09 Annual Report Final
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Transcript of 09 Annual Report Final
2009 Annual ReportP e r s e v e r a n c e . O p p o r t u n i t y . P r o g r e s s .
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Chairman’s and President’s Report . . . . . . . . . . . . . . .6Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Wolverine Management . . . . . . . . . . . . . . . . . . . . . . . .10
Member Management . . . . . . . . . . . . . . . . . . . . . . . . .112009 in Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Financial Highlights and Comparisons . . . . . . . . . .16Financial Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
C o n t e n t s Below - Ross Crysler (left), operator II, and CharlieSheldon (right), chief operator, at our Hersey plant.
On the cover - Bob Smith, instrumentation &communications technician II.
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Perseverance.Opportunity.Progress.
Wolverine Power Cooperative is a generation and transmission electriccooperative headquartered in Cadillac,Michigan. We are owned by and
provide wholesale electric service to six members:
Cherryland Electric CooperativeGreat Lakes Energy
HomeWorks Tri-County Electric CooperativePresque Isle Electric & Gas Co-op
Spartan Renewable EnergyWolverine Power Marketing Cooperative
Ourmission is simple -To provide outstanding service to our members by delivering reliable,
competitively priced power supply.It drives our day-to-day business and our plans for the future.
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O v e r v i e w
Below - Laurie Millen (left), receptionist,and Debbie Lindquist (right),administrative secretary.
Right - Our headquarters in Cadillac.
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Meeting Our Mission TodayWolverine employees work hard to meet the coop-erative’s mission of providing reliable, competi-tively priced power to members. Nearly half of ourstaff works at our headquarters in Cadillac,with theremaining stationed throughout our service area.
Wolverine owns and operates five power plants pri-marily used for peaking capacity. These facilities arecapable of generating 225megawatts of electricity.Our 1,600-mile transmission systemextends through-out thewestern and northern portions ofMichigan’sLower Peninsula to serve our members. Our state-of-the-art Energy Control Center monitors gen-eration and transmission functions.
Looking to the FutureWolverine is under contract through 2011 for themajority of the power needed to serve members.We continue to work on a number of initiatives tosecure long-term power supply. Among them are abaseload power plant and wind farm we have pro-posed for sites near Rogers City,Michigan.
We are also increasing our peaking capacity withthe purchase of the Sumpter power plant fromFirstEnergy Generation Corp. This new plant acqui-sition, set to close in March 2010, will provide uswith an additional 340 megawatts of peakingcapacity.
Our engineering department’s five-year work planmaps out the projects we will complete on ourtransmission system to ensure reliable service to ourmembers.
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M e m b e r s
Cherryland Electric Cooperative, Grawn
Great Lakes Energy, Boyne City
HomeWorks Tri-County Electric Cooperative, Portland
Presque Isle Electric & Gas Co-op, Onaway
Spartan Renewable Energy, Cadillac
Wolverine Power Marketing Cooperative, Cadillac
Below - Great smiles from ourvolunteers at a National CherryFestival parade.
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HomeWorksTri-County Electric
Cooperative
Presque IsleElectric& GasCo-opGreat Lakes
Energy
Great Lakes Energy
CherrylandElectric
Cooperative
Che
rryland Electric
Cooperative
Four of Wolverine’s members – Cherryland ElectricCooperative, Great Lakes Energy, HomeWorks Tri-County Electric Cooperative and Presque IsleElectric & Gas Co-op – provide electric service torural areas of Michigan. These cooperatives servehomes, farms and businesses in 35 counties inMichigan’s Lower Peninsula.
Spartan Renewable Energy is a for-profit corpora-tion organized to sell renewable energy and
environmental attributes in Michigan’s electricchoice programs.
Wolverine Power Marketing Cooperative is a retailelectric cooperative selling energy to commercialand industrial businesses in the state’s choicemarket.
Wolverine is governed by a Board of Directorscomprised of two directors from each of our sixmembers.
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Three words come to mind when describingWolverine Power Cooperative in 2009 – perseverance, oppor-tunity andprogress. Thesewords represent the resolve of theWolverine Board ofDirectors,management teamand employees tomeet the cooperative's mission.PerseveranceTheWolverine Clean EnergyVenture (WCEV) took several steps forward in 2009, including the approval of a
harbor expansion permit and our filing with theMichigan Department of Natural Resources and Environment(MDNRE) for the landfill permit. We received a $2.7 million grant award from the United States Department ofEnergy for development of a carbon capture and sequestration demonstration project at the power plant site,with additional grant monies available.
We expected a decision from the MDNRE on the air quality permit for ourWCEV power plant and were dis-appointed to close the year without one.
Despite no action on the air permit – the most critical permit for the project – our commitment to owningbaseload generation remains.OpportunityWe announced plans to purchase a 340-megawatt peaking plant in SoutheastMichigan in December 2009.
We were able to move quickly on this opportunity through close, effective communication with our directorsand members and because we had taken steps to strengthen our financial position should such an opportu-nity arise.
We expect to finalize our purchase of the plant, located in SumpterTownship near Belleville, in the first quar-ter of 2010. We are buying the facility from FirstEnergy Generation Corp.andwill use it tomeet the current andfuture peaking needs of our members.ProgressWe can look throughoutWolverine and find progress in 2009. It starts with 60miles of transmission line up-
grades and construction of five distribution and two transmission substations. Progress is also evident in thework of our plant operators to repair a generator at Vestaburg and bring it back online.
A newmulti-year labor agreement was ratified by our 45 union employees, and we underwent our secondNorth American Electric Reliability Corporation (NERC) compliance audit,utilizing the time and talents ofmorethan 20 of our employees.
We established credit with,and borrowed from,two new lenders andworked to build relationshipswith ad-ditional lenders. We saw a growth in membership for Wolverine Power Marketing Cooperative and commit-ments from existingmembers of that cooperative for service into the future.
Our EnergyControl Center recorded anewMarchpeak for transmissionmembers,and a secondpeak recordwas nearly set for the month of June. Despite the poor economy, our energy sales continue to remain steadydue to our members' predominantly residential customer base and diverse commercial load.
We hired a new safety director to build on our commitment to employee safety, and our information tech-nologydepartment teamedwith twoof ourmembers to implement a newmobile radio system that greatly im-proves communication for employees working in the field.
We track our work in key performance areas and share a progress report with members, directors and em-ployees each quarter.In closingWe advanced the mission of Wolverine Power Cooperative on many fronts in 2009, yet we know there is
muchmore work to be done. Wewelcome 2010 and the opportunities and challenges it will bring.
F r o m t h e C h a i r m a n a n d P r e s i d e n t
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Dale FarrierChairman of the Board
Eric D.BakerPresident & Chief Executive Officer
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Wayne Swiler
HomeWorks Tri-CountyElectric Cooperative
Jack Pope
SpartanRenewable Energy
Allen Barr
Presque Isle Electric& Gas Co-op
Terry Lautner
Vice Chairman
Cherryland ElectricCooperative
Paul Byl
Secretary
SpartanRenewable Energy
Dale Farrier
Chairman
Great Lakes Energy
B o a r d o f D i r e c t o r s
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Jerry Akers
Treasurer
Wolverine PowerMarketing Cooperative
Laverne Hansen
HomeWorks Tri-CountyElectric Cooperative
John Brown
Presque Isle Electric& Gas Co-op
Betty Maciejewski
Cherryland ElectricCooperative
Mike McDonald
Wolverine PowerMarketing Cooperative
DickWalsworth
Great Lakes Energy
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Wolverine
Managem
ent
Danny Janway
Vice PresidentEngineering & Operations
Eric Baker
President & Chief Executive Officer
Craig Borr
Executive Vice President
Janet Kass
Chief Financial Officer
Brian Valice
Staff Attorney
Dan DeCoeur
Vice PresidentGeneration
Rick Kehl
Vice PresidentAccounting & Risk Management
Craig Borton
Vice PresidentHuman Resources
Pete Chase
Vice PresidentPower Supply & Energy Control
Kim Molitor
Vice PresidentRates & Administrative Services
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Mark Kappler
President & ChiefExecutive Officer
HomeWorksTri-County ElectricCooperative
Craig Borr
President & ChiefExecutive Officer
Wolverine Power MarketingCooperative
Spartan Renewable Energy
Steve Boeckman
President & ChiefExecutive Officer
Great Lakes Energy
Brian Burns
President & ChiefExecutive Officer
Presque Isle Electric& Gas Co-op
Tony Anderson
General Manager
Cherryland ElectricCooperative
M e m b e r M a n a g e m e n t
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2 0 0 9 i n R e v i e w
Below - The Harvest Wind Farm.
Right - A rendering of the WolverineClean Energy Venture power plant.
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Wolverine Clean Energy Venture
Wolverine's development of a power plant andwind farm near Rogers City,Michigan, continuedin 2009.Power plantThe Michigan Department of Natural Resources
and Environment (MDNRE) issued a permit toexpand the existing harbor in the Carmeuse Lime& Stone quarry - the site for the proposed powerplant. A decision on the landfill permit for theplant will be made by the MDNRE in the firstquarter of 2010. We continue to await a decisionfrom the MDNRE on the air permit for the powerplant.
Our efforts to grow sustainable biomass cropsto fuel the power plant increased in 2009. Up to20 percent of the fuel for the plant could besustainable biomass.Michigan TechnologicalUniversity continued planting and evaluatingvarious tree species, and Michigan State Universityjoined our biomass team,planting switchgrass atthree sites near Rogers City.
The United States Department of Energyawarded a $2.7 million grant to us for thedevelopment of a carbon capture andsequestration (CCS) demonstration project at thepower plant site. Additional grant dollars areavailable and could be awarded to the CCSproject.
Wind farmWe collected weather data at the site of the
proposed wind farm throughout the year. A windenergy research company is assessing the windspeeds,wind directions and temperaturesrecorded at the site to determine the project'sfeasibility.
Harvest Wind Farm
We continued purchasing the total output ofthe HarvestWind Farm in 2009, seeing anincrease from the previous year in the amountof electricity generated by the project's32 turbines.
Harvest produced 132,940 megawatt hoursof electricity in 2009 compared to 122,254megawatt hours in 2008. When all turbines areoperating, the farm is capable of meeting theelectricity needs of about 15,000 Michiganhomes.
We have a 20-year purchase agreement withHarvest's owner and operator, John DeereWindEnergy. Harvest is located near Elkton,Michigan,and is the state's first commercial-scale windfarm.
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2 0 0 9 i n R e v i e w
Below - The Sumpter power plant.
Right - The Lewiston substation.
Far right - Pete Winter, Energy ControlCenter power coordinator.
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Sumpter Peaking Plant
In December 2009, we announced our intent topurchase a 340-megawatt peaking power plantlocated in Sumpter Township near Belleville,Michigan. The Sumpter plant will meet thecurrent and future peaking needs of our members.
FirstEnergy Generation Corp., of Akron, Ohio,constructed the plant in 2002. The four units atthe facility are capable of generating85 megawatts each and are permitted tooperate about 1,800 hours per year.
Transmission System andDistribution Substations
Substantial investments were made in 2009 toimprove system reliability and provide futurecapacity to serve our members.
We worked with our members on theconstruction of five distribution substations -Lewiston, Interlochen,New Era , Baseline and DeerLake. A sixth substation - South Boardman - wasenergized in early 2010.
Two major transmission stations werecompleted -Westwood and Gray Road. The GrayRoad station provides an interconnection for thetransmission systems of four utilities.
We also made significant improvements to60 miles of line throughout our transmissionsystem.
Members Set New Records forElectric Demand
We recorded new peaks for the combined electricdemands of Cherryland Electric Cooperative,GreatLakes Energy,HomeWorks Tri-County ElectricCooperative and Presque Isle Electric & Gas Co-op.
A new all-timeMarch peak was reached in March2009. The four members came close to setting anew peak record for themonth of June in 2009 aswell. In 2010,a new all-time peak for themonth ofJanuary was recorded.
Cherryland,Great Lakes,HomeWorks and PresqueIsle continue to have strong electric demands tomeet the primarily residential areas they serve.
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Assets $ 308,751,301 $ 258,588,102 19.4
Electric Revenue $ 242,146,027 $ 236,755,493 2.3
Other Revenue $ 14,031,132 $ 14,183,331 (1.1)
Operating Expense
Fuel $ 4,937,791 $ 5,094,959 (3.1)
Purchased Power $ 202,141,829 $ 195,559,277 3.4
Other $ 15,516,968 $ 14,363,855 8.0
Total Operating Expense $ 222,596,588 $ 215,018,091 3.5
Maintenance Expense $ 5,081,020 $ 4,770,636 6.5
Depreciation and Amortization $ 8,538,922 $ 8,258,358 3.4
Taxes $ 3,496,092 $ 2,765,141 26.4
Interest $ 4,981,701 $ 4,576,344 8.9
Non-Operating Income (Loss) $ 1,931,702 $ 1,953,823 (1.1)
Total Net Margins $ 13,414,538 $ 17,504,077 (23.4)
PSDF Margins $ 11,853,663 $ 13,005,840 (8.9)
Equity, % of Assets 46 50 (7.6)
Debt Service Coverage 2.13 2.12 0.5
Times Interest Earned Ratio 3.69 4.82 (23.4)
Full-Time Employees at Year End 110 108 1.9
Energy Purchased (MWh) 4,577,034 4,507,782 1.5
Energy Generated (MWh) 150,507 147,568 2.0
Energy Sold to Transmission Members (MWh) 2,327,255 2,347,313 (0.9)
Line Loss % 4.7 3.8 22.6
Bundled Rate to Transmission Members ($/MWh) 69.75 66.28 5.2
2008 %Change2009
F i n a n c i a l H i g h l i g h t s a n d C o m p a r i s o n s
Right - Our Gaylord plant.
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Energy Generated (MWh)
System Peak Demand for Transmission Members(Megawatts)
Bundled Rate to Transmission Members($/MWh)
Outstanding Long-Term Debt (Dollars in millions)Energy Sold to Transmission Members (MWh)
0 10 20 30 40 50 60 70 800 100 200 300 400 500
0 50 100 150 200 2500 1,000,000 2,000,000
170,655112,873119,016147,568150,507
2,240,0812,255,2342,368,8232,347,3132,327,255
61.79
62.69
66.57
66.28
69.75
451
486
490
427
442
200520062007200820097
185.2195.7239.6250.9256.2
89.190.681.071.0
129.9
Operating Revenue (Dollars in millions)
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Below - Ed Straathof, senior lineman.
F i n a n c i a l s
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I n d e p e n d e n t A u d i t o r ’ s R e p o r tTo the Board of Directors
Wolverine Power Supply Cooperative, Inc.
Cadillac,Michigan
We have audited the accompanying consolidated balance sheet ofWolverine Power Supply Cooperative,
Inc. as of December 31, 2009 and 2008 and the related consolidated statements of operations, equities, and
cash flows for the years then ended. These consolidated financial statements are the responsibility ofWolver-
ine Power Supply Cooperative, Inc.’s management. Our responsibility is to express an opinion on these con-
solidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States
of America. Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also in-
cludes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material re-
spects, the consolidated financial position ofWolverine Power Supply Cooperative, Inc.at December 31,2009
and 2008 and the consolidated results of its operations and its cash flows for the years then ended, in con-
formity with accounting principles generally accepted in the United States of America.
March 23, 2010
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AAsssseettss
Electric Plant - At cost (Note 2)In service $ 290,025,713 $ 259,969,685Construction work in progress 19,177,888 9,583,859
Total cost 309,203,601 269,553,544Less accumulated depreciation 124,856,164 117,202,077
Net electric plant 184,347,437 152,351,467Power Supply Development Fund
Cash and cash equivalents - Restricted 41,849,506 35,210,936Investments - Restricted - 800,000
Total Power Supply Development Fund (Note 4) 41,849,506 36,010,936Other Assets (Note 4) 22,393,651 15,612,043Investments (Note 3) 14,854,895 11,236,087Cash and Cash Equivalents - Restricted 687,166 1,668,458Current Assets
Cash and cash equivalents 6,736,741 511,574Accounts receivable 23,064,224 23,024,369Material and supplies inventory 14,120,740 16,405,440Deferred tax asset (Note 7) 9,000 34,000Prepaid expenses and other current assets 687,941 1,733,728
Total current assets 44,618,646 41,709,111Total assets $ 308,751,301 $ 258,588,102
Equities and LiabilitiesEquities
Memberships $ 1,600 $ 1,600Patronage capital 83,365,071 81,804,196Power Supply Development
Fund patronage capital (Note 4) 64,292,110 52,438,447Accumulated other comprehensive income (Note 6) (4,470,659) (4,461,372)
Total equities 143,188,122 129,782,871Long-term Debt - Net of current portion (Note 5) 116,308,725 60,146,758Long-term Deferred Tax Liability (Note 7) 358,000 68,000Other Long-term Liabilities
Accrued pension and postretirement (Note 6) 6,524,455 8,139,839Other liabilities 890,326 -
Total other long-term liabilities 7,414,781 8,139,839Current Liabilities
Current portion of long-term debt (Note 5) 13,589,291 10,853,694Lines of credit (Note 5) - 20,296,937Taxes payable 1,403,377 1,392,721Accounts payable 23,150,629 21,561,787Accrued wages and other liabilities 3,338,376 6,345,495
Total current liabilities 41,481,673 60,450,634Total equities and liabilities $ 308,751,301 $ 258,588,102
Consolidated Balance Sheet
See Notes to Consolidated Financial Statements.
December 31
2009 2008
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Operating Revenue $ 256,177,159 100.0 $ 250,938,824 100.0Operating Expenses
Purchased power 202,141,829 78.9 195,559,277 77.9Power generation:
Operation 2,262,050 0.9 1,973,612 0.8Maintenance 1,516,375 0.6 1,743,689 0.7Fuel 4,937,791 1.9 5,094,959 2.0
Transmission expense:Operation 4,366,136 1.7 4,001,711 1.6Maintenance 1,812,347 0.7 1,482,423 0.6
Distribution expense:Operation 558,490 0.2 631,011 0.3Maintenance 938,185 0.4 796,563 0.3
Administrative and general:Operation 8,330,292 3.3 7,757,521 3.1Maintenance 814,113 0.3 747,961 0.3
Depreciation and amortization (Note 2) 8,538,922 3.3 8,258,358 3.3Net (gain) loss on disposition of property (427,902) (0.2) 387,850 0.2Taxes 3,097,692 1.2 2,542,254 1.0
Total operating expenses 238,886,320 93.2 230,977,189 92.1Operating Margins Before Fixed Charges 17,290,839 6.8 19,961,635 7.9Fixed Charges - Interest on debt (Note 5) 4,981,701 1.9 4,576,344 1.8Operating Margins After Fixed Charges 12,309,138 4.9 15,385,291 6.1Capital Credits 460,403 0.2 551,546 0.2Net Operating Margins 12,769,541 5.1 15,936,837 6.3Non-operating Margins
Interest income 887,257 0.3 1,736,530 0.7Other non-operating income - Net 156,140 0.1 53,597 -
Total non-operating margins 1,043,397 0.4 1,790,127 0.7Net Margins - Before income taxes 13,812,938 5.5 17,726,964 7.0Income Tax Expense (Note 7) (398,400) (0.2) (222,887) (0.1)Net Margins $ 13,414,538 5.3 $ 17,504,077 6.9
See Notes to Consolidated Financial Statements.
Consolidated Statement of Operations
Year Ended December 312009 2008
Percent of Percent of Operating Operating
Amount Revenue Amount Revenue
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Power SupplyDevelopment Accumulated
Fund OtherPatronage Patronage Comprehensive
Memberships Capital Capital Income Total
Balance - January 1, 2008 $ 1,600 $ 79,047,681 $ 39,432,607 $ (2,250,991) $ 116,230,897
Comprehensive income in 2008:Net margins - 4,498,237 13,005,840 - 17,504,077Recognition of post-retirement liability (Note 6) - - - (2,210,381) (2,210,381)
Total comprehensive income 15,293,696
Retirement of capital credits in 2008 - (1,741,722) - - (1,741,722)
Balance - December 31, 2008 1,600 81,804,196 52,438,447 (4,461,372) 129,782,871
Comprehensive income in 2009:Net margins - 1,560,875 11,853,663 - 13,414,538Recognition of post-retirement liability (Note 6) - - - (9,287) (9,287)Total comprehensive income 13,405,251
Balance - December 31, 2009 $ 1,600 $ 83,365,071 $ 64,292,110 $ (4,470,659) $ 143,188,122
Consolidated Statement of Equities
See Notes to Consolidated Financial Statements.
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Consolidated Statement of Equities
See Notes to Consolidated Financial Statements.
Consolidated Statement of Cash Flows
Cash Flows from Operating ActivitiesCash received from customers $ 256,013,213 $ 248,427,800Cash paid to suppliers and employees (226,758,046) (221,447,793)Taxes paid (3,170,436) (3,046,566)Capital credits 234,468 380,395Other income received 1,043,397 1,733,277Interest paid (4,803,850) (4,568,107)
Net cash provided by operating activities 22,558,746 21,479,006
Cash Flows from Investing ActivitiesConstruction and acquisition of plant (41,005,850) (19,855,873)Cash paid for other assets (6,783,896) (5,859,318)Proceeds from fixed asset disposals 1,105,691 857,693(Increase) decrease in investments and other assets (2,592,873) 1,255,215
Net cash used in investing activities (49,276,928) (23,602,283)
Cash Flows from Financing ActivitiesCapital credit retirement payments - (1,741,722)Net (payments on) proceeds from line of credit (20,296,937) 20,296,937Proceeds from long-term debt 70,000,000 -Principal payments on long-term debt (11,102,436) (10,004,724)
Net cash provided by financing activities 38,600,627 8,550,491
Net Increase in Cash and Cash Equivalents 11,882,445 6,427,214
Cash and Cash Equivalents - Beginning of year 37,390,968 30,963,754
Cash and Cash Equivalents - End of year $ 49,273,413 $ 37,390,968
Cash and Cash EquivalentsCash and cash equivalents $ 6,736,741 $ 511,574Cash and cash equivalents - Restricted (Note 4) 42,536,672 36,879,394
Total cash and cash equivalents $ 49,273,413 $ 37,390,968
Year Ended December 312009 2008
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Consolidated Statement of Cash Flows (continued)
See Notes to Consolidated Financial Statements.
Reconciliation of Net Margins to Net Cashfrom Operating Activities
Net margins $ 13,414,538 $ 17,504,077Adjustments to reconcile net margins to net cash from
operating activities:Depreciation and amortization 8,538,922 8,258,358Net (gain) loss on disposition of property (427,902) 387,850Capital credits (225,935) (171,151)Deferred income taxes 315,000 78,997(Increase) decrease in assets:
Accounts receivable (163,946) (2,185,055)Material and supplies inventory 2,284,700 (1,615,152)Prepaid expenses and other current assets 1,045,787 24,689
Increase (decrease) in liabilities:Taxes payable 10,656 (357,127)Accounts payable and accrued liabilities (2,233,074) (446,480)
Net cash provided by operating activities $ 22,558,746 $ 21,479,006
Year Ended December 31
2009 2008
25
Notes
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIESWolverine Power Supply Cooperative, Inc. (the “Cooperative” or “Wolverine”) is a non-profit generationand transmission electric cooperative incorporated in Michigan. It provides wholesale electric service toits six members, which are also located in Michigan.
The Cooperative has four traditional cooperative members: Cherryland Electric Cooperative, Great LakesEnergy Cooperative, HomeWorks Tri-County Electric Cooperative, and Presque Isle Electric & Gas Co-op.These distribution members purchase both generation and transmission service from Wolverine and re-sell that power to about 214,000 retail customers located in the northern and western portions of Michi-gan’s lower peninsula. This service is provided in accordance with the terms of all-requirements powerpurchase agreements that expire on December 31, 2050.
The Cooperative’s two other members, Spartan Renewable Energy, Inc. (“Spartan”) and Wolverine PowerMarketing Cooperative, are licensed alternative electric suppliers in Michigan.
The Cooperative is regulated by the Federal Energy Regulatory Commission. The Cooperative’s rates forregulated services are established on a cost recovery basis and are subject to regulatory approval.
Great Lakes Energy Cooperative and Presque Isle Electric & Gas Co-op are regulated by the MichiganPublic Service Commission. Cherryland Electric Cooperative is member regulated for rates and charges,billing practices, and accounting standards and remains under the Michigan Public Service Commissionfor all other areas of regulation. HomeWorks Tri-County Electric Cooperative will be under member regu-lation for rates and charges, billing practices, and accounting standards after April 7, 2010 and remainunder the regulation of the Michigan Public Service Commission for all other areas of regulation.
The Cooperative is subject to a variety of risks due to concentrations of business activity. Revenue fromproviding wholesale electric service to members comprised 88% and 86% of total revenue in 2009 and2008, respectively. Accounts receivable from member cooperatives accounted for 91% of total accountsreceivable at both December 31, 2009 and 2008. Forty-two percent of the Cooperative’s employees arecovered by a collective bargaining agreement that expires on March 31, 2014.
Principles of Consolidation - The accompanying consolidated financial statements include the accountsof Wolverine and its majority-owned member, Spartan. All significant intercompany transactions and bal-ances have been eliminated upon consolidation.
Cash and Cash Equivalents - The Cooperative considers money market funds and all short-term debtsecurities with a maturity of three months or less to be cash equivalents.
Accounts Receivable - Accounts receivable are stated at net invoice amounts. An allowance for doubt-ful accounts is established based on a specific assessment of all invoices that remain unpaid followingnormal customer payment periods. All amounts deemed to be uncollectible are charged against theallowance for doubtful accounts in the period that such determination is made. Management has deter-mined that no allowance for doubtful accounts is required at December 31, 2009 and 2008.
26
NOTE 1 - CONTINUEDMaterials and Supplies Inventory - Electrical materials and supplies are stated at the lower of averagecost or market.
Electric Plant and Depreciation - Additions to the electric plant with a life expectancy of more than oneyear are recorded at cost. The Cooperative recognizes gains and losses on disposal of electric plant as-sets, and accounts for depreciation and amortization on the straight-line method for specific units.
Investments in Associated Organizations - The carrying values of investments in associated organiza-tions are stated at cost, adjusted for capital credits earned or retired.
Equities - The Cooperative’s equity consists of memberships, patronage capital, power supply develop-ment fund patronage capital, and accumulated other comprehensive income. Memberships are $200non-refundable investments that are required to become a member of the Cooperative. Patronage capi-tal is the Cooperative’s retained net margins, which have been allocated to members based upon their re-spective power purchases in accordance with the Cooperative’s bylaws and written policies. Power supplydevelopment fund patronage capital reflects funds collected from members to obtain future power sup-ply. Accumulated other comprehensive income represents certain amounts recognized related to definedbenefit pension plans and postretirement benefit plans as direct adjustments to equity.
Other Comprehensive Income - Accounting principles generally require that recognized revenue, ex-penses, gains, and losses be included in net income. Certain changes in assets and liabilities, such asamounts recognized related to defined benefit pension and postretirement benefit plans (gains and losses,prior service costs, and transition assets or obligations), are reported as a direct adjustment to the equitysection of the consolidated balance sheet. Such items, along with the net income (loss) of those items, arecomponents of comprehensive income.
Use of Estimates - The preparation of financial statements in conformity with accounting principles gen-erally accepted in the United States of America requires management to make estimates and assumptionsthat affect certain reported amounts and disclosures in the financial statements. Accordingly, actual resultscould differ from those estimates.
Subsequent Events - The financial statements and related disclosures include evaluation of events upthrough and including March 23, 2010, which is the date the financial statements were issued.
Notes
Accumulated Net Book DepreciableCost Depreciation Value Life (years)
Production $ 85,484,283 $ 52,885,077 $ 32,599,206 15 - 35Transmission 119,140,847 42,355,393 76,785,454 35Distribution 64,702,955 16,552,058 48,150,897 35 General 20,697,628 13,063,636 7,633,992 3 - 10Construction in progress 19,177,888 - 19,177,888 -Total $ 309,203,601 $ 124,856,164 $ 184,347,437
Major classes of electric plant and accumulated depreciation in service as of December 31, 2008consisted of the following:
Accumulated Net Book DepreciableCost Depreciation Value Life (years)
Production $ 82,746,738 $ 49,016,417 $ 33,730,321 15 - 35Transmission 99,436,171 40,936,915 58,499,256 35Distribution 57,845,433 15,189,643 42,655,790 35General 19,941,343 12,059,102 7,882,241 3 - 10Construction in progress 9,583,859 - 9,583,859 -Total $ 269,553,544 $ 117,202,077 $ 152,351,467
Depreciation and amortization was $8,538,922 and $8,258,358 for the years ended December 31,2009 and 2008, respectively.
2009 2008CFC unsecured subordinated securities $ 12,141,616 $ 8,750,968CFC patronage capital credits 2,595,988 2,370,053Other investments in associated organizations 117,291 115,066Total investment in associated organizations $ 14,854,895 $ 11,236,087
27
NOTE 3 - INVESTMENTSWolverine has three categories of investments: investments for its Power Supply Development Fund (seeNote 4), investments for its general account, and investments in other cooperatives. As of December 31,2009 and 2008, all of the investments for Wolverine’s Power Supply Development Fund and its general ac-count were invested in cash and marketable securities. Hence, all of the investments shown on the con-solidated balance sheet are investments in other cooperatives. These investments are classified asinvestments in associated organizations because Wolverine has a minority ownership interest in each ofthe cooperatives with which it does business.
The primary cooperative in which Wolverine has an investment is the National Rural Utilities CooperativeFinance Corporation (“CFC”). In order to borrow money from CFC, Wolverine is required to be a memberof CFC and to purchase capital term certificates, which are CFC-issued securities. These securities havespecific maturities and some bear interest while others do not.
Since CFC is a cooperative, it allocates its annual net margins to its members, including Wolverine. Theseallocated net margins are reflected as patronage capital credits on Wolverine’s balance sheet. CFC retiresportions of its patronage capital credits from time to time by making cash payments to its members, butis not required to do so.
Wolverine is a member of various other cooperatives that provide goods or services to Wolverine.
Investments in associated organizations consisted of the following at December 31, 2009 and 2008:
NOTE 2 - ELECTRIC PLANT AND DEPRECIATION
Major classes of electric plant and accumulated depreciation in service as of December 31, 2009 consisted of the following:
Notes
28
The table below indicates the accounts on the balance sheet where the Power Supply Development Fundfunds are shown:
2009 2008Power Supply Development Fund -Cash and cash equivalents - Restricted $ 41,849,506 $ 35,210,936
Power Supply Development Fund -Investments - Restricted - 800,000
Other assets 21,305,531 15,296,414Accounts receivable 1,137,073 1,131,097
Total PSDF patronage capital $ 64,292,110 $ 52,438,447
NOTE 5 - DEBTLines of Credit
Wolverine has an unsecured line of credit with CFC that has a variable interest rate. The variable interestrate is reset by CFC from time to time and was 4.95% on December 31, 2009 and 5.0% on December 31,2008. In March 2009, the line of credit was increased from $45 million to $75 million, and the maturity datewas extended to March 6, 2012. There were no borrowings outstanding on this line of credit as of De-cember 31, 2009.
On August 18, 2009, Wolverine entered into a $25 million unsecured line of credit with JPMorgan ChaseBank, N.A., with a maturity date of August 31, 2010. The interest rate is based on LIBOR. There were noborrowings outstanding on this line of credit as of December 31, 2009.
Long-term Debt
As of December 31, 2009, Wolverine had approximately $130 million of long-term debt outstanding fromtwo lenders, CFC and the Prudential Capital Group (“Prudential”). Wolverine has eight secured and threeunsecured notes outstanding with CFC with maturities that range from 2012 to 2025. Wolverine has twosecured notes outstanding with Prudential, both of which mature in 2039. The majority of Wolverine’s long-term debt has fixed interest rates that range from 4.70% to 8.10%; approximately $7 million of the long-
Notes
The Power Supply Development Fund amounts are derived from a 0.5 cents per kilowatt-hour charge toWolverine’s distribution members. The sole purpose and use of the charge is to accumulate funds to ac-quire long-term power supply for Wolverine’s distribution members.
Wolverine has used these funds to plan the development of a baseload power generation plant. In 2006,Wolverine began a project called the Wolverine Clean Energy Venture (“WCEV”), involving the develop-ment of a solid-fuel power generation facility in Michigan. Expenditures on this project have been madein 2006 - 2009; they are capitalized in Other Assets on the balance sheet.
The table below shows the amounts collected under the Power Supply Development Fund charge and theamounts used for planning and development of the power generation plant during 2009 and 2008.
Power Supply Development Fund 2009 2008Beginning balance $ 36,010,936 $ 29,868,832Collected 11,641,615 11,707,840Expended for WCEV (6,020,434) (6,864,779)Earnings on investments 217,389 1,299,043
Ending balance $ 41,849,506 $ 36,010,936
NOTE 4 - POWER SUPPLY DEVELOPMENT FUND
29
term debt has a variable interest rate that was 4.95% as of December 31, 2009. Most of Wolverine’s long-term debt has monthly principal and interest payments.
In 2009, Wolverine entered into two long-term debt shelf agreements under which Wolverine may borrowdebt at a time of its choosing at the interest rate offered by the lender on the date of Wolverine’s request.CFC has committed to lend $40 million of long-term debt, with maturities up to 35 years; this shelf facilityexpires on April 9, 2011. Wolverine has not borrowed any funds under the CFC shelf facility. Prudential en-tered into an uncommitted $125 million shelf facility with Wolverine that terminates on August 4, 2011.Wolverine has borrowed twice under this shelf facility, issuing a total of $70 million of 30-year debt. Effec-tive March 23, 2010, the Prudential shelf facility was increased to $200 million. The remaining amount thatWolverine may borrow under this facility is $130 million.
Most of Wolverine’s long-term debt is secured under an indenture adopted in December 2008 that pledgessubstantially all of Wolverine’s tangible assets and certain of Wolverine’s intangible assets, including its keycontracts, to the trustee under the indenture for the equal benefit of all holders of debt issued thereunder.The indenture has two key financial covenants. First, Wolverine is obligated to set its rates in a manner rea-sonably expected to achieve a Margins For Interest Ratio (an interest coverage ratio that covers annualinterest charges on all debt secured under the indenture, and excludes capitalized interest charges) to beequal to or greater than 1.10. Second, distributions of patronage capital are restricted if Wolverine is in de-fault under the indenture or the ratio of equity to combined long-term debt and equity is less than 20%.
The loan agreements with CFC and Prudential impose two key financial covenants on Wolverine. The debtservice coverage ratio (for long-term debt secured under the indenture) must be equal to or greater than1.0 and equity as a percent of total assets must be equal to or greater than 10%.
As of December 31, the Cooperative’s debt consisted of the following:
2009 2008Line of credit $ - $ 20,296,937Current portion of long-term debt 13,589,291 10,853,694Non-current portion of long-term debt 116,308,725 60,146,758
Total debt $ 129,898,016 $ 91,297,389
Projected principal payments on long-term debt as of December 31, 2009 are as follows:
2010 $ 13,589,2912011 13,950,8442012 11,455,2512013 8,774,7972014 8,906,017
2015 and thereafter 73,221,816Total $ 129,898,016
Notes
The Cooperative follows the policy of capitalizing interest as a component of the cost of plant constructedfor its own use. In 2009, total interest incurred was $5,835,828, of which $854,127 was capitalized and$4,981,701 was charged to operations. In 2008, total interest incurred was $4,915,586, of which $339,242was capitalized and $4,576,344 was charged to operations.
NOTE 5 - CONTINUED
Pension Plans Other Postretirement Benefit Plans 2009 2008 2009 2008
Other long-term liabilities $ 4,849,163 $ 6,177,125 $ 1,212,215 $ 1,224,783
Amounts Recognized in Accumulated Other Comprehensive Income (AOCI)Net loss $ 2,683,451 2,410,971 406,952 455,297Prior service cost 1,232,616 1,595,104 - -Transition obligation 147,640 - - -
Total AOCI $ 4,063,707 4,006,075 406,952 455,297
30
NOTE 6 - PENSION AND POSTRETIREMENT BENEFIT PLANSThe Cooperative sponsors two qualified pension plans for employees and one non-qualified deferredcompensation plan for directors. The pension plan for union employees is managed by the National RuralElectric Cooperative Association (NRECA) as part of a multi-employer plan. The Cooperative contributed$186,949 in 2009 and $156,875 in 2008 to this plan. The Cooperative’s contributions to the defined ben-efit plan are determined by the NRECA. Federal laws impose certain contingent liabilities on contributorsto multi-employer defined benefit plans. In the event of withdrawal from the plan and under certain otherconditions, a contributor to a multi-employer plan may be liable to the plan in accordance with formulasestablished by law. The pension plan for non-union employees and the deferred compensation plan fordirectors are combined in the presentations shown below and are called “pension plans.”
The Cooperative provides postretirement healthcare benefits and postretirement life insurance to its employees. These benefits are combined in the presentations shown below and are called “other post-retirement benefit plans.” These plans are unfunded.
Obligations, Funded Status, and ContributionsPension Plans Other Postretirement Benefit Plans
2009 2008 2009 2008 Projected benefit obligation $ 12,044,334 $ 10,442,942 $ 1,212,215 $ 1,224,783Fair value of plan assets 7,195,171 4,265,817 - -Funded status at end of year $ (4,849,163) (6,177,125) (1,212,215) (1,224,783)
Accumulated benefit obligation $ 8,602,346 7,696,603 N/A N/A
Employer contributions 2,395,909 851,483 91,570 103,255Participant contributions - - 159,217 172,562Benefits paid 254,657 253,707 94,373 112,587
Amounts Recognized on the Balance Sheets
Notes
31
NOTE 6 - CONTINUEDPension Assets
The goals of the pension plan investment program are to fully fund the obligation to pay retirement bene-fits in accordance with the plan documents and to provide returns that, along with appropriate funding fromthe Cooperative, maintain an asset/liability ratio that is in compliance with all applicable laws and regula-tions and assures timely payment of retirement benefits.
The asset allocations for the pension plans at the end of 2009 and 2008, and the target allocation for 2009,by asset category, are as follows:
Target Percentage of Plan Allocation Assets at Year End 2009 2009 2008
Equity securities 55% 56% 39%Debt securities 33 29 34Insurance policies 7 7 12Cash and cash equivalents 5 7 14Other 0 1 1Total 100% 100% 100%
Notes
The investment strategy for the non-union pension plan is to invest in a diversified portfolio of equity securities, debt securities, and cash equivalents with the goal of maximizing the long-term return on planassets while maintaining a prudent level of risk. For the deferred compensation plan for directors, the Co-operative buys life insurance policies on the directors. The assets of this plan consist of the cash surrendervalue of the life insurance policies.
Equity securities primarily include investments in large-cap and mid-cap companies primarily located inthe United States. Debt securities include corporate bonds of companies from diversified industries, mort-gage-backed securities, and U.S. Treasuries.
The fair values of the Cooperative’s pension and post retirement benefit plan assets at December 31, 2009by major asset categories are as follows:
Quoted Prices inActive Markets in Significant Other SignificantIdentical Assets Observable Inputs Unobservable Inputs
(Level 1) (Level 2) (Level 3)Equity securities $ - $ 4,008,373 $ -Debt securities - 2,072,572 -Insurance policies - - 557,991Cash and cash equivalents - 476,038 -Other - 80,197 -
Total $ - $ 6,637,180 $ 557,991
32
Assumptions
The expected return on plan assets represents a weighted average composite rate based on the his-torical rates of returns of the respective asset classes.
2009 2008 Non-Union pension plan:Discount rate 5.50% 5.50%Rate of compensation increase 4.00 4.00Expected return on plan assets 8.00 8.00
Annual cost increase for health care:Initial 8.00% 8.50%Ultimate 7.00 7.00Year ultimate reached 2011 2011
The above table presents information about the pension and postretirement benefit plan assets meas-ured at fair value at December 31, 2009, and the valuation techniques used by the Cooperative to deter-mine those fair values.
In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets that the Plan has the ability to access.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly.These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset. Significant level 3 inputs include the face value of the insurance policies and discounted cash flow methodologies. Changes in fair value of level 3 plan assetsfrom December 31, 2008 to December 31, 2009 relate to net purchases, settlements, and changes in thecash surrender value of the life insurance policies.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierar-chy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Cooperative’s assessment of the significance of particular inputs to thesefair value measurements requires judgment and considers factors specific to each plan asset.
Notes
NOTE 6 - CONTINUED
33
NOTE 6 - CONTINUED
Components of Net Periodic Cost and Other Comprehensive Income (OCI)
Defined Contribution Plans - The Cooperative contributes to two defined contribution retirement plans,commonly called 401(k) plans. The first plan covers union employees and is administered by the NRECA.The second plan is a single-employer plan that covers non-union employees and is administered by theCooperative. Wolverine’s contributions to the two plans totaled $276,247 in 2009 and $253,877 in 2008.
Non-qualified Deferred Compensation Plans - The Cooperative provides non-qualified retirement plansfor certain members of its management. There was no amount charged to operations related to theseplans in 2009 and 2008.
Pension Plans Other Postretirement Benefit Plans 2009 2008 2009 2008
Service cost $ 646,201 $ 579,936 $ 39,577 $ 57,819Interest cost 574,540 550,159 70,656 69,813Expected return on assets (381,473) (420,824) - -Amortization of prior service costs 107,184 107,184 - -Amortization of loss 87,754 10,412 19,917 22,519Amortization of transition obligation 23,654 - - -
Total net periodic cost 1,057,860 826,867 130,150 150,151
Prior service cost (credit) - - - -Net loss (gain) emerging 228,679 2,410,971 (28,428) (10,100)Amortization of prior service cost (107,184) (167,971) - -Amortization of net gain (87,754) - (19,917) (22,519)Amortization of transition asset (23,654) - - -
Total recognized in OCI 10,087 2,243,000 (48,345) (32,619)Total net periodic cost and OCI $ 1,067,947 $ 3,069,867 $ 81,805 $ 117,532
Other Postretirement Pension Plans Benefit Plans
Estimated Contributions in 2010 $ 725,000 $ 90,000
Estimated Future Benefit Payments2010 313,273 96,2722011 343,278 94,4782012 359,724 91,1082013 398,126 83,0142014 403,807 80,0852015-2019 2,654,385 366,652
Estimated Future Benefit Payments and Contributions
Notes
34
Wolverine is a non-profit corporation generally exempt from income tax under Section 501(c)(12) of the Internal Revenue Code. Activities with non-member customers are subject to federal income taxes. Wolver-ine had no federal income tax liability as of December 31, 2009 or 2008.
Spartan is a for-profit corporation and, as such, is subject to both federal and state income taxes. Spar-tan’s federal and state income tax returns are open for potential examination by tax authorities for the yearsincluding and subsequent to December 31, 2006.
The components of the income tax provision included in the statement of operations are all attributable tocontinuing operations and are detailed as follows:
The provision for income tax benefit (expense) is computed by applying the statutory federal income taxrate to income before taxes for Spartan, and the statutory Michigan Business Tax rates to income beforetaxes for both Wolverine and Spartan. An income tax benefit represents taxable losses that can be usedto offset future taxable income. Differences from the application of statutory rates result primarily fromchanges in prior year estimates.
A current tax liability or asset is recognized for the estimated payable or refund on tax returns for the year.Deferred tax liabilities or assets are recognized for the estimated future tax effects of temporary differ-ences between financial reporting and tax accounting. Deferred tax liabilities result primarily from futuretaxability of fixed assets under the Michigan Business Tax for Wolverine. Deferred tax assets result fromrecognition of expenses for financial reporting purposes that are not deductible for tax purposes until paid,net operating loss carryforwards for Spartan, and future tax benefits obtained through the establishmentof the Michigan Business Tax for Wolverine.
The details of the deferred tax assets and liabilities are as follows:
For federal income tax purposes, Spartan has a net operating loss carryforward totaling approximately$26,000 at December 31, 2009. The loss carryforwards will begin to expire in 2027.
2009 Federal State TotalCurrent income tax benefit (expense) $ - $ (83,400) $ (83,400)Deferred income tax benefit (expense) (36,000) (279,000) (315,000)
Total income tax benefit (expense) $ (36,000) $ (362,400) $ (398,400)
2008 Federal State TotalCurrent income tax benefit (expense) $ - $ (143,890) $ (143,890)Deferred income tax benefit (expense) 29,003 (108,000) (78,997)
Total income tax benefit (expense) $ 29,003 $ (251,890) $ (222,887)
2009 Federal State TotalTotal deferred tax liabilities $ - $ (1,847,000) $ (1,847,000)Total deferred tax assets 38,000 1,460,000 1,498,000
Net deferred tax asset (liability) $ 38,000 $ (387,000) $ (349,000)
2008 Federal State TotalTotal deferred tax liabilities $ - $ (1,568,000) $ (1,568,000)Total deferred tax assets 74,000 1,460,000 1,534,000
Net deferred tax asset (liability) $ 74,000 $ (108,000) $ (34,000)
Notes
NOTE 7 - INCOME TAXES
35
NOTE 8 - COMMITMENTS AND CONTINGENCIESAs of December 31, 2009, substantially all of the Cooperative’s projected energy requirements are satis-fied under various purchased power contracts, with the majority of the contracts expiring by the end of2011. The prices under the contracts were at or below market rates when the agreements were enteredinto. The table below shows the actual megawatt hours of power purchased in the prior two years underthese contracts and the megawatt hours that will be purchased in future years:
Committed EnergyPurchases (MWh)
2008 3,613,8542009 3,713,3182010 3,938,6782011 3,784,6382012 1,755,2062013 576,7582014 138,758
2015 and thereafter 1,803,854
Non-energy Committed Purchases
2010 $ 9,664,8432011 4,260,0002012 4,832,400
Notes
In addition, the Cooperative has entered into agreements for future capacity, equipment, and serviceneeds. The table below shows the amounts committed to the significant non-energy contracts:
36
NOTE 9 - RELATED PARTY TRANSACTIONSThe Cooperative has entered into agreements with both Wolverine Power Marketing Cooperative andSpartan to provide certain management and administrative services. Fees charged to Wolverine PowerMarketing Cooperative under its agreement were approximately $395,000 and $364,000 in 2009 and2008, respectively. Fees charged to Spartan were eliminated upon consolidation.
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTSA summary of the fair values of financial instruments at December 31, 2009, as well as the significant as-sumptions used to estimate fair values, are as follows:
Short-term Financial Instruments - The fair values of short-term financial instruments, including cash andcash equivalents, investments, accounts receivable, lines of credit, accounts payable, and accrued lia-bilities, approximate the carrying amounts in the accompanying consolidated financial statements due tothe short maturity of such instruments.
Investments in Associated Organizations - The carrying amounts of Wolverine’s investments in associ-ated organizations, primarily investments in securities issued by CFC (see Note 3), are assumed to ap-proximate fair value. There is no market or quoted prices for these securities.
Long-term Debt - The estimated fair value of the Cooperative’s long-term debt is based on borrowingrates available on December 31, 2009 to the Cooperative from CFC and Prudential for loans with similarterms and maturities. The fair value of the Cooperative’s long-term debt at December 31, 2009 was $132.5million, compared to the actual principal outstanding of $129.9 million.
NOTE 11 – SUBSEQUENT EVENTSIn March 2010, Wolverine and FirstEnergy Generation Corp. ("FirstEnergy") entered into an agreement forWolverine to purchase FirstEnergy's 340-megawatt Sumpter Power Plant in Belleville, Michigan. The peak-ing power plant was built in 2002 and consists of four 85-megawatt natural gas combustion turbines. Thesale is expected to close on March 31, 2010. The acquisition will significantly increase the size of the Co-operative's net electric plant, and will be financed primarily with debt. As of March 23, 2010, the specificfinancing plan had not been finalized.
Notes
37
A d d i t i o n a l I n f o r m a t i o nTo the Board of Directors
Wolverine Power Supply Cooperative, Inc.
Cadillac, Michigan
We have audited the consolidated financial statements of Wolverine Power Supply Cooperative, Inc. as of
December 31, 2009 and 2008. Our audits were made for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The accompanying consolidating balance sheet and
statement of operations are presented for the purpose of additional analysis of the consolidated financial
statements rather than to present the financial position and results of operations of the individual
companies and are not required parts of the basic consolidated financial statements. The consolidating
information has been subjected to the procedures applied in the audits of the consolidated financial
statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial
statements taken as a whole.
March 23, 2010
38
ASSETSElectric Plant - At cost
In service $ 290,025,713 $ - $ - $ 290,025,713Construction work in progress 19,177,888 - - 19,177,888
Total cost 309,203,601 - - 309,203,601
Less accumulated depreciation 124,856,164 - - 124,856,164Net electric plant 184,347,437 - - 184,347,437
Power Supply Development FundCash and cash equivalents - Restricted 41,849,506 - - 41,849,506
Other Assets 22,393,651 - - 22,393,651Investments 14,904,895 19,951 (69,951) 14,854,895Cash and Cash Equivalents - Restricted 687,166 - - 687,166
Current AssetsCash and cash equivalents 6,718,685 18,056 - 6,736,741Accounts receivable 23,014,940 482,370 (433,086) 23,064,224Material and supplies inventory 14,120,740 - - 14,120,740Deferred tax asset - 9,000 - 9,000Prepaid expenses and other current assets 827,941 - (140,000) 687,941
Total current assets 44,682,306 509,426 (573,086) 44,618,646
Total assets $ 308,864,961 $ 529,377 $ (643,037) $ 308,751,301
EQUITIES (DEFICITS) AND LIABILITIESEquities (Deficits)
Memberships $ 1,800 $ - $ (200) $ 1,600Common stock - 55,000 (55,000) -Patronage capital 83,455,744 (75,922) (14,751) 83,365,071PSDF patronage capital 64,292,110 - - 64,292,110Accumulated other comprehensive income (4,470,659) - - (4,470,659)
Total equities (deficits) 143,278,995 (20,922) (69,951) 143,188,122
Long-term Debt - Net of current portion 116,308,725 - - 116,308,725Long-term Debt - Related party - 140,000 (140,000) -Long-term Deferred Tax Liability 387,000 (29,000) - 358,000Other Long-term Liabilities
Accrued pension and postretirement 6,524,455 - - 6,524,455Other liabilities 890,326 - - 890,326
Total other long-term liabilities 7,414,781 - - 7,414,781
Current LiabilitiesCurrent portion of long-term debt 13,589,291 - - 13,589,291Taxes payable 1,400,944 2,433 - 1,403,377Accounts payable 23,146,849 436,866 (433,086) 23,150,629Accrued wages and other liabilities 3,338,376 - - 3,338,376
Total current liabilities 41,475,460 439,299 (433,086) 41,481,673
Total equities (deficits) and liabilities $ 308,864,961 $ 529,377 $ (643,037) $ 308,751,301
December 31, 2009
Wolverine Spartan Power Supply Renewable Eliminating Consolidated Cooperative, Inc. Energy, Inc. Entries Totals
Consolidating Balance Sheet
ASSETS
Electric Plant - At costIn service $ 259,969,685 $ - $ - $ 259,969,685Construction work in progress 9,583,859 - - 9,583,859
Total cost 269,553,544 - - 269,553,544
Less accumulated depreciation 117,202,077 - - 117,202,077Net electric plant 152,351,467 - - 152,351,467
Power Supply Development FundCash and cash equivalents - Restricted 35,210,936 - - 35,210,936Investments - Restricted 800,000 - - 800,000
Total Power Supply Development Fund 36,010,936 - - 36,010,936
Other Assets 15,612,043 - - 15,612,043Investments 11,286,087 37,817 (87,817) 11,236,087Cash and Cash Equivalents - Restricted 1,668,458 - - 1,668,458Current Assets
Cash and cash equivalents 396,486 115,088 - 511,574Accounts receivable 23,133,248 485,820 (594,699) 23,024,369Material and supplies inventory 16,405,440 - - 16,405,440Deferred tax asset - 34,000 - 34,000Prepaid expenses and other current assets 1,933,728 - (200,000) 1,733,728
Total current assets 41,868,902 634,908 (794,699) 41,709,111
Total assets $ 258,797,893 $ 672,725 $ (882,516) $ 258,588,102
EQUITIES (DEFICITS) AND LIABILITIES
Equities (Deficits)Memberships $ 1,800 $ - $ (200) $ 1,600Common stock - 55,000 (55,000) -Patronage capital 81,981,118 (144,305) (32,617) 81,804,196PSDF patronage capital 52,438,447 - - 52,438,447Accumulated other comprehensive income (4,461,372) - - (4,461,372)
Total equities (deficits) 129,959,993 (89,305) (87,817) 129,782,871
Long-term Debt - Net of current portion 60,146,758 - - 60,146,758Long-term Debt - Related party - 200,000 (200,000) -Long-term Deferred Tax Liability 108,000 (40,000) - 68,000Other Long-term Liabilities 8,139,839 - - 8,139,839Current Liabilities
Current portion of long-term debt 10,853,694 - - 10,853,694Line of credit 20,296,937 - - 20,296,937Taxes payable 1,386,424 6,297 - 1,392,721Accounts payable 21,560,753 595,733 (594,699) 21,561,787Accrued wages and other liabilities 6,345,495 - - 6,345,495
Total current liabilities 60,443,303 602,030 (594,699) 60,450,634
Total equities (deficits) and liabilities $ 258,797,893 $ 672,725 $ (882,516) $ 258,588,102
39
Consolidating Balance Sheet
December 31, 2008
Wolverine Spartan Power Supply Renewable Eliminating Consolidated Cooperative, Inc. Energy, Inc. Entries Totals
40
Year Ended December 31, 2009
Wolverine Spartan Power Supply Renewable Eliminating Consolidated Cooperative, Inc. Energy, Inc. Entries Totals
Operating Revenue $ 255,698,238 $ 5,543,019 $ (5,064,098) $ 256,177,159
Operating ExpensesPurchased power 201,820,365 5,352,025 (5,030,561) 202,141,829Power generation:
Operation 2,262,050 - - 2,262,050Maintenance 1,516,375 - - 1,516,375Fuel 4,937,791 - - 4,937,791
Transmission expense:Operation 4,366,136 - - 4,366,136Maintenance 1,812,347 - - 1,812,347
Distribution expense:Operation 558,490 - - 558,490Maintenance 938,185 - - 938,185
Administrative and general:Operation 8,310,496 53,333 (33,537) 8,330,292Maintenance 814,113 - - 814,113
Depreciation and amortization 8,538,922 - - 8,538,922Net loss on disposition of property (427,902) - - (427,902)Taxes 3,097,692 - - 3,097,692
Total operating expenses 238,545,060 5,405,358 (5,064,098) 238,886,320
Operating Margins Before Fixed Charges 17,153,178 137,661 - 17,290,839
Fixed Charges - Interest on debt 4,981,398 12,733 (12,430) 4,981,701
Operating Margins After Fixed Charges 12,171,780 124,928 12,430 12,309,138
Capital Credits 460,403 (17,866) 17,866 460,403
Net Operating Margins 12,632,183 107,062 30,296 12,769,541
Non-operating MarginsInterest income 895,966 3,721 (12,430) 887,257Other non-operating income - Net 156,140 - - 156,140
Total non-operating margins 1,052,106 3,721 (12,430) 1,043,397
Net Margins - Before income taxes 13,684,289 110,783 17,866 13,812,938
Income Tax (Expense) Benefit (356,000) (42,400) - (398,400)
Net Margins $ 13,328,289 $ 68,383 $ 17,866 $ 13,414,538
Consolidating Statement of Operations
Operating Revenue $ 250,602,339 $ 4,627,466 $ (4,290,981) $ 250,938,824
Operating ExpensesPurchased power 195,324,174 4,463,202 (4,228,099) 195,559,277Power generation:
Operation 1,973,612 - - 1,973,612Maintenance 1,743,689 - - 1,743,689Fuel 5,094,959 - - 5,094,959
Transmission expense:Operation 4,001,711 - - 4,001,711Maintenance 1,482,423 - - 1,482,423
Distribution expense:Operation 631,011 - - 631,011Maintenance 796,563 - - 796,563
Administrative and general:Operation 7,715,414 104,989 (62,882) 7,757,521Maintenance 747,961 - - 747,961
Depreciation and amortization 8,258,358 - - 8,258,358Net loss on disposition of property 387,850 - - 387,850Taxes 2,542,254 - - 2,542,254
Total operating expenses 230,699,979 4,568,191 (4,290,981) 230,977,189
Operating Margins Before Fixed Charges 19,902,360 59,275 - 19,961,635
Fixed Charges - Interest on debt 4,576,344 16,328 (16,328) 4,576,344
Operating Margins After Fixed Charges 15,326,016 42,947 16,328 15,385,291
Capital Credits 551,546 37,617 (37,617) 551,546
Net Operating Margins 15,877,562 80,564 (21,289) 15,936,837
Non-operating MarginsInterest income 1,747,050 5,808 (16,328) 1,736,530Other non-operating income - Net 53,597 - - 53,597
Total non-operating margins 1,800,647 5,808 (16,328) 1,790,127
Net Margins - Before income taxes 17,678,209 86,372 (37,617) 17,726,964
Income Tax (Expense) Benefit (247,190) 24,303 - (222,887)
Net Margins $ 17,431,019 $ 110,675 $ (37,617) $ 17,504,077
Year Ended December 31, 2008
Wolverine Spartan Power Supply Renewable Eliminating Consolidated Cooperative, Inc. Energy, Inc. Entries Totals
Consolidating Statement of Operations
P.O. Box 22910125 West Watergate Road
Cadillac, MI 49601p 231-775-5700f 231-775-2077www.wpsci.com