,000 - - - -

35,000 2,050 - - - - - - - - - - - 2,050 171 2,050 27,749 5.86% 5.86% 5.86% 5.86% 5.86% 5.86% 5.86% 5.86% 5.86% 5.86% 5.86% 5.86% 6%

Trustee 13,500 - - - - 13,800 13,500 - - - - - - - - - - - - - - -

0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0%

Total Debt Admin 78,500 2,050 - - - - - - - - - - - 2,050 171 2,050 2.61% 2.61% 2.61% 2.61% 2.61% 2.61% 2.61% 2.61% 2.61% 2.61% 2.61% 2.61% 3%

Baker Tilly refers to Baker Tilly Virchow Krause, LLP,an independently owned and managed member of Baker Tilly International. © Baker Tilly Virchow Krause, LLP

M-S-R Energy AuthorityCommission PresentationReport on M-S-R Energy Authority Financial Audit – December 31, 2014

Audit presentation topics

Audit overview

Internal control communication

Auditor’s communication with Those Charged with Governance

Questions

2

Audit overview

Audit was conducted smoothly with no major snags or difficulties.

Management and staff were cooperative and readily available.

Audit schedule was maintained and communication between management and auditors was good.

Last day of fieldwork was March 26, 2015.

3

Audit overview

Audit performed in accordance with Generally Accepted Auditing Standards.

Audit objective - reasonable assurance that financial statements are free from material misstatement.

Financial statements received an Unmodified Opinion.

4

Internal control communication

Statement on Auditing Standards (SAS) No. 115 Communication of Internal Control Related Matters Identified in an Audit

Internal Control Over Financial Reporting

5

Auditor’s Communication with ThoseCharged with Governance

Significant findings from the audit

6

Area to be Communicated Auditor’s Response

Auditor’s View on Qualitative Aspects of Significant Accounting Policies

The significant accounting policies used in the preparation of your financial statements are discussed in Note 2 to the financial statements.

Accounting estimates are an integral part of the financial statements prepared by management's knowledge and experience about past and current events and assumptions about future events. Significant estimates include the amortization of prepaid gas. We feel that all estimates made by management area in accordance with generally accepted accounting principles.

7


Significant Difficulties Encountered in Performing the Audit

We encountered no difficulties in performing our audit.

Uncorrected Misstatements/Adjusting Entries

By Professional Auditing Standards, uncorrected misstatements refer to immaterial passed audit adjustments –there were no such proposed adjustments as part of this year’s audit.



8


Disagreements with Management Professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements were encountered during the course of the audit.

Other Findings or Issues There are no other issues to disclose as part of the audit in connection with these Professional Auditing Standards.



9


Material Corrected Misstatements Professional standards define an audit adjustment as a proposed correction of the financial statements that, in our judgment, may not have been detected except through our auditing procedures.

There were no material adjustments as part of this year’s audit.



10


Management Representations We have requested certain representations from management that are included in the management representation letter. A copy of this letter is included with our management letter.


Other required communications

11


Management’s Consultations with Other Accountants

To the best of our knowledge, management has not consulted with or obtained opinions from other independent accountants on auditing and or the application of accounting principles during the past year.

Professional standards require the consulting accountant to discuss any such contacts with the current auditor to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants.



12


Auditor Independence We are not aware of any relationships between Baker Tilly Virchow Krause, LLP and M-S-R Energy Authority that, in our professional judgment, may reasonably be thought to bear on our independence.

Significant Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to the audit.

These discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention as the Authority’s auditors.



Closing

We appreciate the work done by M-S-R Energy Authority accounting staff and management in preparing for and assisting in the audit!

Questions?

13

M-S-R ENERGY AUTHORITY Modesto, California

FINANCIAL STATEMENTS

Including Independent Auditors’ Report

As of and for the Years Ended December 31, 2014 and 2013


TABLE OF CONTENTS As of and for the Years Ended December 31, 2014 and 2013

Independent Auditors’ Report 1 – 2

Management’s Discussion and Analysis 3 – 6

Balance Sheets 7

Statements of Revenues, Expenses and Changes in Net Position 8

Statements of Cash Flows 9 – 10

Notes to Financial Statements 11 – 21

M-S-R ENERGY AUTHORITY Management’s Discussion and Analysis December 31, 2014 and 2013 – (Unaudited)

Page 3

Overview The following management discussion and analysis of the M-S-R Energy Authority provides an overview of the financial activities and transactions as of December 31, 2014 and 2013 and the periods then ended in the context of the requirements of the Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments, as amended. This discussion and analysis should be read in conjunction with the Authority’s audited financial statements and accompanying notes. Background M-S-R Energy Authority (the Authority) is a California joint powers Authority composed of the Modesto Irrigation District, and the California Cities of Santa Clara (Santa Clara) and Redding (Members). The Authority was organized to acquire, construct, maintain, operate and finance projects; maximize the value of its existing assets for the benefit of its Members; and to respond to Member needs where joint action rather than individual action is deemed to be in the Member’s best interest. The personnel of its Members and professional staff contracted by the Authority perform the administrative and management functions of the Authority. On September 10, 2009, the Authority entered into a thirty-year prepaid gas contract which is financed primarily with non-recourse revenue bonds. Financial Reporting The Authority’s accounting records are maintained in accordance with generally accepted accounting principles as prescribed by the GASB. Overview of Financial Statements The Authority’s financial statements include a balance sheet, statement of revenues, expenses and changes in net position, and statement of cash flows. The balance sheet provides information about assets and obligations of the Authority at a specific point in time. The statement of revenues, expenses and changes in net position provide information regarding the Authority’s operations during the period indicated. The statement of cash flows reports cash sources and uses for operations, non-capital and related financing and investing activities.


Page 4

Financial Summary

Balance Sheet December 31 Change ($ in thousands) 2014 2013 2012 2014 – 2013

Assets

Noncurrent assets $ 834,528 $ 825,472 $ 816,147 $ 9,056 Current assets 70,112 79,212 89,535 (9,100)

Total Assets $ 904,640 $ 904,684 $ 905,682 $ (44) Liabilities and Net Position

Long-term debt $ 901,620 $ 901,620 $ 901,620 $ - Other noncurrent liabilities (6,863) (6,853) (6,816) (10) Current liabilities 9,883 9,876 10,878 (34)

Total Liabilities and Net Position

¶ $ 904,640

$ 904,684

$ 905,682

$ (44)

Statement of Revenue, Expenses, and Changes in Net Position

($ in thousands) December 31 Change 2014 2013 2012 2014 - 2013 Operating Income/(Loss)

Operating revenue $ 52,935 $ 51,250 $ 39,217 $ 1,685 Operating expenses (41,112) (43,190) (35,754) 2,078 Operating Income/(Loss) 11,823 8,060 3,463 3,763

Non-operating Income (Expense)

Investment income 561 698 974 (137) Interest expense (59,254) (59,254) (59,314) - Other income (expense) 10 46 62 (36) Member distribution (597) (749) (1,748) 152 Cost recovery from future billings 47,457 51,199 56,563 (3,742)

Non-operating Income (Expense)

(11,823)

(8,060)

(3,463)

(3,763)

Change in net position - - - -

Net position, beginning of year -

-

-

-

Net position, end of year $ - $ - $ - $ -


Page 5

BALANCE SHEET Assets Noncurrent Assets Noncurrent assets for 2014 increased $9.1 million when compared to 2013. The change is the net result of increases in net costs recoverable from future billings (billings to members) offset by decreases in prepaid gas supply.

Noncurrent assets for 2013 increased $9.3 million when compared to 2012. The change is the net result of increases in net costs recoverable from future billings (billings to members) offset by decreases in prepaid gas supply. Current Assets Current assets decreased by $9.1 million in 2014 when compared to 2013. The change is primarily due to reductions in cash and investments - restricted for capitalized interest and debt service requirements and prepaid gas supply, current position. Current assets decreased by $10.3 million in 2013 when compared to 2012. This decrease is primarily due to reductions in cash and investments - restricted for capitalized interest and debt service requirements. Liabilities and Net Position Long term Debt Long-term debt remained the same at $901.6 million in 2014, 2013, and 2012 due to principal payments not being due until 2019. This balance primarily consists of the 2009 series A, B, and C Revenue Bonds issued in September of 2009. Current Liabilities Current liabilities remained relatively consistent for 2014 when compared to 2013. This was also true for 2013 when compared to 2012. Net Position Net position was zero in 2014, 2013, and 2012 due to the implementation of GASB Statement No. 62 related to regulatory accounting for the net costs recoverable from future billings related to the prepaid gas contract. STATEMENT OF REVENUE, EXPENSES, AND CHANGES IN NET POSITION

Operating Revenues Operating revenues for 2014 increased $1.7 million when compared to 2013. The change is due to increases in natural gas sales offset by reductions in Swap revenue.

Operating revenues for 2013 increased $12.0 million when compared to 2012. The increase is due to increases in natural gas sales and revenues received from SWAPs.


Page 6

Operating Expenses Operating expenses decreased by $2.1 million for 2014 as compared to 2013. The change is due to decreases in purchase natural gas for resale offset by small increase in administrative and general expense. Operating expenses increased by $7.4 million for 2013 as compared to 2012. The increase is due to an increase in the amortization of prepaid gas based on scheduled gas deliveries. Interest Expense Interest Expense remained relatively consistent for 2014 when compared to 2013. This was also true for 2013 when compared to 2012. Member Distributions and Contributions to the Authority The Authority distributed $0.60 million to members in 2014 and $0.7 million to members in 2013 as a result of excess debt service funds. Cost Recovery from Future Billings Cost recovery from future billings started in 2010 with the implementation of GASB Statement No. 62 for regulatory operations. The account decreased by $3.7 million in 2014 over 2013 and by $5.4 million in 2013 over 2012. Income and expense amounts which would be recognized during the current time period are deferred and not included in income until such costs are recovered by member billings. Contacting the M-S-R Energy Authority This financial report is designed to provide our customers, investors, and creditors with a general overview of the Authority's finances. If you have questions about this report or need additional information, please contact the Controller's Office at P.O. Box 4060, Modesto, CA 95352.


BALANCE SHEETSAs of December 31, 2014 and 2013

ASSETS 2014 2013

NONCURRENT ASSETS Prepaid gas supply 532,853$ 571,252$ Net costs recoverable from future billings 301,675 254,220

Total Noncurrent Assets 834,528 825,472

CURRENT ASSETS Cash and cash equivalents - unrestricted 29 72 Cash and investments - restricted 26,681 33,381 Prepaid gas supply, current portion 38,400 40,887 Member and swap receivable 4,973 4,841 Interest receivable and other current assets 29 31

Total Current Assets 70,112 79,212

TOTAL ASSETS 904,640$ 904,684$

LIABILITIES AND NET POSITION

NONCURRENT LIABILITIES Long-term debt 901,620$ 901,620$ Unamortized premium 7,972 8,415 Unamortized debt discount (14,835) (15,268)

Total Noncurrent Liabilities 894,757 894,767

CURRENT LIABILITIES Accounts payable and other accruals 7 41 Current Liabilities Payable from Restricted Assets

Interest payable 9,876 9,876

Total Current Liabilities 9,883 9,917

TOTAL LIABILITIES AND NET POSITION 904,640$ 904,684$

(Dollars in Thousands)

See accompanying notes to financial statements.Page 7


STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITIONFor the Years Ended December 31, 2014 and 2013

2014 2013

OPERATING REVENUES Gas sales 33,405$ 25,953$ Swap revenue 19,530 25,297

Total Operating Revenue 52,935 51,250

OPERATING EXPENSES Purchased natural gas for resale 40,887 43,015 Administrative and general 225 175

Total Operating Expenses 41,112 43,190

Operating Income 11,823 8,060

NONOPERATING REVENUE (EXPENSE) Investment income 561 698 Interest expense (59,254) (59,254) Amortization of debt discount (433) (397) Amortization of premium 443 443 Member distributions (597) (749) Net costs recoverable from future billings 47,457 51,199

Total Nonoperating Revenue (Expense) (11,823) (8,060)

CHANGE IN NET POSITION - -

NET POSITION - Beginning of Year - -

NET POSITION - END OF YEAR -$ -$


See accompanying notes to financial statements.Page 8


STATEMENTS OF CASH FLOWSFor the Years Ended December 31, 2014 and 2013

2014 2013

CASH FLOWS FROM OPERATING ACTIVITIES Receipts from members 33,275$ 24,796$ Receipts from swap 19,530 25,297 Paid to suppliers for goods and services (260) (149)

Net Cash Flows Provided by Operating Activities 52,545 49,944

CASH FLOWS FROM NONCAPITAL AND RELATED FINANCING ACTIVITIES Member distributions (597) (749) Interest paid (59,254) (59,245)

Net Cash Flows Used in Noncapital and Related Financing Activities (59,851) (59,994)

CASH FLOWS FROM INVESTING ACTIVITIES Investment income 563 703

Net Cash Flows Provided by Investing Activities 563 703

Net Change in Cash and Cash Equivalents (6,743) (9,347)

CASH AND CASH EQUIVALENTS - Beginning of Period 33,453 42,800

CASH AND CASH EQUIVALENTS - END OF PERIOD 26,710$ 33,453$

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES Amortization of debt discount (433)$ (397)$

Amortization of premium 443$ 443$

Net costs recoverable from future billings 47,457$ 51,199$


Page 9

2014 2013

RECONCILIATION OF OPERATING INCOME TO NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES Operating income 11,823$ 8,060$ Change in assets and liabilities Member and swap receivables (132) (1,157) Prepaid gas 40,887 43,015 Accounts payable and other accruals (33) 26

NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 52,545$ 49,944$

RECONCILIATION OF CASH AND CASH EQUIVALENTS TO BALANCE SHEET ACCOUNTS Cash and cash equivalents - unrestricted 29$ 72$ Cash and investments - restricted 26,681 33,381

CASH AND CASH EQUIVALENTS 26,710$ 33,453$

See accompanying notes to financial statements.


Page 10


NOTES TO FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2014 and 2013


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NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS M-S-R Energy Authority (the Authority) is a California joint powers Authority composed of the Modesto Irrigation District, and the Cities of Santa Clara (Santa Clara) and Redding, California (Members). The Authority was organized to acquire, construct, maintain, operate and finance projects; maximize the value of its existing assets for the benefit of its Members; and to respond to Member needs where joint action rather than individual action is deemed to be in the Member’s best interest. The personnel of its Members and professional staff contracted by the Authority perform the administrative and management functions of the Authority. The Authority is exempt from payment of federal and state income taxes. On September 10, 2009, the Authority entered into a series of thirty-year prepaid gas contracts with Citigroup Energy, Inc. which are financed by non-recourse revenue bonds. The Authority also entered into matching Natural Gas Supply Agreements (“Supply Agreements”) whereby each Member is obligated to purchase specified natural gas requirements from the Authority at a discount from the Index Price. The Supply Agreements will continue in effect until September 30, 2039, unless terminated earlier due to certain defaults, as set forth therein, or the termination of the matching prepaid gas contract. If the Authority fails on any day to deliver the quantity of natural gas required to be delivered pursuant to a Supply Agreement, the Member will have no obligation for any of the natural gas supply that was not delivered as a result of such delivery default. The equity of the Authority is split between the Members based on the revenues and expenses applicable to each individual Member’s Supply Agreement. Administrative and general expenses are split equally among the Members. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Authority have been prepared in conformity with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The significant accounting principles and policies utilized by the Authority are described below. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION The financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place.




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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION (cont.) Presentation 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. ASSETS, LIABILITIES AND NET POSITION Cash and Cash Equivalents Cash equivalents include all debt instruments with maturity dates of 90 days or less from the date of purchase and all investments in money market mutual funds.

Investments Generally, all investments are carried at their fair market value. Market values may have changed significantly after year-end.

Member and Swap Receivables Member receivables include charges to the Members for the purchase of natural gas per the Supply Agreement. Swap receivables include receivables from the natural gas commodity swap agreement. Restricted Assets Mandatory segregations of assets are presented as restricted assets. Such segregations are required by bond agreements and other external parties. Current liabilities payable from these restricted assets are so classified. When both restricted and unrestricted resources are available for use, it is the Authority’s policy to use restricted resources first, then unrestricted resources as they are needed.




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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) ASSETS, LIABILITIES AND NET POSITION (cont.) Prepaid Gas Supply The Authority has prepaid for delivery of a natural gas supply with the proceeds from revenue bonds. The Authority provides for amortization on the historical cost of the prepaid gas supply on a net present value (NPV) basis in which the change in the NPV of the prepaid agreement for the remaining term of its contract life from the beginning of the period to the end of the period is the amortization charge for the period. When the Authority amortizes its prepaid gas supply, the amortization is recorded against the current portion of prepaid gas supply. Long-Term Debt Long-term debt and other obligations are reported as liabilities. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest rate method. Gains or losses on prior refundings are amortized over the remaining life of the old debt or the life of the new debt, whichever is shorter. Derivative Financial Instruments The Authority entered into a natural gas commodity swap agreement, a derivative financial instrument, to manage its exposure to market volatility of natural gas commodity prices. The Authority did not enter into this agreement for trading purposes. Due to the termination provisions of the agreement, it has no fair value, and therefore, there is no mark-to-market and the Authority does not record this derivative financial instrument on its balance sheet. The Authority is exposed to the risk of early termination of the prepaid agreement if the counterparties default or if the swap agreement is terminated. Net swap payments received or paid are reported as a component of operating revenues in the statement of revenues, expenses and changes in net position. Net Costs Recoverable from Future Billings In accordance with GASB Statement No. 62, certain income and expense amounts which would be recognized during the current time period are deferred and not included in the determination of income until such costs are recoverable through member billings. Billings to the members are designed to provide, over the life of the project, full recovery of costs as defined by the indenture and project contracts, and as prescribed by the Authority. The billing schedules are structured to systematically provide for the current debt service requirements, operating costs and reserves. The net costs to be recovered from future member billings consist primarily of timing differences related to the debt service requirements included in rates. Under the current rate structure, costs are expected to be recovered over the 30-year term of the Natural Gas Supply Agreement. In addition, this account includes unamortized debt issuance costs of previously issued bonds of the Authority.




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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) REVENUES AND EXPENSES

The Authority distinguishes operating revenues and expenses from nonoperating items. Operating revenue is comprised of delivery of gas supplies to customers. Operating expenses include the cost of sales and services, administrative expenses, and amortization on the prepaid gas supply asset. The Members are billed for actual costs and the associated revenue is recognized as these costs are incurred. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. EFFECT OF NEW ACCOUNTING STANDARDS ON CURRENT PERIOD FINANCIAL STATEMENTS The GASB has approved GASB Statement No. 68, Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27, Statement No. 71, Pension Transition for Contributions made Subsequent to the Measurement Date - an Amendment of GASB Statement No. 68, and Statement No. 72, Fair Value Measurement and Application. When they become effective, application of these standards may restate portions of these financial statements.

COMPARATIVE DATA Certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year’s presentation. NOTE 3 – CASH AND INVESTMENTS The Authority’s investment policies are governed by the California Government Codes and its bond Indenture, which restricts the Authority’s investment securities to obligations which are unconditionally guaranteed by the U.S. Government or its agencies or instrumentalities; direct and general obligations of the State of California (State) or any local agency within the State; bankers’ acceptances; commercial paper; certificates of deposit; interest bearing time deposits in California banks; repurchase agreements; medium-term corporate notes; shares of beneficial interest; mortgage pass-through securities; financial futures and financial option contracts; and deposits with the Local Agency Investment Fund (LAIF). Investments in LAIF are unregistered, pooled funds. LAIF is a component of the Pooled Money Investment Account Portfolio managed by the State Treasurer, in accordance with Government Code Sections 16430 and 16480. The fair value of the Authority’s Investments in LAIF approximates the value of its pool shares. The Authority’s investment policy includes restrictions for investments relating to maximum amounts invested as a percentage of total portfolio and with a single Issuer, maximum maturities, and minimum credit ratings; except for investments in U.S. and Federal agency securities, which are not limited. In addition, the investment policy requires all securities to be held in safekeeping by a third party custodian, acting as agent for the Authority under the terms of a custody agreement.




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NOTE 3 – CASH AND INVESTMENTS (cont.) Deposits in each local and area bank are insured by the FDIC in the amount of $250 for time and savings accounts (including NOW accounts), and $250 for demand deposit accounts (interest bearing and noninterest bearing). In addition, if deposits are held in an institution outside of the state in which the government is located, insured amounts are further limited to a total of $250 for the combined amount of all deposit accounts. Custodial Credit Risk Deposits Custodial credit risk is the risk that in the event of a financial institution failure, the Authority’s deposits may not be returned to the Authority. The Authority does not have any deposits exposed to custodial credit risk. The Authority’s investment policy addresses this risk. Investments For an investment, custodial credit risk is the risk that, in the event of the failure of the custodian, the Authority will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. As of December 31, 2014 and 2013, the Authority’s investments were exposed to custodial credit risk as follows:

Neither Insured Nor Registered and Held by the Custodian’s Trust Department or Agent in the Authority’s Name 2014 2013

Commercial Paper $ 20,658 $ 25,841

The Authority’s investment policy addresses this risk. Credit Risk Credit risk is the risk an issuer or other counterparty to an investment will not fulfill its obligations. As of December 31, 2014 and 2013, the Authority’s investments were rated as follows:

Standard & Poors Investment Type 2014 2013

Commercial Paper A+, A A+ Money Market Mutual Funds AAAm AAAm

The Authority’s investment policy addresses this risk.




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NOTE 3 – CASH AND INVESTMENTS (cont.) Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of an entity’s investment in a single issuer. At December 31, 2014, the Authority’s investment portfolio was concentrated as follows:

Investment Type Percentage of Portfolio 2014

Abbey National North America LLC Commercial Paper 25.81% National Rural Utilities Cooperative Finance Corp Commercial Paper 25.81% Bank of Tokyo Mitsubis Commercial Paper 25.81%

At December 31, 2013, the Authority’s investment portfolio was concentrated as follows:

Investment Type Percentage of Portfolio 2013

Bank of Tokyo Mitsubis Commercial Paper 77.27%

The Authority’s investment policy addresses this risk. Interest Rate Risk Interest rate risk is the risk changes in interest rates will adversely affect the fair value of an investment. The Authority has restrictions as to the maturities of some of the investments. The Authority’s investment policy limits investments in the portfolio to a maximum maturity of five years. Of the Authority’s total portfolio, $26,681 and $33,381 is subject to interest rate risk at December 31, 2014 and 2013, respectively. At December 31, 2014 and 2013, the entire balance had maturities of one year or less.




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NOTE 4 – RESTRICTED ASSETS RESTRICTED ACCOUNTS Certain proceeds of the Authority’s debt, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited. The following accounts are reported as restricted assets:

Redemption – Used to segregate resources accumulated for debt service payments.

Carrying Value as of December 31, 2014

Carrying Value as of December 31, 2013

Restricted Accounts Redemption fund $ 26,681 $ 33,381

NOTE 5 – PREPAID GAS SUPPLY The Authority’s prepaid gas supply is presented below:

2014 2013

Prepaid gas supply – Beginning of Year $ 612,139 $ 655,154 Prepaid gas supply amortization (40,886) (43,015) Total Prepaid Gas Supply – End of Year 571,253 612,139 Less: amounts due within one year (38,400) (40,887) Total Prepaid Gas Supply – Noncurrent Portion $ 532,853 $ 571,252

The following summarizes prepaid gas supply activity for the periods ended December 31, 2014 and 2013:

1/1/14 12/31/14 Due Within Balance Additions Amortization Balance One Year Prepaid gas supply $ 612,139 $ - $ 40,886 $ 571,253 $ 38,400

1/1/13 12/31/13 Due Within Balance Additions Amortization Balance One Year Prepaid gas supply $ 655,154 $ - $ 43,015 $ 612,139 $ 40,887

The prepaid gas supply is the discounted NPV of the fixed monthly natural gas prices per month as specified in, and over the remaining term of, the Prepaid Agreement.




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NOTE 6 – LONG-TERM DEBT

As of December 31, 2014 the following bonds have been issued:

Date

Purpose

Final

Maturity

Interest

Rate

Original Amount

Outstanding Amount 12/31/14

11/1/09 Gas Revenue Bonds, 11/1/39 6.13 – 7.00% $ 201,035 $ 201,035

Series 2009A 11/1/09 Gas Revenue Bonds, 11/1/39 6.13 – 7.00 500,200 500,200

Series 2009B 11/1/09 Gas Revenue Bonds, 11/1/39 6.13 – 7.00 200,385 200,385

Series 2009C Revenue bonds debt service requirements to maturity follows: Year Ending December 31 Principal Interest Total

2015 $ $ 59,254 $ 59,2542016 - 59,254 59,2542017 - 59,254 59,2542018 - 59,254 59,2542019 1,840 59,254 61,0942020 – 2024 45,030 292,048 337,0782025 – 2029 136,615 267,998 404,6132030 – 2034 267,270 207,252 474,5222035 – 2039 450,865 93,506 544,371

Totals $ 901,620 $ 1,157,074 $ 2,058,694 Each series of bonds are special obligations of the Authority payable solely from, and secured by the related Trust Estate. The bonds are not payable from, or secured by a pledge of or lien on any property of the Authority or any of its income or receipts except the related Trust Estate. The Authority is in compliance with required bond covenants.




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NOTE 6 – LONG-TERM DEBT (cont.)

LONG-TERM OBLIGATIONS SUMMARY Long-term obligation activity for the period ended December 31, 2014 is as follows:

1/1/14 12/31/14 Due Within Balance Additions Reductions Balance One Year

Long-term debt $ 901,620 $ - $ - $ 901,620 $ -Unamortized premium 8,415 - 443 7,972 -Unamortized debt discount (15,268) - (433) (14,835) - Totals $ 894,767 $ $ 10 $ 894,757 $ -

Long-term obligation activity for the period ended December 31, 2013 is as follows:

1/1/13 12/31/13 Due Within Balance Additions Reductions Balance One Year

Long-term debt $ 901,620 $ - $ - $ 901,620 $ -Unamortized premium 8,858 - 443 8,415 -Unamortized debt discount (15,674) - (406) (15,268) - Totals $ 894,804 $ - $ 37 $ 894,767 $ -

FAIR VALUE The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Authority for debt of similar maturities. The recorded and estimated fair value of the Authority’s long-term debt at December 31, 2014 and 2013 is as follows:

2014 2013

Carrying amount $ 901,620 $ 901,620 Fair value 1,230,626 1,064,798




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NOTE 7 – TRANSACTIONS WITH SIGNIFICANT CUSTOMERS Sales of natural gas consist primarily of sales to its Members, as summarized below for the period ended December 31, 2014 and 2013:

2014 2013

Modesto Irrigation District $ 7,392 $ 5,813 City of Santa Clara 18,542 14,360City of Redding 7,471 5,780 Totals $ 33,405 $ 25,953

NOTE 8 – COMMITMENTS NATURAL GAS COMMODITY PRICE SWAP AGREEMENT The Authority has entered into three floating-to-fixed natural gas commodity price swap agreements (Gas Swap Agreements) with a counterparty for the purpose of fixing the variable price on the Authority’s natural gas sales to the Members. The Gas Swap Agreements are for total notional amounts of 54,951, 131,023, and 53,687 million mmbtu over the thirty-year term of the Gas Swap Agreement. The total notional amounts remaining at December 31, 2014 are 45,241, 112,988 and 45,195 respectively. The notional amounts remaining at December 31, 2013 are 47,072, 117,550 and 47,020, respectively. The Agency pays an index-based natural gas price over the thirty-year period and receives a fixed natural gas price as specified in the Gas Swap Agreement for notional quantities of natural gas at a pricing point corresponding to the daily contract quantity and the delivery point under the Prepaid Agreement. The Gas Swap Agreement terminates on September 30, 2039. Early termination of the Gas Swap Agreement would occur upon termination of the Prepaid Agreement for any reason whatsoever. Upon early termination, the Gas Swap Agreement would have no value to either party. NOTE 9 – CONTINGENCIES GENERAL CONTINGENCIES In the normal operations of its business, the Authority is party to various claims, legal actions and complaints. However, the Authority’s legal counsel and management believe that the ultimate resolution of these matters will not have a significant adverse effect on the financial position or results of operations of the Authority.




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NOTE 10 – RISK MANAGEMENT The ability of the Authority to make principal and interest payments on its Bonds is contingent upon its receipt of adequate revenues from the prepaid gas transaction structure. Each series of Bonds is issued separately and owners of the Bonds of any one series have no claim on the revenues of another series. The Authority has no recourse to the Members for debt service payments. The Authority expects that the prepaid gas transaction will continue to function as planned. Substantially all of the Authority’s revenues derive from the gas supply, commodity swaps, and earnings on funds held for the benefit of the Authority. Pursuant to the Supply Agreements, the Members are obligated to receive and pay for certain quantities of gas delivered by the Authority. The Authority’s only source of gas is Citigroup Energy Inc. (CEI) via the Prepaid Gas Agreements. Obligations of the Members to pay for gas are supported by a Customer Insurance Policy from Assured Guaranty Ltd., subject to limitations on the number and amount of drawings. If Members do not take gas, CEI is responsible to remarket the gas and remit the proceeds to the Authority. If CEI fails to deliver the contract quantity of gas for any reason including force majeure, CEI must pay to the Authority the index price for the undelivered quantity. Payment obligations of CEI are guaranteed by Citigroup Inc. The commodity swaps are designed so that the Authority receives its anticipated level of revenue regardless of movements in the index price of natural gas. The ability of the swaps to hedge against adverse gas prices is subject to timely payment of any amounts owed by the swap counterparty, JPMorgan Chase Bank N.A. There is a Debt Service Fund associated with each Bond series. Interest earnings on these funds were hedged for the Series 2009A and 2009B Bonds with Forward Delivery Agreements (FDA). Citigroup Financial Products Inc. (CFPI) is the FDA provider. Obligations of CFPI are guaranteed by Citigroup Inc. If interest earnings do not materialize, the Authority will not receive its anticipated level of revenue. If the interest earnings on debt service funds are less than expected, the Members would fail to realize their expected level of savings on natural gas.