LIC-12-0147, Decommissioning External Trust Fund

Decommissioning External Trust Fund

ML12311A138
Person / Time
Site:	Fort Calhoun
Issue date:	09/06/2012
From:	Deloitte & Touche
To:	Omaha Public Power District, Office of Nuclear Reactor Regulation
References
LIC-12-0147
Download: ML12311A138 (13)

Text

0 I Omaha Public Power District Fort Calhoun Station Decommissioning External Trust Fund Financial Statements as of and for the Years Ended June 30, 2012 and 2011, and Independent Auditors' Report

OMAHA PUBLIC POWER DISTRICT FORT CALHOUN STATION DECOMMISSIONING EXTERNAL TRUST FUND TABLE OF CONTENTS Page INDEPENDENT AUDITORS' REPORT 1-2 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED)

FOR THE YEARS ENDED JUNE 30, 2012 AND 2011 3-4 FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011 Statements of Net Assets Available for Decommissioning Costs 5 Statements of Changes in Net Assets Available for Decommissioning Costs 6 Notes to Financial Statements 7-8 ADDITIONAL INFORMATION 9 Certification of Payments from the Fund Pursuant to Sections 5 and 6 of the Fort Calhoun Station Decommissioning Funding Plan for the Years Ended June 30, 2012 and 2011 10

Deloitteo fi"s1 N~atuonal bviv.r 1601 Dcdge S ,trýet 3 10 Onra,, NE 68102-1649 USA Tre; , I 402 346 7783 Fax'. 0.402 997 .7875 wwo,;defohtmso*n INDEPENDENT AUDITORS' REPORT Board of Directors Omaha Public Power District Omaha, Nebraska We have audited the accompanying statements of net assets available for decommissioning costs of the Omaha Public Power District Fort Calhoun Station Decommissioning External Trust Fund (the "Fund")

as of June 30, 2012 and 2011, and the related statements of changes in net assets available for decommissioning costs for the years then ended. These financial statements are the responsibility of the Omaha Public Power District's management. Our responsibility is to 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. 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 the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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.

In our opinion, such financial statements present fairly, in all material respects, the net assets available for decommissioning costs of the Omaha Public Power District Fort Calhoun Station Decommissioning External Trust Fund as of June 30, 2012 and 2011, and the changes in net assets available for decommissioning costs for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 3-4 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

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Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole.

The certification of payments from the Fund pursuant to Sections 5 and 6 of the Fort Calhoun Station Decommissioning Funding Plan on page 10 is presented for the purpose of additional analysis and is not a required part of the financial statements. This additional information is the responsibility of the Omaha Public Power District's management and was derived from and directly relates to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in our audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the additional information is fairly stated in all material respects in relation to the financial statements as a whole.

Septembe ,2 LL1 September 6, 2012 OMAHA PUBLIC POWER DISTRICT FORT CALHOUN STATION DECOMMISSIONING EXTERNAL TRUST FUND MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED)

FOR THE YEARS ENDED JUNE 30, 2012 AND 2011 Overview The Fort Calhoun Station (the "Station") is a pressurized water reactor nuclear plant. The Station is owned by the Omaha Public Power District ("OPPD") and was placed in commercial operation in September 1973. It is located on the west bank of the Missouri River approximately 20 miles north of the City of Omaha in the vicinity of Fort Calhoun, Nebraska. The Nuclear Regulatory Commission ("NRC") issued a renewed operating license for the Station in November 2003 that enables the plant to continue operating until 2033.

In February 1983, OPPD's Board of Directors authorized a plan for the decommissioning of the Station at the end of its operating license. The plan called for the allocation of the cost of decommissioning during the Station's life to the customers receiving the benefits. Accordingly, OPPD began funding for the Station in July 1983.

In 1990, pursuant to NRC regulations, OPPD established an external trust fund based upon the NRC's minimum funding requirements. To ensure that additional funds are available to pay decommissioning costs, a supplemental trust fund was established in 1992. The funds in the 1992 Fund are in excess of the NRC's minimum funding requirements and are not included in these audited financial statements. The net assets available for decommissioning costs in the 1992 Fund were $80.7 million and $76.7 million at June 30, 2012 and 2011, respectively.

In December 2011, the NRC placed the Station into a special regulatory category, Inspection Manual Chapter 0350. The designation is applicable for nuclear units in an extended shutdown with performance issues. The Station remains in cold shutdown while completing necessary activities for restart. The extended shutdown has no impact on the Fund.

In August 2012, the Board of Directors authorized management to enter into an operating services agreement with Exelon Generation, LLC to manage the Station's nuclear operations for up to the duration of its operating license. OPPD will remain the owner and licensed operator of the plant, while Exelon will provide the day-to-day operations management of the plant. The Exelon Nuclear Management Model will be used to improve and sustain performance at the Station. This agreement has no impact on the Fund.

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 were the Net Assets of the Omaha Public Power District Fort Calhoun Station Decommissioning External Trust Fund (the "Fund") at June 30 (dollar amounts in thousands):

2012 2011 Net assets available for decommissioning costs $262,951 $ 252,293 The following were the revenues of the Fund for the years ended June 30 (dollar amounts in thousands).

2012 2011 Investment income $ 6,371 $ 7,167 Increase in fair value of investments 4,287 1,943 Total revenues $10,658 $ 9,110 2012 Compared to 2011 Total revenues were $10.7 million for the twelve-month period ended June 30, 2012, with $6.4 million from investment income and $4.3 million from an overall net increase in the fair value of investments due to favorable market conditions. Total revenues were $9.1 million for the twelve-month period ended June 30, 2011, with $7.2 million from investment income and $1.9 million from an overall net increase in the fair value of investments due to favorable market conditions.

Funding Policy OPPD annually reviews the funding requirements and cost projections for decommissioning activities. Cost projections are based on NRC formulas and indices and an independent engineering firm's estimates.

Earnings rate projections are based on forecasts for three to five year government bonds. Inflation rate projections are based on forecasts for the consumer price index. All investment income earned is reinvested in the decommissioning fund.

The present value of the minimum decommissioning amount ("MDA") required by the NRC was estimated at

$404.1 million as of June 30, 2012. Given current escalation indices and projected earnings rates, the balance of OPPD's Fort Calhoun Station Decommissioning External Trust Fund and the present value of future earnings in this Fund are estimated to exceed the MDA, partly due to the Station's 20-year license extension.

Accordingly, no funding was required for the fiscal years presented. The amount deemed in excess of the MDA will remain in the Fund to cover possible changes in escalation indices and projected earnings rates.

Summary of the Financial Statements The financial statements, related notes, and Management's Discussion and Analysis provide information about the Fort Calhoun Station Decommissioning External Trust Fund's financial position and activities. The Statements of Net Assets Available for Decommissioning Costs present the Fund's net assets as of June 30, 2012 and 2011. The Statements of Changes in Net Assets Available for Decommissioning Costs present the Fund's revenues and expenditures for the years ended June 30, 2012 and 2011. 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 the Fund's finances. Questions concerning any of the information provided in this report should be directed to Investor Relations, 402-636-3286.

OMAHA PUBLIC POWER DISTRICT FORT CALHOUN STATION DECOMMISSIONING EXTERNAL TRUST FUND STATEMENTS OF NET ASSETS AVAILABLE FOR DECOMMISSIONING COSTS AS OF JUNE 30, 2012 AND 2011 (Dollar amounts in thousands) 2012 2011 ASSETS Investments, at fair value (Note 2) $262,663 $251,833 Accrued interest receivable 288 460 NET ASSETS AVAILABLE FOR DECOMMISSIONING COSTS $262,951 $252,293 The accompanying notes are an integral part of the financial statements.

OMAHA PUBLIC POWER DISTRICT FORT CALHOUN STATION DECOMMISSIONING EXTERNAL TRUST FUND STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR DECOMMISSIONING COSTS FOR THE YEARS ENDED JUNE 30, 2012 AND 2011 (Dollar amounts in thousands) 2012 2011 REVENUES Investment income $ 6,371 $ 7,167 Increase in fair value of investments 4,287 1,943 Total revenues 10,658 9,110 EXPENDITURES (Note 3) _

EXCESS OF REVENUES OVER EXPENDITURES 10,658 9,110 NET ASSETS AVAILABLE FOR DECOMMISSIONING COSTS Beginning of period 252,293 243,183 End of period $262,951 $252,293 The accompanying notes are an integral part of the financial statements.

OMAHA PUBLIC POWER DISTRICT FORT CALHOUN STATION DECOMMISSIONING EXTERNAL TRUST FUND NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011

1.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES Organization of Fund - The Omaha Public Power District Fort Calhoun Station Decommissioning External Trust Fund (the "Fund" or the "1990 Fund") was established in accordance with Nuclear Regulatory Commission (NRC) regulations, for the purpose of discharging the Omaha Public Power District's (OPPD) obligation to decommission, as defined by the NRC, its Fort Calhoun Station. For 1990 and subsequent years, OPPD's Board of Directors approved the collection of nuclear decommissioning costs based upon the NRC's external minimum funding requirements. The NRC's requirements are based on a generic estimate of the cost to decommission radioactive portions of a nuclear unit based on the size and type of reactor.

Beginning in 1993, OPPD commenced funding on the basis of new decommissioning estimates which resulted from a 1992 independent engineering study and which exceed NRC external minimum funding requirements. The resultant Fort Calhoun Station Decommissioning Supplemental External Trust Fund (the "1992 Fund") was established to retain funds in excess of the NRC's minimum funding requirements (not included herein). In 2003, the NRC granted a 20-year extension of the Fort Calhoun Station's operating license which will allow the Station to operate until 2033. The accompanying financial statements are only for the 1990 Fund.

The present value of the total decommissioning cost estimate for the Fort Calhoun Station as of June 30, 2012 and 2011 was approximately $733.3 million and $717.5 million, respectively, of which the NRC present value of the minimum decommissioning amount was approximately $404.1 million and

$397.4 million, respectively. OPPD will periodically review and adjust, if necessary, the funding level for changes in the estimated costs of decommissioning the station.

Fair Value of Financial Instruments - The Fund reports investments at fair value in accordance with Governmental Accounting Standards Board Statement No. 31, Accounting and FinancialReportingfor CertainInvestments andfor External Investment Pools.

Investment Income - Investment income is recorded, as earned, on an accrual basis.

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 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.

Risks and Uncertainties - The Fund utilizes various investment instruments. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for decommissioning costs.

2. INVESTMENTS Investments - The Fund's investments are held by the Fund's trustee, the First National Bank of Omaha, in the Fund's name in accordance with the trust agreement. Fair values were determined based on quotes received from the trustee's market valuation service. The weighted average maturity was based on the fair value of individual investments and investment type. As of June 30, 2012 and 2011, the Fund's investments were as follows (dollar amounts in thousands):

2012 2011 Weighted Weighted Average Average Fair Maturity Fair Maturity Investment Type Value (Years) Value (Years)

Money market funds 11 $ 34 U.S. government securities 114,243 3.5 122,991 1.8 Corporate bonds 10,039 3.5 -

Mutual funds 138,370 128,808 Total $262,663 $251,833 Portfolio Weighted Average Maturity 3.5 1.8 Interest Rate Risk - The Fund's investment in relatively short-term securities reduces interest rate risk, as evidenced by its portfolio weighted average maturity of 3.5 and 1.8 years at June 30, 2012 and 2011, respectively.

Credit Risk - The Fund's investment policy is to comply with the Nebraska state statutes for governmental entities, which limit investments to investment grade fixed income obligations. The majority of the investments held by the Fund at June 30, 2012 and 2011 were rated AAA by Standard &

Poor's Ratings Services and AAA by Moody's Investors Service.

3. EXPENDITURES ON BEHALF OF THE FUND Trustee fees of $32,000 were paid on behalf of the Fund by the Omaha Public Power District for each of the years ended June 30, 2012 and 2011.

4. NUCLEAR REGULATORY COMMISSION OVERSIGHT The NRC placed the Station into a special category of their inspection manual, Chapter 0350, in December 2011. This Chapter is for nuclear plants in extended shutdowns with performance issues.

Efforts are under way to satisfactorily address all issues with normal operations expected to resume in 2013, subject to NRC review and approval. The extended shutdown has no impact on the Fund.

In August 2012, the Board of Directors authorized management to enter into an operating services agreement with Exelonr Generation, LLC to manage the Station's nuclear operations for up to the duration of its operating license. OPPD will remain the owner and licensed operator of the plant, while Exelon will provide the day-to-day operations management of the plant. The Exelon Nuclear Management Model will be used to improve and sustain performance at the Station. This agreement has no impact on the Fund.

ADDITIONAL INFORMATION ADDITIONAL INFORMATION CERTIFICATION OF PAYMENTS FROM THE FUND PURSUANT TO SECTIONS 5 AND 6 OF THE FORT CALHOUN STATION DECOMMISSIONING FUNDING PLAN FOR THE YEARS ENDED JUNE 30, 2012 AND 2011 No such payments were made during the years ended June 30, 2012 and 2011.