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Notes to Combined Financial Statements December 31, 1994 and 1993 Utility Plant Utility plant is stated at cost and includes labor, materials, interest capitalized during the construction period, purchased services and certain overhead items, Water and electric plant retirements are removed from the accounts at cost, together with the relat- ed accumulated depreciation, Any gains or losses resulting from retirements are recorded as non-operating revenues or expenses, The District has an undivided interest in certain power generation stations and transmission systems that are jointly owned with several utilities, The operating agreement under which the facilities were constructed required that each participant provide its own construction financing, The District's proportionate share of con- struction and improvement costs for such jointly owned facilities is included in the appropriate category of utility plant. The District incurs certain minimum operating costs on jointly owned facilities, whether or not it is able to take delivery of its propor- tionate share of energy generated, Such expenses incurred are included in the accompanying combined statements of income, availability fee that is based upon acreage held within the District. Customers of the Power Department are billed on a cyclical basis, Water and power revenues are recorded when billed, except for the water availability fee which is billed in December but recorded as revenue ratably throughout the year; accordingly, such billings are con- sidered to be deferred revenues, Unbilled water and electric service revenues are not considered significant. Refundable to Customers Fuel costs billed to power customers in excess of actual fuel costs incurred are con- sidered refundable to the customer, Such costs are refunded through subsequent reductions of fuel costs billed, Restricted Assets Restricted funds represent allocations of cash balances pursuant to provisions of the All-American Canal contract, the covenants of the Certificates of Participation, deposits of employee-deferred compensation and for other purposes specified by the Board of Directors, Cash and Investments The District invests its idle cash on a daily basis, Certain of these investments are in bank certificates of deposit. Other invest- ments consist primarily of Federally backed securities, medium-term corporate notes, mutual fund investments and other investments commonly referred to as "derivatives," The District also has an employee-deferred compensation plan under which investments of varying types are made on behalf of the participants, Such investments are stated at amortized cost, except for the deferred compensation plan assets, which are stated at market value, The District considers all cash and cash deposits, investments in the State Treasurer's Local Agency Investment Fund, investments in mutual and similar funds and other investments with initial maturi- ties of less than 90 days to be cash and cash equivalents for purposes of the accompa- nying combined statements of cash flows, Reclassifications Certain amounts reported in the 1993 com- bined financial statements have been reclassified to correspond to the 1994 pre- sentation, NOTE 1 Summary of Significant Accounting Policies Reporting Entity The Imperial Irrigation District (the District) is a public entity organized in 1911 under the California Irrigation District Law (codified at Division 11 of the California Water Code), The District has the powers under the law to, among other things, pro- vide irrigation and electric service within its geographic boundaries, In connection therewith, the District has the powers of eminent domain to contract, to construct works, to fix rates and charges for com- modities or services furnished and to incur indebtedness, The District is governed by a five-member Board of Directors elected by the citizens residing within the District's boundaries, Basis of Presentation The account classification structures used by the District conform to generally accept- ed accounting principles consistent with enterprise fund accounting, The account- ing records of the District are maintained on the accrual basis of accounting, Under this method, revenues are recognized when earned, regardless of when received, and expenses are recognized when incurred, regardless of when paid, The effects of interdepartmental transactions have not been eliminated at the individual depart- ment level, as the Board of Directors of the District believes that the operating results of such departments should remain sepa- rated to facilitate management review and appropriate rate setting, Such separation is also required for evidence of compliance with debt agreements relating to the District's outstanding Certificates of Participation, Separate accounting records are maintained for the Water and Power Departments of the District. The account classifications used by the District for accounting and financial reporting purposes are compara- ble to those used by other irrigation dis- tricts and electric utilities, The account classifications used by the Power Department are specified by the Uniform System of Accounts as prescribed by the US, Federal Energy Regulatory Commission, The account classifications of the Water Department were adopted to facilitate computations required under a provision of the All-American Canal con- tract (see note 8), NOTE 2 Cash and Investments The District maintains a general cash and investment pool for the purpose of maximizing investment returns for all funds except those required to be held by outside fiscal agents and funds in its employee-deferred compensation plan. The District's cash and investments portfolio has aggregate net unrealized losses of $7,702,227 and $731, 383 at December 31, 1994 and 1993, respectively, Although there is a significant increase in the unrealized loss on its investments, the District believes it has the ability and intent to hold such securities until their respective maturity dates, thus reducing the risk that such unrealized losses will become realized at some future date, Depreciation Buildings, vehicles, equipment, drainage structures, canal linings and canal struc- tures owned by the Water Department and Power Department are depreciated on a straight-line basis over their estimated use- fullives, Expenditures which materially increase utility plant lives are capitalized, while costs of maintenance and repairs are charged to expense as incurred, Depreciation on fixed assets acquired through contributions in aid of construc- tion is deducted from such contributions with a corresponding increase to retained earnings, Inventories Inventories consisting of fuel oil, materials and supplies are recorded at cost on a first-in, first-out, weighted-average basis, Revenues The principal customers of the Water Department are farm operators and cities, which in turn resell such water to their cus- tomers, The Water Department's cus- tomers are billed at the end of each month for sales made during the month, In addi- tion, each landowner pays an annual water