6.1a2 ERMUSR 05-09-2023 - Laserfiche WebLink

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Minnesota Municipal Power Agency Notes to Financial Statements December 31, 2022 and 2021 Note 1: Organization and Significant Accounting Policies - Continued Derivative Instruments - Futures The Agency engages in certain futures market activities to manage future energy acquisition cost risk. The Agency may enter into energy financial futures contracts to buy or sell energy in order to manage the risk of volatility in the market price of anticipated energy transactions. The Agency does not enter into derivative instruments for speculative purposes. Fair value is estimated by comparing contract prices to forward market prices quoted by independent third -party pricing services. The Agency's derivative instruments are considered effective and are recorded as either an asset or liability on the statement of net position, with an offsetting deferred inflow or outflow of resources. Rates Rates and charges for providing wholesale power supply are reviewed and adopted by the Agency's board of directors. Power supply services provided by the Agency are not subject to state or federal rate regulation. Revenue Recognition The Agency recognizes revenue on sales when the electricity is provided to and used by the customers. The Agency reports only the net amount of operating revenues — power sales and power purchases expense resulting from its transactions with MISO as revenue. Operating Revenues and Expenses Operating revenues result from exchange transactions associated with the principal activity of the Agency, the sale of electricity. Reported operating revenues are affected by contributions to or distributions from the rate stabilization account. Operating expenses are defined as expenses directly related to, or incurred in support of, the production and transmission of electricity to the participating members. All other expenses are classified as nonoperating expenses. Income Taxes The Agency is exempt from federal and state income taxes as it is a political subdivision of the State of Minnesota. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, deferred outflows of resources, liabilities and deferred inflows of resources and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to the 2021 financial statements to conform to the 2022 financial statement presentation. These reclassifications had no impact on the change in net position. 18 156