“Leadership is what matters.”gfoa.net/cafr/COA2012/NewBraunfelsUtilitiesTX.pdf“Leadership is...

New Braunfels UtilitiesA Comprehensive Annual Financial Report

For the fiscal year ended July 31, 2012

Leadership is what matters.

A Component Unit ofThe City of New Braunfels, Texas

Established 1942

Prepared by: Accounting Division

“Leadership is what matters.” NBU works to stay on the cutting edge of efficiency and customer satisfaction. To that end, we are constantly on the lookout for innovative, effective methods of bringing our services to the citizens of New Braunfels. From centralized communications software to labor-saving repair methods, we are always moving forward. Coupled with emerging technologies comes extensive employee training. From the field to the phones, and all the way up to management, our proactive enrichment regimen makes sure that our staff works as effectively as possible. Improvement is a constant at NBU.

We strive to be leaders in the community, in conservation, and in service. This report’s pages contain accounts, often in their own words, of NBU employees and volunteers who have experienced these proactive solutions first hand.

TABLE OF CONTENTS

1

INTRODUCTION SECTIONListing of Officials ....................................................................................................................................................................................................2Organizational Chart .............................................................................................................................................................................................3Leadership Profiles:

Dr. Judith Dykes-Hoffmann - President of the Board .................................................................................................................4Paula DiFonzo - CEO .....................................................................................................................................................................................6Al Kaufmann - Executive Director of Business Services ..........................................................................................................8John Green - Electric Superintendent .................................................................................................................................................10James Lopez - GIS Administrator ..........................................................................................................................................................12Doug Clifton - Water Line Tech 1 & Alex Alvarado - Water Line Tech 2 ..........................................................................14

Certificate of Achievement for Excellence in Financial Reporting ..............................................................................................16Letter of Transmittal .............................................................................................................................................................................................17

FINANCIAL SECTIONIndependent Auditors’ Report .........................................................................................................................................................................23Management’s Discussion and Analysis ....................................................................................................................................................25

Basic Financial StatementsStatements of Net Assets ....................................................................................................................................................................................32Statements of Revenues, Expenses, and Changes in Net Assets ...................................................................................................34Statements of Cash Flows ...................................................................................................................................................................................35Notes to the Financial Statements .................................................................................................................................................................37

Required Supplemental InformationDefined Benefit Pension Plan ...........................................................................................................................................................................54

Supplementary InformationBudgetary Comparison Schedule ..................................................................................................................................................................55

STATISTICAL SECTIONTable of Contents and Explanations .............................................................................................................................................................56Net Assets by Component ..................................................................................................................................................................................57Statements of Revenues and Expenses.......................................................................................................................................................58Income by Source ....................................................................................................................................................................................................60Average Revenue Rates ........................................................................................................................................................................................61Revenue by Class .....................................................................................................................................................................................................62Total Indebtedness Per Customer .................................................................................................................................................................63Revenue Bond Coverage .....................................................................................................................................................................................64Number of Customers by Service ..................................................................................................................................................................65Comal County Demographic and Economic Statistics .......................................................................................................................66Comal County Principal Employers ..............................................................................................................................................................67Full-Time Equivalent Employees by Function ........................................................................................................................................68Capital Assets by Function .................................................................................................................................................................................69Electric Sales and Peak Demand .....................................................................................................................................................................70

COMPLIANCE SECTIONReport on Compliance and Internal Control over Financial Reporting ...................................................................................71

INTRODUCTION

2

MEMBERS OF THE BOARD OF TRUSTEES

President .................................................................................................................Dr. JuDith Dykes-hoffmann

Vice President .......................................................................................................JOHN HARRELL

Mayor and Trustee .............................................................................................GALE POSPISIL

Trustee ......................................................................................................................GUADALUPE CASTILLO, CFE

Trustee ......................................................................................................................ATANACIO CAMPOS

ExECUTIvE STAFF

Chief Executive Officer......................................................................................PAULA J. DIFONzO

Chief Financial Officer.......................................................................................RICK J. TOBIAS

Executive Director of Business Services ................................................AL KAUFMANN

Executive Director of Electric Services ...................................................GREG BAUMBACH, P.E.

Executive Director of Water Services .......................................................ROGER BIGGERS, P.E.

Senior Staff Attorney .........................................................................................CHRISTINE CHEMELL

Chief Engineer of Electric Services ............................................................GREGORy THOMAS, P.E.

Chief Engineer of Water Services ...............................................................IAN TAyLOR, P.E.

Director of Accounting and Risk Management ..................................DAWN BUTRyM

CONSULTANTS AND ADvISORS

Auditors ....................................................................................................................BAKER TILLy VIRCHOW KRAUSE, LLP Madison, Wisconsin

Financial Advisors ..............................................................................................DUANE WESTERMAN SAMCO CAPITAL MARKETS A Division of Service Asset Management Company San Antonio, Texas

Bond Counsel .........................................................................................................FULBRIGHT & JAWORSKI Dallas, Texas

General Counsel ...................................................................................................REAGAN BURRUS PLLC New Braunfels, Texas

INTRODUCTION

3

Board of Trustees

Chief Executive Officer

Legal Counsel

Water SystemsEngineering

CustomerService

Electric SystemsEngineeringPurchasing

Executive Directorof Water Services

Executive Directorof Business Services

Chief FinancialOfficer

Executive Directorof Electric Services

Water/Wastewater Operations & Maintenance

HumanResources

ElectricOperationsAccounting

Communications Dispatch

GISTechnology

BusinessDevelopment

Fleet/Facilities

Safety

Water/Wastewater Treatment & Compliance

Water Systems Planning Eng

Power Supply

NEW BRAUNFELS UTILITIES ORGANIZATIONAL CHART

INTRODUCTION

4

Making a difference in the coMMunity is what Matters.PROFILE: DR. JuDIth DykEs-hOFFmann, PREsIDEnt OF thE BOaRD, nBu

A willingness to contribute to her community was the driving force behind Dr. Judith Dykes-Hoffmann’s pursuit of a place on the NBU Board of Trustees. It’s an honor she’s held since being appointed to a seat in 2007. “I have always admired NBU and their role in the community. It is a great group of people who work hard and give much back to New Braunfels.” Prior to her appointment, she served for a few years on the New Braunfels Planning and zoning Board, helping to bring growth and stability to the city in which she’s raised her lovely family.

“Locally, NBU is a leader in community giving. Some of the many programs that NBU employees volunteer hundreds of hours to include: NBU SAFEhaven, NBU Kinderschuhe and funds for programs such as the United Way.” Hoffmann added, “In addition to NBU sponsored programs, many NBU employees serve the community through other local organizations and it is not surprising to see any of them leading these outside groups. There is a strong spirit of leadership within NBU and this spirit will remain for years to come.”

Dr. Dykes-Hoffmann teaches Geography at Texas Lutheran University. When it came time to put the breadth of her education and professional experience to work for the city, she found that it was a natural fit. “My educational background in Geography included studying urban growth and planning issues and I felt that I could contribute as a Board Member to the decision making process. When an opportunity came up to apply for an open position on the Board, I did not think twice about wanting to be a part of a great company.”

New Braunfels and central Texas are growing and changing – constantly bringing to light additional challenges. The Board is not afraid to tackle these ever-present conservation problems head on. “As central Texas continues to grow its industry and population base, water is THE topic. We, as a Board, continually monitor and strive to stay forward in our thinking regarding this issue. Another challenge is the ever-changing energy market. It takes a lot of work to stay on top of this rapidly changing business environment.” The Board can’t do it alone. NBU customers benefit from a well- trained and

INTRODUCTION

5

educated workforce. Through extensive training, NBU personnel stay informed and up to date. As new technologies come into existence, they are incorporated into the planning and implementation of new systems as well as employee training.

NBU staff work hard to keep their customers apprised of these issues as well. “It is also important that we help the community understand the environmental challenges we face and carry out our part in educating them on the issues,” Hoffmann says.

Dr. Dykes-Hoffmann is pleased that these combined efforts do not go unnoticed. “The water and electric industry have recognized and continue to recognize NBU through many awards. For example, the Texas Water Development Board awarded the Water Division at NBU with the Blue Legacy Award for water loss prevention. I know when I attend regional and national meetings I have people from other municipal utilities across Texas and the United States tell me how much they respect NBU.”

INTRODUCTION

6

Leadership is what Matters.PROFILE: PauLa DIFOnzO, CEO, nBu

NBU has been serving the New Braunfels community since 1942. We have the honor and responsibility of providing vital services that are essential for comfort, productivity and quality of life for our customers. It has been our role to plan and prepare our systems to provide service as our community grows, technology changes, and our business evolves. Doing this successfully takes the support of a highly engaged Board of Trustees. NBU’s form of governance, while not unique, is practiced by only a few municipal utilities in the State. It provides stable long term leadership that allows Board members to learn and understand the business and to make informed decisions for management, operations and long-term vision and planning for our expansion and upkeep of our systems. The Board of Trustees consists of five citizens of New Braunfels who have diverse professional backgrounds and experience that creates a strong, knowledgeable group to lead NBU. This knowledge is especially important for making the complex and far-reaching decisions for the future.

This past year, NBU notified LCRA that we would end our long-term contract and filed a lawsuit to defend our customers from unfair high power costs and discriminatory rate practices. We have secured new contracts that will give our customers low cost rate stability for 2013 while we work to secure longer term contracts in the competitive wholesale market in Texas.

The electric industry has gone through dramatic change over the past 20 years with deregulation of wholesale and retail markets in Texas. The opportunities that the new market structure presents for NBU and its customers is exciting and far reaching. Contracts can be much more responsive to our actual needs and allow us to better manage costs and power supply strategies for the future. We have shifted new responsibilities to several areas of the company and have had a tremendous amount of collaboration and teamwork take place. It has highlighted the leadership of numerous individuals who are now utilizing their skills for an entirely new environment.

NBU has continued to provide opportunities for renewable green energy, utilize technology to manage electric services, and educate our customers regarding the benefits of conservation of our resources. This also extends to our water line of business, as well. Texas remains in serious drought with lakes and aquifers below normal levels and some are seriously impaired. NBU led in the development of surface water with the construction of our surface water treatment plant before the rest of the region recognized that our groundwater supply to meet our needs and growth might be at risk. We added 2,000 acre feet of supply with a purchase of Edwards Aquifer water in 2010, and we initiated a study for

INTRODUCTION

7

developing an Aquifer Storage Recovery project (ASR) in 2011 to maximize and manage our current supplies for drought and peak demand.

Conservation will become a high priority management option to create value, savings and supply for all customers. Efficient management of our current supplies is just one part of the process. We have participated in both regional and statewide planning for development of water supplies. It is essential that NBU have a strong presence on these discussions, both to protect our customers’ interests as well as to learn firsthand the initiatives that are taking place. Placing ourselves on the leading edge of a proactive approach to water management and acquisition will reap benefits for our customers in the years to come.

We have taken steps throughout our own plants to ensure that water conservation is managed as a priority. Last year we dealt with nearly 300 leaks. Because of our efforts at water loss prevention through replacement of old infrastructure, an aggressive leak detection program, a valve exercise program, and other proactive steps, NBU has significantly reduced water loss on our system. As of January 2012, NBU’s average system water loss was 4.1% of total pumped water, which was 0.8% better than American Water Works Association’s top tier benchmark for large cities and a more than 50% decrease in system water loss per day through the system in just 2-1/2 years. On average, 174 million gallons of water have been saved every year for the past three years because of our crews’ efforts.

Aging infrastructure is a recognized challenge across the nation. NBU has committed to a program to reinvest and rehabilitate older infrastructure at a rate of at least 1% per year. When taking into consideration that there are over 455 miles of water mains and more than 350 miles of sewer mains, this commitment is important in its focus. The effort is coordinated with the City of New Braunfels to improve service for water and sewer as streets and drainage are updated. It is this type of forethought and leadership that has enabled NBU to have such a successful reduction in water loss and to maximize the monies spent on the operations and maintenance of these systems.

None of these successes could be attained without the employees who are willing to step forward, take needed risks, and stretch their bounds. NBU employees lead with excellence in service for our customers and community. They work to bring reliable and cost-effective services in electric, water, sewer, and customer service 24/7 every day of the year. Our employees participate on boards and serve in organizations that represent our industry nationally, state-wide, regionally and locally. They not only work in New Braunfels, but they also serve this community every day by volunteering in local service organizations, churches, and NBU’s Community Service Programs that address special needs in our local community. Whether it is helping to build a playscape for the Children’s Advocacy Center, setting

poles for Little League lights, assisting the community clinic with installing drought-tolerant landscaping, raising money for the United Way of Comal County, or helping low income seniors install water and energy conservation items in their homes, NBU employees stay engaged and involved every day.

We are honored to be part of such a great community and proud that we have employees who lead by example both in their jobs and in their generosity to others. That is what makes NBU an outstanding example of the value and commitment that our leadership brings to the community.

INTRODUCTION

8

Being proactive is what Matters.PROFILE: aL kauFmann, ExECutIvE DIRECtOR OF BusInEss sERvICEs, nBu

Al Kaufmann knows that proactive thinking will keep NBU at the forefront of efficiency and customer satisfaction. He recently outlined a few of the innovations that the company has put into place in order to promote employee excellence and, above all, greater service to the customer.

Among these initiatives is a suite of exciting new software being utilized by the Customer Service Call Center. “Emphasis was placed in identifying ways in which we could improve customer response times by minimizing the call hold times and strengthening the quality of the training for the Call Center Representatives. During this time, staffing levels were also increased in the Call Center,” said Kaufmann. The new software maximizes response and quality of customer care. This system has multiple components and is expected to be fully operational over the next two-year period.

The primary benefit of the system is that it provides the opportunity for the Call Center Supervisor to monitor random customer calls for quality assurance and evaluate the calls based on the criteria of a pre-determined evaluation. This evaluation is customized by NBU and includes emphasis on professionalism and the knowledge of the Call Center Representative.

The software includes a testing component and computer screen capture functionality that will help to support the training by identifying the specific training needs of each individual. In addition, the software also includes a “library” component where certain customer calls can be stored to be used for training or refresher training.

“As a result, the call hold times are shorter,” Kaufmann said. “We’ve experienced a reduction in the percentage of customers that hang up prior to their call being answered and the level of training has improved. We have a cohesive team with a consistent message and strong focus on providing excellence in service.”

Meanwhile, Human Resources has engaged in a new Supervisor Enrichment and Educational Development Session (SEEDS) management training program. The

From left to right:Desirae MedellinVanessa Cabello

Patricia PerezAl KaufmannDaniel Reina

Debbie DominguezRita Martinez

Ruby Morales

INTRODUCTION

9

objective of SEEDS is to provide NBU management with a core curriculum of professional development via a variety of learning modes (on-line, classroom, skill building/mentoring, etc.) to equip and support building a strong foundation and promote a Standard of Excellence for management practices at New Braunfels Utilities.

As part of the curriculum, selected candidates will undergo 16 hours of training in the tenets of communication and documentation. This training has already demonstrated great improvement in the documentation of annual employee evaluations and performance reviews.

In addition, Managers and Supervisors received two half-day training sessions from an attorney specializing in employment law.

NBU managers are currently involved in Polarity Training and 360 performance reviews designed to develop existing leadership skills, identify new competencies for growth and identify future succession opportunities.

We can’t look ahead without addressing the need for the expansive role of technology in modern business. To that end, NBU has recently formed an official Technology Steering Committee. Mr. Kaufmann was happy to define the role of this body:

“A common misconception is that the Technology Steering Committee only involves IT-related projects. In fact, technology spans many aspects of NBU. The concept for developing the team is to first make sure that the technology used is consistent across the organization. Secondly, to assure that technology projects have the appropriate resources needed for success. The third

purpose is to increase the awareness across the entire organization of the technology that exists or is being implemented. Finally, it will create a formal method of bringing new concepts to the forefront for consideration.”

Kaufmann is optimistic. “Although there is currently no tangible data due to the short length of time in which the committee has been operating, some positive effects were immediately evident. Overall, there is a greater awareness of the full scope of impact when proposing a project. Secondly, I believe there is a stronger sense of project management in the organization and a greater awareness of what constitutes good or bad project management. Finally, it works to promote understanding of the goals and objectives among the different departments within New Braunfels Utilities.”

INTRODUCTION

10

growth is what Matters.PROFILE: JOhn gREEn, ELECtRIC suPERIntEnDEnt, nBu

Electric Operations Manager John Green has grown right alongside our company. Since joining NBU as a Groundsman in 1975, John has risen through the ranks due to his hard work, dedication, and his desire to serve the community. Those years have seen dynamic expansion in the technological capabilities of the company, allowing Green and his crews to offer better service to the customers.

Green explained the history of computerized infrastructure at NBU. “In 1975, the technology world of NBU consisted of a mainframe computer in the Main Office. All meter reads, customer payments, payroll, inventory and general ledger entries were made by two individuals, along with a couple of screens that had inquiry capabilities only for employees in Customer Service.”

NBU has managed to stay on the forefront of business and logistical technologies. Those early days are a far cry from our present and ever-expanding capabilities. “In regards to the professional capability of the field crews,” Green says, “we have made tremendous advancements in the areas of safety, equipment and materials, and system reliability and integrity.”

At the base of increased customer service is the ability to communicate from a centralized data system. Green sees the benefits daily. “Probably one of the biggest technological advances in our system are the Schweitzer Engineering Laboratories electronic relays in our substations. These relays have helped to reduce our outage time due to their remote control capabilities in Dispatch and the information they can provide to the field crews. Because of the information that is captured during an event by the relay, field crews can be directed to the immediate area where the fault occurred, saving valuable time during the investigation and restoration efforts. It also provides a higher level of protection for personnel working on the energized lines and equipment in the event a problem should occur. In the event an ERCOT load shed is mandated, these relays provide full remote control of our electric system from our Dispatch office.”

John Green, ForegroundCoby Henk, On truck step

Steve Thies, In truckJosh Greenway, On groundRyan Breeding, On front of truck

INTRODUCTION

11

In addition to the advances in technology, NBU is proactive in supporting an Apprenticeship Program and other on-going employee training opportunities. Green has seen first-hand how this practice allows the field crews to grow and learn. He said, “While the basics of line work still remain the same, advancement in technology and electronic equipment has continued to evolve. The Apprenticeship Program provides a blend of field and course work with the expectation for achievement.”

“Training of our employees is a vital part of our system integrity and safety. For many years, we have maintained a strong nucleus of very knowledgeable and dedicated employees with deep skill levels. Through advanced training, these skills have continued to grow and have been enhanced with the ability to stay up-to-date on advancements in the industry and technology.”

INTRODUCTION

12

innovation is what Matters.PROFILE: JamEs LOPEz, gIs aDmInIstRatOR, nBu

A thriving Geographic Information System (GIS) is paramount in allowing NBU to ensure efficient and effective utilization of its resources. Strategically, it helps with understanding the needs of various locations throughout the service area, and to adjust to changing trends. In short, GIS allows NBU to interpret and visualize geographically referenced data and to demonstrate trends and relationships based on the information gathered.

Enter GIS Administrator, James Lopez. Lopez realizes fully the necessity of matching data with physical conditions, of making strategic adjustments based on the findings and of keeping abreast with the latest technology that GIS has to offer.

“I came to work for NBU because it is a respected company. I was interested in the opportunity to learn something new and to further develop my GIS skills.” With NBU positioning itself to take full advantage of future GIS innovations and processes, Lopez has a clear vision of the road ahead. “NBU is a GIS leader in the region because of the extensive investments in the range of projects over the last ten years. These projects are the foundation of a dynamic GIS and show the substantial commitment NBU has placed in geospatial technology.” NBU has invested over $2M into 10 significant improvement initiatives since 2004.

These investments bring a number of advantages to NBU and its customers. By enabling more efficient assignments of day-to-day task management, as well as a better “big picture” context of available resources, valuable assets and manpower can be dispatched more quickly and with a lower overall cost.

Some recent advances in NBU’s GIS system will allow significant changes to the method of accessing and managing critical information. Most profound will be the reduction in redundant information management efforts, providing significant improvement in information accessibility and consistency. These changes will increase

From left to right:Lupita SuttonJames Lopez

Ed Faison

INTRODUCTION

13

the efficiency of NBU staff and will provide improvements in nearly every aspect of geographic information management and access.

Lopez states, “With GIS technology, information can be instantly shared and updated in real-time. This information allows management to improve their decision making during a crisis and allocate resources to the proper locations.”

Following is a listing of the benefits of GIS investments at NBU: • return on investment – Cost savings because of increased effectiveness and efficiency • improved decision making by management • improved communication, specifically during a crisis • improved allocation of resources and planning • Better processes because of the Gis server upgrade project

Lopez sees continued improvement in Fy2013, and beyond.

“We are on the way to providing an ideal system that will continue to benefit NBU in the future. On the horizon, we will be extending GIS to our internal and external customers. This will enable NBU to leverage GIS-related data and make it available for our customers through interactive web pages. The GIS department has also created an enterprise master address listing that will be made available once we deploy our interactive web maps. This master address listing was made possible from our collaboration with Comal County GIS.”

J.D. Amaro

INTRODUCTION

14

efficiency is what Matters.PROFILE: DOug CLIFtOn, watER LInE tECh 1 & aLEx aLvaRaDO, watER LInE tECh 2, nBu

NBU is always on the lookout for processes or technologies which will save money and limit system downtime. One such emerging tech is a pipe repair method known as cured-in-place pipe (CIPP). This noninvasive process eliminates the need to excavate and replace huge sections of pipe. Instead, a resin tube is run inside the damaged section of pipe and is cured to form a durable, lasting repair. This saves weeks of downtime, hundreds of man hours, and avoids possibly irreparable environmental damage.

An Air Force veteran with years of experience in civil construction projects, Doug Clifton appreciates the innovation shown by NBU, though the new process seemed daunting at first. “We purchased a small CIPP system that would install patches into main lines. This helped us grasp the concept of resin ratios and holding-time, and it gave us confidence to carry out bigger jobs. Even with all of that, when our lining equipment rolled in the gate and we took a look at all of the different hoses, valves, and all of the accompanying gadgets, I personally felt very overwhelmed. The concept of replacing a pipe without digging it up was great, but I wasn’t sure of our will as a group to make it happen.”

This trepidation did not last long as Clifton and his crewmates quickly became acclimated to the process. “The process itself is very fast paced and we all had to step up and work as a well-oiled machine to meet strict timelines set by the chemicals involved.”

Using this innovative repair method, Clifton and NBU were able to perform an important repair beneath a number of buildings in downtown New Braunfels, where excavation would have disturbed or destroyed some historic stonework. “The Black Whale project was an interesting situation. Our “traditional” method would not work due to the piece of pipe missing, and the poor location denied us the ability to open-cut the tap. The new process we brought into play was a pull-in-place method which used cables to pull the liner into position. Once in place, we then aired up the bladder and started the five-hour cure time for the liner. As with any of these processes, it is a one-time opportunity. If the lining job had failed we would not be able to retrieve the bladder and we would have no other option than to excavate the tap and destroy all of the historic property we were attempting to save.” Clifton is now adept at the process and is excited to bring this capability to the streets and sewers of New Braunfels.

Likewise, Alex Alvarado speaks highly of the benefits that this type of leading-edge technology has brought to New Braunfels. He has

Doug Clifton

INTRODUCTION

15

been impressed with the difference it has made for the crews compared to the ways that projects were tackled when he first came on board 12 years ago. While it’s not a technology that all utilities can undertake, he has been seeing a lot of interest from the larger utilities that have been watching NBU’s progress.

“One of the biggest benefits from this process is time,” Alvarado says. “We spend maybe a week planning and prepping a job. Then in most cases we can line around 600 feet a day. In any open-cut situation, we would have to deal with several weeks of excavation, many utility crossings, and all of the inconvenience and noise to the customers as we move down the block.”

Trench depth is hardly an issue anymore for the crews. They can line at the same rate no matter if it’s two feet deep or twenty. It also allows us to replace pipes with minimal environmental impact. Alvarado, who is a crew lead, references a CIPP project along the IH-35 feeder road last year that is a perfect example of why they are excited about it. The traditional method of replacing pipe would have interrupted business for several companies, created the need for extensive removal of sidewalks, driveways and landscaping, and probably would have resulted in frustrated customers and employees before the job could be completed. Instead, the CIPP process allowed for the crews to do a nearly invisible remediation in a much shorter time frame.

“We no longer have to clear entire easements that have been growing for centuries, or figure out how to replace aerial crossings without spilling sewage into the waterways. It’s what doesn’t have to happen that is just as important as what does.”

In-house CIPP crews are not commonplace in the industry. The training is intense, the work can be intimidating, and the equipment is specialized. But NBU saw the potential and was willing to take the necessary steps. It has been an initiative that will continue to pay dividends for the utility and its customers on multiple fronts.

Alex Alvarado

INTRODUCTION

16

INTRODUCTION

New Braunfels Utilities • 263 E. Main Plaza • P.O. Box 310289 • New Braunfels, Texas 78131-0289Bus: 830-629-8400 • Metro: 830-606-2074 • Fax: 830-629-2119

17

December 18, 2012

To the Board of Trustees and Customers of New Braunfels Utilities:

The Comprehensive Annual Financial Report of New Braunfels Utilities (NBU) for the fiscal year ended July 31, 2012 is submitted pursuant to Article XI of the City of New Braunfels Charter. The Comprehensive Annual Financial Report was reviewed by Baker Tilly Virchow Krause, LLP. Responsibility for the accuracy of the information reported, and the completeness and fairness of the presentation, including all disclosures, rests with the management of NBU. To the best of our knowledge and belief, the enclosed information is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of operations of the electric, water and wastewater departments of NBU. All disclosures necessary to enable the reader to gain an understanding of NBU’s financial activities have been included in this report.

As required by Article XI Section 11.10 of the City of New Braunfels Charter, the Comprehensive Annual Financial Report has been audited by a firm of independent Certified Public Accountants. Baker Tilly Virchow Krause, LLP performed the audit for the fiscal year ended July 31, 2012 and their unqualified opinion is included as part of this report. NBU management worked with the independent auditors to verify compliance with all aspects of accounting and fiduciary control.

The Comprehensive Annual Financial Report is presented in four sections: introduction, financial, statistical and compliance. The introduction includes the list of NBU officials including members of the Board of Trustees, executive staff, consultants and advisors, the organizational chart, the Certificate of Achievement for Excellence in Financial Reporting for the July 31, 2011 Comprehensive Annual Financial Report and this transmittal letter.

The financial section includes the basic financial statements and the supplemental information. The independent auditor’s report is presented as the first component of the financial section and is followed by the Management’s Discussion and Analysis (MD&A). The MD&A is required by Generally Accepted Accounting Principles (GAAP) and is prepared by management to provide a narrative introduction, overview, and analysis to accompany the basic financial statements. This letter of transmittal serves to complement, and should be read in conjunction with, the MD&A which presents the results of the fiscal year ended July 31, 2012 as compared to the prior fiscal year. The supplemental information in the financial section is presented for the purpose of providing additional analysis of the company’s activities and financial position. The statistical section includes selected financial and demographic information, generally presented on a multiyear basis. The compliance section includes the independent auditor’s report on NBU’s compliance with Government Auditing Standards.

PROFILE OF NEW BRAUNFELS UTILITIES

History and Purpose: NBU was established in 1942 when the City Commission of New Braunfels, Texas purchased from Guadalupe Electric Company, the electric transmission and distribution systems, formerly owned by the San Antonio Public Service Company, serving the City of New Braunfels and the surrounding area. In 1959, operations of the water and wastewater systems were transferred to NBU from the City of New Braunfels.

NBU remains a municipally owned utility, operated under a five member Board of Trustees (Board), consisting of four individuals appointed by the City Council to five-year terms and the current mayor. The elected City Council of New Braunfels maintains regulatory control by appointing Board Members, approving any rate changes, and authorizing bond issues.

INTRODUCTION

18

Facilities and Operations: NBU’s Electric System, comprising a service area of approximately 169 square miles, includes the City of New Braunfels and the surrounding area. The Electric System includes 627 miles of overhead distribution line, 206 miles of underground distribution line, nine substation/metering points on the transmission system, and other buildings, equipment, stores, and related facilities. The Water System includes 461 miles of water mains ranging in size from 2 inches to 30 inches, a surface water treatment plant and twelve pump stations. Storage capacity of approximately 16.6 million gallons is maintained in elevated tanks and ground storage tanks. The majority of the water service territory, totaling approximately 88 square miles, is within Comal County, with some customer service in Hays, Guadalupe and Bexar Counties. The municipal sewage system contains approximately 352 miles of sanitary sewer lines and is served by three wastewater treatment plants with a combined treatment capacity of 8.4MGD and twenty three lift stations. Use of chlorinated effluent for plant cleaning at all three treatment plants serves to minimize potable water usage and the associated maintenance costs at the plants.

Each year NBU prepares a long-term plan and action for the future. Examples of NBU’s commitment to long-term planning include evaluating and acquiring long-term water and electric supplies, preparing for the construction of additional electrical substations, planning for new water and wastewater treatment plants, investing in the latest technologies to enhance security levels of facilities and electronic data, enhancing efficiencies through the implementation of a Document Control and Management System, and upgrading aging infrastructure to ensure the integrity and reliability of service to NBU customers.

In addition to infrastructure and operational considerations, NBU takes an active role in local, regional, state and national initiatives. Examples of some of NBU’s involvement are described below.

Local Community Involvement: NBU employees exhibit a strong commitment to enhancing the quality of life for our customers and community. Since 2001, NBU employees have contributed almost 6,000 hours of volunteer time for NBU community service projects with about 380 hours accumulated during fiscal year 2012. These projects primarily focus on the needs of children, seniors, families and low income residents. In addition, NBU employees provide a significant amount of time and devotion to churches, youth leagues, and various civic and service organizations.

NBU and its employees are also strong supporters of the United Way of Comal County. Two dozen service agencies benefit from pledges and donations on an annual basis and, in turn, are able to assist thousands of citizens. NBU employees continually meet and exceed their United Way campaign goal. During the 2011 United Way campaign, NBU employees raised a record $32,582 and were recognized as one of the Top 10 United Way Business Supporters of the year for the fourth consecutive year.

Our employees are also actively involved in education and training for local youth, community leaders and industry professionals. Examples of these activities include volunteering at career days, assisting in educational programs at schools, conducting tours of NBU facilities, and serving as experts for professional training exercises. These activities also serve to create additional community awareness and knowledge of the utility’s operations.

NBU continues to serve as a leader in the areas of energy and water conservation education. In addition to implementing business practices that address our own efforts to meet performance goals for conservation, NBU has also provided opportunities for customers in the form of energy and water conservation rebates, audits and educational information. Further environmental initiatives are planned for the upcoming fiscal year including new rebates and additional NBU-sponsored community events.

Electric System Reliability: NBU and much of Texas experienced extremely cold weather in February 2011. Although the Electric Reliability Council of Texas (ERCOT) implemented rolling blackouts across the region which impacted service to NBU customers, the NBU electric system performed admirably with very few winter storm related outages. During this event, winter peak loads on several distribution circuits experienced all-time high demand driven largely for electric heat in residential subdivisions. To ensure the continued high reliability of the electric system, NBU began reconfiguring a portion of its electric distribution system during fiscal year 2012, and will continue with phase two and phase three in fiscal year 2013 and 2014 respectively. Other reliability enhancements scheduled for Fy 2013 are replacement of old overhead copper conductors, underground residential refurbishment, and a downtown electric distribution upgrade.

INTRODUCTION

19

NBU owns approximately eighteen miles of 138kV transmission circuits which is part of the Electric Reliability Council of Texas (ERCOT) bulk electric transmission system and therefore is required to comply with applicable North American Electric Reliability Council (NERC) reliability standards. NBU is registered as a Transmission Owner, Transmission Planner, Distribution Provider and Load Serving Entity with NERC and was audited by the Texas Reliability Entity (TRE) in June 2008 on the standards applicable to these categories. TRE is an independent organization within ERCOT which is chartered with the responsibility to ensure compliance with NERC reliability standards throughout the ERCOT market. NBU successfully demonstrated compliance with all applicable NERC standards. The electric reliability standards continue to evolve and NBU closely monitors these standards for compliance.

Electric System Growth: Electric system load continues to increase along the IH-35 corridor in the New Braunfels Utilities service territory. The largest electric capital project during fiscal year 2012 to be completed in fiscal year 2013 will be the extension of 138 kV transmission lines to a new substation named the E.C. Mornhinweg Substation in honor of a past NBU President of the Board and located along FM 482 just south of the New Braunfels city limits. This substation will be strategically located near three existing quarries, adjacent to a proposed fourth quarry and within ½ mile of the IH-35 corridor. The substation will serve NBU’s southern service territory including a portion of the City of Schertz which was recently zoned for commercial development.

The overall number of customers continues to grow and is expected to average approximately 2.4% across all rate classes during fiscal year 2013, with the largest growth occurring in Large General Service at 3.5%, followed by residential at 2.5%. Energy consumption, which usually follows customer growth count, is estimated to increase by approximately 10% during fiscal year 2013 with the plant expansion of an existing industrial customer. Capital infrastructure has already been installed to accommodate this industrial expansion.

Regional Water Planning: The Edwards Aquifer Recovery Implementation Program (EARIP) created by the Texas Legislature in 2007, completed its collaborative effort early in 2012 to develop a Habitat Conservation Plan (HCP) for the protection of the endangered species in the Comal and San Marcos springs and rivers and to secure the water supply from the Edwards Aquifer for the five county aquifer region. The HCP and a request for an Incidental Take Permit (ITP) was submitted to the US Fish and Wildlife Service and approval of the ITP is expected by the end of calendar year 2012. The benefit of obtaining the ITP is that it will provide litigation immunity on actions regarding the take of the endangered species located in the Comal and San Marcos spring systems as long as the required actions in the HCP are adhered to by all parties.

Conservation: Water is not only an essential and precious resource, but it is also pertinent to the vitality of New Braunfels. NBU has, for years, taken initiatives to enhance the proper stewardship of New Braunfels’ water supply and the Edwards Aquifer. NBU created and implemented a division to enforce the Water Conservation and Drought Management Plan that was established in the City’s Municipal Code. NBU also plays an active role in educating customers about the importance of conserving water through complimentary residential and commercial water and irrigation audits, school programs, media tools, civic organization presentations, social media, and annual events, such as Earth Day and the Community Health Fair. In addition, NBU developed rebate programs to incentivize customers to purchase water saving appliances, such as low flow toilets or ultra-high efficiency washing machines. NBU has continued to improve and expand those rebates to include a high efficiency toilet, a landscape rebate program to encourage the design of water-saving landscapes, rainwater harvesting, and a drought-tolerant tree incentive. In addition, NBU has implemented energy efficiency rebate programs for high efficiency air conditioners and heat pumps, LED exit signs, window treatments, such as solar film and solar screens, and solar water heaters to expand the promotion of conservation for all natural resources. NBU also promotes conservation awareness through internal processes, such as the purchase of additional hybrid vehicles and “smart cars” to reduce greenhouse gas emissions and increase the fuel efficiency of its fleet, reduce paper and energy consumption in its operations, as well as expand the internal recycling program to include scrap metals, paper, glass, plastic, and cans.

INTRODUCTION

20

State Water Planning: Senate Bill 1 passed by the Texas Legislature in 1995 created the framework for a statewide water plan. The legislation established the framework for creating regional water planning groups throughout the state to develop regional plans that would be brought together by the Texas Water Development Board to create the new state-wide Texas Water Plan. The first state water plan developed by this process was approved by the Texas Water Development Board (TWDB) in December 2001. By law, the plan must be updated every five years and was updated in 2006. The latest update was submitted by the sixteen water regional planning groups throughout the State of Texas in January 2011. NBU continues to monitor this process and provides input as necessary to reflect the changes made in NBU’s growth projections and water needs during the five year update periods.

NBU has continued to actively seek opportunities to secure additional water sources for the long-term needs of its customers. The availability of Trinity water in the New Braunfels area is being examined as a possible source of additional supply as well as for a possible storage location for an Aquifer Storage and Recovery (ASR) project. The first test well into the Trinity Aquifer has been completed and confirmed that good quality water is available. NBU is researching and evaluating a suitable location to develop municipal wells into the Trinity Aquifer. NBU has also completed a feasibility study to determine the possibilities of developing an ASR project that could be used to store water during periods of excess supply for withdrawal during periods of high demand on the system or during drought periods. An ASR project would provide NBU greater flexibility of use of its present supplies and provide an emergency back-up supply should drought conditions require significant reductions to permitted pumping rights. ASR projects are a proven technology and other nearby water utilities have successfully developed them allowing for greater flexibility in the management of their water resources. The ASR feasibility study determined that the development of an ASR by NBU would be both technically and financially feasible and NBU is developing a plan for bringing an ASR Project to fruition during the next several years.

FINANCIAL INFORMATION

Management of NBU is responsible for establishing and maintaining an internal control structure designed to ensure that assets are protected from loss, theft or misuse, and to ensure that adequate accounting data is compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles.

The accounting records for NBU are reported on the accrual basis of accounting. In the development and modification of NBU’s accounting system, consideration is given to the adequacy of internal accounting controls. Internal accounting controls are designed to provide reasonable, but not absolute, assurance regarding: (1) the safeguarding of assets against loss from unauthorized use or disposition; and (2) the reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived, and the evaluation of costs and benefits requires estimates and judgments by management. All internal control evaluations occur within this framework. We believe that NBU’s internal accounting controls adequately safeguard assets and provide reasonable assurance of proper recording of financial transactions.

Budgetary Controls: NBU is required by Board policy to adopt an annual financial plan, which covers the upcoming fiscal year in detail and incorporates a plan for an additional four fiscal years. Monthly revenue and expense reports and quarterly capital expenditure reports provide information to evaluate actual results against budget projections. A formal presentation of financial activity is presented to the Board at each monthly meeting. Additionally, management of NBU maintains budgetary controls and follows established procedures in preparing the annual financial plan prior to final approval by the Board.

Summary Revenue and Expenses: For the fiscal year ended July 31, 2012, operating revenues totaled $116.4 million and operating expenses totaled $105.6 million. Purchased power costs represented 69.9%, or $73.8 million, of total operating expenses. Transmission and distribution expenses were approximately $6.5 million, or 6.2%, of operating expenses and all direct water related expenses totaled $5.5 million, or 5.2%, of operating expenses. Remaining operating

INTRODUCTION

21

expenses included $10.6 million for depreciation and amortization and $9.3 million for customer service and general and administrative expenses. Net non-operating expense (including interest) was $5.8 million resulting in total net income before contributions of $5.1 million.

NBU experienced a moderate increase in residential growth over the past fiscal year as electric and water meters increased by 809, or 2.7%, and 1,152, or 4.7%, respectively.

Working Capital: At July 31, 2012, NBU’s current assets of $44.5 million were 2.1x its current liabilities of $21.3 million. This strong working capital ratio partially reflects the continuance of managing an investment portfolio with a substantial portion of investments having a maturity of less than one year, due to the continued uncertainty in the financial and economic markets. By maintaining short duration investments during periods of economic volatility, this strategy allows the company to fund its operating activities as planned and to selectively determine the timing of any future bond issuance. Overall, NBU had a net positive working capital of $23.2 million at July 31, 2012 which compares to a net positive working capital of $33.5 million at July 31, 2011.

Investments: NBU’s Investment Policy satisfies the statutory requirements of the Public Funds Investment Act, and serves as a guideline for the investment of all NBU funds. NBU’s Investment Policy is reviewed annually by the Board. The cash management program, in compliance with appropriate laws and the NBU Investment Policy, is designed to keep principal and interest at minimum risk, maintaining reasonable liquidity to meet obligations and maximizing return through the use of a competitive effective yield comparison of various investment sources. For fiscal year 2012, net interest income from investments (including mark-to-market adjustments) was $0.3 million.

Debt Management: NBU’s strong financial position has been built over many years through prudent management and fiscal practices to ensure adequate capital will be available to fund future electric, water and wastewater system infrastructure including electric substations, electric transmission and distribution line expansions, and water and wastewater treatment plants. NBU endeavors to balance external financing for capital projects with internal generation of capital funds in order to maintain a low debt to capitalization structure. At July 31, 2012, NBU had $32.8 million in debt. NBU’s strong capitalization structure and coverage ratios has enabled it to access the debt capital markets at attractive interest rates and is a key component in its ability to maintain low utility rates. NBU is anticipating significant capital expenditures in the upcoming years and will be using long-term debt to fund a portion of these projects.

Current principal and interest on all outstanding bonds are payable solely from the net revenues derived by NBU from the operation of the utility systems. Operations and maintenance expenses represent first priority for payment, followed by debt service on bond indebtedness, prior to any payments to special funds, capital additions or contributions to the City of New Braunfels. These obligations do not constitute liens upon the system or on any other property of NBU or the City, but are a lien only on the net revenues and special funds created by Bond Resolution and in the manner provided therein. See Note 4 of the notes to the financial statements for additional information about NBU’s long-term debt obligations.

Capital Expenditures: NBU anticipates spending approximately $187 million for capital expenditures during the next five fiscal years. These expenditures, primarily for system extensions, enhancements, substation upgrades and water and wastewater treatment plants, include $42 million for electric systems, $43 million for water systems, $89 million for wastewater systems, $9 million for support systems and $4 million for capital equipment. Forecasted capital expenditures for this period are expected to be funded from a combination of revenues, impact fees, long-term debt and customer contributions.

Rates: Presently, NBU is operating under a Wholesale Power Agreement (WPA) with the LCRA that expires on June 25, 2016. In November 2012, NBU notified the LCRA that it will terminate its contract for power supply effective January 1, 2013. The notice of termination follows NBU’s filing of a lawsuit in Comal County against the LCRA in July 2012, for material breach of the WPA. NBU believes that the LCRA is in violation of the uniform rate clause and its statutory requirements

INTRODUCTION

22

for fair and equitable rates. In addition, the LCRA has failed to make any attempt to cure the problems with the current contracts and rates. As a result, NBU believes that its customers are exposed to increasingly higher rates than they should have to pay under the current contracts. The change from LCRA wholesale power to other resources will be relatively seamless to NBU customers. NBU will acquire power supply from other power suppliers in the ERCOT electricity market to retain reliable and low-cost power for its customers into the future. NBU will position its power supply resources to encompass portfolio power diversification of supply from various counterparties, various tenors of contract duration and various load shapes.

NBU electric rates are unbundled into distribution charges, generation charges, and transmission charges. Distribution charges are comprised of fixed customer charges and variable kWh charges designed to recover NBU’s cost to maintain its electric infrastructure and deliver reliable service to its customers. NBU, through its efficient operation, has been able to manage these costs, which have been reduced in the last two cost-of-service rate designs.

The generation and transmission charges are a pass through to the customers and comprised of a base rate and an adjustable Power Cost Recovery Factor (PCRF). During fiscal year 2012, NBU purchased 55,488 MWh more than in fiscal year 2011, despite total wholesale power charges being $0.1 million lower, or 0.13%, than the previous year primarily due to decreased generation costs resulting from lower natural gas prices.

Water and wastewater rates charged to NBU’s customers are comparable to other rates in the region. These low rates have been achieved by efficient long-term operations and planning. However, as water resources become scarcer throughout the state, NBU’s customers will see moderate price increases for this service over time. In 2007, NBU conducted a water/wastewater rate study which indicated the need for annual rate increases over the next five years to manage increasing costs as the system grows and ages. The Board recommended and the City Council approved an increase of 8.5% for both water and wastewater rates that was effective on December 1, 2007. An additional 7% increase in wastewater rates went into effect on January 1, 2009 and a 3% increase in wastewater rates was approved in November 2011 and became effective on January 1, 2012.

Awards and Acknowledgements: The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to New Braunfels Utilities for its Comprehensive Annual Financial Report for the fiscal year ended July 31, 2011. This was the twenty-second consecutive year that NBU has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized Comprehensive Annual Financial Report. This report must satisfy both generally accepted accounting principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. We believe our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate.

Respectfully submitted,

Paula J. DiFonzo Rick J. TobiasChief Executive Officer Chief Financial Officer

FINANCIAL

23

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees New Braunfels Utilities New Braunfels, Texas

We have audited the accompanying statements of net assets of New Braunfels Utilities (NBU) as of July 31, 2012 and 2011, and the related statements of revenues, expenses, and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of NBU’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. 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 includes 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 financial statements referred to above present fairly, in all material respects, the financial position of NBU as of July 31, 2012 and 2011, and the changes in its financial position and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 12 to the financial statements, the fiscal year 2011 financial statements have been restated to correct a billing error related to nonoperating revenue recognition for the reimbursement of costs related to a particular project.

In accordance with Government Auditing Standards, we have also issued our report dated December 17, 2012 on our consideration of NBU’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

Baker Tilly Virchow Krause, LLP Ten Terrace Ct, PO Box 7398 Madison, WI 53707-7398 tel 608 249 6622 fax 608 249 8532 bakertilly.com

FINANCIAL

24

To the Board of Trustees New Braunfels Utilities

Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and Schedule of Funding Progress information, as restated for the correction described in Note 12, and as listed in the table of contents be presented to supplement the financial statements. Such information, although not a part of the financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economical, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the financial statements, and other knowledge we obtained during our audit of the financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Our audits were conducted for the purpose of forming an opinion on the financial statements of New Braunfels Utilities. The supplemental information as identified in the table of contents is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying account and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements taken as a whole.

Our audits were conducted for the purpose of forming opinions on the financial statements as described in the first paragraph. The “Letter of Transmittal” and “Statistical Section,” as restated for the correction described in Note 12, and as listed in the accompanying table of contents, are presented for purposes of additional analysis and are not a required part of the financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the financial statements, and accordingly, we do not express an opinion or provide any assurance on it.

Madison, Wisconsin December 17, 2012

FINANCIAL

25

See Independent Auditors’ Report

MANAGEMENT’S DISCUSSION AND ANALySIS

The management’s discussion and analysis is intended to provide a narrative overview of NBU’s financial activities for the fiscal year ended July 31, 2012. Readers are encouraged to consider the information presented in conjunction with the transmittal letter and the accompanying basic financial statements.

Financial Highlights• total assets of $320.7 million exceeded liabilities at fiscal year-end 2012 by $268.5 million. this compares to total assets

of $309.6 million at fiscal year-end 2011 which exceeded liabilities by $257.3 million and total assets of $297.8 million for fiscal year-end 2010 which exceeded liabilities by $244.7 million.

• total net assets at fiscal year-end 2012 were $268.5 million, an increase of $11.2 million from fiscal year-end 2011. Fiscal year-end 2011 total net assets of $257.3 million reflected an increase of $12.6 million from fiscal year-end 2010. Increases in net assets in each year were primarily attributable to increases in capital additions in NBU’s electric, water and wastewater infrastructure.

• at fiscal year-end 2012, $49.1 million in unrestricted net assets were available to meet nBu’s ongoing obligations, as compared to $56.3 million at fiscal year-end 2011 and $46.8 million at fiscal year-end 2010. These balances reflect a $7.2 million decrease in unrestricted net assets from fiscal year-end 2011 to fiscal year-end 2012 and a $9.5 million increase in unrestricted net assets from fiscal year-end 2010 to fiscal year-end 2011.

• in fiscal year 2012, nBu completed $17.2 million in capital projects. this compares to $10.4 million and $14.3 million in fiscal years 2011 and 2010, respectively. Capital additions, net of depreciation, amounted to $7.1 million, $1.0 million, and $4.8 million, in fiscal years 2012, 2011 and 2010, respectively.

• total operating revenues in fiscal year 2012 were $116.4 million, compared to $116.6 million in fiscal year 2011, a decrease of $0.2 million or 0.15%. The decrease in operating revenue consisted primarily of a decrease in electric services revenues of $0.7 million, a decrease in water services revenues of $0.2 million, and an increase in sewer services revenues of $0.7 million. Fiscal year 2011 operating revenues increased $11.3 million, or 10.7%, compared to fiscal year 2010 operating revenues of $105.4 million.

• electric mWh sales for fiscal year 2012 were 1,268,084 which were 3.3% higher than the 1,227,844 mWh sales in fiscal year 2011. Electric MWh sales in fiscal year 2011 were 7.8% higher than fiscal year 2010 sales of 1,138,764. Electric’s fiscal year 2012 services revenues were $0.7 million less than fiscal year 2011’s services revenue. Electric’s fiscal year 2011 services revenues were $8.5 million more than fiscal year 2010’s services revenue.

• there was a total of 33 inches of rain for the nBu service area for fiscal year 2012 which was approximately 15 inches more rainfall than was received in fiscal year 2011. A prevalent drought condition was experienced in much of NBU’s service area for much of fiscal year 2011 which significantly impacted water sales in that year. As a result, demand for water irrigation was reduced and NBU delivered 3.65 billion gallons of potable water in fiscal year 2012, which was a 2.6% decrease from fiscal year 2011 water sales of 3.74 billion gallons. Sales of potable water in fiscal year 2011 reflected a 26.6% increase from fiscal year 2010 sales of 2.96 billion gallons.

• Wastewater services revenue in fiscal year 2012 was $10.4 million, compared to fiscal year 2011 revenue of $9.7 million, an increase of $0.7 million, or 6.9%. Fiscal year 2011 wastewater services revenue was $0.3 million more than fiscal year 2010 revenue of $9.5 million, resulting in a 2.8% increase.

• total operating expenses in fiscal year 2012 were $105.6 million, compared to fiscal year 2011 operating expenses of $104.1 million, an increase of $1.6 million, or 1.5%. Total operating expenses in fiscal year 2011 increased $7.8 million, or 8.1%, from fiscal year 2010 total operating expenses of $96.3 million.

• at July 31, 2012, nBu served 31,061 electric customers, 25,588 water customers, and 21,097 wastewater customers.

FINANCIAL

26


New Braunfels UtilitiesNBU is accounted for as a proprietary fund; a component unit of the City of New Braunfels. NBU provides electric, water and wastewater services. NBU was established in 1942 when the City Commission of New Braunfels, Texas purchased from Guadalupe Electric Company, the electric transmission and distribution systems, formerly owned by the San Antonio Public Service Company, serving the City of New Braunfels and the surrounding area. In 1959 operations of the water and wastewater systems were transferred to NBU from the City of New Braunfels.

The following discussion and analysis will refer to NBU as a whole.

Overview of the Financial StatementsThe basic financial statements for proprietary funds consist of the Statements of Net Assets; Statements of Revenues, Expenses, and Changes in Net Assets; and the Statements of Cash Flows.

This report includes all funds of NBU. The financial information is reported similar to those of private sector businesses. The Statements of Net Assets provides NBU’s financial position and operating performance. It presents all the assets and liabilities and identifies investments in capital assets net of related debt. It provides the foundation for measuring the activity and liquidity of NBU. The Statements of Revenues, Expenses and Changes in Net Assets assess NBU’s profitability of operations. The third basic financial statement is the Statements of Cash Flows, which provides detailed information about the cash effects of the operating, investing and financing activities. The basic financial statements can be found on pages 32-36 of this report.

The notes to the financial statements provide additional information that is essential to a full understanding of the financial statements. The notes can be found beginning on page 37 of this report.

Financial AnalysisNBU’s financial position at fiscal year-end 2012 showed total net assets of $268.5 million, compared to $257.3 million at fiscal year-end 2011 and $244.7 million at fiscal year-end 2010. Of these amounts, assets that were unrestricted for meeting NBU’s ongoing obligations were $49.1 million, $56.3 million and $46.8 million at the fiscal years ended 2012, 2011, and 2010, respectively. Investment in capital assets (net of related debt) represented 78.2%, or $209.9 million, of total net assets at fiscal year-end 2012, compared to 74.9% at fiscal year-end 2011 and 75.5% at fiscal year-end 2010.

Current assets at fiscal year-end 2012 decreased by $8.0 million, or 15.2%, from fiscal year-end 2011. Current assets at fiscal year-end 2011 decreased by $2.4 million, or 4.4%, from fiscal year-end 2010 primarily due to decreases in restricted cash and short-term investments.

A small portion of NBU’s net assets represent resources that are subject to external restrictions on how they may be used. Restricted net assets at fiscal year-end 2012 were $9.6 million, in comparison to the prior fiscal year-end amount of $8.3 million, and $13.1 million at fiscal year-end 2010. These amounts represented 3.6%, 3.2% and 5.4% of total net assets, for their respective fiscal year-ends. Over 98.6% of NBU’s restricted net assets consist of water and wastewater funds reserved for future system development and construction. This percentage was 98.4% at fiscal year-end 2011 and 81.6% at fiscal year-end 2010.

FINANCIAL

27


The following condensed Statements of Total Net Assets and Statements of Changes in Net Assets reflects the summary performance of NBU over the fiscal years 2010-2012.

Total Net AssetsRestated

2012 2011 2010

Current and other non-capital assets 80,455,935$ 84,121,138$ 81,097,408$ Capital assets 240,284,838 225,499,702 216,733,274 Total assets 320,740,773 309,620,840 297,830,682 Current liabilities 21,319,083 19,084,675 17,557,944 Non-current liabilities 30,880,089 33,227,873 35,596,776 Total liabilities 52,199,172 52,312,548 53,154,720 Total Net Assets 268,541,601$ 257,308,292$ 244,675,962$

Invested in capital assets, net of related debt 209,884,166$ 192,768,672$ 184,754,247$ Restricted 9,579,487 8,258,590 13,117,826 Unrestricted 49,077,948 56,281,030 46,803,889 Total Net Assets 268,541,601$ 257,308,292$ 244,675,962$

Changes in Net AssetsRestated

2012 2011 2010Revenues: Electric services 91,830,565$ 92,536,538$ 84,065,951$ Water services 11,738,270 11,930,130 9,696,859 Wastewater services 10,401,198 9,726,534 9,463,548 Other operating revenues 905,224 879,268 785,625 Miscellaneous fees and charges 1,570,859 1,542,967 1,350,795 Total Operating revenues 116,446,116 116,615,437 105,362,778 Interest income 297,047 382,675 404,121 Investment earnings (loss) (42,751) 29,115 (34,559) Transmission system 1,573,174 1,598,764 1,596,699 Gain/(Loss) on sale of assets (71,844) (160,380) (156,929) Total revenues 118,201,742 118,465,611 107,172,110

Expenses: Operating expenses 105,618,490 104,064,085 96,260,997 Interest expense 1,459,373 1,504,325 1,443,165 Intergovernmental expense 6,047,031 5,766,004 5,637,055 Total expenses 113,124,894 111,334,414 103,341,217

Net Income Before Capital Contributions 5,076,848 7,131,197 3,830,893 Capital Contributions 6,156,461 5,501,133 11,009,190 Change in Net Assets 11,233,309 12,632,330 14,840,083 Total Net Assets-Beginning of Year 257,308,292 244,675,962 229,835,879 Total Net Assets-End of Year 268,541,601$ 257,308,292$ 244,675,962$

FINANCIAL

28


Total operating revenues for fiscal year 2012 were $116.4 million, a decrease of $0.2 million, or 0.15% over the previous fiscal year. A decrease in electric services revenues of $0.7 million, or 0.76%, contributed to this decrease. Water service revenues decreased by $0.2 million, or 1.6%, due to lower volumes as a result of overall wetter weather conditions compared to the prior fiscal year, and wastewater services revenues increased by $0.7 million, or 6.9%, from fiscal year 2011, in part, due to a 3% rate increase which was effective on January 1, 2012.

Revenues and income from all sources in fiscal year 2012 consisted of 78.3% from electric retail customer fees and charges and 18.9% from water and wastewater retail customer fees and charges. The remainder consisted of interest income, transmission system and other miscellaneous revenues.

Revenues and Income from All Sources - Fiscal year 2012

Electric 78.3%

Water 10.0%

Wastewater 8.9%

Transmission System 1.3%

Interest & Miscellaneous

1.5%

Revenues and Income from All Sources Fiscal Year 2012

Total operating expenses for fiscal year 2012 were $105.6 million. Of this amount, approximately $75.1 million, or 71.1%, consisted of purchased power and purchased water costs. Total operating expenses increased by $1.6 million, or 1.5% over fiscal year 2011. This change was comprised of $0.2 million attributable to an increase in purchased power and purchased water costs, a $0.3 million increase in pumping and water treatment costs, a $0.5 million increase in general and administrative costs, a $0.2 million increase in transmission and distribution, and a $0.4 million increase in depreciation expense.

Expenses by Source - Fiscal year 2012

Purchased Power & Water 71.1%

Pumping and Water Treatment

3.8%

Transmission & Distribution

6.2% Customer Service

1.9% General & Administrative

6.9%

Depreciation & Amortization

10.0%

Miscellaneous 0.1%

Expenses by Source Fiscal Year 2012

FINANCIAL

29


Capital Assets and Debt Administration

Capital Assets

At fiscal year-end 2012, NBU’s investment in capital assets, net of accumulated depreciation, totaled $240.3 million. Included in capital assets are an electric hydro plant, nine electric substation/metering points, three wastewater treatment plants, a surface water treatment plant, twenty-three lift stations, twelve pump stations, and Edwards Aquifer water pumping rights. Capital assets totaled $225.5 million at fiscal year-end 2011 and $216.7 million at fiscal year-end 2010.

The following summarizes capital assets, net of accumulated depreciation:2012 2011 2010

Land and water rights 21,363,378$ 21,343,772$ 21,343,772$ Buildings and structures 23,688,527 24,599,138 25,626,302 Electric transmission/distribution 72,119,371 71,051,550 71,705,681 Wells & springs 114,698 84,490 91,178 Pumping equipment 1,236,841 1,195,252 1,232,057 Water/Wastewater treatment equipment 3,787,906 3,990,290 4,201,784 Water/Wastewater transmission/distribution 81,305,571 76,593,146 75,594,027 Equipment, vehicles, furniture & fixtures 5,328,274 4,580,121 4,688,239 Plant in service 208,944,566 203,437,759 204,483,040 Construction work in progress 31,340,272 22,061,943 12,250,234 Net Utility Plant After Accumulated Depreciation 240,284,838$ 225,499,702$ 216,733,274$

$0

$20

$40

$60

$80

$100

Electric Water Wastewater

Net U

tility

Pla

nt ($

val

ue)

By Line of Business

Net Utility Plant in Service at Fiscal Year End

($ in Millions)

2010 2011 2012

In fiscal year 2012, there were $17.2 million in capital additions and $11.7 million of retirements and depreciation, for an overall net increase in plant in service of $5.5 million. This net increase in plant in service is comparable to a $1.1 million decrease in net plant additions over the prior fiscal year.

FINANCIAL

30


The following is a summary of capital additions and retirements for fiscal year 2012:Electric Water Wastewater Total

Plant in service, beginning of year 90,105,412$ 75,281,374$ 38,050,973$ 203,437,759$ Additions 7,188,115 5,789,840 4,244,724 17,222,679 Retirements (1,334,172) (182,229) (50,673) (1,567,074) Depreciation (5,257,510) (2,468,518) (2,422,770) (10,148,798) Plant in service, end of year 90,701,845 78,420,467 39,822,254 208,944,566 Construction work in progress 8,218,053 4,926,333 18,195,886 31,340,272

Net Utility Plant After Accumulated Depreciation 98,919,898$ 83,346,800$ 58,018,140$ 240,284,838$

Additions to plant (excluding work in progress) in fiscal year 2012 were:

Electric distribution system improvements 6,571,335$ Water / Wastewater distribution system enhancements and rehabilitation 8,485,402 Other Capital Projects 2,165,942 Total 17,222,679$

NBU has budgeted in fiscal year 2013 $32.9 million of capital expenditures consisting of $32.1 million in capital projects and $0.8 million in capital equipment. It is anticipated that approximately $13.9 million will be funded with operating revenue funds and the remaining will be with debt, impact fees, and customer contributions.

Electric distribution system improvements and extensions 5,586,000$ Electric substation improvements 3,680,000 Water/Wastewater extensions and enhancements 12,267,000 Water/Wastewater plant improvements 9,074,000 Other capital projects 1,512,000 Capital equipment 794,000

Total 32,913,000$

Additional information on NBU’s capital assets can be found in Note 3 on page 44 of this report.

FINANCIAL

31


Debt

At fiscal year-end 2012, NBU’s outstanding debt totaled $32.8 million. Of this amount, $31.0 million was comprised of revenue bonds and $1.8 million in a capital lease obligation.

The following summarizes the debt outstanding:The following summarizes the debt outstanding: 2002 Utility System Improvement and Refunding Revenue Bonds 4,050,000$ 2004 Utility System Revenue Bonds 5,810,000 2004 Utility System Revenue Bonds-Capital Appreciation* 3,201,999 2009 Utility System Revenue and Refunding Bonds 8,620,000 2009A Utility System Revenue Bonds 9,765,000

Total Revenue Bonds 31,446,999 Less: Unamortized net discounts (468,243) Net Revenue Bonds 30,978,756 Guadalupe Blanco River Authority - capital lease obligation 1,776,250 Net Revenue Bonds 32,755,006$

*Includes accumulated accretion through July 31, 2012

At time of publication, NBU’s revenue bonds were rated “AA” by Standard & Poor’s Corporation, “AA” by Fitch Ratings, and “Aa2” by Moody’s Investors Service, Inc. Each of these ratings is with a “Stable” outlook.

Additional information on long-term debt can be found in Note 4 on page 46.

Economic Factors and Next year’s Budgets and RatesThe objective of NBU’s fiscal year 2013 Budget was to present a growth-oriented plan, in a pragmatic approach which provides reliable and efficient electric, water, wastewater, customer and community service to a growing customer base, in a manner that protects people, property, and the environment. These factors were evaluated and strategies were formulated to assure all lines of businesses were self-supporting in the current economic environment.

Requests for InformationThis financial report is designed to provide a general overview of NBU’s finances for all those with an interest in the management of the Utilities’ finances. Any questions concerning this report or any requests for additional information should be addressed to the Chief Financial Officer at 263 E. Main Plaza, New Braunfels, Texas, 78130.

FINANCIAL: BAsIC FINANCIAL stAtemeNts

32

The accompanying notes are an integral part of the financial statements.

BASIC FINANCIAL STATEMENTSBASIC FINANCIAL STATEMENTS

STATEMENTS OF NET ASSETS - JULY 31, 2012 AND 2011

Restated2012 2011

ASSETSCash and cash equivalents - unrestricted 8,309,518$ 19,019,538$ Investments 8,773,631 4,425,969 Accounts receivable-customers (net of allowances for uncollectibles, $156,000 for 2012 and 2011) 16,345,057 17,743,150 Accounts receivable-other 575,388 1,597,260 Interest receivable 72,428 131,434 Inventory 1,229,688 1,074,181 Prepaid items 198,826 184,689 Restricted assets: Cash and cash equivalents 7,680,064 6,238,974 Investments 1,350,779 2,123,833 Total current assets 44,535,379 52,539,028

Noncurrent assetsCapital assets: Plant in service 365,112,406 349,456,801 Less accumulated depreciation (156,167,840) (146,019,042) Construction in progress 31,340,272 22,061,943 Net capital assets 240,284,838 225,499,702 Other noncurrent assets:Investments: Restricted 3,003,555 2,354,068 Unrestricted 27,797,204 25,148,340 Net pension obligation asset 5,119,797 4,079,702 Total other noncurrent assets 35,920,556 31,582,110 Total noncurrent assets 276,205,394 257,081,812

Total assets 320,740,773$ 309,620,840$



33


STATEMENTS OF NET ASSETS - JULY 31, 2012 AND 2011(CONTINUED)

Restated2012 2011

LIABILITIESAccounts payable and other current liabilities 14,394,708$ 12,440,053$ Consumer deposit payable 3,621,583 3,447,339 Compensated absences 589,658 556,563 Payable from restricted assets: Accrued interest payable 100,578 104,217 Current portion of capital lease 1,003,750 957,500 Current portion of bonds 1,608,806 1,579,003 Total current liabilities 21,319,083 19,084,675

Noncurrent liabilitiesCompensated absences 737,639 679,280 Long-term debt, net of discount 29,369,950 30,772,345 Capital lease payable 772,500 1,776,248 Total noncurrent liabilities 30,880,089 33,227,873 Total liabilities 52,199,172 52,312,548

NET ASSETSInvested in capital assets, net of related debt 209,884,166 192,768,672 Restricted: Debt service 135,560 135,195 Central facilities 599,795 714,740 Impact fees 8,844,132 7,408,655 Unrestricted 49,077,948 56,281,030 Total net assets 268,541,601 257,308,292

Total liabilities and net assets 320,740,773$ 309,620,840$



34


STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETSFOR THE YEARS ENDED JULY 31, 2012 AND 2011

Restated2012 2011

OPERATING REVENUESElectric services 91,830,565$ 92,536,538$ Water services 11,738,270 11,930,130 Wastewater services 10,401,198 9,726,534 Miscellaneous fees and charges 1,570,859 1,542,967 Other operating revenues 905,224 879,268 Total operating revenues 116,446,116 116,615,437

OPERATING EXPENSESPurchased power 73,787,333 73,880,468 Purchased water 1,342,879 1,027,322 Hydro plant 7,996 5,604 Transmission and distribution 6,500,850 6,341,504 Supply source 164,386 157,170 Pumping 1,303,105 1,248,936 Water treatment 2,678,901 2,435,301 Customer service 1,978,840 2,068,368 General and administrative 7,283,554 6,752,921 Depreciation 10,570,646 10,146,491 Total operating expenses 105,618,490 104,064,085 Net operating income 10,827,626 12,551,352

NONOPERATING REVENUES (EXPENSES)Interest income 297,047 382,675 Investment earnings (loss) (42,751) 29,115 Interest expense (1,459,373) (1,504,325) Intergovernmental expense (6,047,031) (5,766,004) Transmission system 1,573,174 1,598,764 Gain (loss) on sale of assets (71,844) (160,380) Total nonoperating revenues (expenses) (5,750,778) (5,420,155)

Net income before capital contributions 5,076,848 7,131,197

CAPITAL CONTRIBUTIONSImpact fees 1,898,470 1,099,157 Services 671,490 523,097 Developer contributions 3,586,501 3,878,879 Total capital contributions 6,156,461 5,501,133

Change in net assets 11,233,309 12,632,330 Total net assets-beginning of year 257,308,292 244,675,962 Total net assets-end of year 268,541,601$ 257,308,292$



35


STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED JULY 31, 2012 AND 2011

Restated2012 2011

CASH FLOWS FROM OPERATING ACTIVITIESPayments received from customers 118,241,431$ 113,327,565$ Payments to suppliers for goods and services (77,958,748) (77,435,809) Payments for salaries (15,451,169) (15,252,170) Pension contributions in excess of annual required contribution (1,000,000) (1,000,000) Net cash provided by operating activities 23,831,514 19,639,586

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIESTransfers to City of New Braunfels (6,047,031) (5,766,004) Net cash provided (used) by noncapital financing activities (6,047,031) (5,766,004)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIESTransmission system fees 1,573,174 1,598,764 Impact and service fees 2,569,960 1,622,254 Contributions in aid of construction 798,894 3,306,046 Acquisition and construction of capital assets (21,709,622) (15,656,242) Proceeds from sale of assets 66,942 105,399 Principal paid on bond and debt (1,585,000) (1,573,589) Principal paid on capital leases (957,500) (915,000) Interest paid on bond and debt (1,250,604) (1,445,350) Net cash provided (used) by capital and related financing activities (20,493,756) (12,957,718)

CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sales and maturities of investments 36,500,000 44,537,681 Purchase of investments (43,415,710) (44,866,991) Interest received 356,053 394,527 Net cash provided (used) by investing activities (6,559,657) 65,217 Net increase (decrease) in cash and cash equivalents (9,268,930) 981,081

Cash and cash equivalents at beginning of period 25,258,512 24,277,431 Cash and cash equivalents at end of period 15,989,582$ 25,258,512$



36


STATEMENTS OF CASH FLOWS (CONTINUED)FOR THE YEARS ENDED JULY 31, 2012 AND 2011

Restated2012 2011

RECONCILIATION OF UTILITY OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIESOperating income 10,827,626$ 12,551,352$ Depreciation 10,570,646 10,146,491 Amortization of net pension asset (40,095) (39,360) (Increase) decrease in assets: Accounts receivable 1,621,071 (3,529,446) Inventory (155,507) (36,453) Prepaid expenses (14,137) (28,956) Net pension obligation asset (1,000,000) (1,000,000) Increase (decrease) in liabilities: Accounts payable 1,632,518 1,331,938 Accrued payroll 156,789 11,389 Customer deposits 174,244 241,574 Accrued compensation 58,359 (8,943) Net cash provided (used) by operating activities 23,831,514$ 19,639,586$

Schedule of cash and cash equivalentsBeginning of period:Unrestricted cash and cash equivalents 19,019,538$ 19,090,843$ Restricted cash and cash equivalents-current 6,238,974 5,186,588

25,258,512$ 24,277,431$

End of period:Unrestricted cash and cash equivalents 8,309,518$ 19,019,538$ Restricted cash and cash equivalents-current 7,680,064 6,238,974

15,989,582$ 25,258,512$

NON-CASH INVESTING, CAPITAL, AND FINANCE ACTIVITIES

Accretion of interest on capital appreciation bonds 154,370$ 153,490$ Mark to market adjustment (42,751)$ 29,115$ Amortization and imputed interest on net pension asset 40,095$ 39,360$ Contributed water/sewer systems 3,586,501$ 3,481,857$ Loss on sale of assets 71,844$ 160,380$



37

Note 1. Summary of Significant Accounting PoliciesNew Braunfels Utilities (or “NBU”) is a municipally owned utility, and is a component unit of the City of New Braunfels. The financial statements of NBU are included in the City of New Braunfels, Texas Annual Financial Report. The management and control of NBU’s water, wastewater, and electric systems rests with the NBU’s Board of Trustees (“Board”), pursuant to State law and by Charter of the City of New Braunfels, Texas.

NBU follows private-sector standards of accounting and financial reporting issued after November 30, 1989, unless they conflict with Government Accounting Standards Board (GASB) pronouncements. In addition, NBU complies with the uniform system of accounts under the Federal Power Act. The system of accounting, policies and regulations are as prescribed by the Federal Energy Regulatory Commission.

A. Financial Reporting Entity

GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, an amendment of GASB Statement No. 14, was issued in May 2002. It provides three specific criteria for evaluating whether legally separate entities should be included as component units of the primary government.

NBU meets the criteria under GASB Statement No. 39 and is considered a component unit of the City of New Braunfels, Texas.

B. Measurement Focus, Basis of Accounting, and Financial Statement Presentation

NBU reports financial information using accounting methods applicable to similar businesses in the private sector or the accrual basis of accounting. The measurement focus is based on the determination of operating income, changes in net assets, financial position, and cash flows. Revenues are recognized when earned and expenses are recorded when a liability is incurred.

Proprietary funds, like NBU, distinguish operating revenues and expenses from non-operating revenues and expenses. Operating activities result from providing services in connection with NBU’s principal ongoing operations. NBU’s primary operating revenues include electric, water and wastewater sales and services. Operating expenses include the cost of sales and services, general and administrative expenses and depreciation expense. Non-operating revenues and expenses are all other activities not meeting the above definitions.

C. Assets, Liabilities, and Net Assets

1. Deposits and Investments NBU considers cash and cash equivalents to be cash, cash in demand accounts, and investments purchased with maturities of three months or less.

NBU’s policy regarding whether to apply restricted or unrestricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available is to expend restricted assets until exhausted, and then expend unrestricted assets.

The Board of Trustees has approved an investment policy that conforms to Texas law governing and regulating the types of investments eligible for public funds, including but not limited to the Public Funds Investment Act, as amended, Chapter 2256, Texas Government Code.

Amounts recorded in the financial statements for investments are recorded at fair value.


38

NBU Investment Officers shall use any or all of the following authorized investment instruments consistent with governing law:

A. Under Texas law and local policy, NBU is authorized to invest in: 1. direct obligations of the United States including only Treasury Bills, Treasury Notes, and Treasury

Bonds;2. obligations of the State of Texas including its agencies, counties, cities, and other political subdivisions

rated as to investment quality by a nationally recognized investment rating firm not less than AA or its equivalent;

3. other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed by the full faith and credit of the United States; and

4. direct obligations of the following United States agencies and instrumentalities: Federal National Mortgage Association, Federal Farm Credit Bank, Federal Home Loan Bank, Student Loan Marketing Association, and the Federal Home Loan Mortgage Corporation.

B. Certificates of Deposit or Money Market Accounts if issued by a state or national bank domiciled in this state that are:

1. guaranteed or insured by the Federal Deposit Insurance Corporations (“FDIC”) or its successor; and 2. secured by eligible collateral.

NBU’s general policy is to report money market investments and short-term participating interest-earning investment contracts at amortized cost and to report nonparticipating interest earning investment contracts using a cost-based measure. However, if the fair value of an investment is significantly affected by the impairment of the credit standing of the issuer or by other factors, it is reported at fair value. All other investments are reported at fair value unless a legal contract exists which guarantees a higher value. The term “short-term” refers to investments which have a remaining term of one year or less. The term “nonparticipating” means that the investment’s value does not vary with market interest rate changes. Nonnegotiable certificates of deposits are examples of nonparticipating interest-earning investment contracts.

C. No load Money Market Mutual Funds specified by Board approval. The following Money Market Mutual Funds have been approved:

Fidelity Institutional Money Market Mutual FundAIM STIT Government & Agency Portfolio FundFederated Government Obligation Money Market Mutual FundDWS Governmental Cash Institutional Money Market Mutual FundVanguard Admiral Treasury Money Market Mutual Fund

D. Eligible specified investment pools authorized by the Board. An investment pool shall invest the funds it receives from entities in authorized investments permitted by the Public Funds Investment Act. The following investment pools have been authorized:

Texas Local Government Investment Pool (“TexPool”)Texas Short Term Asset Reserve (“TexSTAR”)TexasDAILy (a portfolio established by the TexasTERM Local Government Investment Pool

(“TexasTERM”)


39

Investment pools must:

1. be continuously rated no lower than AAA, AAA-M, or an equivalent rating by a nationally recognized rating agency with a weighted average maturity no greater than 90 days; and

2. be a Public Fund Investment Pool created to function as a Money Market Mutual Fund, must mark its portfolio to market daily, and to the extent reasonably possible, stabilize at a $1.00 Net Asset Value (“NAV”); the ratio of the market value to book value of the fund must be maintained between 0.995 and 1.005; and

3. establish an advisory board composed of qualified members representing participants and non-participants.

2. ReceivablesAccounts receivable consist of billed but not collected utility services, sales of merchandise, jobbing, etc. and are shown net of an allowance for doubtful accounts. For fiscal years ended July 31, 2012 and 2011, the allowance is $156,000.

Other transactions that affect receivables are as follows:

Electric power, wastewater, and water usage that has been used by customers but not billed is accrued. The estimated unbilled services as of July 31, 2012 and 2011 were $6.4 and $7.1 million, respectively.

Power costs initially estimated for billing purposes and later adjusted to actual result in a cost that may be over or under collected each month. As of July 31, 2012 and 2011, these costs were under collected $558,831 and over collected by $39,500, respectively.

3. Inventories and Prepaid ItemsInventory is valued at moving average cost, except for obsolete items, which have been written down to estimated salvage value. Inventory in the electric and water/wastewater departments consists of parts and maintenance items. Other inventory represents office and janitorial supplies.

Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items.

4. Restricted AssetsMandatory segregations of assets are presented as restricted assets. Such segregations are required by bond agreements and other external parties. Certain proceeds and resources of NBU’s revenue bonds are classified as restricted assets on the Statements of Net Assets and their use is limited by applicable bond covenants. These monies are maintained in separate accounts. Current liabilities payable from these restricted assets are also classified.

5. Net Pension Obligation AssetNBU reports a net pension obligation asset for payments made to the Texas Municipal Retirement System in excess of the annual required contributions.


40

6. Capital AssetsCapital assets including self-constructed assets are valued at historical cost or estimated historical cost if actual historical cost was not available. All self-constructed assets are capitalized and the capitalization threshold for purchased assets is $10,000.

Depreciation is calculated using the straight-line method and is based on estimated useful lives of three to fifty years. Depreciation of capital assets is charged as an expense against the operations of the departments. Accumulated depreciation is reported on the balance sheet. The following estimated useful lives are used to compute depreciation:

Assets yearsStructures 33-50 Electrical distribution/transmission facilities 13-33 Water pumping/treatment/transmission facilities 25-50 Wastewater pumping/treatment/transmission/distribution facilities 25-40 Vehicles 5 Computer equipment 3 General equipment 10

7. Accounts Payable and Other LiabilitiesAccounts payable and other liabilities are comprised of costs incurred by NBU which have not yet been paid as of the fiscal year-end, primarily consisting of purchased power costs.

8. Customer DepositsNBU accrues a liability for all amounts deposited with NBU by customers as a security for the payment of bills.

9. Compensated AbsencesNBU’s policy is to permit employees to accumulate earned but unused vacation and sick pay benefits. There is a liability for unpaid accumulated sick leave for those employees under the presently adopted rules of TMRS. All vacation pay is accrued when incurred.

10. Long-Term ObligationsLong-term debt and other long-term obligations are reported as liabilities on the Statements of Net Assets. Bond premiums, discounts and issuance costs are deferred and amortized over the life of the bonds using the interest method.

11. Capital ContributionsAt times, cash and capital assets are contributed to NBU from customers, the municipality, or third parties. The value of property contributed to NBU is reported as revenue on the Statements of Revenues, Expenses, and Changes in Net Assets.

NBU charges new water and wastewater customers an impact fee to connect to the system. Impact fees collected are recorded as capital contributions on the Statements of Revenues, Expenses, and Changes in Net Assets.

12. Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date, reported amounts of revenues and expenses during the reporting period. Estimates are used to determine depreciation expense, allowance for doubtful accounts, realization of project development costs, and other accounts. Actual results may differ from these estimates.


41

13. Effect of New Accounting Standards on Current Period Financial StatementsThe Governmental Accounting Standards Board (GASB) has approved the following Statements which will be implemented by NBU in future periods: GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, Statement No. 61, The Financial Reporting Entity: Omnibus, Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, Statement No. 64, Derivative Instruments: Applications of Hedge Accounting Termination Provisions - an amendment of GASB Statement No. 53, Statement No. 65, Items Previously Reported as Assets and Liabilities, Statement No. 66, Technical Corrections-20120 an amendment of GASB Statement No. 10 and No. 62, Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68, Accounting and Financial Reporting for Pensions. Future application of these standards may restate portions of these financial statements.

14. Reclassifications Certain amounts in the prior year’s financial statements may have been reclassified to conform to the current year presentation.

Note 2. Deposits and Investments

As of July 31, 2012, the carrying amount of NBU’s deposits (checking accounts and money markets) was $6,807,411. The balance per the bank at July 31, 2012 was $7,395,426. As of July 31, 2011, the carrying amount of NBU’s deposits (checking accounts and money markets) was $15,509,865. The balance per the bank at July 31, 2011 was $15,960,209. As of July 31, 2012 and 2011, the carry amounts of NBU’s certificates of deposit were $16,241,999 and $6,241,999, respectively. The entire balance was guaranteed by FDIC Insurance and pledged collateral held by NBU’s agent bank in NBU’s name for both periods.

All NBU investments are valued at fair value, in accordance with GASB Statement No. 31. At month end, quoted market prices are obtained from an independent third party pricing service specializing in fixed income evaluation services are used to determine an investment’s fair value. Investment pools are adjusted to fair value at month end, according to the pool’s reported Net Asset Value (NAV). A Public Fund Investment Pool created to function as a Money Market Mutual Fund must mark its portfolio to market daily, and to the extent reasonably possible, stabilize at a $1.00 NAV; the ratio of the market value to book value of the fund must be maintained between 0.995 and 1.005. The net change in the fair value of investments during fiscal 2012 was a decrease of $42,751 and in 2011 there was an increase of $29,115 over the prior year.

All three investment pools, TexPool, TexSTAR, and TexasTERM, have been organized in conformity with the Interlocal Cooperation Act, Chapter 791 of the Texas Government Code, and the Public Funds Investment Act, Chapter 2256 of the Texas Government Code. These two acts provide for the creation of public fund investment pools and permit eligible governmental entities to join their funds in authorized investments.

NBU’s investments are required to be deposited under the terms of a depository contract. The depository bank deposits for safekeeping and trust with NBU’s agent bank approved pledged securities in an amount sufficient to protect NBU funds on a day-to-day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the depository banks’ dollar amount of Federal Deposit Insurance Corporation (FDIC) insurance.


42

A. Investments

Investments are reported at quoted prices for active markets (level 1). NBU’s cash and investments as of July 31, 2012 are shown below:

Weighted Average Percent of RatingDeposit/Investment Type Fair Value Maturity in Days Portfolio S & P

U.S. Agencies 19,665,395$ 430 34.55% AA+U.S. Treasuries 5,017,775 440 8.82% AA+Certificates of deposit 16,241,999 516 28.54%Demand deposit and money market 6,807,411 1 11.96%Pooled funds 9,182,171 1 16.13% AAAm Total Cash and Investments 56,914,751$ 335 100.00%

ClassificationCash and cash equivalents, unrestricted 8,309,518$ Investments, short-term unrestricted 8,773,631 Cash and cash equivalents, restricted 7,680,064 Investments, short-term restricted 1,350,779 Investments, long-term restricted 3,003,555 Investments, long-term unrestricted 27,797,204 Total Cash and Investments 56,914,751$

NBU’s cash and investments as of July 31, 2011 are shown below:Weighted Average Percent of Rating

Deposit/Investment Type Fair Value Maturity in Days Portfolio S & PU.S. Agencies 27,810,210$ 558 46.89% AAACertificates of Deposit 6,241,999 489 10.52%Demand Deposit and Money Market 15,509,865 1 26.15%Pooled funds 9,748,648 1 16.44% AAAm Total Cash and Investments 59,310,722$ 317 100.00%

ClassificationCash and cash equivalents, unrestricted 19,019,538$ Investments, short-term unrestricted 4,425,969 Cash and cash equivalents, restricted 6,238,974 Investments, short-term restricted 2,123,833 Investments, long-term restricted 2,354,068 Investments, long-term unrestricted 25,148,340 Total Cash and Investments 59,310,722$


43

B. Analysis of Specific Deposit and Investment Risks

GASB Statement No. 40 requires a determination as to whether NBU was exposed to the following specific investment risks at year end, and if so, the reporting of certain related disclosures:

1. Concentration of Credit RiskConcentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. At fiscal year-end 2012, NBU’s portfolio was diversified as shown above. State law and NBU’s policy place no limit on the amount NBU may invest in any one issuer.

2. Credit RiskCredit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The ratings of securities by nationally recognized rating agencies are designed to give an indication of credit risk. State law dictates that in order to maintain eligibility to receive funds and invest funds on behalf of NBU, an investment pool must be continuously rated no lower than AAA or AAAm or at an equivalent rating by at least one nationally recognized statistical rating organization (NRSRO). State law authorizes investments in obligations guaranteed by the U.S. government and does not require that these investments be rated. NBU’s policy is to comply with state law. All of NBU’s investments meet the State’s requirements.

3. Custodial Credit RiskDeposits are exposed to custodial credit risk if they are not covered by depository insurance and the deposits are uncollateralized, collateralized with securities held by the pledging financial institution, or collateralized with securities held by the pledging financial institution’s trust department or agent but not in NBU’s name.

For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, NBU will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. State law requires settlement of all transactions, except investment pool funds and mutual funds, on a delivery versus payment basis. NBU’s Investment Policy requires that securities be registered in the name of New Braunfels Utilities. All safekeeping receipts for investment instruments are held in accounts in NBU’s name, and all securities are registered in the name of New Braunfels Utilities.

4. Interest Rate RiskThis is the risk that changes in interest rates will adversely affect the fair value of an investment. NBU manages its investment time horizons by averaging investment maturities and chooses to present its exposure to interest rate changes using the weighted average maturity method. In accordance with its investment policy and state law, NBU manages its interest rate risk by limiting the weighted average maturity and weighted average maturity to first call date of its investment portfolio to a maximum of 450 days and 300 days, respectively. The maximum allowable stated maturity of any one individual investment owned by NBU shall not exceed five years from the time of purchase. The Board may specifically authorize a longer maturity for a given investment, within legal limits.

At year end, NBU’s exposure to interest rate risk is summarized in the above table, as indicated in the weighted average maturity.

5. Foreign Currency RiskThis is the risk that exchange rates will adversely affect the fair value of an investment. At year end, NBU was not exposed to foreign currency risk.


44

Note 3. Capital Assets

Capital asset activity for fiscal year-end 2012 was as follows:Balance Reclasses and Balance

July 31, 2011 Additions Retirements July 31, 2012Capital assets not being depreciated:Land-electric 3,216,584$ 19,507$ -$ 3,236,091$ Land and water rights-water 16,318,632 99 - 16,318,731 Land-wastewater 992,702 - - 992,702 Land-general 815,854 - - 815,854 Construction in progress 22,061,943 25,512,733 (16,234,404) 31,340,272

Total capital assets not being depreciated 43,405,715 25,532,339 (16,234,404) 52,703,650

Capital assets being depreciated:Buildings and structures-electric 18,658,816 - - 18,658,816 Buildings and structures-water 8,714,778 33,579 - 8,748,357 Buildings and structures-wastewater 8,351,825 109,205 - 8,461,030 Buildings and structures-other 11,566,547 51,545 - 11,618,092 Electric hydro plant system 315,544 - - 315,544 Electric transmission/distribution 123,853,554 6,571,335 (1,334,193) 129,090,696 Wells & springs 502,097 37,950 - 540,047 Pumping equipment 2,244,742 103,958 - 2,348,700 Water/wastewater treatment equipment 8,138,603 - - 8,138,603 Water/wastewater transmission/distribution 123,734,765 8,485,402 (232,881) 131,987,286 Equipment, vehicles, furniture & fixtures 22,031,758 1,810,099 - 23,841,857

Total capital assets, being depreciated 328,113,029 17,203,073 (1,567,074) 343,749,028

Less accumulated depreciation for:Buildings and structures-electric 8,999,013 409,177 - 9,408,190 Buildings and structures-water 5,418,994 237,505 - 5,656,499 Buildings and structures-wastewater 4,785,667 168,763 - 4,954,430 Buildings and structures-other 3,489,422 289,413 - 3,778,835 Electric hydro plant system 315,276 82 315,358 Electric transmission/distribution 52,802,004 4,489,612 (320,291) 56,971,325 Wells & springs 417,607 7,742 - 425,349 Pumping equipment 1,049,490 62,369 - 1,111,859 Water/Wastewater treatment equipment 4,148,313 202,384 - 4,350,697 Water/Wastewater transmission/distribution 47,141,620 3,641,652 (101,557) 50,681,715 Equipment, vehicles, furniture & fixtures 17,451,636 1,061,947 - 18,513,583 Total accumulated depreciation 146,019,042 10,570,646 (421,848) 156,167,840

Total capital assets, net 225,499,702$ 32,164,766$ (17,379,630)$ 240,284,838$


45

Capital asset activity for fiscal year-end 2011 was as follows:Balance Reclasses and Balance

July 31, 2010 Additions Retirements July 31, 2011Capital assets not being depreciated:Land-electric 3,216,584$ -$ -$ 3,216,584$ Land and water rights-water 16,318,632 - - 16,318,632 Land-wastewater 992,702 - - 992,702 Land-general 815,854 - - 815,854 Construction in progress 12,250,234 18,996,093 (9,184,384) 22,061,943 Total capital assets not being depreciated 33,594,006 18,996,093 (9,184,384) 43,405,715

Capital assets being depreciated:Buildings and structures-electric 18,658,816 - - 18,658,816 Buildings and structures-water 8,714,778 - - 8,714,778 Buildings and structures-wastewater 8,351,825 - - 8,351,825 Buildings and structures-other 11,482,152 84,395 - 11,566,547 Electric hydro plant system 315,544 - - 315,544 Electric transmission/distribution 120,724,311 4,700,331 (1,571,088) 123,853,554 Wells & springs 502,097 - - 502,097 Pumping equipment 2,220,935 23,807 - 2,244,742 Water/Wastewater treatment equipment 8,138,603 - - 8,138,603 Water/Wastewater transmission/distribution 119,361,005 4,663,092 (289,332) 123,734,765 Equipment, vehicles, furniture & fixtures 21,291,854 878,590 (138,686) 22,031,758 Total capital assets, being depreciated 319,761,920 10,350,215 (1,999,106) 328,113,029

Less accumulated depreciation for:Buildings and structures-electric 8,576,512 422,501 - 8,999,013 Buildings and structures-water 5,182,508 236,486 - 5,418,994 Buildings and structures-wastewater 4,620,214 165,453 - 4,785,667 Buildings and structures-other 3,202,485 286,937 - 3,489,422 Electric hydro plant system 315,194 82 315,276 Electric transmission/distribution 48,972,011 4,348,917 (518,924) 52,802,004 Wells & springs 410,919 6,688 - 417,607 Pumping equipment 988,878 60,612 - 1,049,490 Water/Wastewater treatment equipment 3,945,930 202,383 - 4,148,313 Water/Wastewater transmission/distribution 43,813,597 3,420,553 (92,531) 47,141,619 Equipment, vehicles, furniture & fixtures 16,594,404 995,879 (138,646) 17,451,637 Total accumulated depreciation 136,622,652 10,146,491 (750,101) 146,019,042

Total capital assets, net 216,733,274$ 19,199,817$ (10,433,389)$ 225,499,702$

Depreciation expense was charged as follows:Fiscal Year 2012 Fiscal Year 2011

Electric 5,577,801$ 5,435,959$ Water 2,519,402 2,397,051 Wastewater 2,473,443 2,313,481 Total depreciation expense 10,570,646$ 10,146,491$


46

Note 4. Long-term Debt and Capital Lease Obligation

Changes in long-term debt for the year ended July 31, 2012 are as follows:

Amount Amount AmountOriginal Outstanding Outstanding due WithinAmount Rate July 31, 2011 Additions Retirements July 31, 2012 One Year

2002 Utility System Improvement and Refunding Revenue Bonds $ 19,630,000 3.000% - 5.125% 4,360,000$ -$ (310,000)$ 4,050,000$ 320,000$ 2004 Utility System Revenue Bonds $ 7,765,000 2.00% - 4.50% 6,220,000 - (410,000) 5,810,000 415,000 2004 Utility System Revenue Bonds-Capital Appreciation $ 2,572,596 3.10% - 5.16%* 2,284,036 - (136,998) 2,147,038 125,899 2009 Utility System Improvement and Refunding $ 10,200,000 2.5% to 5.0% 9,165,000 - (545,000) 8,620,000 565,000 2009A Utility System Improvement Revenue Bonds $ 10,135,000 3.0% to 4.5% 9,900,000 - (135,000) 9,765,000 135,000 Subtotal 31,929,036 - (1,536,998) 30,392,038 1,560,899 Accretion of interest on Capital Appreciation Bonds 948,593 154,370 (48,002) 1,054,961 47,907

32,877,629$ 154,370$ (1,585,000)$ 31,446,999 1,608,806$ Less current portion (1,608,806) Unamortized net discounts (468,243) Net long-term debt 29,369,950$

*Capital Appreciation Bonds do not pay periodic interest. Rates are stated in the yields to maturity.

Changes in long-term debt for the year ended July 31, 2011 are as follows:

Amount Amount AmountOriginal Outstanding Outstanding due WithinAmount Rate July 31, 2010 Additions Retirements July 31, 2011 One Year

2002 Utility System Improvement and Refunding Revenue Bonds $ 19,630,000 3.000% - 5.125% 4,655,000$ -$ (295,000)$ 4,360,000$ 310,000$ 2004 Utility System Revenue Bonds $ 7,765,000 2.000% - 4.500% 6,630,000 - (410,000) 6,220,000$ 410,000 2004 Utility System Revenue Bonds-Capital Appreciation $ 2,572,596 3.100% - 5.160%* 2,432,762 - (148,726) 2,284,036$ 136,998 2009 Utility System Improvement and Refunding $ 10,200,000 2.500% - 5.000% 9,695,000 - (530,000) 9,165,000$ 545,000 2009A Utility System Improvement Revenue Bonds $ 10,135,000 3.000% - 4.500% 10,035,000 - (135,000) 9,900,000$ 135,000 Loan payable, GBRA transformer $ 135,890 0% 13,589 - (13,589) -$ - Subtotal 33,461,351 - (1,532,315) 31,929,036 1,536,998 Accretion of interest on Capital Appreciation Bonds 836,377 153,490 (41,274) 948,593 42,005

34,297,728$ 153,490$ (1,573,589)$ 32,877,629 1,579,003$ Less current portion (1,579,003) Unamortized net discounts (526,281) Net long-term debt 30,772,345$

*Capital Appreciation Bonds do not pay periodic interest. Rates are stated in the yields to maturity.


47

The annual debt service requirements to maturity for outstanding bonded debt are as follows:

Year Ending July 31 Principal Interest Total2013 1,608,806$ 1,206,941$ 2,815,747$ 2014 1,620,984 1,158,246 2,779,230 2015 1,655,025 1,108,371 2,763,396 2016 1,692,747 1,052,346 2,745,093 2017 1,750,547 993,399 2,743,946

2018-2022 9,484,451 3,907,420 13,391,871 2023-2027 5,414,439 2,461,345 7,875,784 2028-2032 5,030,000 1,437,275 6,467,275 2033-2035 3,190,000 288,125 3,478,125

Total 31,446,999$ 13,613,468$ 45,060,467$

Capital lease obligation. NBU entered into a hydroelectric supply agreement with the Guadalupe Blanco River Authority in 1983. The terms and conditions of the agreement constitute a capital lease as defined by FASB’s Statement No. 13. The term of the agreement is the later of thirty years or the retirement of the outstanding indebtedness. NBU has an option to continue to purchase power for an additional twenty years after the end of the initial term. The obligation is payable in monthly payments. The outstanding principal as of the fiscal year-end was $1,776,250. The original cost of the hydroelectric plant was $13,990,000 and depreciation on the plant totals $9,385,320.

Changes in the capital lease for fiscal year 2012 are as follows: Original Outstanding OutstandingAmount Rate July 31, 2011 Additions Retirements July 31, 2012

Total Payments Remaining $ 13,990,000 3.500% 2,981,510$ -$ (1,084,940)$ 1,896,570$ Less amounts representing interest (247,762) - 127,442 (120,320) Capital lease obligation 2,733,748$ -$ (957,498)$ 1,776,250$ Less current portion (1,003,750) Net long-term capital lease 772,500$

Changes in the capital lease for fiscal year 2011 are as follows:Original Outstanding OutstandingAmount Rate July 31, 2010 Additions Retirements July 31, 2011

Total Payments Remaining $ 13,990,000 3.500% 4,064,902$ -$ (1,083,394)$ 2,981,508$ Less amounts representing interest (416,154) - 168,394 (247,760) Capital lease obligation 3,648,748$ -$ (915,000)$ 2,733,748$ Less current portion (957,500) Net long-term capital lease 1,776,248$

The annual requirements through maturity for the capital lease obligation are as follows:Year Ending July 31 Principal Interest Total

2013 1,003,750$ 83,626$ 1,087,376$ 2014 772,500 36,694 809,194 Total 1,776,250$ 120,320$ 1,896,570$


48

Note 5. Intergovernmental Expense

NBU is a semiautonomous entity with a Board of Trustees, which is responsible for its operations and is appointed by the New Braunfels City Council.

The Board may transfer annual payments to the General Fund of the City payable in monthly installments. By policy, the Board has elected to transfer an amount equal to sixteen percent (16%) of gross margin on service revenue. The amount is limited to income before extraordinary items less bond principal and any future bond reserve or contingency requirements. These monies can be transferred only if such funds are available after meeting the needs of properly operating and maintaining the system and fulfilling all bonded debt requirements (see Note 4).

Note 6. Retirement System

Plan Description- NBU provides pension benefits for all of its eligible employees through a non-traditional, joint-contributory, hybrid defined benefit plan in the state-wide Texas Municipal Retirement System (“TMRS”), an agent multiple-employer public employee retirement system. The plan provisions that have been adopted by NBU are within the options available in the governing statutes of TMRS.

TMRS issues a publicly available comprehensive annual financial report that includes financial statements and required supplementary information (RSI) for TMRS; the report also provides detailed explanations of the contributions, benefits and actuarial methods and assumptions used by the system. This report may be obtained from TMRS’ website at www.TMRS.com.

The plan provisions are adopted by the governing body of NBU, within the options available in the state statutes governing TMRS. The plan year referred to is the TMRS plan year of January 1 to December 31. Plan provisions for NBU were as follows:

Plan years 2011 and 2012Employee deposit rate 7.00%

Matching ratio (NBU to employee) 1.5 to 1

Years required for vesting 5

Service requirement eligibility (expressed as age/years of service) 60/5, 0/20

Updated service credit 100% Repeating, Transfers

Annuity increase (to retirees) 70% of CPI Repeating

X:\aim\Audit\Audit 2012\CAFR - FY2012\CAFR Footnote Tables - FY12.xlsxCAFR Footnote Tables - FY12.xlsxNote 6 Table


49

Contributions- Under the state law governing TMRS, the contribution rate for each entity is determined annually by the actuary, using the Projected Unit Credit actuarial cost method. This rate consists of the normal cost contribution rate and the prior service cost contribution rate, which is calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the portion of an active member’s projected benefit allocated annually; the prior service contribution rate amortizes the unfunded (over-funded) actuarial liability (asset) over the applicable period for that entity. Both the normal cost and prior service contribution rates include recognition of the projected impact of annually repeating benefits, such as Updated Service Credits and Annuity Increases.

NBU contributes to the TMRS Plan at an actuarially determined rate. Both the employees and NBU make contributions monthly. Since NBU needs to know its contribution rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that serves as the basis for the rate and the calendar year when the rate goes into effect.

The annual pension cost and net pension asset are as follows:Fiscal Year 2012 Fiscal Year 2011 Fiscal Year 2010

Annual Required Contribution (ARC) 2,084,314$ 2,089,835$ 2,042,802$ Interest on Net Pension Obligation (NPO) (285,579) (228,026) (150,922) Adjustment to ARC 245,484 188,666 122,873 Annual Pension Cost 2,044,219 2,050,475 2,014,753 Contributions Made 3,084,314 3,089,835 3,042,802 Increase/(Decrease) in NPO asset 1,040,095 1,039,360 1,028,049 NPO Asset at the Beginning of the Year 4,079,702 3,040,342 2,012,293 NPO Asset at the End of the Year 5,119,797$ 4,079,702$ 3,040,342$

The three-year trend information is as follows:

Fiscal Year EndingAnnual Pension Cost

(APC)Actual Contribution

Made Percentage of APCNet Pension

Asset2012 2,044,219$ 3,084,314$ 150.9% 5,119,797$ 2011 2,050,475 3,089,835 150.7% 4,079,702 2010 2,014,753 3,042,802 151.0% 3,040,342

The required contribution rates for fiscal year 2012 were determined as part of the December 31, 2009 and 2010 actuarial valuation. Additional information of the latest actuarial valuation at December 31, 2011 also follows:

Actuarial Valuation Date December 31, 2011 December 31, 2010 December 31, 2009Actuarial Cost Method Projected Unit Credit Projected Unit Credit Projected Unit CreditAmortization Method Level Percent Level Percent Level Percent

of Payroll of Payroll of PayrollAmortization Period 26.1 Years-Closed 27.1 Years-Closed 28.1 Years-ClosedAmortization Period for New Gains/Losses 30 Years 30 Years 30 Years

Asset Valuation Method10-year Smoothed

Market10-year Smoothed

Market10-year Smoothed

MarketActuarial Assumptions Investment Return 7.00% 7.00% 7.50%

Projected Salary IncreasesVaries by age and

serviceVaries by age and

serviceVaries by age and

service Inflation 3.00% 3.00% 3.00%Cost of Living Adjustments 2.10% 2.10% 2.10%

Actuarial Valuation Date

X:\aim\Audit\Audit 2012\CAFR - FY2012\CAFR Footnote Tables - FY12.xlsxCAFR Footnote Tables - FY12.xlsxNote 6 Table


50

Funded Status and Funding Progress- The funded status as of December 31, 2011, the most recent actuarial valuation date, is presented as follows:Actuarial Valuation Date December 31, 2011 December 31, 2010 December 31, 2009Actuarial Value of Assets 42,470,954$ 37,599,888$ 26,105,885$ Actuarial Accrued Liability 52,508,091 49,173,277 40,784,792 Percentage Funded 80.88% 76.46% 64.01%Unfunded Actuarial Accrued Liability (UAAL) 10,037,137 11,573,389 14,678,907 Annual Covered Payroll 10,827,707 10,640,745 10,270,517 UAAL as a Percentage of Covered Payroll 92.70% 108.76% 142.92%

Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future.

Actuarial calculations are based on the benefits provided under the terms of the substantive plan in effect at the time of each valuation, and reflect a long-term perspective. Consistent with that perspective, actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. The schedule of funding progress, presented as Required Supplementary Information, following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability of benefits.

Supplemental Death Benefits Fund- NBU also participates in the cost sharing multi-employer defined benefit group-term life insurance plan operated by the Texas Municipal Retirement System (TMRS) known as the Supplemental Death Benefits Fund (SDBF). This defined benefit group term life insurance plan is a voluntary program in which participating municipalities may elect, by ordinance, to provide group-term life insurance coverage for their active members and/or retirees. Employers may terminate coverage under and discontinue participation in the SDBF by adopting an ordinance before November 1 of any year to be effective the following January 1.

Benefits- The death benefit for active employees provides a lump-sum payment approximately equal to the employee’s annual salary (calculated based on the employee’s actual earnings for the 12-month period preceding the month of death); retired employees are insured for $7,500; this coverage is an “other post employment benefit” or OPEB.

Contributions- NBU contributes to the SDBF at a contractually required contribution rate as determined by an annual actuarial valuation. The rate is equal to the cost of providing one-year term life insurance. The funding policy of this plan is to assure that adequate resources are available to meet all death benefit payments for the upcoming year; the intent is not to pre-fund retiree term life insurance during employees’ entire careers.

NBU’s contributions for 2012, 2011, and 2010 were $22,069, $25,298, and $22,274, respectively, and equaled the required contributions for those years.

A schedule of contribution rates is below (retiree-only portion of the rate).Percentage of

Plan Actual Required Actual ARCYear Contribution (ARC) Contribution Made Contributed2010 0.04% 0.04% 100.0%2011 0.04% 0.04% 100.0%2012 0.04% 0.04% 100.0%


51

Note 7. Compensated Absences

NBU employees can earn up to 20 working days of vacation per calendar year depending on years of service. Unused vacation may be carried over from one year to the next limited to the amount earned and unused in the present year. Vacation time may not be converted except upon termination of employment in good standing.

NBU employees will earn 3.69 hours sick leave for each pay period. Employees may accumulate unused hours of sick leave at a rate of 96 hours per year up to a maximum of 480 hours for use in future years. Each year in January, qualifying employees will be compensated at their base rate of pay for accrued and unused hours of sick pay in excess of 480 hours up to a maximum of 96 hours. An employee who terminates in good standing may be eligible to be compensated for all accrued and unused sick leave. In order to be eligible for compensation of sick leave upon termination, an employee must leave in good standing and be eligible for retirement under the presently adopted rules of TMRS.

NBU employees, after successfully completing their orientation period, will be credited with 24 hours personal leave. Full time employees will be credited with 24 hours of personal leave on their employment anniversary date. In order to be eligible for compensation of personal leave upon termination, an employee must leave in good standing and be eligible for retirement under the presently adopted rules of TMRS.

The total accrued liability for compensated absences as of July 31, 2012 is as follows:

Balance at Earned in Utilized in Balance at Due withinJuly 31, 2011 Fiscal Year 2012 Fiscal Year 2012 July 31, 2012 One Year

Vacation Leave 483,441$ 389,405$ 385,310$ 487,536$ 487,536$ Sick Leave 679,280 191,833 133,474 737,639 - Personal Leave 23,270 69,477 67,990 24,757 24,757 Worker's Compensation 49,852 130,728 103,215 77,365 77,365 Total 1,235,843$ 781,443$ 689,989$ 1,327,297$ 589,658$ -

The total accrued liability for compensated absences as of July 31, 2011 is as follows:

Balance at Earned in Utilized in Balance at Due withinJuly 31, 2010 Fiscal Year 2011 Fiscal Year 2011 July 31, 2011 One Year

Vacation Leave 478,472$ 364,445$ 359,476$ 483,441$ 483,441$ Sick Leave 721,870 121,193 163,783 679,280 - Personal Leave 25,863 67,939 70,532 23,270 23,270 Worker's Compensation 18,581 130,399 99,128 49,852 49,852 Total 1,244,786$ 683,976$ 692,919$ 1,235,843$ 556,563$ -

Note 8. Operating Lease

NBU has an operating lease with LCRA to lease certain transmission assets to LCRA. Payments for the lease facilities are based on the original cost of the facilities, adjusted for depreciation, and are updated annually to reflect additions, retirements, and depreciation. The terms of the lease are perpetual, but may be terminated by either party upon five years written notice. Lease revenues were $1,015,161 and $1,061,201 in fiscal year 2012 and 2011, respectively. The receipts for fiscal year 2013 will be $977,206. Due to the nature of the agreement, the amount of receipts beyond that time have not been determined. The original cost of the transmission assets was $20,741,772 and the accumulated depreciation totals $8,669,189.


52

Note 9. Pending Claims and Litigation

NBU is the subject of various minor claims and litigation which have arisen in the course of its operations. Legal counsel is of the opinion that NBU’s liability in these cases, if decided adversely, will not have a material effect on NBU’s financial position.

Note 10. Risk Management

NBU is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. NBU purchases commercial insurance to cover the risks of loss. There has not been a significant reduction in insurance coverage during the fiscal year in any risk category. NBU carries health and life insurance for its employees. The maximum liability for any claim is $65,000 with an annual NBU maximum of approximately $1.7 million. During the past three fiscal years, no settlements have exceeded insurance coverage limits.

NBU reported claims liability of $68,678 and $33,143 at July 31, 2012 and 2011, respectively, based on the requirements of GASB Statement No. 10. This statement requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. The claims liability is included in accounts payable and other current liabilities on the statement of net assets.

Following is the claims liability schedule for the respective fiscal years: Beginning Benefit Payments Ending

Balance Expenses on claims Balance2010 5,733$ 1,310,197$ 1,278,328$ 37,602$ 2011 37,602$ 1,996,400$ 2,000,859$ 33,143$ 2012 33,143$ 2,112,159$ 2,076,624$ 68,678$

Note 11. Subsequent Events

On October 1, 2012, NBU issued $23,940,000 of Utility System Revenue and Refunding Bonds, Series 2012. This debt issue refunded the total outstanding principal of the 2002 Utility System Improvement and Refunding Revenue Bonds and a portion of the 2004 Utility System Revenue Bonds and also provided $15.2 Million of funding sources for NBU’s capital program. At July 31, 2012 and 2011, NBU acquired the majority of its electricity from the LCRA pursuant to the WPA or certain related agreements. The WPA expires according to its express terms in June 2016. In 2010, the LCRA engaged in certain actions with other wholesale customers that NBU believes violated the WPA. On July 27, 2012, NBU filed suit against the LCRA contending that the actions violated the WPA and sought monetary damages. On November 8, 2012, NBU delivered notice to the LCRA that because of the LCRA’s actions it intended to exercise its right to terminate the WPA effective January 1, 2013. On December 4, 2012, the LCRA filed a counterclaim against NBU seeking a court declaration that NBU does not have a legal right to terminate the contract. The counterclaim does not seek any monetary damages, but it is possible that the LCRA could amend its counterclaim to seek damages at a later date, particularly after the January 1, 2013 termination date. At this time, NBU is unable to determine the potential impact, if any, of the pending litigation. On December 14, 2012, NBU entered into power supply contracts for its power supply requirements for calendar year 2013. During 2013, NBU will also be looking to secure additional power supply contracts for power requirements beyond December 2013.


53

Note 12. Restatement of Fiscal year 2011 Financial Statements

The fiscal year 2011 financial statements have been restated to correct a billing error in the recognition of developer contributions and receivable reported from the Texas Department of Transportation (TXDOT) for reimbursements payable to NBU for costs related to the Texas Highway 46 extension project. The restatement is due to contributions of $2,950,401 recognized in fiscal year 2011 that were not eligible for reimbursement from TXDOT. The effect on the previously issued fiscal year 2011 financial statements is as follows:

As Originally Reported Decrease As Restated

Accounts receivable-other 4,547,661 2,950,401 1,597,260 Total Current Assets 55,489,429 2,950,401 52,539,028 Total Assets 312,571,241 2,950,401 309,620,840 Net Assets 260,258,693 2,950,401 257,308,292 Developer Contributions 8,451,534 2,950,401 5,501,133 Change in Net Assets 15,582,731 2,950,401 12,632,330

FINANCIAL: REQUIRED SUPPLEMENTAL INFORMATION

54

Schedule of Funding Progress:

Actuarial Valuation Date

Actuarial Valuation of Assets (1)

Actuarial Accrued Liability (AAL) (2) Funded Ratio (1/2)

Unfunded AAL (UAAL) (2-1)

Covered Payroll (3)

UAAL as % of Covered Payroll

[(2-1)/4]12/31/2009 26,105,885$ 40,784,792$ 64.0% 14,678,907$ 10,270,517$ 142.9%12/31/2010 37,599,888 49,173,277 76.5% 11,573,389 10,640,745 108.8%12/31/2011 42,470,954 52,508,091 80.9% 10,037,137 10,827,707 92.7%

Schedule of Employer Contributions:

Year EndedEmployer

ContributionsAnnual Pension

Costs (APC)Percentage Contributed

12/31/2010 3,042,802$ 2,014,753$ 151.0%12/31/2011 3,089,835 2,050,475 150.7%12/31/2012 3,084,314 2,044,219 150.9%

NEW BRAUNFELS UTILITIESDefined Benefit Pension Plan

For the Year Ended July 31, 2012Unaudited

FINANCIAL: SUPPLEMENTARY INFORMATION

55

Budget PositiveOriginal and (Negative)

Final Actual VarianceOperating revenuesElectric services 94,850,351$ 91,830,565$ (3,019,786) Water services 12,368,949 11,738,270 (630,679) Wastewater services 9,783,410 10,401,198 617,788 Miscellaneous fees and charges 576,250 1,570,859 994,609 Other operating revenues 806,000 905,224 99,224 Total operating revenues 118,384,960 116,446,116 (1,938,844)

Operating expensesPurchased power 76,372,157 73,787,333 2,584,824 Purchased water 1,224,318 1,342,879 (118,561) Other operating expenses 19,060,502 19,917,632 (857,130) Depreciation and amortization 10,627,241 10,570,646 56,595 Total operating expenses 107,284,218 105,618,490 1,665,728 Net operating income 11,100,742 10,827,626 (273,116)

Nonoperating revenues (expenses)Interest income 327,211 297,047 (30,164) Interest expense and investment loss or gain (1,703,326) (1,502,124) 201,202 Intergovernmental expense (5,963,264) (6,047,031) (83,767) Transmission system 1,611,000 1,573,174 (37,826) Other non-operating revenues (expenses) 492,719 (71,844) (564,563)

Total nonoperating revenues (expenses) (5,235,660) (5,750,778) (515,118) Net Income before capital contributions 5,865,082$ 5,076,848$ $ (788,234)

Note: Impact fees are considered a capital contribution for reporting purposes. The fees were budgeted at $1,524,000. Actual fees received were $1,898,470.

NEW BRAUNFELS UTILITIESBudgetary Comparison ScheduleFor the Year Ended July 31, 2012

Unaudited

STATISTICAL

56

TABLE OF CONTENTS AND ExPLANATIONS

This part of New Braunfels Utilities’ (NBU) comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and supplementary information says about NBU’s overall financial health.

FINANCIAL TRENDS INFORMATIONThese schedules contain trend information to help the reader understand how NBU’s financial performance and well-being have changed over time.

Net Assets by Component ..................................................................................................................................................................................57Statements of Revenues and Expenses.......................................................................................................................................................58

REvENUE CAPACITyThese schedules contain information to help the reader assess NBU’s most significant revenue sources, charges for service.

Income by Source ....................................................................................................................................................................................................60Average Revenue Rates ........................................................................................................................................................................................61Revenue by Class .....................................................................................................................................................................................................62

DEBT CAPACITyThese schedules present information to help the reader assess the affordability of NBU’s current levels of outstanding debt and NBU’s ability to issue additional debt in the future.

Total Indebtedness Per Customer .................................................................................................................................................................63Revenue Bond Coverage .....................................................................................................................................................................................64

DEMOGRAPHIC AND ECONOMIC INFORMATIONThese schedules offer demographic and economic indicators to help the reader understand the environment within which NBU’s financial activities take place.

Number of Customers by Service ..................................................................................................................................................................65Comal County Demographic and Economic Statistics .......................................................................................................................66Comal County Principal Employers ..............................................................................................................................................................67Full-Time Equivalent Employees by Function ........................................................................................................................................68

OPERATING INFORMATIONThese schedules contain service and infrastructure data to help the reader understand how the information in NBU’s financial report relates to the services NBU provides and the activities it performs.

Capital Assets by Function .................................................................................................................................................................................69Electric Sales and Peak Demand .....................................................................................................................................................................70

STATISTICAL

57

Totals may not add due to rounding.

Fiscal YearCapital Assets* Restricted Unrestricted

Total Net Assets

2003 $86,284 $12,428 $28,225 $126,9372004 101,485 15,698 25,013 142,1962005 110,081 12,823 33,590 156,4942006 124,989 12,249 37,543 174,7812007 136,635 12,253 43,204 192,0922008 155,987 12,240 48,027 216,2542009 179,709 14,393 35,734 229,8362010 184,754 13,118 46,804 244,676

2011** 192,769 8,259 56,281 257,3082012 209,884 9,579 49,078 268,542

* Net of related debt** Restated

NEW BRAUNFELS UTILITIESNet Assets by Component

For Fiscal Years Ended July 31,($ in Thousands)

(Unaudited)


STATISTICAL

58


2003 2004 2005 2006 2007Operating revenues:

Electric services 56,832$ 61,026$ 63,128$ 80,210$ 72,147$ Water services 5,800 5,806 6,987 8,657 7,841 Wastewater services 5,341 5,709 6,331 7,301 7,642 Other operating revenues 1,665 2,539 1,838 2,654 2,314

Total operating revenues 69,638 75,080 78,283 98,822 89,944

Operating expenses:Purchased power 40,407 45,292 45,871 63,332 57,383 Transmission & distribution 4,023 3,959 4,015 4,372 4,522 Purchased Water 765 779 866 1,005 975 Pumping 891 804 756 929 853 Water treatment 2,171 2,171 2,175 2,257 2,435 Customer service 1,932 1,785 1,811 1,479 1,589 Administrative and general 3,632 3,975 4,545 4,879 5,500 Depreciation 5,831 6,406 6,946 7,229 8,036

Total operating expenses 59,652 65,171 66,985 85,482 81,293 Net operating income 9,986 9,909 11,299 13,340 8,651

Nonoperating revenues (expenses):Interest income 969 712 1,111 1,720 2,502 Investment earnings/(loss) (254) (201) (52) 329 637 Interest expense (1,170) (1,221) (1,429) (1,505) (1,417) Intergovernmental expense (3,990) (4,109) (4,250) (4,690) (5,185) Transmission lease 1,573 1,154 1,229 1,443 1,475 Gain (loss) on sale of assets - 24 40 21 69

Total nonoperating revenues/(exp.) (2,873) (3,640) (3,351) (2,682) (1,919)

Net income before contributions 7,113 6,269 7,948 10,658 6,732

Capital Contributions:Impact fees 997 1,507 1,747 2,172 1,724 Services 434 632 561 590 813 Developer contributions 2,678 6,853 4,041 4,867 8,041

Total capital contributions 4,109 8,991 6,349 7,628 10,579

Change in net assets 11,222 15,261 14,297 18,286 17,311 Total net assets-beginning of year 115,714 126,937 142,196 156,494 174,781

Total net assets-end of year 126,936$ 142,198$ 156,494$ 174,781$ 192,092$

Continued on next page.

NEW BRAUNFELS UTILITIESStatements of Revenues and Expenses


(Unaudited)



STATISTICAL

59


2008 2009 2010 2011* 2012Operating revenues:

Electric services 86,366$ 85,802$ 84,066$ 92,537$ 91,831$ Water services 9,918 11,290 9,697 11,930 11,738 Wastewater services 8,184 9,554 9,464 9,727 10,401 Other operating revenues 2,352 2,735 2,136 2,422 2,476

Total operating revenues 106,820 109,381 105,363 116,615 116,446

Operating expenses:Purchased power 70,531 70,549 66,564 73,886 73,795 Transmission & distribution 5,517 5,466 6,573 6,342 6,501 Purchased Water 980 1,118 1,205 1,184 1,507 Pumping 975 1,075 1,081 1,249 1,303 Water treatment 2,620 2,443 2,750 2,435 2,679 Customer service 1,822 2,158 1,993 2,068 1,979 Administrative and general 5,027 5,895 6,053 6,753 7,284 Depreciation 8,912 9,414 10,043 10,146 10,571

Total operating expenses 96,384 98,118 96,261 104,063 105,618 Net operating income 10,437 11,262 9,102 12,551 10,828

Nonoperating revenues (expenses):Interest income 2,173 1,604 404 383 297 Investment earnings/(loss) 403 (402) (35) 29 (43) Interest expense (1,296) (1,221) (1,443) (1,504) (1,459) Intergovernmental expense (4,922) (5,205) (5,637) (5,766) (6,047) Transmission lease 1,472 1,474 1,597 1,599 1,573 Gain (loss) on sale of assets 115 (5) (157) (160) (72)

Total nonoperating revenues/(exp.) (2,056) (3,755) (5,271) (5,420) (5,751)

Net income before contributions 8,381 7,507 3,831 7,131 5,077

Capital Contributions:Impact fees 1,346 1,182 1,156 1,099 1,898 Services 635 570 546 523 671 Developer contributions 13,800 4,322 9,307 3,879 3,587

Total capital contributions 15,781 6,075 11,009 5,501 6,156

Change in net assets 24,162 13,582 14,840 12,632 11,233 Total net assets-beginning of year 192,092 216,254 229,836 244,676 257,308

Total net assets-end of year 216,254$ 229,836$ 244,676$ 257,308$ 268,542$

* Restated

NEW BRAUNFELS UTILITIESStatements of Revenues and Expenses


(Unaudited)


STATISTICAL

60


Fiscal Electric Water Wastewater Other* Total2003 57,291$ 5,912$ 4,277$ 4,446$ 71,926$ 2004 61,622 5,920 5,776 5,590 78,908 2005 63,587 7,109 6,402 5,823 82,921 2006 81,981 10,453 8,603 4,104 105,141 2007 75,551 9,351 8,765 3,497 97,164 2008 89,728 11,223 9,185 2,828 112,964 2009 89,191 12,647 10,356 1,598 113,792 2010 87,079 10,685 10,283 828 108,875 2011 95,679 13,059 10,459 892 120,089 2012 95,080 13,421 11,553 718 120,772

* Other Income includes interest income, mark-to-market adjustments on investments and miscellanous service income.

NEW BRAUNFELS UTILITIES

(Unaudited)

Income by SourceFor Fiscal Years Ended July 31,

($ in Thousands)


STATISTICAL

61


For Fiscal Years Ended July 31,

Fiscal Electric Water Rate/per Wastewater MonthlyYear Rate/kWh Thousand Gallons Revenue/Customer

2003 $0.0598 $2.45 $30.982004 0.0641 2.69 31.772005 0.0643 2.80 32.632006 0.0777 2.82 35.892007 0.0712 2.95 35.582008 0.0801 3.14 36.172009 0.0796 3.19 41.072010 0.0742 3.33 39.602011 0.0741 3.20 39.802012 0.0724 3.22 41.08

NEW BRAUNFELS UTILITIESAverage Revenue Rates

(Unaudited)


STATISTICAL

62


2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Electric Services

Residential 39% 37% 38% 38% 40% 39% 38% 40% 38% 37%General Service 31% 30% 31% 31% 31% 32% 31% 31% 30% 31%Industrial 30% 33% 31% 31% 29% 29% 31% 29% 32% 31%

100% 100% 100% 100% 100% 100% 100% 100% 100% 100%Water Services

Residential/Multi-Unit/Irrigation 75% 76% 77% 79% 78% 80% 81% 81% 83% 81%General Service 20% 20% 19% 17% 18% 17% 15% 16% 15% 15%Wholesale 4% 3% 3% 3% 3% 2% 3% 2% 2% 3%Other 1% 1% 1% 1% 1% 1% 2% 1% 1% 1%

100% 100% 100% 100% 100% 100% 100% 100% 100% 100%Wastewater Services

Residential/Multi-Unit 67% 68% 69% 69% 71% 69% 71% 70% 68% 69%General Service 32% 31% 31% 31% 29% 31% 29% 30% 31% 30%Other 1% 1% 0% 0% 0% 0% 0% 0% 0% 1%

100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

NEW BRAUNFELS UTILITIESRevenue By Class

For Fiscal Years Ended July 31,(Unaudited)


STATISTICAL

63


Total ElectricTotal Water and

Fiscal Indebtedness* Wastewater Debt PerYear (in thousands) Customers Customer2003 $34,527 54,177 $6372004 41,404 56,667 7312005 38,246 59,379 6442006 33,990 63,270 5372007 31,603 66,010 4792008 28,083 68,787 4082009 30,052 70,709 4252010 37,946 72,993 5202011 35,611 75,176 4742012 33,223 77,746 427

* Total Indebtedness includes Bonded Debt, GBRA Loan and the GBRA Capital Lease and excludes unamortized discount.

NEW BRAUNFELS UTILITIESTotal Indebtedness Per Customer



STATISTICAL

64


Net Revenues BondFiscal Total Total Available for Debt ServiceYear Revenues (1) Expenses (2) Debt Service Requirements (3) Coverage (x)

2003 $71,927 $53,821 $18,105 $3,532 5.132004 78,908 58,766 20,143 3,984 5.062005 82,920 60,038 22,882 3,803 6.022006 105,141 78,253 26,888 3,878 6.932007 97,164 73,257 23,907 3,876 6.172008 112,964 87,472 25,492 3,875 6.582009 113,792 88,705 25,087 3,942 6.362010 108,874 86,218 22,656 2,721 8.332011 120,088 93,917 26,171 2,852 9.182012 120,772 95,048 25,724 2,836 9.07

(1) Includes interest income, non operating revenues, impact and service fees (2) Excludes depreciation (3) Includes principal and interest of revenue bonds

Note--There are no debt limitations other than maintiaining prudent net revenues to annual debt service coverage.

(Unaudited)

NEW BRAUNFELS UTILITIESRevenue Bond Coverage



STATISTICAL

65


FiscalYear Electric Water Wastewater Total2003 23,268 16,446 14,463 54,177 2004 23,908 17,412 15,347 56,667 2005 24,727 18,410 16,242 59,379 2006 26,087 19,753 17,430 63,270 2007 27,000 20,729 18,281 66,010 2008 28,219 21,613 18,955 68,787 2009 28,894 22,457 19,358 70,709 2010 29,595 23,440 19,958 72,993 2011 30,252 24,436 20,488 75,176 2012 31,061 25,588 21,097 77,746

NEW BRAUNFELS UTILITIESNumber of Customers by Service


STATISTICAL

66

Comal Personal Per CapitaCalendar County Income Personal Unemployment

Year Population 1 (in 000's) 1 Income 1 Rate 2

2003 86,955 $2,582,063 $29,694 5.9%2004 90,955 2,827,433 31,072 5.3%2005 94,677 3,177,283 33,559 4.6%2006 100,243 3,475,197 34,668 4.5%2007 105,234 3,863,830 36,717 3.9%2008 110,119 4,232,020 40,979 4.3%2009 114,525 4,260,164 40,058 6.6%2010 108,472 4,594,481 41,984 7.0%2011 126,145 4,984,481 44,519 7.3%2012 131,409 4 - 3 - 3 5.6%

1 Source: http://www.bea.gov2 Source: http://www.tracer2.com3 2012 Personal Income and Per Capita Personal Income not available at time of publication4 Source: http://www.dshs.state.tx.us/chs/popdat/ST2011.shtm; 2012 Projection

New Braunfels Utilities services area is approximately 169 square miles which includesthe City of New Braunfels and the surrounding area. The majority of the service area iswithin Comal County, with some customer service in Hays, Guadalupe, and Bexar counties.The population amounts were obtained from the U. S. Census Bureau.

(Unaudited)

COMAL COUNTYDemographic and Economic Statistics

Last Ten Years

STATISTICAL

67


2011* 2001 *Percentage of Percentage of

Employer Employees Rank Total Employment Employees Rank Total Employment

Comal ISD - School District 2,300 1 4.5% 1,700 1 4.0%

The Scooter Store 1,400 2 2.7% 390 n/a 0.9%

Wal-Mart Distribution Center - Distribution Center 1,065 3 2.1% 1,200 3 2.9%

New Braunfels ISD - School District 928 4 1.8% 830 4 2.0%

Christus Santa Rosa Hospital 692 5 1.3% 750 5 1.8%

Comal County 587 6 1.1% 330 10 0.8%

HEB Retail Grocery 561 7 1.1% 280 n/a 0.7%

City of New Braunfels 508 8 1.0% 274 n/a 0.7%

Hunter Industries, Ltd. - Highway Contractor/Material Supplier 500 9 1.0% 500 6 1.2%

Wal-Mart Super Center - Retail Store 435 10 0.8% 435 8 1.0%

8,976 17.5% 6,689 15.9%

Source - http://www.nbcham.orgn/a - data not available* 2012 data not available at time of publication

COMAL COUNTYPrincipal Employers

Current and Ten Years Ago(Unaudited)


STATISTICAL

68

FiscalYear Electric Water Sewer Support Total2003 64.0 34.5 42.5 55.0 196.0 2004 67.0 34.5 42.5 55.0 199.0 2005 73.0 33.5 41.5 62.0 210.0 2006 71.0 33.0 40.0 63.0 207.0 2007 71.0 34.5 41.5 64.0 211.0 2008 73.0 41.0 38.0 72.0 224.0 2009 70.0 36.0 43.0 72.0 221.0 2010 65.0 36.0 42.0 73.0 216.0 2011 63.0 38.5 43.5 82.5 227.5 2012 64.0 41.5 41.0 82.5 229.0

NEW BRAUNFELS UTILITIESFull-Time Equivalent Employees By Function (Budgeted Positions)




STATISTICAL

69


2003 2004 2005 2006 2007Electric

Land and right-of-ways 1,457$ 1,648$ 1,734$ 1,826$ 1,907$ Buildings and structures 16,610 16,675 16,675 16,594 16,620 Hydroelectric plant equip. 316 316 316 316 316 Transmission/distribution 60,586 69,416 75,021 83,815 92,692

Total Electric 78,969 88,055 93,746 102,551 111,535 Water/Wastewater

Land and right-of-ways 2,271 2,380 2,584 2,584 2,671 Buildings and structures 16,265 16,377 16,520 16,662 16,838 Wells and springs 502 502 502 502 502 Pumping equipment 1,632 1,668 1,688 1,774 1,829 Water/wastewater treatment equip. 7,946 8,129 8,129 8,130 8,148 Transmission/distribution 67,390 76,188 81,283 87,068 99,288

Total Water/Wastewater 96,006 105,244 110,706 116,720 129,276 General

Land and right-of-ways 228 816 816 816 816 Buildings and structures 3,021 10,852 11,046 11,081 11,104 Equipment, vehicles, furniture 14,533 15,365 16,113 17,302 18,466

Total General 17,782 27,033 27,975 29,199 30,386 Total Capital Assets 192,757$ 220,332$ 232,427$ 248,470$ 271,197$


NEW BRAUNFELS UTILITIESCapital Assets by Function


(Unaudited)


2008 2009 2010 2011 2012Electric

Land and right-of-ways 2,060$ 2,123$ 3,217$ 3,217$ 3,236$ Buildings and structures 17,356 18,659 18,659 18,659 18,659 Hydroelectric plant equip. 316 316 316 316 316 Transmission/distribution 108,138 116,152 120,724 123,854 129,091

Total Electric 127,870 137,249 142,915 146,044 151,301 Water/Wastewater

Land and right-of-ways 2,704 15,779 17,311 17,311 17,311 Buildings and structures 16,886 17,036 17,067 17,067 17,209 Wells and springs 502 502 502 502 540 Pumping equipment 1,969 2,047 2,221 2,245 2,349 Water/wastewater treatment equip. 8,148 8,139 8,139 8,139 8,139 Transmission/distribution 108,522 114,713 119,361 123,735 131,987

Total Water/Wastewater 138,731 158,216 164,601 168,998 177,535 General

Land and right-of-ways 816 816 816 816 816 Buildings and structures 11,121 11,423 11,482 11,567 11,618 Equipment, vehicles, furniture 19,442 20,720 21,292 22,032 23,842

Total General 31,379 32,959 33,590 34,414 36,276 Total Capital Assets 297,980$ 328,425$ 341,106$ 349,457$ 365,112$

NEW BRAUNFELS UTILITIESCapital Assets by Function


(Unaudited)


STATISTICAL

70

NEW BRAUNFELS UTILITIESElectric Sales and Peak DemandFor Fiscal Years Ended July 31,

(Unaudited)Peak

Fiscal MWh DemandYear Sales (kW) 2003 962,934 173,836 2004 955,828 186,951 2005 976,645 191,007 2006 1,015,395 188,667 2007 1,012,808 195,283 2008 1,043,624 199,200 2009 1,104,589 215,295 2010 1,138,764 217,965 2011 1,227,844 240,109 2012 1,268,084 246,380

COMPLIANCE

71

INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS

PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

To the Board of Trustees New Braunfels Utilities New Braunfels, Texas

We have audited the financial statements of New Braunfels Utilities (NBU) as of and for the year ended July 31, 2012, and have issued our report thereon dated December 17, 2012. This year’s report was modified to disclose a restatement of the 2011 financial statements to correct a billing error related to nonoperating revenue recognition for the reimbursement of costs related to a particular project. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

Internal Control Over Financial Reporting

Management of NBU is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered NBU’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing an opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of NBU’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of NBU’s internal control over financial reporting.

Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as described below, we identified certain deficiencies in internal control over financial reporting that we consider to be a material weakness.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a deficiency or combination of deficiencies, in internal controls such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the following deficiency in internal control to be a material weakness:

Baker Tilly Virchow Krause, LLP Ten Terrace Ct, PO Box 7398 Madison, WI 53707-7398 tel 608 249 6622 fax 608 249 8532 bakertilly.com

COMPLIANCE

72

To the Board of Trustees New Braunfels Utilities

Finding 12-01: Internal Control Over Financial Reporting and Restatement of the Prior Period

Criteria: Statement on Auditing Standards (SAS) No. 115 requires auditors to report a material weakness if the utility has material adjusting journal entries or the audit results in a material restatement of the prior period.

Condition: The fiscal year 2011 financial statements have been restated due to a billing error resulting in an overstatement in nonoperating revenue recognized and a corresponding material adjusting journal entry to NBU’s fiscal year 2012 records.

Cause: The restatement related to the correction of a billing error related to nonoperating revenue recognized for the reimbursement of project costs from the Texas Department of Transportation resulting from NBU not having a proper review process in place for nonstandard project reimbursements.

Effect: The financial records noted above were not materially accurate prior to the completion of the audit.

Management Response: Management has put in place a process to clarify unique projects by implementing meetings with all parties involved to determine a firm understanding of amounts to bill, collect, record, and apply.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether NBU’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

We noted certain matters that we reported to management of NBU in a separate letter dated December 17, 2012.

NBU’s written response to the material weakness identified in our audit has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it.

This report is intended solely for the information and use of the audit committee, management, and the Board of Trustees and is not intended to be, and should not be, used by anyone other than these specified parties.

Madison, Wisconsin December 17, 2012

263 E. Main Plaza P.O. Box 310289 New Braunfels, Texas 78131-0289

“Leadership is what matters.”gfoa.net/cafr/COA2012/NewBraunfelsUtilitiesTX.pdf“Leadership is...

Documents

Transcript of “Leadership is what matters.”gfoa.net/cafr/COA2012/NewBraunfelsUtilitiesTX.pdf“Leadership is...