LIC-06-0043, 2005 Annual Financial Report for Fort Calhoun

2005 Annual Financial Report for Fort Calhoun

ML061030142
Person / Time
Site:	Fort Calhoun
Issue date:	04/07/2006
From:	Mcmanis J Omaha Public Power District
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
LIC-06-0043
Download: ML061030142 (49)

Text

- m *O Omaha Public Power Dil.rict 444 South 16th Street Mall Omaha NE 68102-2247 April 7, 2006 LIC-06-0043 U. S. Nuclear Regulatory Commission ATTN.: Document Control Desk Washington, DC 20555

Reference:

Docket No. 50-285

SUBJECT:

2005 Annual Financial Report In accordance with 10 CFR 50.71 (b), enclosed please find one copy of the Omaha Public Power District's (OPPD) 2005 Annual Report.

If you should have any questions, please contact Tom Matthews at (402) 533-6938. No commitments are made to the NRC in this letter.

S erely,

/J. ~cManis ager - Nuclear Licensing JLM/mle

Enclosure:

OPPD Annual Report.

e: 13. S. Mallett, NRC Regional Administrator, Region IV A. B. Wang, NRC Project Manager J. D. Hanna, NRC Senior Resident Inspector Emploment ith qual pportnity417 Employment ivithEqualOpportunity 4171

F.

2005 ANNUAL REPORT RE FLEC T IONS

2005 Highlights

• Achieved record off-system sales revenue of $120 million Operating revenues: $666.6 million

• Met record summer peak demand of 2,223.3 megawatts Energy sales: 12,059,584 megawatt-hours (MW) on July 22 and winter peak demand of 1,518.3 MW on December 7 Average number of customers: 323,147

• Established the Periodically Issued Bonds (PIBS) Program Average residential cost: 7.08 cents per kilowatt-hour to provide OPPD with added flexibility in financing capital costs to more closely match cash flow needs; completed two PIBS issues that provided $50 million

• For the fifth consecutive year, received the J.D. Power and Associates award for highest customer satisfaction with residential electric service

• Developed a degree program, in cooperation with Metropolitan Community College, to train a new generation of power line workers

• On seven occasions, sent crews to help other utilities rebuild after natural disasters, including massive efforts following Hurricane Katrina and a major blizzard in South Dakota

• Received $969,000 in income from products and services

• Returned $15 million in low-level radioactive waste settlement funds received from the state of Nebraska to customers

• Installed new energy management and digital radio systems to improve system reliability and communications, respectively

• For the 15th consecutive year, received no civil penalties resulting from environmental violations OPPD broke grou nd in 2005 tor Nebraska City Station Unit 2, a al-firedplant, scheduled to come online in 2009.

• Received the "business-of-the-year" award 663-megawatt co from the Sarpy County Chamber of Commerce

• For the fifth straight year, achieved Tree Line USA recognition

• Received the 2005 National Arbor Day Foundation Project Award

Thank you for your interest in Omaha Public Power District's annual report. The purpose of this document is to provide you with financial and operational information. You will find the informa :ion accurate, thoughtful and thorough.

Since numbers alone can't communicate our company's unique character, we have attempted to do so using this year's theme, Reflections.

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Service Area Map ................................. 2 Chairman and CEO Message ................................. 3 Board of Directors .................................. 4 Senior Management ................................. 5 Operations Review ................................. 6 Management's Discussion and Analysis .................................. 14 Report of Management ................................. 26 Independent Auditors' Report ................................. 27 Balance Sieets .................................. 28 Statements of Revenues, Expenses and Changes in Equity ................................. 30 Statements of Cash Flows ................................. 31 Notes to Financial Statements .................................. 32 Statistics ....................... 44 Investor Relations and Corporate Officers .......................... 45 For the fifth year in a row, OPPD has received an award for Highest Customer Satisfaction With Residential Electric Service.

.D. Power and Associates 2001-2005 Electric Utility Residential Customer Satisfaction Studies.5' 2005 study based on a totil of 26,782 consurner responses. Tihe top di -

23 mnedium electric companies were ranked in tile study.

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Service Area Map North Om Sttin

/ Coal & natural-gas plant, 663 megawatts v"JoSttStation Oil plant, 118 megawatts Sapx Couity Staton Oil & natural-gas plant, 314 megawatts OPPD is a publicly owned, business-managed electric utility that serves more customers than any other electric utility in Nebraska.

Three baseload power plants - North Omaha and Nebraska City Station, both coal-fired, and Fort Calhoun Nuclear Station - provide the majority of the power used by the 725,000 people in OPPD's 5,000-square-mile service territory in eastern Nebraska.

OPPD's baseload plants are augmented by three peaking plants and two renewable energy facilities, a landfill-gas plant and a wind turbine facility. A new 663-megawatt coal-fired plant, Nebraska City Station Unit 2, is expected to begin operation in 2009.

2 2005 OPPD Annual Report

Chairman and CEO Message_

As leaders of OPPD's board and senior management team, we share ultimate accountability for OPPD's actions. We, along with OPPD's other senior officers, are proud that those actions reflect our personal values, as well as the best interests of our customer-owners.

OPPD's actions are founded on six core values: Accountability, Excellence, Commitment to Customers, Teamwork, Family Orientation and, most importantly, Safety.

Accountability is at the core of this annual report. Our company's continued strong financial position, anchored by electric rates more than 20 percent below the national average and bond ratings of AA from Standard &Poor's and Aa2 from Moody's, provides proof that W Gary Gates and Del D. Weber OPPD is accountable to those who rely on us for service and investment.

Several years ago, when company leaders anticipated the growth needs of our customers, they developed a plan to meet that demand through the construction of a 663-megawatt coal-fired plant, Nebraska City Station Unit 2, and the retooling of our nuclear facility, Fort Calhoun Station. Both capital-intensive projects were well under way in 2005. When they are completed, OPPD will be prepared to power the future, positioned on the same solid financial foundation as when ground was broken.

In 2005, many positive actions and results reflected OPPD's commitment to safety. OPPD's lost-time incidents decreased, contfnuing a two-year trend. Of particular note is the record set in Transmission & Distribution Operations and Production Operations: a year of rigorous, demanding, oftentimes dangerous work completed without a single lost-time incident.

Safety-related enhancements included the addition of potentially lifesaving automated external defibrillators in all crew leader trucks and major employee centers, and the addition of a full-time wellness specialist. OPPD's quest for wellness creates a healthier workforce and, by helping to rein in rising healthcare costs, a healthier bottom line.

One way OPPID honored its responsibility to the environment in 2005 was to invest with other Nebraska utilities in constructing the state's largest wind-generation facility, a 31-turbine wind farm capable of providing 60 megawatts of environmentally friendly power.

We invite you to read on and learn about other exciting projects that reflect OPPD's commitment to the people and communities it serves. Among them are Power Drive, a dynamic electric-vehicle program for high school and college students, and the Habitat for Humanity project, which combined Habitat's expertise in low-cost housing with OPPD's expertise in energy-efficiency. When many hands work together to improve the lives of others, it isinspiring.

Reflecting on the year past, we are grateful for our many opportunities. Reflecting on the challenges ahead, we are confident in our abilities and focused always on improvement.

XWGkary.Gates Del D. Weber

&resideiitd Fhief Executive Officer, ' ,,

Board of Directors The Board of Directors helped break ground on Nebraska City Station Unit 2 in September. The 663-megaiiattcoal-fired plant is scheduled to go online in2009. From the left: Geoffrey C.Hall, Frederick1.Ulrich, Anne L.McGuire, Michael 1.Cavanaugl, John R. Thompson, IMP. Dodge Jr., John K.Green and Del D. lWeber.

Del D.Weber Michael J. Cavanaugh Chairman of the Board Board Member President, Omaha Community Foundation; Police Lieutenant, City of Omaha (Retired);

Chancellor Emeritus, University of Nebraska at Omaha Real Estate Investor - Manager Frederick J. Ulrich Geoffrey C.Hall Vice Chairman of the Board Board Member Attorney at Law N.P. DodgeJr.

Secretary Anne L.McGuire President, N.P. Dodge Company Board Member Nurse Educator John K.Green Treasurer John R.Thompson Attorney at Law Board Member Land Developer 4 2005 OPPD Annual Report

Senior Management Visible belainaoPPD'ssenior management team is Fortcalloiin Mation, tile utility's niclearpower station, which is uidergoing a inajor upgrade that will allow the prodiuction of power throuigh 2033. From the left: Roger L.Sorenson, Ross T.Ridenotire, AdrianJ. Minks, IV Gary Gates, Dale F.Widoe, CharlesP.Moriarty and Tinothy J.Buirke.

IV. Gary Gates Ross T. Ridenoure President, Vice President Chief Executive Officer Roger L. Sorenson Charles 1'. Moriarty Vice President Vice President, Chief Finzncial Officer Dale F. Widoc Vice President Timothy J. Burke Vice President Adrian J. Minks Vice President 2005 OPPD Annual Report 5

Operations Review P roviding low-cost, reliable power to more than 320,000 customers? That's our business. Providing a positive, engaging activity for one teenager? Now that's a challenge.

Twelve Nebraska high schools signed on to participate in Power Drive when OPPD began the program in 1999. In the seven years since, hundreds of students have dedicated thousands of hours to the electric-vehicle program. It spans three states, includes collegiate participants and nearly 100 vehicles, and has become a year-round, premier educational outreach program.

Power Drive is fueled by a simple concept: challenge students to design and build the best electric vehicle possible, educating them at every turn along the way. Friendships have been forged; careers in engineering and the A

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technology trades have been nurtured; company and community have become one.

In 2005, the Power Drive championships made a stylish move to Qwest Center Omaha, a sparkling new convention and entertainment complex and a jewel in the crown of Omaha's riverfront development. The championships capped a season that included seven other rallies throughout the state.

Volunteers, many of whom are OPPD employees and retirees, donate countless hours to make sure the rallies run smoothly. They, along with volunteers from co-sponsor Nebraska Public Power District and other civic and community groups, make Power Drive an overwhelming success.

OPPD employees Don and Linda Hutchens have a special connection to the program. Their son, Grant, parlayed his [Power Drive participation, college education, now pours his youthful and love for cars into a career in professional racing. GrantIle I maki!~~In I I ~

energy, knowledge and experience io making Mot rsports tops in NASCAR.

Skills perfected.

Excellence reflect d.

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usinesses thirst for it. Businesses dedicate tremendous resources to secure it.

Businesses thrive or may even die because of it. It is the ability to forecast effectively.

OPPD effectively projects and meets growing energy demand using a combination of cutting-edge forecasting tools, old-fashioned hard work, and keen insight based on close customer relationships. We believe foresight, not just hindsight, is 20/20.

Accordingly, 2005 concluded with two massive projects on track to meet the expanding needs of our flourishing service territory: major system replacements and upgrades for OPPD's nuclear plant, Fort Calhoun Station, and construction of a 663-megawatt coal-fired plant, Nebraska City Station Unit 2. A new 50-mile 345-kilovolt transmission line will run from this new plant to Lincoln.

Fort Calhoun Station's replacements and upgrades, once completed, will prepare the facility to produce emission-free power through 2033.

Nebraska City Station Unit 2, built alongside Unit 1 for efficiency and economic advantages, will use state-of- Division ManagerSherrye Hutclherson leads a customer sol ittionis meeting the-art multi-pollution ivith, from the left, ElliottSpilker, Stacey Gasson, Satn Hatfdy, Tony Walde controls when it comes and Jin Wang.

online in 2009. The power At left, Gallup University, home to the world-renown Galh,ip it produces will be shared. Organization, reflects a commitment to energy efficiency. C)PPI) works

• wwith commercial and industrial customers to ensure they nnake tihe best OPPD will use half of the ouse of their energy dollars.

energy, while the remaining output will be used by seven other public power entities participating in the project.

This approach provides economies of scale and lowers investment risk. Plus it promotes future cooperative solutions while helping the entire region respond effectively to rising energy demands.

Growth directed.

Planning reflected.

2005 OPPD Annual Report 9

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r ha k; zfvr7-Duoth Khor looked into the eyes of his wife and children and saw fear. Fear of war that wracked their native country. Fear of life without hope. Or, fear of no life at all.

Seven years ago, Duoth and his family fled the strife and bloodshed of Sudan for the city of Omaha, in the land of hopes and dreams. They could not have imagined the army of organizations and individuals who would come together to make their American dream a reality.

In 2005, when members of Habitat for Humanity and employees of OPPD pondered _

the possibility of combining their respective expertise -

low-cost housing and energy- _

efficiency - a great idea formed.

Plans for constructing the first "super-efficient" Habitat house progressed rapidly under the direction of OPPDi Project Engineer Ed Thiele.

Philanthropic businesses * ~

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added their support. More e. - ;i,&..-

than 100 OPPD employees The Khor fanily is realizing the American dream, thanks tcTHabitatfor volunteered their time. Ideas Hmnnnity and OPPD employees who have built the homne.

became blueprints, then At left the 26-acre OPPDArboretutm provides beauty year-1-oundand serves as an outdoor classroom for this Girl Scout troop and others I.

foundations and walls.

The walls, constructed with dense polystyrene forms that interlock and are filled with concrete, provide superior insulating value and stability. Other 'super" features include a radon control system, energy recovery ventilator, argon gas-filled double-pane windows, sealed ductwork, and a high-efficiency heat pump and water heater.

The net result: a safe living space in which energy consumption will be reduced by 50 percent.

Garry Ruliffson, OPPD's Energy Advisor who helped design the home, describes the airtight recovery ventilator as its pair of lungs. Soon, the thumping of children's feet as they run through halls and play in peace will provide its heartbeat.

Lives affected.

Teamivork reflected.

2005 OPPD Annual Report 13

Management's Discussion and Analysis OVERVIEW OPPD isa fully integrated electric utility serving a 5,000-square-mile, 13-county region in eastern Nebraska. All corporate powers of OPPD are vested in a Board of Directors consisting of eight members representing specific areas of the service territory. OPPD generates revenues from a mix of retail sales, off-system sales, products and other services. The economy of the service territory is expanding, and deregulation in Nebraska does not appear to be imminent at this time. Corporate headquarters islocated in Omaha, Nebraska, with generating plants, service centers and customer service offices strategically located throughout the service territory.

As a public power organization, OPPD is committed to serving its customer-owners and sets high standards for excellence in everything it does. OPPD is diligent in the stewardship of its assets and resources through wise and conservative operations and prudent financial management. OPPD isa high-performance organization and strives to exceed customer expectations for reliability, service and cost.

OPPD is making major capital investments to meet the growing demands of its customer-owners and exceed expectations for reliability and quality customer service. Construction is progressing well on Nebraska City Station Unit 2,a 663-megawatt (MW) coal station, and work continues on the life-extension capital projects planned for 2006 at the Fort Calhoun Station. OPPD is also making significant capital investments in transmission and distribution assets to support the additional power supply and OPPD's expanding customer base. The 2006 construction budget is a record $538,324,000.

OPPD has thoroughly evaluated its options for maintaining liquidity during this period of high capital spending and has a comprehensive financial plan for meeting its increased cash requirements. The objective of this plan is to identify the optimal mix of rate increases and debt issuances to minimize the financial impact on OPPD's customer-owners. In addition, OPPD partnered with other Nebraska utilities in supporting legislation in the State of Nebraska which will allow public entities to issue bonds for mandated projects at lower rates and debt service coverage requirements, thereby minimizing the financial impact on customer-owners. This legislation passed in the 2006 session.

Consistent with the expectations of OPPD's management and its customer-owners, rates are well below the national average.

Atwo-part increase in the basic service charges and associated monthly minimum charges was implemented on July 1,2005 and January 1,2006, to better align those charges with customer-related costs. These increases were small both in absolute terms and relative to general inflation in the economy. OPPD implemented a general rate increase of 3.1% on January 1, 2004. Prior to that, its most recent rate increase was a 3.7% increase in 1992. Arate increase is proposed for 2006 and for each of the next two years to meet OPPD's financial obligations due to major construction expenditures.

Off-system sales continue to positively impact OPPD's financial results. Off-system sales revenues were 18.0% and 17.6% of total operating revenues (before adjustments to revenues for reserves) for 2005 and 2004, respectively. Until additional generation is available from Nebraska City Station Unit 2,the favorable financial impact from off-system sales is expected to decrease slightly because less generation will be available for off-system sales due to increasing energy demands of customer-owners and planned production outages at the Fort Calhoun and Nebraska City Stations.

Inthe first half of 2005, extended outages at the Nebraska City and Fort Calhoun Stations adversely impacted earnings with lower than expected off-system sales revenues and higher than expected operations and maintenance expenses, including additional purchased power expenses of approximately $12,400,000. InJune, $12,400,000 of the Rate Stabilization Reserve was used to offset this additional expense. As a result of strong retail and off-system sales in the latter half of 2005, this reserve was replenished in December 2005.

In 2005, OPPD received a reimbursement from the Central Interstate Low-Level Radioactive Waste Commission of

$15,468,000 as its share of a judgment against the State of Nebraska. These proceeds were returned to OPPD's customer-owners. Accordingly, there was no impact on earnings from this settlement.

Financial governance policies and procedures have been implemented at OPPD to comply with the spirit of the Sarbanes-Oxley Act to ensure continued public trust in OPPD and to protect the interests of all of its stakeholders. As a public utility, OPPD is not required to comply with the Act, but the application of these requirements is a sound business practice and has been pursued where applicable.

On January 12, 2006, Charles P.Moriarty was named Vice President and Chief Financial Officer. He has 39 years of experience at OPPD and brings a wealth of knowledge to the position. He has been instrumental in building and maintaining OPPD's strong financial position and is prepared to guide OPPD to meet the financial challenges associated with this period of high capital spending.

14 2005 OPPD Annual Report

I Specific performance measures addressing safety, customer satisfaction, financial strength and cost containment continue to provide direction to align employees around a consistent, understandable vision. OPPD isa high-performance organization and these measures support its main thing of exceeding customer expectations. As "Your Energy Partner," OPPD works with its customer-owners to meet their energy needs reliably, affordably and enthusiastically.

The unaudited Management's Discussion and Analysis should be read in conjunction with the financial statements and related notes. This document contains forward-looking statements based on OPPD's current plans.

FINANCIAL POSITION AND RESULTS OF OPERATIONS The following summarizes OPPD's financial position at December 31 (inthousands).

Condiensed Balance Sheets 2005 2004 Current Assets $ 435,489 $ 312,704 Capital Assets 2,224,529 1,991,543 Other Long-Term Assets 460,813 393,808 Total Assets $3,120,831 $2,698,055 Current Liabilities $ 281,516 $ 195,019 Long-Term Liabilities 1,473,166 1,219,058 Total Liabilities 1,754,682 1,414,077 Equity 1,366,149 1,283,978 Total Liabilities and Equity $3,120,831 $2,698,055 The following summarizes OPPD's operating results for the years ended December 31 (inthousands).

OPeraingl Results 2005 204 2003 Operating Revenues $666,552 $566,315 $573,074 Operating Expenses 554,995 507,340 507,040 Operating Income 111,557 58,975 66,034 Other Income 21,313 10,995 5,230 Interest Expense 50,699 45,126 45,386 Net Income $82,171 $ 24,844 $ 25,878 Operating Revenues The following chart, left, illustrates the composition of OPPD's operating revenues (in millions) for the past three years. The following chart, right, illustrates the percentage share of revenues by customer class for 2005. Other electric revenues include proceeds from connection charges, customers' forfeited discounts, rent from electric property, transmission wheeling fees and miscellaneous revenues.

Operating Revenues Operating Revenues -2005

$800 Commercial Industrial

$600 29% __ 13%

$400 Street &Highway Lighting 2%

$200 1ff-System Residential 18%

I /nL 2005 2004 2003 Ju-/O Other liRetail Sales

• Off-System Sales

• Other Electric Revenues 2%

2005 OPPD Annual Report 15

2005 Compared to 2004 Total operating revenues were $666,552,000 for 2005, an increase of $100,237,000 or 17.7% over 2004 operating revenues of

$566,315,000.

• The increase in 2005 total operating revenues compared to 2004 was partly due to an addition in 2004 to the Debt Retirement Reserve of $55,000,000 which reduced operating revenues for 2004.

• Revenues from retail sales were $533,086,000 for 2005, an increase of $36,636,000 or 7.4% over 2004 revenues of

$496,450,000 (before adjustments to revenues for reserves). The gain in retail revenues was primarily due to increased energy sales from warmer weather in 2005 compared to 2004.

• Revenues from off-system sales were $120,030,000 for 2005, an increase of $10,507,000 or 9.6% over 2004 revenues of

$109,523,000. The increase in revenues was due to higher wholesale market prices.

• Other electric revenues were $13,436,000 for 2005, a decrease of $1,906,000 or 12.4% from 2004 revenues of

$15,342,000. The decrease was due mainly to the sale of a bankruptcy claim in 2004.

2004 Compared to 2003 Total operating revenues were $566,315,000 for 2004, a decrease of $6,759,000 or 1.2% from 2003 operating revenues of

$573,074,000.

• Operating revenues from retail sales were reduced for additions to the Debt Retirement Reserve of $55,000,000 and

$35,000,000 for 2004 and 2003, respectively. The decrease in 2004 total operating revenues was primarily due to the larger addition to the Debt Retirement Reserve.

• Prior to the reductions for the Debt Retirement Reserve, revenues from retail sales were $496,450,000 for 2004, an increase of $8,712,000 or 1.8% over 2003 revenues of $487,738,000. The increase in retail sales revenues was primarily due to the implementation of a 3.1% general rate increase on January 1,2004. The gain in revenues from the general rate increase was partially offset by a reduction in residential energy sales.

• Revenues from off-system sales were $109,523,000 for 2004, an increase of $728,000 or 0.7% over 2003 revenues of

$108,795,000. The increase in revenues was due mainly to higher wholesale market prices.

• Other electric revenues were $15,342,000 for 2004, an increase of $3,801,000 or 32.9% over 2003 revenues of

$11,541,000. The increase was due mainly to the sale of a bankruptcy claim.

Operating Expenses The following chart, left, illustrates the composition of OPPD's operating expenses (inmillions) for the past three years. The following chart, right, illustrates the percentage share of operating expenses by expense classification for 2005.

Operating Expenses Operating Expenses -2005 Customer &Sales

$600 Transmission & 6% Administrative &General Distribution  %

$400 Maintenance

$200 Fuel12 1_% Depreciation 31 IwF~ll l11 FF_16%

2005 2004 2003 Producti Payments in Lieu l Operations &

• Depreciation

• Payments in Lieu Purchased of Twa4xes Maintenance of Taxes 9%

2005 Compared to 2004 Total operating expenses were $554,995,000 for 2005, an increase of $47,655,000 or 9.4% over 2004 operating expenses of

$507,340,000.

• Fuel expense increased $12,896,000 over 2004 primarily due to a larger share of fossil generation to total generation in 2005, because of the extended outage at the nuclear station. Fossil fuel prices, especially natural gas prices, were higher than last year and were more than nuclear fuel. Generation from the gas turbines at the Sarpy County and Cass County Stations was 132.7% higher in 2005 than 2004.

16 2005 OPPD Annual Report

ePurchased power expense increased $23,621,000 over 2004 due mainly to higher energy prices and additional purchases during production outages.

eDistribution expense was $3,223,000 lower than in 2004 due to the allocation of more resources to capital projects.

• Administrative and general expense was $4,391,000 higher than in 2004 due to increased costs of employee benefits.

e Mair.tenance expense increased $7,561,000 over 2004 primarily due to higher maintenance costs at the Fort Calhoun and North Omaha Stations.

2004 Compared to 2003 Total operating expenses were $507,340,000 for 2004, a slight increase over 2003 operating expenses of $507,040,000.

• Fuel expense decreased $2,525,000 from 2003 primarily due to a larger share of nuclear generation to total generation in 2004, as nuclear fuel costs less than fossil fuels. Nuclear generation was lower in 2003 due to the production outage.

• Purchased power expense decreased $4,468,000 from 2003 due mainly to additional purchases required in 2003 for the production outage at the Fort Calhoun Station.

• Production expense increased $3,745,000 over last year mainly because of additional operation expenses related to the increased generation and costs incurred for production outages.

• Transmission expense was $2,536,000 lower than in 2003 due to the write-off in 2003 of deferred charges related to OPPD's participation in the formation of a for-profit transmission company and lower transmission wheeling fees as a result of the decrease in purchased power.

• Administrative and general expense was $6,323,000 higher than in 2003 primarily due to increased employer funding requ.rements for the retirement plan. Effective with the 2004 actuarial valuation, the investment return (discount rate) assumption was reduced from 8.5% to 8.4% and ad-hoc cost-of-living increases granted by the Board of Directors to retirees and beneficiaries are expensed in the year granted.

• Maintenance expense decreased $3,272,000 from 2003 primarily due to higher maintenance costs at the Fort Calhoun Station in 2003 related to the production outage and a reduction in expenditures for tree trimming resulting from favorable contract negotiations.

Other lncome Other income was $21,313,000 in 2005, an increase of $10,318,000 over 2004 other income of $10,995,000. In 2005, contributions in aid of construction and the related offsetting expense, reduction of plant costs recovered through contribul ions in aid of construction, were $30,533,000 higher than in 2004 primarily due to capital contributions from Nebraska City Station Unit 2 participants. Allowances for funds used for construction increased $7,638,000 primarily due to significant construction expenditures for Nebraska City Station Unit 2 and the Fort Calhoun Station. For the participants' share of Nebraska City Station Unit 2,allowances for funds used for construction were offset by interest expense, resulting in no impact on net income. Other income was $10,995,000 in 2004, an increase of $5,765,000 over 2003 other income of

$5,230,000. In 2003, costs of $6,225,000 related to the Fort Calhoun Station power uprate project were charged to expense because the project was cancelled due to revised load forecasts and the planned construction of the Nebraska City Station Unit 2.

OPPD offers a variety of products and services, which provide value both to the customer and OPPD. These offerings include products such as Performance Contracting, Energy Information Services, Residential and Commercial Surge Protection, Energy Solution! and Ground Source Heat Pumps. Offering these products and services isin line with OPPD's Strategic Plan and provides opportunities to build strong relationships with its customers by helping them efficiently meet their energy needs.

• Incone from products and services was $969,000 for 2005, a decrease of $43,000 from 2004 income of $1,012,000. This was primarily due to less revenues from sales of Energy Solutions products.

XInco ne from products and services was $1,012,000 for 2004, an increase of $578,000 over 2003 income of $434,000.

This was primarily due to greater revenues from sales of Energy Solutions products and marketing contract activities.

Interest Expense Interest expense was $50,699,000 for 2005, an increase of $5,573,000 or 12.3% over 2004 interest expense of $45,126,000.

This increase was due to higher interest rates for commercial paper, interest on bonds issued in 2005 for capital projects and interest accrued on construction deposits from Nebraska City Station Unit 2 participants. The interest expense accrued on the construc ion deposits was equivalent to the interest income earned on these funds, resulting in no impact on net income.

Interest expense was $45,126,000 for 2004, a slight decrease from 2003 interest expense of $45,386,000, due to a decrease in interest expense on revenue bonds as a result of the lower principal balance. This decrease was partially offset by an increase in interest expense for commercial paper.

2005 OPPD Annual Report 17

Net lIncome Net income, prior to revenue reductions for reserves, was $82,171,000, $79,844,000 and $60,878,000 for 2005, 2004 and 2003, respectively. Operating revenues and net income were reduced by $55,000,000 and $35,000,000 for additions made to the Debt Retirement Reserve in 2004 and 2003, respectively.

Number of Customers OPPD has a stable customer base, which continues to grow at a steady rate. The economy of OPPD's service territory is expanding, which isexpected to support continued growth of OPPD's customer base and increased load.

• OPPD served an average of 323,147 customers in 2005, an increase of 7,279 or 2.3% over the average number of customers for 2004 of 315,868.

• OPPD served an average of 315,868 customers in 2004, an increase of 6,153 or 2.0% over the average number of customers for 2003 of 309,715.

The following table shows the average number of customers by customer class.

Number of Customers 2005 2604 2003 Residential 282,310 275,854 270,579 Commercial 40,372 39,482 38,525 Industrial 133 135 127 Street and Highway Lighting' 293 352 436 Off-System 39 45 48 Total 323,147 315,868 309,715 Based on the number of accounts for these unmetered services. The reduction was due to a consolidation of accounts to facilitate customer billing and does not represent aloss of customers.

OPPD entered into agreements in 2005 with the Department of Defense to provide distribution services for Offutt Air Force Base and with America First Communities, LLC to provide privatized electric transmission and distribution services for the Offutt Air Force Military Housing area. These two agreements will further expand OPPD's customer base.

Cents per kWh OPPD issensitive to the rates it charges and strives to maximize the public power advantage of low-cost energy for its customers.

a Residential customers paid an average of 7.08, 6.95 and 6.73 cents per kWh in 2005, 2004 and 2003, respectively. The national average residential cents per kWh according to the Energy Information Administration, U.S. Department of Energy, was 9.44 for 2005 (preliminary year-to-date November 2005) and 8.97 and 8.70 cents per kWh for 2004 and 2003, respectively.

• Retail customers paid an average of 5.58, 5.48 and 5.39 cents per kWh in 2005, 2004 and 2003, respectively. The national average retail cents per kWh according to the Energy Information Administration, U.S. Department of Energy, was 8.08 for 2005 (preliminary year-to-date November 2005) and 7.62 and 7.42 cents per kWh for 2004 and 2003, respectively. The following charts show OPPD's average residential and retail cents per kWh compared to the national average.

Average Residential Cents per kWh Average Retail Cents per kWh 2005 2004 2003 2005 2004 2003 U OPPD National Average *OPPD 1National Average 18 2005 OPPD Annual Report

OPPD implemented a 1.7% overall rate increase in the form of a two-step increase to the basic service charges and associated monthly minimum charges effective July 1, 2005, and January 1, 2006. These increases were necessary to better align the rates with the cost of serving the customer. OPPD implemented a general rate increase of 3.1% on January 1,2004. These have been the only increases in rates since January 1992. Arate increase isproposed for 2006 and for each of the next two years due to major capital expenditures. Even with these increases, OPPD's rates continue to remain well below the national average.

CASH AND LIQUIDITY OPPD has a high degree of liquidity as a result of maintaining strong credit ratings, utilizing its Commercial Paper Program, executing additional credit agreements, implementing cost-containment programs and investing in projects that provide returns in excess of OPPD's cost of capital.

OPPD relies on bond offerings as a significant source of liquidity for capital requirements not provided for with cash from operations. OPPD's ability to obtain required capital at the lowest possible rates will be critical in executing its overall business plan to support the significant planned capital program expenditures.

Financing Afinancing plan has been developed to fund OPPD's capital program expenditures. This plan identifies the optimal debt mix to ensure liquidity needs are met and OPPD's strong financial position ismaintained at the lowest cost possible.

InJanuary 2005, OPPD executed a $350,000,000 Revolving Credit Agreement (RCA) with JPMorgan Chase Bank, N.A., as Agent. The RCA is a facility that allows for revolving loans during a five-year period from January 3, 2005, through December 31, 2009, which may be converted to term loans of up to three years. The facility allows OPPD to draw, as needed, subject to customary conditions, to support its capital program. Atotal of six banks (including three banks with offices in Omaha) are part of the facility. No amounts are currently outstanding under the RCA.

In February 2005, OPPD executed a one-year $100,000,000 Fixed Rate Promissory Note (Note) with JPMorgan Chase Bank, N.A., with an optional one-year renewal. The Note isan uncommitted line of credit that OPPD can access as needed to support its capital program. No amounts are currently outstanding under the Note. In February 2006, OPPD renewed the promissory note for another year.

InApril 2005, OPPD issued $200,000,000 of Electric System Revenue Bonds, which were sold at interest rates ranging from 3.1% to 5.0%. The proceeds from the sale of these bonds were used for the capital program and the defeasance of the District's outstanding 2002 Series AElectric System Revenue Bonds maturing in 2012, 2017 and 2022.

InJuly 2005, OPPD initiated a Periodically Issued Bonds (PIBS) program as an additional vehicle to finance capital improvements. The program authorizes Electric System Subordinated Revenue Bonds to be issued on aseries-by-series basis with a program maximum of $300,000,000. In October 2005, OPPD issued a total of $50,000,000 of Electric System Subordinated Revenue Bonds, $25,000,000 at a rate of 4.25% with a 2035 maturity and $25,000,000 at a rate of 4.5% with a 2041 maturity. In February 2006, OPPD issued another $25,000,000 at a rate of 4.375% with a 2040 maturity. InMarch 2006, OPPD will issue an additional $25,000,000 of Electric System Subordinated Revenue Bonds at a rate of 4.75% with a 2036 maturity.

In December 2005, OPPD issued $112,000,000 of NC2 Separate Electric System Revenue Bonds. The Separate Electric System isan undivided 50% interest in OPPD's new coal-fired unit, Nebraska City Station Unit 2, secured by revenues from Participation Agreements with seven public power and municipal utilities. In 2005, participants were given the choice to provide their own funds or finance their respective funding requirements for the year with separate system bonds issued by OPPD. Three participants chose to provide funds for the construction of Nebraska City Station Unit 2.The proceeds from the issuance of the Separate Electric System Revenue Bonds, together with funds provided by participants, will be used to pay the participants' portion of the construction costs of Nebraska City Station Unit 2.The bonds were issued at interest rates ranging from 3.55% to 5.0%.

OPPD's 2006 financing plan will support the capital improvement program with additional issues of Periodically Issued Bonds, Electric System Revenue Bonds and Separate Electric System Revenue Bonds.

2005 OPPD Annual Report 19

The following chart, left, illustrates OPPD's debt mix (inmillions) for the past three years. The following chart, right, illustrates OPPD's amount of Electric System Revenue Bond indebtedness (inmillions) and shows that OPPD has sufficient capacity to issue debt to fund the construction of the Nebraska City Station Unit 2 and the life-extension capital projects for the Fort Calhoun Station.

Debt Mix Electric System Revenue Bonds

$1,200 - - - -_Outstanding and Annual Debt Service

$1,000 $0

$800i al3

$8000

$600 $600

$4(0 $400

$200

$200 2005 2004 2003

• NC2 Separate Electric System Revenue Bonds

• Electric System Revenue Subordinated Bonds

• Electric Revenue Minibonds and Subordinated Obligation

• Electric Revenue Notes - Commercial Paper Series Electric System Revenue Bonds Ratings OPPD's excellent bond ratings allow it to borrow funds at low rates. Both quantitative (financial strength) and qualitative (business and operating characteristics) factors are considered by the bond-rating agencies in establishing a company's credit rating. The ratings received from Standard & Poor's Ratings Services (S&P) and Moody's Investors Service (Moody's),

independent bond-rating agencies for the latest Electric System Revenue Bond issue, were among the highest ratings given to public power districts and confirm the agencies' assessment of OPPD's strong ability to meet its debt service requirements.

The following ratings at December 31, 2005, are indicative of OPPD's solid financial strength.

Electric System Commercial Periodically NC2 Separate System Revenue Bonds Minibonds* Paper Issued Bonds* Bonds*

S&P AA AAA A-1+ AAA AAA Moody's Aa2 Aaa P-1 Aaa Aaa

• Payment of the principal and interest on the Minibonds, PeriodicallyIssued Bonds and NC2 SeparateSystem Bonds when due is insured by financial guaranty bond insurancepolicies.

Cash Flows OPPD experienced a net increase in cash of $28,163,000 for 2005, a net decrease in cash of $9,288,000 for 2004 and a net increase in cash of $24,531,000 for 2003. The following table illustrates the cash flows by activities for the years ended December 31 (inthousands).

cash Rows 2005 2004 2003 Cash Flows from Operating Activities $189,697 $227,038 $193,303 Cash Flows from Capital and Financing Activities (34,865) (257,402) (126,443)

Cash Flows from Investing Activities (126,669) 21,076 (42,329)

Increase (Decrease) in Cash and Cash Equivalents $ 28,163 $ (9,288) $ 24,531 Cash flows from operating activities consist of transactions involving changes in current assets, current liabilities and other transactions that affect operating income.

• Cash flows for 2005 decreased $37,341,000 from 2004 primarily due to an increase in cash payments for operating expenses for fuel, purchased power and maintenance expenses. The increase in cash payments for operating expenses was partially offset by increases in cash receipts from retail and off-system customers.

• Cash flows for 2004 increased $33,735,000 over 2003 primarily due to an increase in cash receipts for retail operating revenues and a decrease in cash payments for operating expenses. Cash payments for operating expenses were lower in 2004 than 2003 because of the production outage at the Fort Calhoun Station in 2003.

20 2005 OPPD Annual Report

Cash flows from capital and related financing activities consist of transactions involving long-term debt and the acquisition and construction of capital assets.

s Cash flows used for 2005 decreased $222,537,000 from 2004. The decrease was due to proceeds from the issuance of long-i:erm debt and CIAC received from certain Nebraska City Station Unit 2 participants. These additional cash flows were :partially offset by an increase in cash payments for debt retirement and the acquisition and construction of capital assets.

• Cash flows used for 2004 increased $130,959,000 over 2003. Most of this variance was due to $140,000,000 in proceeds from the issuance of revenue bonds in 2003. The remaining variance was due to fewer payments in 2004 for capital assets and nuclear fuel.

Cash flows from investing activities consist of transactions involving purchases and maturities of investment securities and interest ircome.

• Cash flows for 2005 decreased $147,745,000 from 2004 due to more purchases of investment securities in 2005.

a Cash flows for 2004 increased $63,405,000 over 2003 due to lower purchases of investment securities in 2004.

Debt Service Coverage OPPD is required by its covenants for Electric System Revenue Bonds to maintain a debt service coverage of 1.40 times. The following table reflects the calculation of debt service coverage, indicating OPPD's solid ability to make required debt service payments (inthousands).

Debt Service Coverage 2005 2004 2003 Operating revenuesl $666,552 $566,315 $573,074 Operations and maintenance expenses (447,270) (401,778) (404,040)

Payments in lieu of taxes (19,693) (18,591) (18,067)

Net operating revenues 199,589 145,946 150,967 Investment income of related reserve fund 1,110 1,093 1,049 Net receipts $200,699 $147,039 $152,016 .

To:al debt service 2 $ 91,021 $ 86,975 $ 78,839 Debt service coverage 2.20 1.69 1.92 --

Operatingrevenues ivere reduced by $55,000,000 and $35,000,000 for additions to the Debt Retirement Reserve for 2004 and 2003, respectively.

2 Total debt service for Resolution No. 1788 Bonds is accruedon a calendar-yearbasis similar to the computation of net receipts. Interest fiunded from bond proceeds, wheni applicable, isnot included in total debt service.

Debt RHatlo The debt :ratio is a measure of financial solvency and represents the share of OPPD's debt to its total capitalization (debt and equity). OPPD's debt ratio was 45.3% and 41.0%Zo as of December 31, 2005 and 2004, respectively. The 2005 debt ratio was higher than 2004 due to an increase in debt from additional issuances of bonds.

Retirerment Plan OPPD has a defined benefit Retirement Plan (Plan). Under this type of plan, the employee's benefit payments are calculated using a specific formula outlined in the Plan and are based on an employee's age, length of service and covered payroll.

To ensure funds will be available to pay future benefits, the pension actuary projects Plan assets and the liability for future

• benefits. The actuary uses this information to determine the current annual amount that must be contributed by employees and OPPD in order to meet projected Plan benefits. Aportion of this annual required contribution is paid by participating OPPD employees, who contribute 4.0% of their covered payroll to the Plan with the remaining portion paid by OPPD.

Prior to 2004, the Plan's funding policy was based on the Employee Retirement Income Security Act (ERISA) minimum contribution amount. The use of ERISA's funding policy can result in large annual differences in funding requirements; whereas, the use of a funding policy consistent with governmental accounting standards results in more stable annual funding requirements. OPPD's Plan is a governmental plan and isnot subject to the ERISA minimum funding requirements.

Effective January 1,2004, the funding policy was changed to follow governmental accounting standards rather than ERISA to reduce the volatility of annual pension contributions.

Actuarial assumptions are reviewed annually and changed, when appropriate. The investment return (discount rate) assumptions were 8.4% for 2005 and 2004 and 8.5% for 2003. The Plan's actuarial value of assets continues to exceed the present value of accrued plan benefits based on the 2005 valuation.

2005 OPPD Annual Report 21

OPPD contributed $25,934,000, $22,907,000 and $17,505,000 to the Plan in the years 2005, 2004 and 2003, respectively.

OPPD has budgeted $31,275,000 for employer Plan contributions in 2006. The net assets of the Plan available for benefits increased to $574,287,000 at December 31, 2005, from $549,264,000 at December 31, 2004, due to additional contributions and favorable market conditions.

Other Postemployment Benefits [OPEBI As allowed under current accounting standards, OPPD has been recognizing other postemployment benefit expenses on a pay-as-you go basis. In 2007, OPPD will be required to recognize other postemployment benefit expenses on an accrual basis. A preliminary actuarial valuation of OPPD's OPEB obligation has been completed. This change will result in additional expense and increased liabilities. OPPD is preparing a plan which will address these obligations while minimizing any adverse financial impact on customer-owners. OPPD will continue to pay the current year costs of other postemployment benefit expenses for retirees. However, as there isno need for cash outlays for OPEB expenses accrued in the current year for future years, some of the future years' expenses are planned to be deferred with the establishment of a regulatory asset. The regulatory asset will be amortized over five years. This delay in the recognition of OPEB expenses will postpone the need for additional rate increases or bond issuances to cover costs which will not be paid until subsequent years. OPPD is conducting a review of current employee benefits to identify opportunities to reduce these costs. OPPD will also implement a long-term funding strategy to address this obligation.

Risk Management Practices Negotiating power marketing and fuel purchase activities are within the normal course of OPPD's business. Risks associated with power marketing and fuel contracting transactions are identified, quantified and managed within a risk management control framework that isconsistent with OPPD's overall tolerance for risk. Fuel expense represents a significant portion of OPPD's generation costs and affects its ability to market competitively priced power. ARisk Management Committee is responsible for identifying, measuring and mitigating various risk exposures. Periodic reports are made to the Board of Directors regarding these activities. In addition, OPPD has an Enterprise Risk Management program to identify, quantify, prioritize and manage significant risks of the company.

OPPD competes in the wholesale marketplace with other electric utilities and power marketers for off-system sales. To successfully compete, OPPD must be able to offer energy at competitive prices and obtain transmission services. Energy market prices may fluctuate substantially in a short period of time due to changes in the demand and supply of electricity. Inthe energy trading and marketing business, it isanticipated that these operations will continue to experience competition. In addition, there are other risks, such as counterparty credit risks, which are monitored closely on an ongoing basis.

ADebt Retirement Reserve was voluntarily established in 2003 to help manage the long-term risks associated with the significant additional capital expenditures and related debt issuances planned in future years. OPPD will use this reserve to meet future challenges in retiring debt and maintaining adequate debt service coverage ratios. The latest addition to the reserve was for $55,000,000 in 2004. The reserve balance was $90,000,000 at December 31, 2005 and 2004.

ARate Stabilization Reserve was voluntarily established in 1999 to help OPPD maintain stable customer electric rates. This reserve isintended to minimize the impact on rates from significant unforeseen occurrences, such as major storm damage or the unscheduled outage of a major generating unit during a period of high replacement power costs. InJune 2005,

$12,400,000 of the Rate Stabilization Reserve was used to offset increased purchased power expenses that resulted from extended outages at the Nebraska City and Fort Calhoun Stations. As a result of strong operating results in the latter half of 2005, the reserve balance was restored to $32,000,000 in December 2005, which was the balance at December 31, 2004.

OPPD promotes solid, ethical business practices and the highest standards in the reporting and disclosure of financial information. The Sarbanes-Oxley Act (Act) isintended to strengthen corporate governance of publicly traded companies. One of the most significant requirements of the Act pertains to management's documentation and assessment of internal controls.

OPPD's management assesses internal controls for significant business processes that impact financial reporting. This assessment includes documenting procedures, risks and controls for these processes and assessing the effectiveness and operation of the internal controls. In addition, OPPD contracts with a third-party vendor to provide a process for the receipt and retention of employee concerns regarding accounting and auditing matters.

22 2005 OPPI) Annual Report

Other Reserves OPPD also maintains other reserves to recognize potential liabilities that arise in the normal course of business.

, The Uncollectible Accounts Reserve is established for estimated bad debts from both retail and off-system sales.

Accounts receivable isreported net of this reserve.

• The Workers' Compensation and Public Liability Reserves are established for the estimated liability for current workers' compensation and public liability cases.

• The Incurred but not Presented Reserve isan insurance reserve that is required by law because OPPD is self-insured for healthcare costs. The reserve isbased on health insurance claims that have been incurred but not yet presented for payment.

CAPITAL RESOURCES Generating Capability OPPD owns and operates eight generating stations, seven of which have a maximum summer net capability of 2,542.5 MW.

(The net capability of the Valley Station wind turbine is not accredited.) Additionally, OPPD has power purchase contracts with the City of Tecumseh for 6.6 MW (oil) and the Nebraska Public Power District for approximately 10 MW (wind).

OPPD's power requirements are provided from its generating stations and from purchases of power. The following table illustrates the diverse fuel mix and maximum summer net accredited capability (inMW) of OPPD's generating facilities.

Capabillty %of Total Coal Nebraska City Station 646.0 North Omaha Station 534.2 Subtotal Coal 1,180.2 46.4 Nuclear Fort Calhoun Station 478.0 18.8 Oul/Nalural Gas Cass County Station 320.0 Jones Street Station 118.4 North Omaha Station 128.6 Sarpy County Station 314.3 Subtotal Oil/Natural Gas 881.3 34.7 Other Elk City Station (landfill-gas) 3.0 0.1 Total 2,542.5 100.0 The following chart, left, illustrates OPPD's growing system peak load for the past three years, along with a projection for 2006 (inMW), indicating that these increasing loads can be met by current generating capability. The following chart, right, represents the diversity of OPPD's generating capability by fuel type (inMW).

Generating CapabilitY and system Peak Load Generating CapabilitY 2,600 2,500 3,000 2,400 2,500 2,300 2,000 2,200 1,500 2,100 1,000 2,000 500 1,900 2006 2005 2004 2003 2005 2004 2003

• Peak Load ii Generating Capability JeCoal *Nuclear 0Oil/Natural Gas 2005 OPPD Annual Report 23

Capital Program OPPD continually evaluates electric system requirements and makes long-range recommendations for capital expenditures necessary to serve the growing load requirements with a reliable and economical power supply. The following table shows OPPD's actual capital program expenditures for the last three years and projected expenditures for 2006 and 2007 (in millions). OPPD finances its capital program with revenues from operations, financing proceeds, investment income and cash on hand.

Prolected Actual Cauital Program 2007 2006 2005 2004 2003 Transmission and distribution plant $ 60.3 $ 59.5 $ 52.4 $ 50.8 $ 57.3 General plant 22.5 13.1 13.4 20.6 39.2 Production plant 41.6 39.9 27.4 32.6 38.0 Additional power supply 287.1 425.8 225.3 62.1 37.4 Total $411.5 $538.3 $318.5 $166.1 $171.9 Additional power supply expenditures include asecond coal-fired power plant at the Nebraska City Station site, the life-extension capital projects at the Fort Calhoun Station, and the expansion of the Elk City Station.

aOPPD iscontinuing progress toward the construction of Nebraska City Station Unit 2. Ground-breaking ceremonies were held in September, and the project ison schedule with construction scheduled to be completed by May 2009. The Nebraska City Station Unit 2 isexpected to have a net capacity of approximately 663 MW. OPPD plans to utilize half of the plant's capacity and has secured 40-year contracts with seven public power and municipal utilities for the remaining half. OPPD will own the entire plant and will build, operate and maintain the plant. The projected amounts above include 100% of the construction costs for Nebraska City Station Unit 2. Construction costs will be recovered from the participants for their portion of the plant's capacity. These participants are Falls City, Nebraska, Utilities; City of Grand Island, Nebraska, Utilities Department; City of Independence, Missouri, Power &Light Department; Missouri Joint Municipal Electric Utility Commission; Nebraska City, Nebraska, Utilities; Nebraska Public Power District; and Central Minnesota Municipal Power Agency.

• OPPD has continued work on several major modifications related to the life-extension capital projects for the Fort Calhoun Station, including the replacement of the steam generator and several related projects. The major work is planned to be completed in the production outage scheduled for the fall of 2006.

eThe Elk City Station landfill-gas facility expansion will increase the capacity to 6.4 MWV of power. Commercial operation is scheduled to begin in June 2006.

FACTORS AFFECTING OPPO AND THE ELECTRIC UTILITY INDUSTRY GENERALLY OPPD and the electric industry continue to be affected by a number of factors which could impact the competitiveness and financial condition of all electric utilities.

High-Level Nuclear Waste Repository Under the federal Nuclear Waste Disposal Act of 1982, the federal government assumed responsibility for the permanent disposal of spent nuclear fuel. The Department of Energy facility is not expected to be operational until at least 2012. OPPD remains responsible for the safe storage of spent nuclear fuel until the federal government takes delivery. In 1994, OPPD completed a re-rack project at the Fort Calhoun Station that was intended to provide spent-fuel storage to the 2006 refueling outage. Construction of a new dry-cask storage facility isplanned to be completed prior to the 2006 refueling outage and will provide adequate spent-fuel storage capacity for continued operation of the station to the year 2033.

Competitive Environment InNebraska During the 2000 session, the Nebraska Legislature enacted Legislative Bill 901 (L.B. 901), which implemented recommendations to determine whether retail competition would be beneficial for Nebraska ratepayers. L.B. 901 directs the preparation of an annual report for the Governor and Legislature which monitors the conditions in the electric industry that may indicate whether retail competition would be beneficial for Nebraska's citizens. These conditions are as follows:

• Whether aviable regional transmission organization and adequate transmission exist in Nebraska or in a region that includes Nebraska.

• Whether a viable wholesale electricity market exists in a region that includes Nebraska.

1. To what extent retail rates have been unbundled in Nebraska.

• Acomparison of Nebraska's wholesale electricity prices to the prices in the region.

• Any other information the Nebraska Power Review Board believes to be beneficial to the Governor, the Legislature and Nebraska's citizens when considering whether retail electric competition would be beneficial.

24 2005 OPPD Annual Report

The conditions have not been met based on the findings from the latest annual report published in October 2005. Six states have suspended or repealed retail choice since January 2001.

Transmilssion Access Issues In2005, OPPD signed a memorandum of understanding to join a Transmission Services Committee (TSC) to investigate options regarding the formation of a regional tariff. All transmission-owning members of the Mid-Continent Area Power Pool are participants inthe TSC, including MidAmerican Energy, Western Area Power Administration, Basin Electric, Nebraska Public Power Diitrict and Lincoln Electric System.

Environmental Issues OPPD ani other electric utilities are subject to numerous current and proposed environmental regulations inthe normal course of their business. OPPD continues to both monitor and influence - to the extent possible - the effects of proposed legislation and regulations, some of which could have a material financial effect on OPPD and most electric utilities.

Public Entitles Mandated Project Charges Act OPPD and other electric utilities are subject to numerous federal, state or regulatory mandates. The Public Entities Mandated Project Cl'arges Act authorizes public entities inthe State of Nebraska to finance mandated projects through the use of bonds secured by revenues from a separate customer charge. Debt service would be paid exclusively from the separate charge. The intent of the bill isto establish a structure that will secure the lowest cost financing for the public entity. This bill was passed by the Nebra.ska Legislature in 2006 and will go into effect inJuly 2006.

Critical Accounting Policies The preparation of financial statements inconformity with accounting principles generally accepted in the United States of i America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dale of the financial statements, the reported amounts of revenues and expenses during the reporting period and the disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates.

These judgments, in and of themselves, could materially impact the financial statements and disclosures based on varying . 1 assumptions, which may be appropriate to use. Inaddition, the financial and operating environment also may have a significant effect, not only on the operation of the business, but on the results reported through the application of accounting measures used inp eparing the financial statements and related disclosures, even ifthe nature of the accounting policies has not changed.

The following isa list of accounting policies that are significant to the portrayal of OPPD's financial condition and results of operation, and require management's most difficult, subjective or complex judgments. Each of these has a higher likelihood of resulting inmaterially different reported amounts under different conditions or using different assumptions.

AccounlJng Policies ludgments/Uncertaintles Affecting Application Regulatory Mechanisms and

• External regulatory requirements Cost Recovery - (SFAS No. 71)

• Anticipated future regulatory decisions and their impact Nuclear Plant Decommissioning *Costs of future decommissioning

• Availability of facilities for waste disposal

, Approved methods for waste disposal

• Useful life of nuclear power plant Environmental Issues eApproved methods for cleanup eGovernmental regulations and standards Retirement Plan # Changes due to assumptions used in computing the actuarial liability, including expected rate of return on Plan assets Reserves

• Economic conditions affecting customers

• Changes due to the assumptions used in computing the liabilities Unbilled Revenue # Estimates for customer energy use SUMMURY OF THE FINANCIAL STATEMENTS The financial statements, related notes and Management's Discussion and Analysis provide information regarding OPPD's financial position and activities. The Balance Sheets present OPPD's assets, liabilities and equity as of December 31, 2005 and 2004, wita current and long-term portions of assets and liabilities separately identified. The Statements of Revenues, Expenses and Charges in Equity present OPPD's operating results and changes inequity for the three years ended December 31, 2005.

The State:nents of Cash Flows provide information about the flow of cash within OPPD by activities for the three years ended December 31, 2005. The Notes to Financial Statements provide additional detailed information. The basic financial statements, notes, and Management's Discussion and Analysis are designed to provide a general overview of OPPD's finances. Questions concerning any of the information provided in this report should be directed to Investor Relations, 402-636-3286.

2005 OPPD Annual Report 25

Report of Management The management of OPPD isresponsible for the preparation of the following financial statements and for their integrity and objectivity. These financial statements conform to generally accepted accounting principles and, where required, include amounts which represent management's best judgments and estimates. The Company's management also prepared the other information inthis Annual Report and isresponsible for its accuracy and consistency with the financial statements.

To fulfill its responsibility, management maintains a strong internal control structure, supported by formal policies and procedures that are communicated throughout OPPD. Management also maintains a staff of internal auditors who evaluate the adequacy of and investigate the adherence to these controls, policies and procedures. OPPD is deeply committed to conducting business with integrity, in accordance with the highest ethical standards, and in compliance with all applicable laws, rules and regulations. OPPD has adopted a Code of Ethics for the Senior Executive and Financial Officers and the Controller, stating our responsibilities and standards for professional and ethical conduct.

Our independent public accountants have audited the financial statements and have rendered an unqualified opinion as to the statements' fairness of presentation, in all material respects, in conformity with generally accepted accounting principles. During the audit, they obtained an understanding of OPPD's internal control structure and performed tests and other procedures to the extent required by generally accepted auditing standards.

The Board of Directors pursues its oversight with respect to OPPD's financial statements through the Audit Committee, which iscomprised solely of non-management directors. The committee meets periodically with the independent public accountants, internal auditors and management to ensure that all are properly discharging their responsibilities. The committee approves the scope of the annual audit and reviews the recommendations the independent public accountants have for improving the internal control structure. The Board of Directors, on the recommendation of the Audit Committee, engages the independent public accountants who have unrestricted access to the Audit Committee.

4<l IV.Gary Gates Charles P.Moriarty ty President and Chief Executive Officer Vice President and Chief Financial Officer 26 2005 OPPD Annual Report

Independent Auditors' Report Board of Directors Omaha Public Power District We have audited the accompanying balance sheets of the Omaha Public Power District (OPPD) as of December 31, 2005 and 2004, and the related statements of revenues, expenses and changes in equity and of cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of OPPD's management. Our responsibility isto 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of OPPD's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes a j examining, on a test basis, evidence supporting the amounts and disclosures in the respective financial statements, 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. i17 Inour opinion, such financial statements present fairly, in all material respects, the financial position of the Omaha Public Power District as of December 31, 2005 and 2004, and results of its operations and its cash flows for each of the three years ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. -

The Management's Discussion and Analysis isnot a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. This supplementary information isthe responsibility of OPPD's management. We have applied certain limited procedures, which -

consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit such information and we do not express an opinion on it.

Inaccordance with GovernmentAuditing Standards, we have also issued our report dated March 16, 2006, on our consideration of OPPD's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report isto 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 )

isan integral part of an audit performed in accordance with Govenmnent Auditing Standards and should be considered in assessing the results of our audit.

/~

~~~ 4/d 4 ~A . --l DELOITTE &TOUCHE LLP Omaha, Nebraska March 16, 2006 2005 OPPD Annual Report 27

Balance Sheets as of December 31,2005 and 2004 ASSETS 2005 2004 (thousands)

UTILITY PLANT - at cost (Note 10)

Electric plant ..................... ...................... $3,633,937 $3,336,493 Less accumulated depreciation ........................................ 1,431,904 1,372,366 Electric plant -net ........................................... 2,202,033 1,964,127 Nuclear fuel - at amortized cost ...................................... 22,496 27,416 Total utility plant - net........................................... 2,224,529 1,991,543 SPECIAL PURPOSE FUNDS - primarily at fair value (Notes 3 and 4)

Electric system revenue bond fund -net of current portion ................. 34,641 31,435 Segregated fund -debt retirement ..................................... 90,000 35,000 Segregated fund -rate stabilization .................................... 19,600 32,000 Segregated fund - other.............................................. 25,850 21,241 Decommissioning funds ............................. ......... 254,744 249,299 NC2 separate electric system revenue bond fund -net of current portion ....... 14,520 Total special purpose funds ...................................... 439,355 368,975 CURRENT ASSETS Cash and cash equivalents (Note 4).................................... 56,223 28,060 Electric system revenue bond fund -current portion (Note 3)....... ........ 67,779 64,538 Electric system subordinated revenue bond fund (Note 3)........ .......... 451 Electric system construction fund (Note 3).............................. - 61,597 NC2 separate electric system revenue bond fund -current portion (Note 3)... 3,501 NC2 separate system construction fund (Note 3)...................... 127,068 Accounts receivable - net ........................................ 89,463 72,907 Fossil fuels -at average cost ........................................ 19,237 18,993 Materials and supplies -at average cost ....................... .......... 64,948 60,410 Other............................................................ 6,819 6,199 Total current assets................................................ 435,489 312,704 DEFERRED CHARGES (Note 5) ..................................... 21,458 24,833 TOTAL ........................................ $3,120,831 $2,698,055 See notes to fiancial statements 28 2005 OPPD Annual Report

LIABILITIES 2005 2004 (thousands)

LONG-TERM DEBT (Note 2)

Electric syslem revenue bonds -net of current portion .................... S 697,510 $ 623,210 Electric system subordinated revenue bonds ................................. 50,000 Electric revenue notes -commercial paper series.............................. 150,000 150,000 Electric revenue minibonds ............................................... 62,572 61,612 Subordinated obligation -net of currrent portion............................. 2,667 2,889 NC2 separal e electric system revenue bonds ................................. 112,000 Total............................................................... 1,074,749 837,711 Unamortized discounts and premiums ..................................... 6,076 1,440 Unamortized loss on refunded debt ........................................ (17,792) (16,923)

Total long-term debt - net............................................. 1,063,033 822,228 COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)

LIABILITIES PAYABLE FROM SEGREGATED FUNDS (Notes 3 and 9).... 145,105 140,558 CURRENT LLABILITIES Electric system revenue bonds -current portion (Note 2) ...................... 58,200 56,105

i. .14 Subordinated obligation -current portion (Note 2) ........................... 222 204 Accounts payable ....................................................... 97,945 64,588 Accrued payments in lieu of taxes ......................................... 18,638 17,579 Accrued interest ........................................................ 17,384 14,803 Accrued payroll ......................................................... 17,459 17,678 Accrued production outage costs .......................................... 6,978 17,416 Constructio;3 deposits (Note 12) ........................................... 55,656 .,..,I Other ................................................................. 9,034 6,646 Total cu:rent liabilities. ...................................... 281,516 195,019 OTHER LIABILITIES Decommissioning costs ............................................. 254,744 249,299 Other (Note 8) .................................................... 10,284 6,973 Total other liabilities ............................................ 265,028 256,272 I.. , II

.. I d EQUITY Invested in capital assets, net of related debt ............................ 1,226,700 1,206,038 Restricted ........................................................ 56,094 54,115 Unrestricted ...................................................... 83,355 23,825 Total equity.................................................... 1,366,149 1,283,978 TOTAL........................................................... $3,120,831 $2,698,055 2005 OPPD Annual Report 29

Statements of Revenues, Expenses and Changes inEquity for the Three Years Ended December 31,2005 2005 2004 2003 (thousands)

OPERATING REVENUES Retail sales (Note 13) ..................................... $ 533,086 $ 441,450 $ 452,738 Off-system sales .120,030 109,523 108,795 Other electric revenues .................................... 13,436 15,342 11,541 Total operating revenues .6 6 6 , 5 5 666,552 566,315 573,074 OPERATING EXPENSES Operations Fuel.98,760 85,864 88,389 Purchased power (Note 14) .5 2,9 0 52,904 29,283 33,751 Production.. ..................................... 91,230 91,496 87,751 Transmission...................................... 5,306 4,564 7,100 Distribution ...................................... 21,014 24,237 24,891 Customer accounts ..................................... 16,250 15,817 15,119 Customer service and information .1 6, 3 1 16,313 16,976 16,549 Administrative and general .7 8 , 4 5 78,452 74,061 67,738 Maintenance .67,041 59,480 62,752 Total operations and maintenance .447,270 401,778 404,040 Depreciation and amortization .88,032 86,971 84,933 Payments inlieu of taxes .................................. 19,693 18,591 18,067 Total operating expenses .554,995 50734O 507,040 OPERATING INCOME .111,557 58,975 66,034 OTHER INCOME (EXPENSES)

Contributions in aid of construction .42,539 12,006 8,161 Reduction of plant costs recovered through contributions in aid of construction .................................. (42,539) (12,006) . (8,161)

Interest income - all funds ................................ 17,703 15,768 - 15,366 Operating funds -net change infair value ......... .......... (422) (992) (957)

Decommissioning funds - net change infair value ............. (4,334) (2,083) - (437)

Decommissioning interest and change infair value transfer ..... (5,445) (8,766) (10,186)

Allowances for funds used ................................ 12,978 5,340 6,040 Products and services -net ................................ 969 1,012 434 Other - net (Note 15) .................................... (136) 716 (5,030)

Total other income -net .................. ........... 21,313 10,995 5,230 INTEREST EXPENSE ................................... 50,699 45,126 45,386 NET INCOME ..................................... 82,171 24,844 25,878 EQUITY, BEGINNING OF YEAR .............. ........... 1,283,978 1,259,134 1,233,256 EQUITY, END OF YEAR .............................. $..

1,366,149 $1,283,978 $1,259,134 See notes to financial statements 30 2005 OPPD Annual Report

Statements of Cashi Flows for the Three Years Ended December 31,2005 2005 2004 2003 (thousands)

CASH FLOWS FROM OPERATING ACTIVITIES Cash received from retail customers ............... ................. $537,172 $517,944 $504,626 Cash received from off-system customers ............ ................ 117,678 113,834 117,149 Cash paid to operations and maintenance suppliers .................... (277,954) (243,613) (262,665)

Cash paid to off-system suppliers ................................... (56,872) (37,975) (42,346)

Cash paid to employees .......................................... (111,692) (104,949) (105,088)

Cash paid for in lieu of taxes and other taxes ......................... (18,635) (18,203) (18,373)

Net cash provided from operating activities ........... ............... 189,697 227,038 193,303 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from long-term borrowings ................................ 362,000 140,000 Principal reduct on of long-term debt .............. ................. (127,424) (47,168) (44,590)

Interest paid on long-term debt .................................... (41,374) (37,481) (34,608)

Acquisition and construction of capital assets ......................... (223,775) (160,430) (170,681)

Acquisition of nuclear fuel ........................................ (4,292) (12,323) (16,564)

Net cash used for capital and related financing activities ....... ......... (34,865) (257,402) (126,443)

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of special purpose funds -investment securities ....... ........ (876,551) (418,764) (560,148)

Maturities and sales of special purpose funds -investment securities ...... 752,323 444,124 519,045 I Ji Net change in revenue bond funds - current .......................... (7,192) (7,578) (5,086)

Interest income on investments .................................... 4,751 3,294 3,860 Net cash provided from (used for) investing activities ....... ........... (126,669) 21,076 (42,329)

INCREASE (DECREASE) INCASH AND CASH EQUIVALENTS ....... 28,163 (9,288) 24,531 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ........... 28,060 37,348 12,817

-- 1 CASH AND CASH EQUIVALENTS, END OF YEAR ................. $ 56,223 $ 28,060 $ 37,348 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED FROM OPERATING ACTIVITIES

_3 Operating income. ...................................... $111,557 $ 58,975 $ 66,034 - 1 Adjustments to reconcile operating income to net cash provided from operating activities Depreciation and amortizaton ................................... 88,032 86,971 84,933 Amortization of nuclear fuel .................................... 9,245 13,300 11,582 Change in other liabilities ...................................... (1,664) 51,541 37,182 Other .. ................................................ 5,999 (1,992) 18,513 Changes in current assets and liabilities Accounts receivable ........................................... (16,556) 5 (9,421)

Fossil fuels .................................................. (244) (1,189) (4,001)

Materials ane. supplies ......................................... (4,538) (7,830) 430 Accounts payable. ...................................... 4,144 6,768 (1,342)

Accrued payments inlieu of taxes.................................... 1,059 389 (307)

Accrued payroll ................................................... (219) 1,509 1,516 Accrued production outage costs..................................... (10,438) 17,416 (7,146)

Other ........................................................... 3,320 1,175 (4,670)

Net cash provided from operating activities .......................... $189,697 $227,038 $193,303 See notes to financial statements 2005 OPPD Annual Report 31

Notes to Financial Statements for the Three Years Ended December 31,2005

1.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES Organization and Business - The Omaha Public Power District (OPPD), a political subdivision of the state of Nebraska, is a public utility engaged in the generation, transmission and distribution of electric power and energy and other related activities. The Board of Directors is authorized to establish rates. OPPD is generally not liable for federal and state income or ad valorem taxes on property; however, payments in lieu of taxes are made to various local governments.

Basis of Accounting - The financial statements of OPPD are presented in accordance with generally accepted accounting principles for proprietary funds of governmental entities. Accounting records are maintained generally in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (FERC) and all applicable pronouncements of the Governmental Accounting Standards Board (GASB). In accordance with GASB Statement No. 20, Accounting and FinancialReporting for ProprietaryFunds and Other Governmental Entities That Use ProprietaryFund Accounting, OPPD has elected not to follow the pronouncements of the Financial Accounting Standards Board (FASB) issued after November 30, 1989.

OPPD applies the accounting policies established in Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS No. 71). In general, SFAS No. 71 permits an entity with cost-based rates to include costs in a period other than the period in which the costs would be charged to expense by an unregulated entity if it is probable that these costs will be recovered through the rates charged to customers.

SFAS No. 71 also permits an entity to defer revenues by recognizing liabilities to cover future expenditures.

If,as a result of changes in regulation or competition, OPPD's ability to recover these assets and liabilities would not be assured, then pursuant to SFAS No. 101, Regulated Enterprises- Accounting for the Discontinluationof Application of SFAS No. 71 (SFAS No. 101) and SFAS No. 90, Regulated Enterprises-Accounting for Abandonmnents and Disallowvances of PlantCosts (SFAS No. 90), OPPD would be required to write off or write down such regulatory assets and liabilities, unless some form of transition cost recovery continues through established rates. In addition, OPPD would be required to determine any impairment to the carrying costs of deregulated plant and inventory assets.

Revenue Recognition - OPPD records electric operating revenues in the period of delivery. Meters are read and bills are rendered on a cycle basis. Revenues earned after meters are read are estimated and accrued as unbilled revenues at the end of each accounting period. Accounts receivable includes $24,795,000 and $24,166,000 in unbilled revenues as of December 31, 2005 and 2004, respectively.

OPPD acts as an agent in the buying and selling of power for other public power utilities through joint marketing agreements and receives an agreed-upon percentage share of the net profits from the energy marketed under these agreements. The profit from joint marketing activities is reported in off-system sales revenues, and purchased power expense includes only power purchased for OPPD's operations.

Cash and Cash Equivalents - OPPD considers highly liquid investments of the Revenue Fund purchased with an original maturity of three months or less to be cash equivalents.

Accounts Receivable - An estimate is made for the reserve for uncollectible accounts, based on an analysis of the aging of accounts receivable and historical write-offs net of recoveries, for retail customers. Additional amounts may be included based on the credit risks of significant parties. Included in the reserve is the greater of $5,000,000 or an estimate based on the previous year's accounts receivable for off-system sales customers. Accounts receivable was reported net of the reserve for uncollectible accounts of $5,476,000 and $5,565,000 as of December 31, 2005 and 2004, respectively.

Utility Plant - Utility plant is stated at cost, which includes property additions, replacements of units of property and betterments. Maintenance and replacement of minor items are charged to operating expenses. Costs of depreciable units of electric plant retired are eliminated from electric plant accounts by charges, less salvage plus removal expenses, to the accumulated depreciation account. Electric plant includes both tangible and intangible assets. Intangible assets include the costs of software and licenses.

32 2005 OPPD Annual Report

Electric plant includes construction work in progress of $442,110,000 and $230,745,000 as of December 31, 2005 and 2004, respectively. Electric plant activity for 2005 was as follows (in thousands):

2004 Additions Retirements 2005 Electric plant $3,336,493 $329,241 $(31,797) $3,633,937 Nuclear.: uel 60,861 4,677 (15,585) 49,953 Less accumulated depreciation and amortization 1,405,811 101,570 (48,020) 1,459,361 Total $1,991,543 $232,348 $ 638 $2,224,529 Allowanos for funds used, approximating OPPD's current weighted average cost of debt, are capitalized as a component of the cost of utility plant. These allowances were computed at 4.2%, 4.1% and 4.1% for both construction work in progress and nuclear fuel for the years ended December 31, 2005, 2004 and 2003, respectively. Allowances for funds used for construction for the participants' share of Nebraska City Station Unit 2 were offset by interest expense, resulting in no impact on net income.

Contributions in Aid of Construction (CIAC) - OPPD receives payments from customers for construction costs relating to the expansion of OPPD's electric system. OPPD follows FERC guidelines in the recording of CIAC, which directs the reduction of utility plant assets by the amount of contributions received toward the construction of utility plant. In order to comply with GASB Statement No. 33, Accounting and FinancialReporting for ANonexchiange Transactions, while continuing to follow FERC guidelines, CIAC is recorded as other income and offset by an expense in the same amount representing the recovery of plant costs. In 2005, $25,981,000 of CIAC was received from participants for the construction of Nebraska City Station Unit 2.

Depreciation and Amortization - Depreciation for most assets is computed on the straight-line basis at rates based on the estimated useful lives of the various classes of property. Depreciation expense has averaged j approximately 2.9% for the years ended December 31, 2005 and 2004, and 3.0% of depreciable property for the year ended December 31, 2003.

Amortization of nuclear fuel is based upon the cost thereof, which isprorated by fuel assembly in accordance with the thermal energy that each assembly produces.

Intangible assets are amortized over their expected useful life. Amortization of intangible assets included with J depreciation and amortization expense in the financial statements was $3,052,000, $3,015,000 and $2,496,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

In 2004, OPPD's Board of Directors approved a change in the depreciation estimate for Fort Calhoun production plant assets to 2:043, which is 10 years beyond the term of Fort Calhoun Station's current license. Aregulatory asset was established for the difference in depreciation expense resulting from the use of the estimated economic life of the asset versus the license term. The reduction in depreciation expense will be recorded each year as a regulatory asset in deferred charges until 2033. The regulatory asset will be reduced through the recognition of depreciation expense over the assets remaining economic life in the years 2034 through 2043. This regulatory asset was $9,048,000 and

$4,423,000 as of December 31, 2005 and 2004, respectively, and was recorded in deferred charges on the balance sheet.

Nuclear Fuel Disposal Costs - Permanent disposal of spent nuclear fuel is the responsibility of the Federal Government under an agreement entered into with the United States Department of Energy (DOE). Under the agreement, OPPD is subject to a fee of one mill per kilowatt-hour on net electricity generated and sold from the Fort Calhoun Station. The spent nuclear fuel disposal costs are included in OPPD's nuclear fuel amortization and are collected from customers as part of fuel costs. Nuclear fuel disposal costs were $2,791,000, $3,489,000 and $3,748,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

OPPD's contract required the Federal Government to begin accepting high-level nuclear waste by January 1998; however, the DOE's facility is not expected to be operational until at least 2012. In May 1998, the U.S. Court of Appeals confirmed the DOE's statutory obligation to accept spent fuel by 1998, but rejected the request that a move-fuel order be issued. In March 2001, OPPD along with a number of other utilities filed suit against the DOE in the United States Court of Federal Claims alleging breach of contract.

Construction of a new dry-cask storage facility isplanned to be completed prior to the 2006 refueling outage. This facility will provide adequate spent-fuel storage capacity for continued operation of the Fort Calhoun Station to the year 2033 2005 OPPD Annual Report 33

Notes to Financial Statements for the Three Years Ended December 31,2005 Nuclear Decommissioning - OPPD's Board of Directors has approved the collection of nuclear decommissioning costs based on an independent engineering study of the costs to decommission the Fort Calhoun Station. The decommissioning estimates, which exceed the Nuclear Regulatory Commission's (NRC) minimum funding requirements, totaled $519,884,000, $503,492,000 and $465,332,000 for the fiscal years ending June 30, 2006, 2005 and 2004, respectively. Based on cost estimates, inflation rates and fund earnings projections, no funding was necessary for decommissioning expense for each of the three years ended December 31, 2005.

Regulatory Assets and Liabilities - OPPD is regulated by Nebraska State Law and the NRC. As a result, OPPD is subject to the provisions of SEAS No. 71. Under this statement, regulatory assets are deferred expenses which are expected to be recovered through customer rates over some future period, and regulatory liabilities are reductions in earnings (or costs recovered) to cover future expenditures.

Regulatory assets, which are included in deferred charges (Note 5), consist of deferred depreciation expense for Fort Calhoun's production assets, deferred customer energy conservation costs and unamortized loss on extinguished debt. In 2004, OPPD's Board of Directors approved a change in the depreciation estimate for Fort Calhoun production plant assets to 2043, which is 10 years beyond the term of the current license. The balance of deferred depreciation expense was $9,048,000 and $4,423,000 as of December 31, 2005 and 2004, respectively. In 2003, OPPD's Board of Directors approved the write-off of deferred expenditures for customer energy conservation costs and unamortized loss on extinguished debt over a three-year period. These were both completely written off as of December 31, 2005. The balance of deferred expenditures for customer energy conservation costs and the balance of unamortized loss on extinguished debt, included in deferred financing costs, were $4,279,000 and $4,548,000 as of December 31, 2004, respectively.

Regulatory liabilities, which are primarily included in liabilities payable from segregated funds, consist of reserves for debt retirement, rate stabilization and uncollectible accounts from off-system sales. The Debt Retirement Reserve was established for the retirement of outstanding debt and to help maintain debt service coverage ratios at appropriate levels (Note 13). The Rate Stabilization Reserve was established to help maintain stability in OPPD's long-term rate structure (Notes 13 and 14). The reserve for uncollectible accounts from off-system sales, which is included as a reduction to accounts receivable, was established to recognize a loss contingency for bad debts from off-system sales customers. The balance of the Debt Retirement Reserve was $90,000,000 as of December 31, 2005 and 2004. The balance of the Rate Stabilization Reserve was $32,000,000 as of December 31, 2005 and 2004. The balance of the reserve for uncollectible accounts from off-system sales was $5,000,000 as of December 31, 2005 and 2004.

Accrued Production Outage Costs - For major planned production outages, estimated incremental operations and maintenance expenses of $5,000,000 or more are accrued prior to the outage. The Fort Calhoun Station had a major planned outage in 2005. The next major planned production outage is scheduled to begin in September 2006 at the Fort Calhoun Station. The balance of accrued production outage costs was $6,978,000 and $17,416,000 at December 31, 2005 and 2004, respectively.

Natural Gas Inventories and Contracts - Natural gas inventories are maintained for the Cass County Station, and the weighted average cost of natural gas consumed is used to expense natural gas from inventories. OPPD is exposed to market price fluctuations on its purchases of natural gas. To ensure financial protection on these purchases, OPPD enters into futures contracts and purchases options to manage the risk of volatility in the market price of gas on anticipated purchase transactions.

OPPD had natural gas futures contracts with the New York Mercantile Exchange (NYMEX) based on the notional amount of 300,000 mmBtu at December 31, 2005 and 2004. These contracts will mature in the months of June, July and August of 2006 through 2008. These contracts had an unrealized gain of $1,328,200 and an unrealized loss of $86,000 at December 31, 2005 and 2004, respectively. At December 31, 2004, OPPD also had purchased option contracts from Tenaska Marketing Ventures for $195,000. The option contracts were for the right, but not the 34 2005 OPPD Annual Report

obligation, to buy 300,000 mmBtu of natural gas (150,000 mmBtu per month) for July and August 2005. These options were exercised in 2005. As a result of hedging contracts and the exercise of options, there was an increase in fuel expense of $111,000 and a decrease in fuel expense of $670,000 for the years ended December 31, 2005 and 2004, respectively. In accordance with generally accepted accounting principles for proprietary funds of government entities, the futures contracts are not recorded on the balance sheet.

Equity - Equity isreported in three separate components on the Balance Sheets. Equity invested in capital assets, net of related debt, is the equity share attributable to net utility plant assets reduced by outstanding related debt.

Restricted equity represents net assets with usage restraints imposed by law or through debt covenants. Unrestricted equity represents net assets that are neither restricted nor invested in capital assets.

Fair Value of Financial Instruments - Unless otherwise specified, the carrying amount of financial instruments approximates their fair value.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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.

Recent Accounting Pronouncements - InJune 2004, GASB issued Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This statement requires the accounting for the annual cost of other postemployment benefits and the related outstanding liability using an actuarial approach similar to pensions. OPPD currently recognizes this expense on a pay-as-you-go basis and will implement this statement: in 2007. This accounting change will increase expense and result in an additional liability on the balance sheet.

InJune 2005, GASB issued Statement No. 47, Accounting for Termination Benefits. This statement establishes standards for the measurement, recognition and reporting of liabilities and expenses related to termination benefits. The statement iseffective for fiscal years beginning after June 15, 2005. This guidance isnot expected to have an impact on financial results.

Reclassifications - Certain amounts in the prior year's financial statements have been reclassified to conform to the 2005 presentation. These reclassifications had no effect on net income.

2. LONG-TERM DEBT OPPD utilizes the proceeds of debt issued primarily in financing its construction program. Long-term debt activity, including the current portion, for 2005 was as follows (inthousands):

2004 Additions Retirements 2005 Electric sy;tem revenue bonds $679,315 $200,000 $(123,605) $ 755,710 Electric system subordinated revenue bonds - 50,000 - 50,000 Electric revenue notes - commercial paper series 150,000 - - 150,000 Electric revenue minibonds 61,612 1,236 (276) 62,572 Subordinated obligation 3,093 - (204) 2,889 NC2 separate electric system revenue bonds - 112,000 - 112,000 Total $894,020 $363,236 $(124,085) $1,133,171 2005 OPPD Annual Report 35

Notes to Financial Statements for the Three Years Ended December 31,2005 Electric System Revenue Bonds - Electric System Revenue Bond payments are as follows (in thousands):

Principal Interest 2006 $ 58,200 $ 33,291 2007 57,140 30,658 2008 56,620 28,016 2009 35,450 25,887 2010 36,830 24,261 2011-2015 212,250 92,446 2016-2020 173,820 45,141 2021-2025 82,400 18,316 2026-2030 43,000 4,720 Total $755,710 $302,736 On April 28, 2005, OPPD issued 2005 Series ABonds for $128,000,000 and 2005 Series BBonds for $72,000,000. The 2005 Series Aissues consist of $95,000,000 of serial bonds with maturity dates between 2009 and 2026, with interest rates between 3.1% and 4.6%, and $33,000,000 of term bonds due 2030 with an interest rate of 4.7%. The 2005 Series Bissue consists of serial bonds with maturity dates of 2012 and between 2017 and 2022, with interest rates between 3.5% and 5.0%. At December 31, 2005, Electric System Revenue Bonds consisted of $632,790,000 of serial bonds with interest rates between 1.8% and 5.5% due annually from 2006 to 2026 and $122,920,000 of term bonds with interest rates between 4.25% and 5.5% due annually from 2011 to 2030.

OPPD's bond indenture provides for certain restrictions, the most significant of which are:

Additional bonds may not be issued unless estimated net receipts (as defined) for each future year will equal or exceed 1.4 times the debt service on all bonds outstanding, including the additional bonds being issued or to be issued in the case of a power plant (as defined) being financed in increments.

In any three-year period, at least 7.5% of general business income (as defined) must be spent for replacements, renewals or additions to the electric system. Any deficiency is to be spent within two years thereafter for such purposes or, ifnot so spent, is to be used for bond retirements in advance of maturity.

The average interest rates were 4.6% for each of the three years ended December 31, 2005.

The 2002 Series ABonds maturing in 2012, 2017 and 2022 for $67,500,000 were refunded with proceeds from the 2005 Series BBonds. The advance refunding reduced total debt service payments over the next 17 years by

$5,470,000 and resulted in an economic gain (difference between the present values of the old and new debt service payments) of $2,197,000. The following Electric System Revenue Bonds, with outstanding principal amounts of

$292,750,000 and $231,855,000 as of December 31, 2005 and 2004, respectively, were legally defeased: 1986 Series A, 1992 Series B, 1993 Series BTerm Bonds and 2002 Series Amaturing in 2012, 2017 and 2022. Defeased bonds are funded by Government securities deposited by OPPD in irrevocable escrow accounts. Accordingly, the bonds and the related Government securities escrow accounts have been removed from OPPD's balance sheets.

Electric System Subordinated Revenue Bonds - In 2005, OPPD was authorized to offer up to $300,000,000 of Electric System Subordinated Revenue Bonds, or Periodically Issued Bonds (PIBS). OPPD intends to issue the PIBS on a series-by-series basis through August 1,2009. Payment of the principal and interest on the PIBS will be secured by a subordinate lien on the revenues of OPPD's Electric System and will be subject to the prior payment of operations and maintenance expenses of the Electric System and the prior payment of OPPD's Electric System Revenue Bonds. In October 2005, OPPD issued a total of $50,000,000 of Electric System Subordinated Revenue Bonds, $25,000,000 was issued at a rate of 4.25% with a 2035 maturity and $25,000,000 was issued at a rate of 4.5% with a 2041 maturity.

36 2005 OPPD Annual Report

Electric System Subordinated Revenue Bond payments are as follows (in thousands):

Principal Interest 2006 $ - $ 1,730 2007 - 2,188 2008 - 2,188 2009 - 2,188 2010 - 2,188 2011-2015 - 10,937 2016-2020 - 10,937 2021-2025 - 10,937 2026-2030 - 10,937 2031-2035 25,000 10,406 2036-2041 25,000 6,187 Total $50,000 $70,823 In February 2006, OPPD issued $25,000,000 of Electric System Subordinated Revenue Bonds at a rate of 4.375% with a 2040 maturity. In March 2006, OPPD will issue an additional $25,000,000 of Electric System Subordinated Revenue Bonds at a rate of 4.75% with a 2036 maturity.

Electric Revenue Notes - Commercial Paper Series - OPPD has a Commercial Paper Program supported by a credit agreement for $150,000,000 which expires on October 1, 2007. OPPD intends to refinance this obligation on a long-term basis before its expiration. The average borrowing rates were 2.4%, 1.2% and 1.0% for the years ended December 31, 2005, 2004 and 2003, respectively. The outstanding balance was $150,000,000 at December 31, 2005 and 2004.

Electric Revenue Minibonds - The minibonds consist of current interest-bearing and capital appreciation minibonds, which are payable on a parity with OPPD's Electric Revenue Notes - Commercial Paper Series, both of which are subordinated to the Electric System Revenue Bonds. The outstanding balances at December 31 were as follows (in thousands): Principal 2005 2004 1992 minibonds, due 2007 (6.00%) $ 9,118 $ 9,192 1993 minibonds, due 2008 (5.35%) 9,274 9,327 1994 minibonds, due 2009 (5.95%) 9,496 9,532 2001 minibonds, due 2021 (5.05%) 24,741 24,855 Subtotal 52,629 52,906 Accreted interest on capital appreciation minibonds 9,943 8,706 Total $62,572 $61,612 Subordinated Obligation - The subordinated obligation is payable in annual installments of $481,815 including interest at 9.0%, through 2014.

Revolving Credit Agreement - In January 2005, OPPD executed a $350,000,000 Revolving Credit Agreement (RCA) with JPMorgan Chase Bank, N.A., as Agent. The RCA is a facility that allows for revolving loans during a five-year period from January 3, 2005, through December 31, 2009, which may be converted to term loans of up to three years. The facility allows OPPD to draw as needed, subject to customary conditions, to support its capital program. A total of six banks (including three banks with offices in Omaha) are part of the facility. There are no amounts outstanding under the RCA.

Promissory Note - In February 2005, OPPD executed a one-year $100,000,000 Fixed Rate Promissory Note (Note) with JPMorgan Chase Bank, N.A., with an optional one-year renewal. The Note is an uncommitted line of credit that OPPD can access as needed to support its capital program. There are no amounts outstanding under the Note. In February 2006, OPPD renewed the promissory note for another year.

NC2 Separate Electric System Revenue Bonds - In December 2005, OPPD issued $112,000,000 of NC2 Separate Electric System Revenue Bonds. The issue consists of $31,535,000 of serial bonds with maturity dates between 2011 and 2031, with interest rates between 3.55% and 4.75% and $80,465,000 of term bonds with maturity dates between 2005 OPPD Annual Report 37

Notes to Financial Statements for the Three Years Ended December 31,2005 2030 and 2046, with an interest rate of 5.0%. The Separate Electric System isan undivided 50% interest in OPPD's new coal-fired unit, Nebraska City Station Unit 2,secured by revenues from participation agreements with seven public power and municipal utilities. NC2 Separate Electric System Revenue Bond payments are as follows (inthousands):

Principal Interest 2006 $ - $ 3,584 2007 - 5,377 2008 - 5,377 2009 - 5,377 2010 - 5,377 2011-2015 7,265 26,229 2016-2020 8,850 24,621 2021-2025 10,915 22,464 2026-2030 14,545 19,476 2031-2035 16,050 15,770 2036-2040 21,360 11,022 2041-2046 33,015 5,172 Total $112,000 $149,846 Fair Value Disclosure - The aggregate carrying amount and fair value of OPPD's long-term debt, including current portion and excluding unamortized loss on refunded debt, at December 31 were as follows (inthousands):

2005 2004 Carrying Fair Carrying Fair Amount Value Amount Value

$1,139,247 $1,165,294 $895,460 $936,748 The estimated fair value amounts were determined using rates that are currently available for issuance of debt with similar credit ratings and maturities. As market interest rates decline in relation to the issuer's outstanding debt, the fair value of outstanding debt financial instruments with fixed interest rates and maturities will tend to rise. Conversely, as market interest rates increase, the fair value of outstanding debt financial instruments will tend to decline. Fair value will normally approximate carrying amount as the debt financial instrument nears its maturity date. The use of different market assumptions may have an effect on the estimated fair value amount. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that bondholders could realize in a current market exchange.

3. SPECIAL PURPOSE FUNDS Special purpose funds of OPPD are as follows:

Electric System Construction Fund and NC2 Separate System Construction Fund - These funds are to be used for capital improvements, additions and betterments to and extensions of their respective electric system.

Electric System Revenue Bond Fund, Electric System Subordinated Revenue Bond Fund and NC2 Separate Electric System Revenue Bond Fund - These funds are to be used for the retirement of their respective revenue bonds, the payment of the related interest and reserves as required.

Segregated Fund - Debt Retirement - This fund is to be used for the retirement of outstanding debt and to help maintain debt service coverage ratios at appropriate levels. As there isno funding requirement for the Debt Retirement Reserve, this fund also may be used to provide additional liquidity for operations as necessary. The balance of the Debt Retirement Fund was $90,000,000 and $35,000,000 as of December 31, 2005 and 2004, respectively (Note 13).

Segregated Fund - Rate Stabilization - This fund isto be used to help stabilize rates over future periods through the transfer of funds to operations as necessary for significant unforeseen occurrences, such as major storm damage or unscheduled outages. As there isno funding requirement for the Rate Stabilization Reserve, this fund also 38 2005 OI'PD Annual Report

may be used to provide additional liquidity for operations as necessary. The balance of the Rate Stabilization Fund was $19,600,000 and $32,000,000 as of December 31, 2005 and 2004, respectively. InJanuary 2006, $12,400,000 was transferred to the Rate Stabilization Fund (Note 14).

Segregated Fund - Other - This fund represents assets held for payment of customer deposits, refundable advances, certain other liabilities and funds set aside as part of OPPD's self-insured health insurance plans (Note 9). The balances of the funds at December 31 were as follows (in thousands):

2005 2004 Segregated Fund - self-insurance $ 5,785 $ 5,488 Segregated Fund - other 20,065 15,753 Total $25,850 $21,241 Decommissioning Funds - These funds are for the costs to decommission the Fort Calhoun Station when its operating license expires. The Decommissioning Funds are held by outside trustees in compliance with the decommissioning funding plans approved by OPPD's Board of Directors (Note 1). The 1990 Plan was established in accordance with NRC regulations, for the purpose of discharging OPPD's obligation to decommission the Fort Calhoun Station. The 1992 Plan was established to retain funds in excess of NRC minimum funding requirements based on an independent engineering study which indicated that decommissioning costs would exceed the NRC minimum requirements. The balances of the funds at December 31 were as follows (in thousands):

2005 2004 Decommissioning Trust -1990 Plan $ 195,280 $191,218 Decommissioning Trust -1992 Plan 59,464 58,081 Total $254,744 $249,299

4. DEPOSITS AND INVESTMENTS Investments - OPPD has investments in cash equivalents and special purpose funds. Fair values were determined based on quotes received from the trustees' market valuation service. The weighted average maturity was based on the face value for investments. As of December 31, 2005 and 2004, OPPD investments were as follows (inthousands):

2005 2004 Weighted Average Weighted Average Investment Type Fair Value Maturity (Years) Fair Value AlaturitylYears)

Money markets $ 773 0.1 $ 570 0.1 U.S. agencies 584,424 1.1 414,270 1.5 Corporate bonds 1,586 3.0 1,645 4.0 Mutual funds 105,581 - 103,658 -

Total $692,364 $520,143 Portfolio weighted average maturity 1.0 1.3 Interest Rate Risk - OPPD's investment in relatively short-term securities reduces interest rate risk, as evidenced by its portfolio weighted average maturity of 1.0 and 1.3 years at December 31, 2005 and 2004, respectively. In addition, OPPD is a buy-and-hold investor, which minimizes interest rate risk.

Credit Risk - OPPD's investment policy is to comply with OPPD's bond covenants and state statutes for governmental entities, which limit investments to investment grade fixed income obligations. The weighted average credit quality of the investments held by OPPD was rated AAA by Standard & Poor's Ratings Services and Aaa by Moody's Investors Service at December 31, 2005 and 2004.

Custodial Credit Risk - OPPD's bank deposits were entirely insured or collateralized with securities held by OPPD or by its agent in OPPD's name at December 31, 2005 and 2004. OPPD delivers all of its investment securities under contractual trust agreements.

2005 OPPD Annual Report 39

Notes to Financial Statements for the Three Years Ended December 31,2005

5. DEFERRED CHARGES The composition of deferred charges at December 31 was as follows (in thousands):

2005 2004 Deferred financing costs $ 7,288 $ 7,408 Deferred customer energy conservation costs - 4,279 Deferred depreciation expense 9,048 4,423 Other 5,122 8,723 Total $21,458 $24,833

6. RETIREMENT PLAN Plan Description - Substantially all employees are covered by OPPD's Retirement Plan (Plan). It is a single-employer, defined benefit plan which provides retirement and death benefits to Plan members and beneficiaries.

Generally, employees at the normal retirement age of 65 are entitled to annual pension benefits equal to 2.25% of their average compensation (as defined) times years of credited service (as defined). The Plan was established and may be amended under the direction of OPPD's Board of Directors and is administered by OPPD.

Funding Policy - Employees contribute 4.0% of their covered payroll to the Plan. OPPD is obligated to contribute the balance of the funds needed on an actuarially determined basis.

Prior to January 1, 2004, the Plan's funding policy was based on the Employee Retirement Income Security Act (ERISA) minimum contribution amount. The Plan is a governmental plan as defined in Internal Revenue Code (IRC)

Section 414(d), and as such, the Plan is not subject to the ERISA minimum funding requirements as defined in IRC Section 412. The continued use of ERISA funding standards would result in volatile contributions to the Plan whereas the use of funding policies within the parameters of GASB Statement No. 27, Accounting for Pensions by State and Local GovernnentalEmployers, would result in more stable contributions to the Plan. Accordingly, on January 1, 2004, OPPD discontinued the use of ERISA standards and adopted a new funding policy within the parameters of GASB Statement No. 27.

GASB Statement No. 27 requires employers to follow an actuarial approach for the accounting and reporting of the annual cost of pension benefits and the related outstanding liability. This approach requires paying to a pension plan an amount that is expected to be sufficient, if invested now, to finance the benefits of employees during their retirement. Pension benefits are a part of the compensation that employees earn each year, even though these benefits are not paid until after employment has ended. Therefore, the cost of these future benefits is recognized while the employee is still working.

With the change in the Plan's funding policy, the valuation cost method was changed from the Attained Age Frozen Initial Liability (AAFIL) method to the Entry Age Normal (EAN) method. The EAN method is one of the acceptable methods under GASB Statement No. 27. The previous valuation cost method did not compute the Actuarial Accrued Liability (AAL). Accordingly, the Present Value of Accrued Plan Benefits (PVAPB) was disclosed instead of the AAL The PVAPB is the present value of benefits based on compensation and service to that date, that is,the amount the Plan would owe participants ifthe Plan were frozen on the valuation date. Whereas, the AAL is the present value of retirement benefits adjusted for assumptions for future increases in compensation and service attributable to past accounting periods.

To maintain consistency in disclosure with prior years, the PVAPB is presented in the table below based on the actuarial valuation as of January 1:

Present Value of Over Funded PVAPB Actuarial Value Accrued Plan Over as a Percentage of of Assets Benefits (PVAPB) Funded PVAPB Funded Ratio Covered Payroll Covered Payroll (a) Q& la) L) (c) ((a-b~tc)

(thousands) (thousands) 2005 $577,885 $553,592 $ 24,293 104.4% $148,682 16.3%

2004 $545,565 $515,351 $30,214 105.9% $145,094 20.8%

2003 $519,723 $476,951 $ 42,772 109.0% $136,488 31.3%

40 2005 OPPD Annual Report

The AAL, calculated using the EAN method, ispresented in the table below. The funded ratio using the AAL was lower than from using the PVAPB because the AAL method assumes future compensation and service increases. The annual contributions to the Plan consist of the cost for the current period plus a portion of the unfunded accrued liability.

The Plan information as of January 1 based on the actuarial valuation using the EAN method was as follows:

Unfunded UAL Actuarial Value Actuarial Accrued Accrued Percentage of of Assets Liability (AAL) liability (UAL) Funded Ratio Covered Payroll Covered Payroll (a) & b faN (c (Ia)

(thousands) (thousands) 2005 $577,885 $702,300 $ 124,415 82.3% $148,682 83.7%

2004 $545,565 $658,260 $ 112,695 82.9% $145,094 77.7%

Annual lension Cost - The annual pension cost and required contribution by OPPD was $25,934,000, $22,907,000 and $17,505,000 for the years ended December 31, 2005, 2004 and 2003, respectively. There was no net pension obligation as of December 31, 2005, 2004 and 2003. Plan contributions by OPPD employees were $6,072,000,

$5,832,000 and $5,704,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

The actuarial assumptions used in the valuation are shown in the following table. The investment return assumption was reduced from 8.5% to 8.4% (net of administrative expenses) with the valuation effectiveJanuary 1, 2004. The actuarial value of plan assets was determined using a method which smooths the effect of short-term volatility in the market value of investments over approximately five years. Cost-of-living adjustments are provided to retirees and beneficiaries at the discretion of the Board of Directors. Effective January 1, 2004, ad-hoc cost-of-living increases granted to retirees and beneficiaries are amortized in the year for which the increase is authorized by the Board of Directors. Except for the liability associated with cost-of-living increases, the unfunded actuarial accrued liability is amortized on a level basis (closed group) over 15 years. Effective January 1,2006, the Board of Directors authorized a 1.5% cost-of-living adjustment for retirees and beneficiaries.

2005 2004 2003 Investment return (discount rate) 8.40% 8.40% 8.50%

Average rate of compensation increase 5.20% 5.20% 5.20%0/

Ad-hoc cost-of-living adjustment 1.25% 1.25% 1.25%

Audited financial statements for the Plan may be reviewed by contacting the Pension Administrator at OPPD's Corporate Headquarters, Omaha, Nebraska.

OPPD provides for other employee benefit obligations to allow certain current and former employees to retain the benefits to which they would have been entitled under OPPD's Plan except for federally mandated limits and to provide supplemental pension benefits. The related pension expense, fund balance and employee benefit obligation were not material for each of the three years ended December 31, 2005.

7. SUPPLEMENTAL RETIREMENT SAVINGS PLAN OPPD sponsors a Defined Contribution Supplemental Retirement Savings Plan - 401(k) and a Defined Contribution Supplemental Retirement Savings Plan - 457. Both Plans cover all full-time employees and allow contributions by employees that are partially matched by OPPD. Each of these Plan's assets and income are held in an external trust account irn the employee's name. In 2004, the employer maximum annual match on employee contributions decreased from $4,000 to $3,000. OPPD's matching share of contributions was $5,617,000, $5,601,000 and $6,581,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

8. OTHER LIABILITIES The composition of other liabilities at December 31 was as follows (in thousands):

2005 2004 Contractors' retention - long-term $4,880 $ -

Nuclear enrichment fee - 1,523 Other insurance reserves 3,273 2,914 Deferred revenues 1,468 1,684 Other 663 852 Total $10,284 $6,973 2005 OPPD Annual Report 41

Notes to Financial Statements for the Three Years Ended December 31,2005

9. SELF-INSURANCE HEALTH PROGRAM AND POSTEMPLOYMEN'T BENEFITS OTHER THAN PENSIONS OPPD provides employee health care and life insurance benefits to substantially all active and retired employees. An Administrative Services Only (ASO) Health Insurance Program is used to account for the health insurance claims. With respect to the ASO program, reserves sufficient to satisfy both statutory and OPPD-directed requirements have been established to provide risk protection (Note 3).

Additionally, private insurance covering claims in excess of 120% of expected levels has been purchased. Health care expenses (reduced by premium payments from participants) were $28,253,000,

$24,540,000 and $24,967,000 for the years ended December 31, 2005, 2004 and 2003, respectively. The claim payments during those years did not exceed 120% of the expected claims levels. As of December 31, 2005, 2,317 active employees, 26 employees on long-term disability and 1,119 retirees and beneficiaries had health care coverage through OPPD. The total cost of life and long-term disability insurance was $1,725,000, $2,238,000 and $2,788,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

Health care and life insurance benefits provided to retirees and their dependents are considered other postemployment benefits (OPEB). Currently, the cost of these benefits is charged to expense as the cash outlays are made. In 2007, OPPD will be required to report the annual cost and the outstanding liability for OPEB based on an actuarial valuation in accordance with GASB Statement No. 45, Accounting and FinancialReporting by Employers for Postemployment Benefits Other Than Pensions. This accounting change will increase expense and result in an additional liability on the balance sheet.

10. COMMITMENTS OPPD's obligation for the uncompleted portion of construction contracts was approximately

$703,549,000 at December 31, 2005. Most of this obligation was for the engineering, procurement and construction contract for the Nebraska City Station Unit 2.

OPPD has power sales commitments which extend through 2027 of $61,216,000 at December 31, 2005. OPPD has power purchase commitments which extend through 2020 of $111,312,000 at December 31, 2005. These amounts do not include the Participation Power Agreements (PPAs) for the Nebraska City Station Unit 2 or the NPPD wind-turbine facility.

OPPD has 40-year Participation Power Agreements (PPAs) with seven public power and municipal utilities (the Participants) for the sale of 50% of the 663-MW net capacity of the planned Nebraska City Station Unit 2. The Participants have agreed to purchase their respective shares of the output on a "take-or-pay" basis even if the power is not available, delivered to or taken by the Participant. The Participants are subject to a step-up provision, whereby in the event of a Participant default, the remaining Participants are obligated to pay a share of any deficit in funds resulting from the default.

OPPD has a PPA with the Nebraska Public Power District (NPPD) for a 16.8% share, or approximately 10 MW, of a 59.4-MW wind-turbine facility near Ainsworth, Nebraska. OPPD is obligated, on a "take-or-pay" basis, under the PPA to make payments for purchased power even if the power is not available, delivered to or taken by OPPD. In the event another power purchaser defaults, OPPD is obligated, through a step-up provision, to pay a share of any deficit in funds resulting from the default. OPPD's commitment through 2025 under the PPA is $27,109,000 at December 31, 2005. Commercial operation of the facility began on September 15, 2005.

OPPD has coal supply contracts which extend through 2008 with minimum future payments of

$106,588,000 at December 31, 2005. OPPD also has coal transportation contracts which extend through 2008 with minimum future payments of $84,253,000 at December 31, 2005. These contracts are subject to price adjustments.

42 2005 OPPD Annual Report

Contracts for the conversion of nuclear fuel are in effect through 2006 with estimated future payments of $257,000 and contracts for the enrichment of nuclear fuel are in effect through 2008 with estimated future payments of

$24,400,000 at December 31, 2005. Additionally, OPPD has contracts through 2012 for the fabrication of nuclear fuel assemblies with estimated future payments of $20,006,000 at December 31, 2005.

11. CONTINGENCIES Under the provisions of the Price-Anderson Act at December 31, 2005, OPPD and all other licensed nuclear power plant operators could each be assessed for claims and legal costs in the event of a nuclear incident in amounts not to exceed a total of $100,590,000 per reactor per incident with a maximum of $15,000,000 per incident in any one calendar year. These amounts are subject to adjustment every five years in accordance with the Consumer Price Index.

OPPD is engaged in routine litigation incidental to the conduct of its business and, in the opinion of Management, based upon the advice of its General Counsel, the aggregate amounts recoverable or payable from OPPD, taking into account amounts provided in the financial statements, are not significant.

12. CONSTRUCTION DEPOSITS Participants were given the option to provide their own funds or to finance with OPPD separate electric system revenue bonds their share of the construction costs of Nebraska City Station Unit 2. Three participants chose to pay all or a portion of their respective funding requirement. This liability represents the amount the participants' deposits, including interest, exceeded their share of the construction costs incurred as of December 31, 2005.

13. REDUCTIONS IN RETAIL SALES FOR RESERVES Retail sales were reduced for the establishment of and/or addition to the Debt Retirement Reserve by $55,000,000 and

$35,000,000 for the years ended December 31, 2004 and 2003, respectively. There was no reduction to retail sales for reserves in 2005.

(7

14. PURCHASED POWER EXPENSE Additional purchased power expense attributed to extended outages at the Fort Calhoun and Nebraska City Stations in the first half of 2005 was offset in June 2005 by the use of $12,400,000 of the Rate Stabilization Reserve. As a result of strong financial performance in the latter half of 2005, the Rate Stabilization Reserve was restored to $32,000,000 in December 2005, which was the balance as of December 31, 2004. Accordingly, there was no impact on purchased power expense or net income for 2005 from the Rate Stabilization Reserve.

15. OTHER - NET In 2005, $837,000 of expenses was related to a steam supply study for commercial use. These costs were written off to expense since the project was not implemented. In 2003, $6,225,000 of expenses was for costs to initiate the process to obtain authorization from the NRC for the option to move forward with a major uprate to Fort Calhoun's accredited output. These costs were written off to expense since the uprate was not pursued because OPPD will be able to meet its energy needs with other sources of generation.

16. LO1W'-LEVEL RADIOACTIVE WASTE SETTLEMENT The Central Interstate Low-Level Radioactive Waste (LLRW) Commission was awarded damages in 2002 from a lawsuit against the State of Nebraska for the denial of a site-specific license application by the Nebraska Departments of Environmental Quality and Health. The Commission and the State entered into a settlement agreement for a single payment on August 1,2005. The Major Generators (i.e., OPPD and other owners and operators of nuclear power gererating units within the Compact region which have provided funding for the activities of the Commission) requested reimbursement from the Commission from the proceeds of the settlement payment. In July 2005, the Commission adopted a resolution to pay Major Generators $114,746,000 and to retain $15,000,000 to cover potential future expenses. OPPD received its share, $15,468,000, on August 1.The settlement proceeds received by OPPD were returned to its customer-owners prior to the end of 2005 as authorized by the Board of Directors.

Accordingly, there was no impact on net income from this settlement. In February 2006, the Commission voted to release $10,000,000 of the $15,000,000 previously retained as an additional settlement. OPPD's portion is anticipated to be approximately $1,348,000 and is expected to be received in 2006.

2005 OPPD Annual Report 43

Statistics 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 Total Utility Plant (at year end)

(in thousands of dollars) 3,656,433 3,363,909 3,224,851 3,081,073 2,876,799 2,735,437 2,621,444 2,455,004 2,360,495 2,309,733 Bonded Indebtedness (at year end)

(inthousands of dollars)... 917,710 679,315 726,130 631,135 577,010 637,235 696,040 745,630 813,860 761,020 Operating Revenues (in thousands of dollars)

Residential ............... 237,798 211,913 208,426 214,447 202,984 196,923 188,187 192,481 183,178 170,021 Commercial ............... 190,128 180,867 176,664 177,063 176,145 166,441 161,901 159,844 157,406 150,388 Industrial ............... 90,344 90,987 85,406 75,946 76,197 75,976 76,513 79,359 76,806 75,016 Street and Highway Lighting 14,186 13,817 13,156 12,723 12,589 12,270 11,936 11,687 11,356 10,937 Off-System Sales ....... 120,030 109,523 108,795 65,885 91,045 110,300 78,741 62,550 44,484 39,908 Accrued Unbilled Revenues 630 (1,134) 4,086 (1,268) 104 2,541 1,650 282 1,554 (161)

Provision for Rate Stabilization - - - (10,500) (5,000) (11,500) (5,000) - - -

Provision for Debt Retirement - (55,000) (35,000) - - - - - - -

Other Electric Revenues ... 13,436 15,342 11,541 11,357 14,731 14,238 9,802 8,747 9,169 7,413 Total ........... .... 666,552 566,315 573,074 545,653 568,795 567,189 523,730 514,950 483,953 453,522 Operations &Maintenance Expenses (in thousands of dollars).. 447,270 401,778 404,040 339,750 353,767 345,378 329,323 306,864 283,307 278,251 Payments in Lieu of Taxes (in thousands of dollars).. 19,693 18,591 18,067 18,553 18,234 17,645 16,852 16,638 16,447 15,499 Net Operating Revenues before Depreciation and Decommissioning (in thousands of dollars).. 199,589 145,946 150,967 187,350 196,794 204,166 177,555 191,448 184,199 159,772 Net Income (in thousands of dollars).. 82,171 24,844 25,878 80,621 69,867 70,850 49,014 63,993 47,152 39,339 Energy Sales (in megawatt-hours)

Residential ............... 3,356,196 3,054,576 3,079,589 3,151,895 3,065,377 2,880,289 2,718,585 2,796,585 2,688,951 2,577,624 Commercial ............... 3,449,908 3,285,896 3,264,369 3,272,028 3,279,890 3,097,835 3,014,202 2,971,390 2,894,595 2,787,471 Industrial ............... 2,644,634 2,630,038 2,561,569 2,290,368 2,302,311 2,287,966 2,304,441 2,443,625 2,323,253 2,305,328 Street and Highway Lighting 85,128 83,817 82,845 81,593 82,775 81,268 80,868 80,286 79,572 78,710 Off-System Sales............. 2,502,433 3,646,043 3,775,362 3,273,359 3,952,632 4,208,943 3,318,409 3,105,942 2,544,508 2,492,385 Accrued Unbilled MMlVh ... 21,285 6,890 61,165 (23,697) (5,268) 52,739 23,168 9,369 54,222 7,358 Total ............. 12,059,584 12,707,260 12,824,899 12,045,546 12,677,717 12,609,040 11,459,673 11,407,197 10,585,101 10,248,876 Number of Customers (average per year)

Residential ............. 282,310 275,854 270,579 266,464 261,286 256,541 251,057 245,890 241,626 237,584 Commercial ............. 40,372 39,482 38,525 37,807 37,008 36,088 35,553 34,932 34,555 33,993 Industrial ............. 133 135 127 117 116 110 105 103 99 99 Street and Highway Lighting 293 352 436 594 555 543 560 567 551 555 Off System ............... 39 45 48 54 49 49 45 40 36 34 Total ............... 323,147 315,868 309,715 305,036 299,014 293,331 287,320 281,532 276,867 272,265 Cents Per ketch (average)

Residential ............... 7.08 6.95 6.73 6.81 6.63 6.84 6.94 6.89 6.80 6.60 Commercial ............... 5.51 5.76 5.69 5.41 5.38 5.37 5.37 5.38 5.42 5.39 Industrial ............... 3A1 3.40 3.39 3.32 3.32 3.32 3.32 3.24 3.29 3.25 Retail ............... 5.58 5.48 5.39 5.46 5.36 5.41 5.40 5.34 5.35 5.24 Generating Capability (at year end)

(in megawatts) ............... 2,542.5 2,540.5 2,540.5 2,220.5 2,205.0 2,203.0 2,093.4 2,082.9 2,060.4 2,026.5 System Peak Load (in megawatts) ............... 2,223.3 2,143.8 2,144.8 2,037.4 1,994.1 1,976.9 1,965.6 1,914.0 1,851.8 1,813.9 Net System Requirements (in megawatt-hours)

Generated .......... 11,180,808 12,235,044 12,000,873 11,428,893 11,516,924 11,760,938 10,724,976 10,679,310 9,698,231 9,260,923 Purchased and Net Interchanged .......... (1,148,903) (2,716,242) (2,557,981) (2,122,701) (2,557,704) (2,833,243) (2,190,252) (1,960,844) (1,281,496) (1,096,996)

Net .......... 10,031,905 9,518,802 9,442,892 9,306,192 8,959,220 8,927,695 8,534,724 8,718,466 8,416,735 8,163,927 Certainamounts have been reclassified to conform with the 2005 presentation.

44 2005 OPPD Annual Report

OPPO Investor Relations Other OPPD Debtholders OPPD Corporate Officers Corporate Headquarters You may contact OPPD with Del D. Weber Energy Plaza questions about other OPPD debt at Cliairmanof the Board 444 South 16th Street Mall the following address and telephone Omaha, NE 68102-2247 number: Frederick J. Ulrich Finance& CapitalManagement Vice Chairmanof tile Board Trustee J.P. Morgan Trust Company Omalia PublicPower District John K. Green Chicago, Illinois 444 South 16th Street Mall Treasurer Omalia, NE 68102-2247 Paying Agents e-mail: finfoCoppd.com N.P. Dodge Jr.

J.P. Morgan Trust Company 402-636-2000 Secretary Chicago, Illinois New York, New York W. Gary Gates The Trustee and Paying Agent on President Wrells Fargo Bank, N.A. OPPD's Senior Lien Debt, ChiefExecutive Officer Omaha, Nebraska Subordinated Revenue Bonds and Separate System Revenue Bonds is Charles P. Moriarty General Counsel J.P. Morgan Trust Company. You may Vice President Fraser, Stryker, Mentsey, Olson, Boyer & contact J.P. Morgan Trust Company ChiefFinancialOfficer Bloch, P.C. directly at the following address and Assistant Treasurer Omahia, Nebraska telephone number: Assistant Secretary J.P. Morgan Trust Company [ -,

OPPD Minibonds TimothyJ. Burke OPPD is the Paying Agent, Transfer Attn: Worldwvide SecuritiesServices Vice President Agent and Registrar on OPPD's 227 West Monroe, 26th Floor Assistant Secretary - J Minibond;. OPPD Minibond Chicago, IL 60606 Administration provides information Investor Relations Adrian J. Minks and assistance to Minibond holders 800-275-2048 Vice President J regarding: Assistant Secretary Available Financial Information

• Interest Fayments Ross T. Ridenoure In compliance with Securities and Interest on Current Interest-Bearing Exchange Commission Rule 15c2-12, Vice President Minibonds is paid on April 1 and information regarding OPPD is Assistant Secretary October I of each year. available at any nationally recognized Roger L. Sorenson

• Ownership Transfer municipal security information Vice President Minibond Transfer Information repository. Copies of its most recent Assistant Secretary Forms can be obtained via annual reports, interim reports and www.oppd.com or by contacting the official statements also are available Dale F. Widoe Minibond Administrator, listed upon request at finfo@oppd.com or Vice President below. through the following address: Assistant Secretary

• Optional Early Redemption Omalha PublicPower District

• Replacement of Lost Minibond FinanceDivision Certificat? 444 South 16th Street Mall Please contact the Minibond Omaha, NE 68102-2247 I Administrator to request a Minibond Financial information in the annual Transfer Irformation Form or to report also is available at change your Minibond holder www.oppd.com address. You may contact the Minibond Administrator via e-mail at minibond!&@oppd.com, at OPPD's website www.oppd.com (click on Who We Are, FinancialInformation and Minibonds) or through the following address and telephone numbers:

Minibond Administrator Finance & CapitalManagement Omaha Public PowerDistrict 444 South 16th Street Mall Oinalha, NE 68102-2247 Omnalia, Nebraska area 402-636-3286 Outstate Nebraska 800-428-5584 Long-rangeplanning and fiscal responsibility benefit fitare OPPDgenerations, such as 4-ye Nicholas and Abbey Larson, also shown on tA 2005 OPPD Annual Report 45

- m -

Omaha Public Power istrict Energy Plaza 444 South 16th Street Mall Omaha, Nebraska 68102 www.oppd.com Abusiness-managed, publicly owned electric utility An Equal Opportunity Employer