NOTE 1 – PRESENTATION OF FINANCIAL INFORMATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included. The results of operations for the three and six months ended June 30, 2016 and 2015 are not necessarily indicative of the results that may be expected for an entire year or any other period.

On June 30, 2016, Kit Carson Electric Cooperative, Inc. (“KCEC”) withdrew from membership in us pursuant to the Membership Withdrawal Agreement (“Withdrawal Agreement”). The Withdrawal Agreement provided for the termination of the wholesale electric service contract between us and KCEC that extended through 2040 and the withdrawal of KCEC from membership in us. As part of the Withdrawal Agreement, we received $37 million net cash, which consists of $49.5 million as an early termination fee for withdrawing from membership in us offset by $12.5 million for the retirement of KCEC’s patronage capital. This resulted in $47.6 million in other income, which was deferred by our Board of Directors (“Board”) and is recorded in deferred credits and other liabilities on the statement of financial position. For each of the three most recent fiscal years and the six months ended June 30, 2016, KCEC constituted an average of approximately 2 percent of our revenue from our member distribution system (“Member”) sales.

Basis of Consolidation

Our consolidated financial statements include the accounts of Tri-State Generation and Transmission Association, Inc., our wholly-owned and majority-owned subsidiaries and certain variable interest entities for which we or our subsidiaries are the primary beneficiaries. See Note 11 – Variable Interest Entities. Our consolidated financial statements also include our undivided interests in jointly owned facilities. All significant intercompany balances and transactions have been eliminated in consolidation.

Jointly Owned Facilities

We own undivided interests in three jointly owned generation facilities that are operated by the operating agent of each facility under joint facility ownership agreements with other utilities as tenants in common. These projects include the Yampa Project (operated by us), the Missouri Basin Power Project (“MBPP”) (operated by Basin Electric Power Cooperative (“Basin”)) and the San Juan Project (operated by Public Service Company of New Mexico). Each participant in these agreements receives a portion of the total output of the generation facilities, which approximates its percentage ownership. Each participant provides its own financing for its share of each facility and accounts for its share of the cost of each facility. The operating agent for each of these projects allocates the fuel and operating expenses to each participant based upon its share of the use of the facility. Therefore, our share of the plant asset cost, interest, depreciation and operating expenses is included in our consolidated financial statements.

Our share in each jointly owned facility is as follows as of June 30, 2016 (dollars in thousands):


			Electric				Construction
	Tri-State		Plant in		Accumulated		Work In
	Share		Service		Depreciation		Progress
Yampa Project - Craig Station Units 1 and 2	24.00	%	$	345,071	$	230,002	$	30,202
MBPP - Laramie River Station	24.13	%		394,964		291,120		14,306
San Juan Project – San Juan Unit 3	8.20	%		82,692		66,665		—
Total			$	822,727	$	587,787	$	44,508