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, 2017 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. Our consolidated financial position as of June 30, 2018, results of operations for the three and six months ended June 30, 2018 and 2017, and cash flows for the six months ended June 30, 2018 and 2017 are not necessarily indicative of the results that may be expected for an entire year or any other period.

Basis of Consolidation

Our consolidated financial statements include the accounts of Tri-State Generation and Transmission Association, Inc. (“Tri-State”, “we”, “our”, “us” or “the Association”), our wholly-owned and majority-owned subsidiaries, and certain variable interest entities for which we or our subsidiaries are the primary beneficiaries. See Note 16 – 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 two 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) and the Missouri Basin Power Project (“MBPP”) (operated by Basin Electric Power Cooperative (“Basin”)). Our ownership in the San Juan Project terminated December 31, 2017. 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 other operating expenses is included in our consolidated financial statements.

Our share in each jointly owned facility is as follows as of June 30, 2018 (dollars in thousands):


			Electric				Construction
	Tri-State		Plant in		Accumulated		Work In
	Share		Service		Depreciation		Progress
Yampa Project - Craig Generating Station Units 1 and 2	24.00	%	$	397,697	$	242,036	$	4,134
MBPP - Laramie River Station	24.13	%		413,318		295,459		36,877
Total			$	811,015	$	537,495	$	41,011

Reclassifications

Certain reclassifications have been made to our prior year financial statements to conform to the 2018 presentation.

Accounting Pronouncements-Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“Topic 842”). Topic 842 supersedes the lease recognition requirements in Accounting Standards Codification (“ASC”) 840, Leases. Under Topic 842, a lessee is required to recognize lease assets (right-of-use assets) and lease liabilities on the balance sheet for most leases and provide enhanced qualitative and quantitative disclosures. The right-of-use asset represents a lessee’s right to use (control the use of) the underlying asset for the lease term. The lease liability represents a lessee’s obligation to make lease payments. The right-of-use asset and the lease liability are initially measured at the present value of the lease payments over the lease term. For finance leases, the lessee subsequently recognizes interest expense and amortization of the right-of-use asset, similar to accounting for capital leases under Topic 840. For operating leases, the lessee subsequently recognizes straight-line lease expense over the life of the lease, similar to accounting for operating leases under Topic 840. Lessor accounting remains substantially the same as that applied under Topic 840. Topic 842 includes an accounting policy election by class of underlying asset to exclude short-term leases. A short-term lease is defined as a lease that, at commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. This amendment is required to be applied using a modified retrospective transition method with the option to elect a package of practical expedients which includes not being required to reassess expired or existing contracts that were assessed under Topic 840, the lease classification for any expired or existing leases that were assessed under Topic 840, and accounting for the initial direct costs for any existing leases. We are currently evaluating the impact of Topic 842 on our consolidated financial statements. We have established a lease project working group and have selected a lease software solution. We are identifying and reviewing our leases, performing a completeness assessment of the lease population, and analyzing the Topic 842 practical expedients. We plan to adopt ASU 2016-02 beginning in the first quarter of 2019 and anticipate that the adoption of the amendment may have a significant impact on our consolidated statements of financial position as applicable leases will be recognized as right-of-use assets and lease obligations.

In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842)-Land Easement Practical Expedient for Transition to Topic 842. This amendment permits an entity to elect an optional transition practical expedient to not evaluate, under Topic 842, land easements that exist or that expired before the entity’s adoption of Topic 842. Once an entity adopts Topic 842, the new guidance should be applied prospectively to all new (or modified) land easements to determine whether the arrangement should be accounted for as a lease. We expect to adopt this optional transition practical expedient upon adoption of ASU 2016-02.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. This amendment provides entities with an additional (and optional) transition method to adopt Topic 842. Under this new transition method, an entity recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. An entity’s reporting for the comparative periods presented in the financial statements in which it adopts Topic 842 will continue to be in accordance with current GAAP (Topic 840, Leases). This amendment also provides lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component if certain conditions are met. Both the optional transition method and lessor practical expedient are effective upon the same adoption date of Topic 842. We are currently evaluating the impact of ASU 2018-11 on our consolidated financial statements.