ML040490147
| ML040490147 | |
| Person / Time | |
|---|---|
| Site: | Washington Public Power Supply System |
| Issue date: | 02/05/2004 |
| From: | Coleman D Energy Northwest |
| To: | Document Control Desk, Office of Nuclear Reactor Regulation |
| References | |
| GO1-04-0005 | |
| Download: ML040490147 (69) | |
Text
ENERGY NORTH WEST P0. Box 968
- Richland, Washington 99352-0968 February 5, 2004 1 0 CFR 50.71 (b)
GO1-04-0005 U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555-0001
Subject:
NUCLEAR PROJECT NO. 1 (WNP-1), DOCKET NO. 50-460 CONSTRUCTION PERMIT CPPR-134 2003 ANNUAL FINANCIAL REPORT
Dear Sir or Madam:
In accordance with 10 CFR 50.71(b), enclosed is a copy of the Energy Northwest 2003 annual financial report for the subject facility.
Should you have any questions, please call CL Perino at (509) 377-2075.
Respectfully, DW Coleman Manager, Regulatory Programs Mail Drop PE20
Enclosure:
As stated cc:
BS Mallett - NRC RIV RN Sherman - BPA/1 399 w/o TC Poindexter - Winston & Strawn Nw/o
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Radiation Exposure, Net Generation, During operation, person-rems 7,738 GWh 99 00 L1 02 03 4 l 1
i37 31 39 41 99 00 01 02 03 6,975 8,260 7,996 9,262 7,738 Operating & Capital Costs,
$ in millions Cost of Power, Cents/kWh 99 00 1
02 03 165.8 176.6 208.5 191.0 232.9 99 00 01 02 03 2.38 2.14 2.61 2.0 3.01
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Another example: Columbia Generating Station has been our most important responsibility and is the foundation upon which we built our reputation and credibility. This increased credibility is what allows us to explore and build other kinds of generating resources. In fiscal year 2003, Columbia set a new record of 369 continuous days on line. By comparison, the previous record-set in 1997-was 270 days.
Credit for such achievement rests with the people of Energy Northwest and with our 18 member utilities, and with our governing boards. Without their guidance and willingness to participate in such projects as Nine Canyon, or to endorse explorations into "green" power, many of our successes would have remained dreams.
Three years ago, Energy Northwest had 13 member utilities; today, there are 18. Pacific and Chelan public utility districts rejoined Energy Northwest during this past year. We view this renewed interest as an endorsement of the value Energy Northwest adds to public power, as well as an avenue toward strengthened leadership in public power.
This annual report highlights a number of initiatives worked on throughout the year, including completion of a Board-driven examination of the effectiveness of Energy Northwest leadership in operating Columbia Generating Station; freeing up more than $315 million in reserves for Bonneville Power Administration through the Debt Optimization Program; continuing to pursue ISO 14001 certification through an approved Environmental Management System; continuing to explore new technologies, such as biomass; and continuing to build on our greatest asset-our people-by providing training and educational opportunities and incentives.
We have built a foundation, tested it, and found it sound. It is our ongoing challenge and commitment to meet the needs of the public power community. If member utilities want more green power, we'll provide it. If they want energy services, we'll supply them. If they want innovative solutions to energy-related problems, we'll fashion them.
And, we'll actively pursue learning and improved performance. A longer than planned refueling outage at Columbia reinforced our belief that we must set ever-higher standards in order to reach our goals and meet the needs of the region.
Energy Northwest will do all this while maintaining its commitment to responsible stewardship of all its assets-financial, environmental, and social; for only through maintaining the trust we've earned over the past decade can we build a better future.
Energy Northwest was created to do the work that public utilities could not do alone. That was our beginning and is our reason for being. Together we can achieve great things. Thank you for the opportunity to serve public power and the ratepayers of the region.
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,4 Robert Graves President Commissioner, Benton County PUD Richard Riley Vice President Commissioner, Wahkiakum County PUD Vera Claussen*
Secretary Commissioner, Grant County PUD Bob Boyd Commissioner, Chelan County PUD Dan Gunkel*
Commissioner, Klickitat County PUD Tom Casey*
Commissioner, Grays Harbor County PUD Ronald L. Hatfield Commissioner, Pacific County PUD No. 2 Jack Janda Commissioner, Mason County PUD No. I Judy Ridge Commissioner, Asotin County PUD Parker Knight Commissioner, Skamania County PUD Roger Sparks*
Commissioner, Kittitas County PUD I
Del Lathim I Commissioner, Franklin County PUD John Whalen Commissioner, Mason County PUD No. 3
- Also serves on the executive board not pictured -
Gregg Caudell, Commissioner, Ferry County PUD Raymon Sieler, Energy Services Director, City of Richland Gary Zarker Superintendent Seattle City Light
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HI Vic Parrish Chief Executive Officer Chief Nuclear Officer
- L Rod Webring Vice President,
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w NeunleerNuclear Generation Cheryl Whitcomb Jack Baker Chief Knowledge Officer Vice President Energy I Busir Services I PIO Expanded Membership Energy Northwest began the fiscal year with 16 member utilities, and ended it with 18 members. Energy Northwest's Board of Directors voted unanimously to approve applications for membership of two PUDs. In July 2002, Pacific County PUD No. 2 rejoined Energy Northwest. In April 2003, Chelan County PUD also rejoined Energy Northwest. Their return is an indication that Energy Northwest is coming to be seen as a leader in the region's energy picture.
Energy Northwest was formed by member utilities that realized there is strength in numbers. As a joint operating agency, Energy Northwest develops public power projects that one or two public utilities may be unable to accomplish alone. And the value of that collective power is evident in some of Energy Northwest's recent -accomplishments-completion of the Nine Canyon Wind Project and its Phase II expansion, 3
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,i Al Mouncer Vice President, Corporate Services I General Counsel I CFO Dale Atkinson Vice President, Technical Services completion of the White Bluffs Solar Station-and the ongoing operation of both the Packwood Lake Hydroelectric Project and Columbia Generating Station.
Environmental Management System Energy Northwest recognizes environmental stewardship as a priority, and is committed to operating in a manner that responsibly balances environmental, financial, and social factors. We are developing and implementing an environmental management system (EMS) that meets the rigorous requirements of the international ISO 14001 standard. Certification to the EMS standard by an independent, accredited registrar is planned for 2005.
Through the EMS, environmental protection will be integrated into everything we do, from decision-making to maintenance. An EMS ensures that environmental
issues are systematically identified, controlled, and monitored. Moreover, an EMS provides mechanisms for responding to changing environmental conditions or requirements, reporting on environmental performance, and reinforces continual improvement. It includes programs to prevent pollution, ensure compliance with all requirements, and strengthen employee awareness of their role in protecting the environment for current and future generations.
These initiatives are in line with Energy Northwest's mission to best serve the ratepayers by providing reliable power and other energy services to the region at the least cost, while protecting the environment.
Nine Canyon Wind Project The last of the 37 turbines was erected at the end of August 2002, followed by a period of acceptance testing. Commercial operation of the Nine Canyon Wind Project began in September 2002. Construction of the project was completed on time and within budget.
Total generation from the project, between October 1, 2002, and the end of June 2003 was 92,414,478-kilowatt hours of electricity.
By January, the success of the project had produced sufficient interest in a Phase II addition. Energy Northwest's Board of Directors approved expansion of the project in April. Also in April, the Executive Board approved a $21.7 million bond sale to finance construction of Phase II, which will add 12 turbines and 15.6 megawatts, for a total of 49 turbines with a capacity of 63.7 megawatts of renewable energy.
Construction began in mid-May 2003. The same team will complete the expansion-Energy Northwest, RES, Bonus and Benton County PUD. The first two additional turbines were producing power by the end of September 2003. Completion of Phase II is expected by the end of December.
Top: Nine Canyon visitors stand next to a rotor and three turbine blades, before it's lifted to the top of a wind tower.
Bottom Right: Energy Northwest employees, Dan Porter (left) and Dave Kobus at Nine Canyon.
Bottom Left: Strings of turbines, generating electricity at Nine Canyon Wind Project.
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Third, as of mid-September, the station had operated for four years without a discharge of wastewater containing detectable amounts of radioactive material.
Energy Northwest has a state permit that allows the plant to discharge small, regulated amounts of radioactivity to the Columbia River. But, the people at the station set a goal to take all feasible measures to avoid discharging radioactive materials. We've met that goal four years in a row.
Such achievements are important to our employees, of course, but also to the people who own Columbia Generating Station-the ratepayers of the Pacific Northwest. Quality nuclear plants pay attention to everything: from driving down the cost of power to increasing the days on line, from lowering cumulative dose to increasing thermal efficiency.
The people of Energy Northwest also have kept another promise to the region-producing much-needed electricity at the lowest cost possible. During the 2003 fiscal year, the cost of power from Columbia Generating Station was nearly half of what it was a decade before, when judged against inflation. And the projected price of power for fiscal year 2004 is lower still.
Several other key initiatives associated with long-term plant operations and reliability were initiated or continued during the fiscal year, including a corrosion mitigation strategy, our 16th refueling outage, and continued work on spent fuel storage.
Top: A double rainbow over Columbia Generating Station following a Spring rain shower.
Bottom Right: Energy Northwest employees, (from left)
Dan Ross, Randy Crawford, and Jerry Baker at Packwood Lake Hydroelectric Project.
Bottom Left: Beyond the tailrace sits the Packwood Lake powerhouse.
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Enhanced Security In
- August, we completed construction and implementation of enhanced security measures and practices at Columbia Generating Station, which had been initiated due to an NRC mandate during fiscal year 2002. Throughout the rest of the year, we hired and trained a number of additional nuclear security officers, responded to subsequent NRC mandates related to access authorization and background reinvestigations, as well as adjusting our security measures in keeping with the Office of Homeland Security's national threat levels.
Nearly two years after the terrorist attacks of September 11, 2001, security at facilities deemed to be critical infrastructure continues to be closely scrutinized by regulators, the media, and the public. Safety and security have been a high priority since the station began operation nearly 20 years ago, and our commitment to keeping our community safe will not waver.
Board Review of Nuclear Programs At its regular quarterly meeting in January, the Energy Northwest Board of Directors unanimously endorsed the report Energy Northwest Executive Board Review of Nuclear Programs.
The two-year due diligence study had begun with an examination of the feasibility of completing WNP-1.
In the course of the investigation, however, questions arose as to the efficacy of third-party management or sale of Columbia Generating Station. After thorough study, the Executive Board concluded there would be no clear net benefit to the ratepayers of the region under either alternative. Additionally, Energy Northwest's member utilities overwhelmingly opposed both alternatives.
Comparing the performance of Columbia with similar plants was an important part of the Review of Top: Inside the generator core during R-16.
Bottom Right. Outage Management Services staff (from left) John Suing, Suzi Kroma, and Rolly Fuller.
Bottom Left. Turbine Building during R-16.
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These new bonds substitute lower-interest, Energy Northwest bonds for higher-interest Treasury debt held by Bonneville. In addition, the Debt Optimization Program alters the payment profile of the existing debt.
While improving BPA's overall debt profile, Energy Northwest funds also produce an immediate debt interest savings for ratepayers of about $20 million a year.
Zintel Canyon Wind Project Originally approved as a project in April 2002, Zintel Canyon has not yet been developed. Although Zintel Canyon has the potential for approximately 50 megawatts of wind power, there has not been sufficient interest from potential power purchasers to proceed with development.
Because Energy Northwest is committed to continued development of renewable energy, it will maintain the i
lease and permits on this site until there is firm interest in developing it as a public power resource.
NoaNet The Northwest Open Access Network (NoaNet) is a non-profit, open access, fiber-optic network developed to bring high-speed broadband communications and services to rural areas of the Northwest. Energy Northwest is a founding member. NoaNet offers access to the network ring licensed from BPA and other broadband providers in the state of Washington.
Early in 2003, Energy Northwest and Benton and Franklin PUDs announced the formation of the Three Rivers Local InterNetwork Exchange, known as TRLINX using the NoaNet network. TRLINX has two locations in Top: One of Energy Northwest's wireless communication towers.
Bottom Right: Energy Northwest employee, Justin Homer, checks on some broadband and internet connection equipment - part of the NoaNet network.
Bottom Left: The Hanford Generating Project along the Columbia River, next to N-Reactor.
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the community, one at the Applied Process Engineering Laboratory in North Richland and the other at Franklin County PUD's co-location facility at the PUD office in Pasco. The Benton County PUD broadband network is interconnected at the Franklin County PUD facility as well, making this a community focused solution. TRLINX is a local internetwork exchange that serves as a central hub to route or exchange local Internet-bound traffic, providing direct connections between local entities and Internet Service Providers (ISPs) that allow faster and smarter network performance.
Fuel Cell Energy Northwest, along with Bonneville Power Administration (BPA) and IdaTech of Bend, Oregon, was involved in a fuel cell demonstration. The fuel cell was available to member utilities for demonstrations at energy fairs and other appropriate events until late 2002 when BPA announced it had terminated its contract with IdaTech. BPA is currently evaluating other fuel cell products for use in the Northwest; Energy Northwest will continue to work with them to develop other distributed generation programs.
Applied Process Engineering Laboratory (APEL)
APEL celebrated five years of service in April 2003.
APEL's mission is to provide an incubator environment for new technology and business development in the Tri-Cities. In the five years since APEL opened its doors, 16 companies have been served.
APEL is unique in that it is wholly devoted to science, engineering, and manufacturing enterprises, with an emphasis on technical infrastructure, hardware as opposed to software, as well as health and safety.
Today, APEL tenant companies are devising solutions to pressing issues affecting energy, the environment, health and safety, and national security. Some have already achieved notable successes in their fields of endeavor, including FDA approval of a new prostate cancer treatment, full-scale production of air sampler and contaminant eradication and containment methods and devices, a new fuel processing unit, and production and distribution of a family of dermatological skin products.
APEL is good for business: In addition to being financially self-sustaining, it plays an important role in economic development across Washington and the region. Continuing support from Energy Northwest and other founding contributors to the project, including Pacific Northwest National Laboratory, the Port of Benton, the U.S. Department of Energy, TRIDEC, the City of Richland, and WSU Tri-Cities, has played a pivotal role in APEL's noteworthy achievements over the last five years.
Biomass Energy Northwest continues its investigation into another renewable energy resource option called biomass. This technology converts various waste products from the food, cattle, wood product, dairy or other similar industries into methane, which in turn can be used to fuel internal combustion engines turning generators. The potential benefits of biomass power to the environment are significant. This technology can reduce odor, ground and surface water contamination, and the release of methane into the atmosphere.
Energy Northwest's goal is to add to those benefits the production of clean, affordable electric energy from a renewable fuel source.
Ocean Wave Energy Although Energy Northwest remains interested in a proposal by the AquaEnergy Group of Mercer Island, Washington, to build an ocean wave energy demonstration project off the Washington Coast, the project has not moved forward due to a lack of funding.
The concept calls for buoys-similar to those used for navigational aids by the Coast Guard-that harvest kinetic energy from ocean swells, convert it to electrical energy and then send it to shore-side substations via submerged cables.
AquaEnergy received some initial aid from the Northwest Energy Innovation
- Center, of which Energy Northwest is a founding participant. As part of the initial steps toward an ocean wave energy demonstration project, Energy Northwest provided the entrepreneurial firm help in gaining siting permits.
Obtaining demonstration project funding is the next critical step.
Northwest Energy Innovation Center A challenging financial forecast and budgetary cutbacks forced the Bonneville Power Administration to withdraw funding for the Northwest Energy Innovation Center (NEIC) in October 2002. As a result, the Center has ceased all activities requiring financial support until a new funding source has been identified.
Originally, the Center was founded to support renewable energy projects. As a founding member, Energy Northwest provided licensing and permitting expertise to the wave energy demonstration developed by AquaEnergy Group, Inc. It was an excellent Top: Environmental Lab Services at work.
Bottom Right: Energy Northwest employee Stan Davison (left) and Farmer Steve DeRuyter at the site of the Biomass Demonstration Project in Franklin County.
Bottom Left: Energy Northwest is participating in a demonstration project that will turn cow manure into electricity i.
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the need for the facility to be on line. Therefore, their operation did not need our support.
This 44-megawatt combustion turbine plant is located in Pasco, Washington, and owned by Franklin County PUD and Grays Harbor County PUD.
H.W. Hill Landfill Gas Power Plant Since October 2001, when Energy Northwest entered into an agreement with Klickitat PUD to jointly operate the station, the facility's material condition and corresponding performance have improved.
Station operators, with Energy Northwest supervision and
- support, have improved the maintenance program at the station, which has reduced overall operating costs. Daily, monthly, and annual status reports, along with an operating plan and budget, are provided to Klickitat PUD as part of the operations and maintenance services agreement.
Since 2001, station adjusted capacity has increased from approximately 70 percent to almost 95 percent, and on-line time has increased approximately 25 percent.
In 2004, the PUD plans to install a gas cleanup system that should further reduce maintenance costs and initiate contracts for an engine heat recovery system that will increase station capacity by nearly a megawatt.
The H.W. Hill Landfill Gas Power Plant is a 10.5 MW facility that converts landfill methane to electricity and is located near Roosevelt, Washington.
Top: I & C Tech Colin Carson works in the Calibration Laboratory.
Bottom Right: Energy Northwest employees, Don Queen (left) and Jim Emery are responsible for the Calibration Laboratory.
Bottom Left: Energy Northwest provides operations and maintenance services to Klickitat County PUD at the H.W. Landfill Gas Power Plant g,X,_,,^,.
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As Energy Northwest begins fiscal year 2004, it is faced with ongoing challenges, as well as some new ones. In the coming year, Energy Northwest will continue to focus on personnel and industrial safety through the implementation of a behavior-based safety training program that's been proven effective at other stations throughout the industry.
Energy Northwest is already developing a detailed action plan for improving all areas of its performance at Columbia Generating Station-from equipment reliability issues to the spare parts program, from raising the bar on human performance standards to improving communication with peers, regulators, and other industry organizations.
Energy Northwest is expanding the Nine Canyon Wind Project and is working with a pioneer in biomass electrical generation technology to develop a demonstration facility located in Franklin County.
It is also reaching out to members, the public power community, and other potential customers who might benefit from other expertise it has developed over the years.
Energy Northwest remains steadfast in its commitment to being responsible stewards of all its assets, be they financial, environmental, or social.
Considering the financial situation in the region, Energy Northwest is very cost conscious, although it will never jeopardize safety and long-term reliability of its assets based on cost considerations alone. Energy Northwest is aggressively moving forward in its pursuit of ISO 14001 certification of its Environmental Management System.
Top: Energy Northwest CEO, Vic Parrish, accepts the EE Scattergood award from Mark Crisson of Tacoma Public Utilities at the APPA conference earlier in the year.
Bottom Right: Energy Northwest's Corporate Training.
Leadership & Development is in the capable hands of (from left) Bryce Linville, Kathy Martin, Lynne Pagel, and Georgia Hammond.
Bottom Left: Information Services employees (from left)
Paul Homer, Gail Dockter, and Justin Mays keep our computers running.
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For the year ended June 30, 2003 (Dollars in Millions)
Operating Statistics Columbia Generating Station Packwood Lake Project FY2003 FY2002 FY2003 FY2002 Net Generation (1) 7,738 9,262 91 82 Plant Availability (2) 81.0%
95.4%
96.2%
81.6%
Plant Capacity (3) 78.5%
92.0%
34.7%
33.9%
Cost of Power (cents/kWh)
Production Expenses (4) 2.0 1.4 0.73 0.96 Industry Basis (5) 3.01 2.06 Investment Performance Income Average Balance Rate of Return Bonds Outstanding Nuclear Project No. 1 FY2003 FY2002 CHANGE (%)
16 25
-36.0%
558 661
-15.6%
2.94%
3.78%
-22.2%
FY2003 FY2002 CHANGE (%)
I i
I i
i i
iI I
I Fixed
$1,665
$1,995
-16.5%
Weighted Average 5.6%
5.8%
-3.4%
Variable
$ 316
$ 125 152.8%
Average Rate 1.1%
3.6%
-31.3%
Columbia Generating Station Fixed (6)
$1,987
$1,954
-1.7%
Weighted Average (7) 5.5%
5.5%
0.0%
Variable
$ 102
$ 114
-10.5%
Average Rate 1.2%
3.6%
-25.0%
Nuclear Project No. 3 Fixed (6)
$1,098
$1,462
-33.2%
Weighted Average (7) 5.6%
5.5%
1.8%
Variable
$ 466
$ 178 161.8%
Average Rate 1.2%
3.6%
-25.0%
Packwood Lake Project Fixed
$ 4.3
$ 4.8
-10.4%
Weighted Average 3.7%
3.7%
0.0%
Nine Canyon Wind Project Fixed
$ 92.4
$ 70.7 30.7%
Weighted Average 5.3%
5.7%
-7.0%
(1) Expressed in millions of kWh. Columbia's generation includes BPA economic dispatch credit of: FY2003: 122; FY2002: 336.
(2) Plant availability is defined as the ratio of the sum of source hours and reserve shut down hours to total period hours.
(3) Plant capacity factor is the ratio of the actual energy production over a given period of time to the maximum energy production capability.
(4) Includes operating, maintenance, and fuel amortization costs per the EIA-412 report submitted to the Federal Energy Regulatory Commission (FERC).
(5) Industry cost of power includes expenses associated with operations and maintenance, capital additions, administrative and general, fuel-related costs and estimated costs associated with the economic dispatch credit.
(6)
Excludes compound interest bonds accretion.
(7) Excludes compound interest bonds.
The management of Energy Northwest is responsi-ble for preparing the accompanying financial statements and for their integrity. The statements were prepared in accordance with generally accepted accounting prin-ciples applied on a consistent basis, and include amounts that are based on management's best estimates and judgments.
The financial statements have been audited by PricewaterhouseCoopers LLP, Energy Northwest's inde-pendent accountants. Management has made available to PricewaterhouseCoopers LLP, all financial records and related data, and believes that all representations made to PricewaterhouseCoopers LLP, during its audit were valid and appropriate.
Management has established and maintains inter-nal control procedures that provide reasonable assur-ance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use of disposition, and the prevention and detection of fraudulent financial reporting. These control procedures provide for appropriate division of responsibility and are documented by written policies and procedures.
Energy Northwest maintains an ongoing internal auditing program that provides for independent assess-ment of the effectiveness of internal controls, and for recommendations of possible improvements thereto. In addition, PricewaterhouseCoopers LLP, has considered the internal control structure in order to determine its auditing procedures for the purpose of expressing an opinion on the financial statements. Management has considered the internal control structure in order to determine its auditing procedures for the purpose of expressing an opinion on the financial statements.
Management has considered recommendations made by the internal auditor and PricewaterhouseCoopers LLP, concerning the control procedures and has taken appropriate action to respond to the recommendations.
Management believes that, as of June 30, 2003, internal control procedures are adequate.
J. Vic Parrish Chief Executive Officer A.E. Mouncer Vice President, Corporate Servicesi General Counsel/Chief Financial Officer The Executive Board's Audit, Legal and Finance Committee is composed of seven independent directors.
Members of the Committee are Margaret Allen, Chair-man; Vera Claussen, Larry Kenney, Sid Morrison, Amy Solomon, Roger Sparks, and John Cockburn, Ex Officio.
The Committee held 12 meetings during the fiscal year ended June 30, 2003.
The Committee oversees Energy Northwest's finan-cial reporting process on behalf of the Executive Board. In fulfilling its responsibility, the Committee discussed with the internal auditor and the independent accountants, the overall scope and specific plans for their respective audits, and reviewed Energy Northwest's financial state-ments and the adequacy of Energy Northwest's internal controls.
22 People
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Margaret Allen, Chairman, Audit, Legal and Finance Committee
To the Executive Board of Energy Northwest:
We have audited the accompanying balance sheet of Energy Northwest and the related individual balance sheets of Energy Northwest's business units and internal service fund as of June 30, 2003, and the related statements of operations and cash flows for the year then ended.
Energy Northwest's business units include the Columbia Generating Station, Packwood Lake Hydroelectric Project, Nuclear Project No. 1, Nuclear Project No. 3, the Business Development Fund, Gray's Harbor Energy Facility and the Nine Canyon Wind Project.
These basic financial statements are the responsibility of Energy Northwest's management. Our responsibility is to express an opinion on these basic 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 audits to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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, the basic financial statements referred to above present fairly, in all material respects, the financial position of Energy Northwest and Energy Northwest's business units and internal service fund as of June 30, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The Management's Discussion and Analysis (MD&A) listed in the table of contents is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. The information in MD&A has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we express no opinion on it.
LAP' Portland, Oregon September 5, 2003 People
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i 7
I o0or (
i
MANAGEMENT'S DISCUSSION AND ANALYSIS Energy Northwest is a municipal corporation and joint operating agency of the State of Washington.
Each Energy Northwest Business Unit is financed and accounted for separately from all other current or future business assets. The following discussion and analysis is organized by Business Unit. The management discussion and analysis of the financial performance and activity is provided as an introduction and to aid in comparing the basic financial statements for the Fiscal Year ended June 30, 2003, with the basic financial statements for the Fiscal Year ended June 30, 2002. Energy Northwest has adopted accounting policies and principles that are in accordance with accounting principles generally accepted in the United States of America.
Energy Northwest applies Generally Accepted Accounting Principles (GAAP) to the extent it does not conflict with Governmental Accounting Standards Board (GASB) standards (see Note B to financial statements).
The financial statements include the balance sheets, statements of operations and fund equity; statements of cash flows, schedules of outstanding long-term debt and debt service requirements, and notes to the financial statements for each of the Business Units. The balance sheet presents the financial position of each Business Unit based on an accrual cost basis. The balance sheets report information about construction work in progress, amount of resources and obligations, restricted accounts and due to/due from balances (see Note B to financial statements) that reflect what is owed by each Business Unit.
The statements of operations and fund equity report information relating to all expenses, revenues and equity that reflect the results of each Business Unit and its related activities overthe course of the fiscal year. This information aids in benchmarking activities, conducting comparisons to evaluate progress, and whether the Business Unit has successfully recovered its costs.
The statements of cash flow reflect cash receipts and disbursements and net changes resulting from operating, financing and investment activities. The statements provide insight into what generates cash, where the cash comes from, and what it was used for.
The notes to the financial statements present disclosures that provide for a full understanding of the material presented in the financial statements.
This includes but is not limited to, accounting policies, significant balances and activities, material risks, commitments and obligations and subsequent events, if applicable.
COLUMBIA GENERATING STATION The Columbia Generating Station Nuclear Power Plant is owned by Energy Northwest and its Participants and operated by Energy Northwest. The Plant is a 1,153 megawatt boiling water nuclear power station located on the Department of Energy's Hanford Reservation north of Richland, Washington.
Columbia produced 7,616 GWh of electricity in Fiscal Year 2003, as compared to 8,926 GWh of electricity in Fiscal Year 2002. This decline in generation is a result of three forced outages during Fiscal Year 2003 along with a scheduled refueling outage which currently occurs every two years.
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BALANCE SHEET ANALYSIS -
Columbia Generating Station has just completed its first 2-year refueling and maintenance outage in Fiscal Year 2003. Utility Plant in Service increased by $64,149,000 from $3,419,489,000 in Fiscal Year 2002 to $3,483,638,000 in Fiscal Year 2003. The increase includes capitalization of an asset retirement cost of $31,110,000 due to the adoption of Financial Accounting Standards Board Statement 143 (see Financials Note G). The remaining $33,039,000 increase is made up of the Independent Spent Fuel Storage Installation (ISFSI) Project, and upgrades to Columbia's Security and Chemical Injection Systems.
Construction Work in Progress decreased by $16,367,000, from $30,355,000 in Fiscal Year 2002 to $13,987,000 in Fiscal Year 2003, mainly due to the ISFSI Project along with heightened security improvements being put into service.
Costs in Excess of Billings has increased from $120.7 million in Fiscal Year 2002 to $325.8 million in Fiscal Year 2003. This is largely due to refunding current maturities while extending the overall maturities on the refunding debt. The lack of a need for funds to pay off current maturities results in a cost that exceed billings. In addition, the accumulated decommisioning and site retoration accrued costs are not currently billed to Bonneville Power Association (BPA).
BPA holds and manages a trust fund for the purpose of funding decommisioning and site restoration (see Note B to the financials, Decommisioning and Site Restoration). The balances in these external trust funds are not reflected on Energy Northwest's Balance Sheet.
The Restricted Assets Special Funds decreased from Fiscal Year 2002 to 2003 by $96,751,000. The variance increase of $13,389,000 is due to the fact that the 2003 Bond Issue established a Columbia Construction Fund to be used for future capital project costs. The decrease of $110,140,000 is due to the reclassification of Decommissioning and Site Restoration values to be presented in the Deferred Charges, Costs in excess of billings section of the Balance Sheet due to SFAS 143, "Accounting for Obligations Associated with Retirement of Long-Lived Assets" (see Note G). The Debt Service Funds variance of $84,232,000 from Fiscal Year 2002 to 2003 is attributed to Bond Fund Reserve free-ups. The variance of $21,443,000 in Current Assets is attributable to the fact that investment rates were down significantly from Fiscal Year 2002 to 2003.
STATEMENT OF OPERATIONS ANALYSIS -
Columbia Generating Station is a net-billed Project.
Energy Northwest recognizes revenues equal to expense for each period on net-billed projects.
No net revenue or loss is recognized and no equity is accumulated.
The following changes from Fiscal Year 2002 for Net Operating Revenues are: Operating Revenues needed to cover expenditures are up $32,952,000 from
$406,995,000 in Fiscal Year 2002 to $439,947,000 in Fiscal Year 2003. Nuclear fuel expenditures are down, from
$30,311,000 in Fiscal Year 2002 to $27,061,000 in Fiscal Year 2003, because of reduced generation in an outage year. Less generation in an outage year resulted in less Generation Taxes, down $961,000, from $3,198,000 in Fiscal Year 2002 to $2,237,000 in Fiscal Year 2003, and Spent Fuel Disposal fees reduction of $1,234,000 from
$8,487,000 in Fiscal Year 2002 to $7,253,000 in Fiscal Year 2003. Operations and Maintenance expenditures were higher by $42,480,000, from $116,832,000 in Fiscal Year 2002 to $159,312,000 in Fiscal Year 2003. This is the result of a diesel generator and condenser leak unplanned outage along with the scheduled refueling and maintenance outage.
Decommissioning expenses 26 People
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increased $10,098,000 in Fiscal Year 2003 primarily due to the adoption of Financial Accounting Standards Board Statement 143 for Asset Retirement Obligation. This statement calls for the obligation to be recorded at a rate depreciated over the life of the plant. The amount is a combination of probable cases for accomplishing the required retirement obligations and their associated probabilities. The amount will also be increased each year to account for the accretion value of the obligation.
Past estimates were based on the funding statement methodology required under plant license. The amount calculated was then being costed over the life of the plant (see Note B to financial statements for further explanation).
Other Income and Expense changes are the net effects on Columbia Debt (see Note E to financial statements).
Investment Income was adversely affected by historically low rates of return resulting in a decline of $4,789,243 from $11,540,483 in Fiscal Year 2002 to $6,751,239 in Fiscal Year 2003. Additionally, results of the Bond Refunding issues reduced interest expense by $2,098,215 from $115,110,462 in Fiscal Year 2002 to $113,002,247 in Fiscal Year 2003. Amortization of Bond Discount Expense and Amortization of Bond Refunding netted an increased expense of $180,063 as a result of the Bond Refunding issues.
Year 2003 versus 81.61 GWh in Fiscal Year 2002.
BALANCE SHEET ANALYSIS -
Current Assets have increased $843,000 from $1,379,000 in Fiscal Year 2002 to $2,222,000 in Fiscal Year 2003, due to increased sales revenue from greater generation. As a result, Packwood accrued $830,000 in excess cash that is available to be returned to the Participants in October 2003.
STATEMENT OF OPERATIONS ANALYSIS - The agreement with Project Participants obligates them to pay annual costs and they receive excess revenues.
Accordingly, Energy Northwest recognizes revenues equal to expenses for each period.
No net revenue or loss is recognized and no equity is accumulated.
Revenues decreased because of the cost decreases detailed below.
Operations and Maintenance along with Administrative and General expenditures decreased $282,000, from
$1,368,000 in Fiscal Year 2002 to $1,086,000 in Fiscal Year 2003. This was due to unusually high costs in Fiscal Year 2002 caused by an extended outage and a transformer failure.
Investment Income increased due to the participants electing to leave $500,000 in excess cash from Fiscal Year 2002 to fund future re-licensing expenditures.
Fiscal Year 2002 had $36,000 compared to $44,000 in Fiscal Year 2003, an $8,000 increase.
PACKWOOD LAKE HYDROELECTRIC PROJECT The Packwood Lake Hydroelectric Project is owned and operated by Energy Northwest. The Project consists of a dam at Packwood Lake and a powerhouse 1800 ft. below the dam that is located south of Packwood, Washington.
Packwood produced 91.08 GWh of electricity in Fiscal People
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NUCLEAR PROJECT NO. 1 Nuclear Project No. 1, a 1,250 MWe plant, was placed in extended construction delay status in 1982, when it was 65 percent complete. On May 13, 1994, Energy Northwest's Board of Directors adopted resolutions terminating Nuclear Project No. 1. In Fiscal Year 1999, the assets and liabilities of Hanford Generating Project were consolidated into Nuclear Project No. 1.
The Hanford Generating Project site is being restored and all funding requirements are net-billed obligations of Nuclear Project No. 1. Energy Northwest wholly owns nuclear Project No. 1. Termination expenses and debt service costs comprise the activity on Nuclear Project No. 1.
BALANCE SHEET ANALYSIS - Under the debt optimization program, long -term debt was decreased by $124,988,000, from $2,081,189,000 in Fiscal Year 2002 to $1,956,201,000 in Fiscal Year 2003, due to principle payments and debt restructuring to take advantage of lower interest rates.
STATEMENT OF OPERATIONS ANALYSIS - Investment Income decreased $4,103,000, from $6,669,000 in Fiscal Year 2002 to $2,566,000 in Fiscal Year 2003, because of historically low rates of return. The average rate of return for Fiscal Year 2002 was 3.78 percent versus the Fiscal Year 2003 average rate of 2.94 percent.
NUCLEAR PROJECT NO. 3 Nuclear Project No. 3, a 1,240 MWe plant, was placed in extended construction delay status in 1983, when it was 75 percent complete. On May 13, 1994, Energy Northwest's Board of Directors adopted resolutions terminating Nuclear Project No. 3.
Energy Northwest is no longer responsible for any site restoration costs as they were transferred with the assets to the Satsop Redevelopment Project (see Note F). The last parcel of land was transferred during this period. The debt service related activities remain and are net-billed.
BALANCE SHEET ANALYSIS - Under the debt optimization program, long-term debt was decreased $55,590,000, from $1,817,152,000 in Fiscal Year 2002 to $1,761,562,000 in Fiscal Year 2003 due to principle payments and debt restructuring to take advantage of lower interest rates.
STATEMENT OF OPERATIONS ANALYSIS - Investment Income decreased $2,046,000 due to historically low rates of return, from $5,682,000 in Fiscal Year 2002 to $3,636,000 in Fiscal Year 2003.
In addition, Plant Preservation and Termination costs increased $3,198,000 due to an IRS arbitrage penalty in Fiscal Year 2003 as compared to Fiscal Year 2002 rebate.
BUSINESS DEVELOPMENT FUND The Business Development Fund (BDF) was created by Executive Board Resolution No. 1006 in April 1997, for the purpose of holding, administering, disbursing, and accounting for Energy Northwest costs and revenues generated from engaging in new energy business opportunities.
The BDF is managed as an enterprise fund.
Three business sectors have been created within the fund:
General Services, Generation, and Professional Services.
Each sector may have one or more programs that are managed as a unique business activity. A fourth business sector, Business Unit Support, has been created to capture costs associated with developing programs.
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STATEMENT OF OPERATIONS ANALYSIS - Operating Revenues in Fiscal Year 2003 totaled $11,163,000 as compared to Fiscal Year 2002 revenues of $6,808,000, an increase of $4,355,000. Energy Northwest has experienced significant growth in several of its business programs. Among the major business program contributors to this growth are: reactor outage services by $2,095,000, operations and maintenance services by
$1,570,000, and environmental services by $291,000.
Net Revenues for the Fiscal Year 2003 showed a $683,000 loss as compared to approximately a $1,740,000 loss in Fiscal Year 2002.
Two of Energy Northwest's Research and Investigation business projects, Zintel Canyon Wind Project and Wind Mining, accounted for $366,000 in expenditures with no revenues. Energy Northwest was created to enable Washington public power utilities and municipalities to build and operate generation projects.
With the growing interest in renewable energy sources, Energy Northwest is seeking to meet some of this demand with new wind generation projects. The Board of Directors approved an expansion of the Nine Canyon Wind Project as its next wind development site. In Fiscal Year 2003,
$161,000 was expended to begin developing the Nine Canyon Phase II project. The Business Development Fund will be reimbursed from the project, upon commercial operation, for these development costs. In Fiscal Year 2003, Energy Northwest's Nine Canyon Wind Project Phase I was completed and upon commercial operation (September 25, 2002) the development costs totaling
$693,000 were reimbursed to the Business Development Fund. In addition, the participants of the Nine Canyon Wind Project reimbursed the Business Development Fund $209,000 for Wind Mining expenditures.
This represented 50 percent of all Wind Mining expenditures to date. These costs are for research and investigation of new potential wind sites and expenditures that cannot be directly attributable to any single wind project.
In addition to wind generation, Energy Northwest is working with Soil Search LLC, of Kennewick, Washington, to develop a full-scale biomass power demonstration unit at a dairy farm near Pasco, Washington. This unit is expected to demonstrate a newly developed bioreactor technology produced by Soil Search. This research and development effort may provide a quantum leap in methane production from dairy cow manure. In Fiscal Year 2003, approximately $370,000 was expended on developing this project.
In Fiscal Year 2003, $201,000 was spent on sales and marketing efforts and another additional $1,071,000 was spent on developing the organizational infrastructure to support the growing business. Total operating revenues increased 64 percent in Fiscal Year 2003.
The Business Development Fund receives contributions from the Internal Service Fund to cover cash needs during this startup period. They are not expected to be paid back and are shown as contributions.
GRAYS HARBOR ENERGY FACILITY Becoming the operator of the Grays Harbor Energy Facility is a key component in Energy Northwest's strategic plan to eventually own and operate combined cycle gas turbine power plants. This contract will be the first step toward establishing a credible position in the Combustion Turbine power generation market. It will provide the basis for Energy Northwest to become a People
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major supplier of Operations and Maintenance services to other public utilities in the Northwest and to become an owner of gas turbine generating facilities, as well.
STATEMENT OF OPERATIONS ANALYSIS - Non-Operating revenues were $5,259,000 and $1,479,000 for Fiscal Year 2002 and Fiscal Year 2003, respectively. This decrease of $3,780,000 is due to the sale of the site in Fiscal Year 2002.
On January 15, 2001, Energy Northwest entered into an agreement to sell the Grays Harbor Energy Facility site to the Duke Energy North America (DENA) affiliate, Duke Energy Grays Harbor, LLC (DEGH).
Energy Northwest recognized a total of $5,000,000 for the sale of the site in Fiscal Year 2002. BPA was paid $2,137,000 due under the Hold Period and Option Development Agreements.
Revenues in Fiscal Year 2003 were recorded for reimbursable costs and services provided to DENA.
The actual sale of the land and assets at the site in Grays Harbor County near Elma, Washington, has already been concluded successfully. This was to lead to the construction by DEGH of a 630 megawatt combined cycle 2-on-1 gas turbine power plant at the site to be on-line by late 2003. Energy Northwest was to become the operator of the Grays Harbor Energy Facility. Due to current market conditions, Duke Energy North America has temporarily suspended construction on the Grays Harbor Energy Facility.
Energy Northwest and DENA have entered into a contract for site preservation services during this construction suspension time period.
DENA is determining the appropriate schedule for the project to resume.
NINE CANYON WIND PROJECT The Nine Canyon Wind Project is owned and operated by Energy Northwest. The Project is located in the Horse Heaven Hills area southeast of Kennewick, Washington.
Electricity generated by the Project is connected to the Bonneville Power Administration transmission grid via a substation and transmission lines constructed by the Benton County Public Utility District. The total project will produce enough energy capacity for approximately 20,000 average homes.
Phase I of the project consists of 37 wind turbines, each with a maximum generating capacity of approximately 1.3 megawatts of electricity, for a total wind farm capacity of 48 megawatts. Public Utility Districts in the Northwest, whose customers have expressed an interest in purchasing at least a portion of their electricity from green power sources, purchase the electricity from the Project. Each purchaser of Phase I has signed a 22-year power purchase agreement with Energy Northwest.
Phase II of the Project will consist of an additional 12 wind turbines with an aggregate generating capacity of approximately 15.6 megawatts. As were the Phase I turbines, the Phase II turbines will be manufactured by BONUS Energy A/S, and installed by Renewable Energy Systems (USA),
Inc. The engineer-procure-construct contract (EPC Contract) became effective as of May 2003. The first two units of Phase II were in operation by September 30, 2003.
Phase II will commence full operation by December 31, 2003.
Each purchaser of Phase II has signed a 20-year power purchase agreement with Energy Northwest.
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BALANCE SHEET ANALYSIS - Long-term debt in the form of bonds was sold in the amount of $70,675,000 to finance Phase I and $21,720,000 for Phase II of the Project. Construction for Phase I has been completed and the Project was declared commercially operational on September 25, 2002. Construction work in progress for Phase II totaled $3,965,000 for Fiscal Year 2003.
STATEMENT OF OPERATIONS ANALYSIS - Operating Revenues in Fiscal Year 2003 totaled $3,464,000.
The project received revenue from the billing of the project purchasers at a rate of $35.00 per MWh. Other contribution of funds include $230,000 from the Renewable Energy Production Incentive (REPI).
REPI was created as part of the Energy Policy Act of 1992 to promote increases in the generation and utilization of electricity from renewable energy sources and to further the advances of renewable energy technologies. This program, authorized under section 1212 of the Energy Policy Act of 1992, provides financial incentive payments for electricity produced and sold by new qualifying renewable energy generation facilities.
Operating Costs are expended for debt service and for operational and maintenance items.
The agreement with project purchasers anticipates a loss in Fiscal Year 2004 with additional cash needs being paid from existing project reserve funds. The reserve funds were established so that participant payments could start at
$35.00 per MWh and increase at 3 percent per year over 22 years. The payment stream and the REPI receipts are projected to cover the total costs over the entire time frame.
INTERNAL SERVICE FUND The Internal Service Fund (ISF) (formerly the General Fund) was established in May 1957. The Internal Service Fund provides services to the other funds.
This Fund accounts for the central procurement of certain common goods and services for the business units on a cost reimbursement basis (see Note A and Note B to financial statements).
This Fund accounts for the performance fees paid by BPA to Energy Northwest for achieving performance goals related to the operation of Columbia Generating Station.
BALANCE SHEET ANALYSIS Restricted investments and cash and available for sale securities decreased $24.194 million from $27.103 million in Fiscal Year 2002 to $2.909 million in Fiscal Year 2003, due to the release of the majority of the Unclaimed Bond Fund and associated liability to Bonneville Power Administration (BPA).
The majority of variance, $22.8 million is due to the disbursement of funds as per terms of the settlement and Indemnification Agreement between BPA and Energy Northwest (BPA Contract No.
STATEMENT OF OPERATIONS ANALYSIS Net Revenues for Fiscal Year 2003 were $434,000 versus
$5,810,000 for Fiscal Year 2002. The main contributor to this variance of $5,376,000 is the suspension of the Performance Fee award program by BPA in 2003.
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BALANCE SHEETS As of June 30, 2003 (Dollars in Thousands)
COLUMBIA GENERATING STATION PACKWOOD NUCLEAR NUCLEAR LAKE PROJECT PROJECT PROJECT NO. 1 '
NO. III BUSINESS GRAYS HARBOR DEVELOPMENT ENERGY FUND FACIUTY NINE CANYON WIND PROJECT INTERNAL 2003 SERVICE COMBINED SUBTOTAL FUND TOTAL ASSETS UTILITY PLANT (NOTE B)
In service Accumulated depreciation Nuclear fuel, net of accumulated amortization Construction work in progress RESTRICTED ASSETS (NOTE B)
Special funds Cash Available-for-sale investments Accounts and other receivables Prepayments and other Due from other business units Debt service funds Cash Available-for-sale investments Due from other funds Other receivables LONG-TERM RECEIVABLES (NOTE B)
CURRENT ASSETS Cash Available-for-sale investments Accounts and other receivables Due from Participants Due from other business units Due from other funds Materials and supplies Prepayments and other Nuclear fuel held for sale Plant & equipment held for sale DEFERRED CHARGES Costs in excess of billings Unamortized debt expense Other deferred charges TOTAL ASSETS
$3,483,638 S (1,874,957) 12,991 S
(12,083)
S S
823 S (214)
S 48,478 (1,630)
$3,545,930 S (1,888,884) 43.837 (29,124)
$3,589,767 (1,918,008) 1,608.681 908 609 46,848 1,657,046 14.713 1,671,759 121,275 121,275 121,275 13,987 3,965 17,952 17,952 1,743,943 908 609 50,813 1,796,273 14,713 1,810,986 10 21 3
23 57 1,599 1,656 31,541 284 19,917 13,407 18,083 83,232 1,310 84,542 4,178 17 4,195 4,195 25 25 274 299 2,129 2,129 57,877 2
32,987 27,324 6,053 124,243 124,243 4,900 743 17,602 23,498 1,325 48,068 48,068 4,099 4,324 211 8,634 10 10 10 98,427 1,029 81,193 64,443 25,501 270,593 3,183 263,013 6,591 6,591 6,591 1,915 4
544 239 5
3 2,710 2,710 1,658 1,770 16,085 5,761 895 2,209 5,734 34,112 24,604 58,716 989 374 8
978 561 238 3,148 123 3,271 841 12 9
862 862 226 708 2,095 1,542 44 342 4,957 8,813 12,750 7
3,072 9,381 90 25,300 70,739 70,739 70,739 628 67 51 746 166 912 4,345 4,345 4,345 1,409 1,409 1,409 89,746 2,222 26,183 17,485 3,466 2,819 6,407 148,328 33,706 142,964 325,818 2,097 1,921,575 1,701,508 3,950,998 3,950,998 15,271 2
16,531 13,194 4,286 49,284 49,284 1
5,110 5,111 5,111 341,090 2,099 1,938,106 1,714,702 9,396 4,005,393 4,005,393
$2,279,797 $
6,258
$2,045,482 $1,796,630 S 4,075 $
2,819 $
92,117 $6,227,178 $
51,602 $6,228,947
- Project recorded on a liquidation basis See notes to financial statements 32 People
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BALANCE SHEETS (continued)
As of June 30, 2003 (Dollars in Thousands)
COLUMBIA PACKWOOD NUCLEAR NUCLEAR BUSINESS GRAYS HARBOR NINE CANYON GENERATING LAKE PROJECT PROJECT DEVELOPMENT ENERGY WIND STATION PROJECT NO. 1 -
NO. 3 '
FUND FACILITY PROJECT SUBTOTAL INTERNAL 2003 SERVICE COMBINED FUND TOTAL FUND EQUITY AND LIABILITIES FUND EQUITY (DEFICIT)
LONG-TERM DEBT (NOTE E)
Revenue bonds payable Unamortized discount on bonds -net Unamortized gain/(ioss) on bond refundings LIABILITIES - PAYABLE FROM RESTRICTED ASSETS (NOTE B)
Special funds Accounts payable and accrued expenses Due to other funds Other deferred credits Debt service funds Accrued interest payable Due to other funds OTHER NONCURRENT LIABILITIES CURRENT LIABILITIES Cash Overdrafts Current maturities of long-term debt Accounts payable and accrued expenses Due to Participants Due to other business units DEFERRED CREDITS Advances from Members and others Other deferred credits TOTAL LIABILITIES TOTAL FUND EQUITY (DEFICIT) AND LIABILITIES 2,776 $
1,848 $
(2,261) $
2,363 $
4,121 $
6,484 2,019,765 3,939 1,980,615 1,938,515 92,395 6,035,229 6,035,229 32,054 (8) 50,054 (142,111) 730 (59,281)
(59,281)
(49,023) 33 (74.468)
(34,842)
(158,300)
(158,300) 2,002,796 3,964 1,956,201 1,761,562 93,125 5,817,648 5,817,648 48,265 36,970 467 85,702 2,295 87,997 16,849 4
7,395 9,592 90 33,930 185 185 185 16,451 53 42,875 23,396 147 82,922 82,922 3
3 81,565 60 87,240 32,988 185 704 202,742 2,295 171,104 30,701 30,701 30,701 2
2 537 539 129,030 377 129,407 129,407 19,746 57 368 886 17 436 21,510 41,314 62,824 4,125 1,330 2,032 804 8,291 8,291 11,834 470 9
908 226 127 113 13,687 2,213 164,735 2,234 2,041 2,080 1,114 144 549 172,897 44,064 201,061 827 827 1
828 1,121 1,121 827 827 1,122 1,949 2,279,797 6,258 2,045,482 1,796,630 1,299 971 94,378 6,224,815 47,481 6,222,463
$2,279,797 $
6,258
$2,045,482 $1,796,630 $
4,075 $
2,819 $
92,117 $6,227,178 $
51,602 $6,228,947 I Project recorded on a liquidation basis See notes to financial statements People
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STATEMENTS OF OPERATIONS AND FUND EQUITY For the year ended June 30, 2003 (Dollars in Thousands)
COLUMBIA PACKWOOD GENERATING LAKE STATION PROJECr NUCLEAR NUCLEAR BUSINESS GRAYS HARBOR NINE CANYON PROJECT PROJECT DEVELOPMENT ENERGY WIND NO. 1 -
NO. 3
- FUND FAOLITY PROJECT INTERNAL 2003 SERVICE COMBINED FUND TOTAL SUBTOTAL OPERATING REVENUES S 439,947 $
1,596 $
11,163 S 3,464 S 456,170 $
68,491 $ 456,604 OPERATING EXPENSES Services to other business units Nuclear fuel Spent fuel disposal fee Decommissioning Depreciation and amortization Operations and maintenance Administrative & general Generation tax New business initiatives Total operating expenses 27,061 7,253 26,505 79,528 159,312 26,901 2,237 365 922 164 19 158 1,834 1,068 33 22 27,061 7,253 26,505 81,885 161,302 27,098 2,278 66,552 27,061 7,253 26,505 1,533 81,885 161,302 27,098 2,278 11,276 11.276 11,276 328,797 1,470 11,434 2,957 344,658 68,085 344,658 NET OPERATING REVENUES (EXPENSES)
OTHER INCOME & EXPENSE 111,150 126 (271) 507 111,512 406 111,946 Non-operating revenues Investment income Gaint(loss) on current bond redemption Interest expense and discount amortization Plant preservation and termination costs Depreciation and amortization Revaluation of Site Restoration" Other NET REVENUES (EXPENSES)
Distribution & Contributions Beginning Fund Equity (DEFICIT)
ENDING FUND EQUITY (DEFICIT) 6,751 138,301 95,718 44 2,566 3,636 4
1,479 36 19 235,498 269 13,321 4
(119,666)
(174)
(111,279)
(96,223)
(4,817)
(26)
(24,984)
(3,131)
(3,154)
(330,496)
(7,948)
(45)
(24,984) 235,498 61 13,321 4
(330,496)
(7,948)
(45)
(24,984)
(19) 1,765 239 (448)
(1,247)
(33) 309 (683) 232 (2,378)
(2,829) 434 (2,395) 2,048 230 2,278 (1,436) 842 1,411 1,616 (113) 2,914 5,123 8,037
- S 2,776 S 1.848 S (2,261) 2,363 S 4,121 S 6.484
- Project recorded on a liquidation basis
- See Note G (SFAS 143)
See notes to financial statements 34 People
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STATEMENTS OF CASH FLOWS For the year ended June 30, 2003 (Dollars in Thousands)
COLUMBIA PACKWOOD NUCLEAR GENERATING LAKE PROJECT STATION PROJECT NO.1 '
NUCLEAR BUSINESS GRAYS HARBOR NINE CANYON INTERNAL 2003 PROJECT DEVELOPMENT ENERGY WIND SERVICE COMBINED NO.3 ^
FUND FACLITY PROJECT FUND TOTAL CASH FLOWS FROM OPERATING AND OTHER ACTIVITIES Operating revenue receipts Cash payments for operating expenses Non-operating revenue receipts Cash payments for preservation, termination expense Cash payments for new business Net cash provided (used) by operating and other activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from bond refundings Refunded bond escrow requirement Payment for bond issuance and financing costs Capital and nuclear fuel acquisitions Interest paid on revenue bonds Principal paid on revenue bond maturities Interest paid on Notes Notes Payable Construction Work in Progress Net cash provided (used) by capital and related financing activities CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investment securities Sales of investment securities Interest on investments Receipts from sales of plant assets Net cash provided (used) by investing activities NET INCREASE (DECREASE) IN CASH CASH AT JUNE 30, 2002 CASH AT JUNE 30, 2003 (NOTE B)
$ 247,421 S
3,498 $
(192,106)
(1,599) 5,231 $
S 3.445 $
(1,086) 76,785 72,908 (54,453)
(42,114) 1,784
$ 259,595 (194,791)
(21,352) 130,125 (96,567)
(4,580)
(4,580) 55,315 1,899 22,332 30,794 651 1,784 2,359 (21,352) 93,782 224,442 487,956 591,604 22,448 1,326,450 (179,350)
(489,845)
(592,889)
(1,262,084)
(2,380)
(4,149)
(5,137)
(898)
(12,564)
(55,264)
(55,264)
(82,457)
(177)
(151,537)
(152,240)
(3,940)
(390,351)
(21,310)
(532)
(86,116)
(5,870)
(113,828)
(1,613)
(241)
(418)
(2,272)
(34,518)
(34,518)
(18,008)
(18,008)
(152,450)
(709)
(243,932)
(164,950)
(398)
(562,439)
(1,323,070)
(10,384)
(899,670)
(624,780)
(21,867)
(13,304)
(84,712)
(256,212)
(3,233,999) 1,448,204 9,147 1,130,580 764,522 21,146 11,504 88,356 246,602 3,720,061 6,275 41 15,773 6,084 36 20 472 1,203 29,904 6
6 131,409 (1,196) 246,689 145,826 (685)
(1,780) 4,116 (8,407) 515,972 34,274 (6) 25,089 11,670 (34) 4 6,077 (29,759) 47,315 25,528 12 8,463 15,896 32 1
2 30,821**
80,755 59,802 S
6 S 33,552
$ 27,566 $
(2) 5 $
6,079 $
1,062 $ 128,070
- Project recorded on a liquidation basis
- Reclassification of short term investments in FY02 See notes to financiaistatements People
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STATEMENTS OF CASH FLOWS (continued)
For the year ended June 30, 2003 (Dollars in Thousands)
COLUMBIA PACKWOOD NUCLEAR GENERATING LAKE PROJECT STATION PROJECT NO. I -
NUCLEAR BUSINESS GRAYS HARBOR NINE CANYON INTERNAL 2003 PROJECT DEVELOPMENT ENERGY WIND SERVICE COMBINED NO. 3 -
FUND FACIUTY PROJECT FUND TOTAL RECONCILIATION OF OPERATING INCOME TO NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES Net operating revenues S 111,150 S
Adjustments to reconcile net operating revenues to cash provided by operating activities:
Cost/cash incurred in excess of cash/cost (199,001)
Depreciation and amortization 105,474 Decommissioning 26,505 Other (723)
Change in operating assets and liabilities:
Accounts receivable 4,105 Materials and supplies 1,807 Prepaid and other assets (369)
Due from/to other business units, funds and Participants (1,409)
Accounts payable 7,776 Non-operating revenue receipts Cash payments for preservation, termination expense Cash payments for services Cash payments for new business Net cash provided (used) by operating and other activities
$ 55,315 $
126 S
(271) $
S 507 $
$ 111,512 (361) 362 48 1,800 26 (199,362) 107,684 26,531 (1,171)
(448) 281 (524)
(8)
(67)
(42)
(1.001) 2,889 1,564 (6)
(2) 36 3,854 1,807 (478)
(848) 10,695 150,288 (96,567) 76,785 72,908 (54,453)
(42,114) 595 1,189 (21,352)
(20,163) 1,899 S 22,332 $
30,794 S 651 $
1,784 $
2,359 $ (21,352)
S 93,782
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OUTSTANDING LONG-TERM DEBT As of June 30, 2003 (Dollars in Thousands)
COUPON SERIES RATE COLUMBIA (NUCLEAR PROJECT NO. 2) REFUNDING REVENUE BONDS 1990A 7.25%
1990C (C) 1991A (C) 1992A 5.90-6.10 6.30 1993A 5.50-5.80 1993B 5.40-5.65 1994A 4.80-6.00 (C) 5.40 SERIAL OR TERM MATURmES AMOUNT
.i 7-1-2006 7-1-2004/2005 7-1-2006/2007 7-1-2004/2006 7-1-2012 7-1-2004/2008 7-1-2005/2008 7-1-2004/2011 7-1-2009 7-1-2012 S
2.115 2.115 18.054 18.054 10.267 10.267 12,415 50.000 62.415 65.350 65,350 54.725 54.725 495,695 4,776 100.200 600.671 1996A 5.50-6.00 7-1-2004/2012 195.385 195.385 1997A 5.10-5.20 7-1-2010/2012 50.355 50.355 1997B 5.00-5.50 7-1-2004/2011 30.000 30.000 1998A 5.00-5.75 7-1-2004/2012 181.285 181.285 2001A 5.00-5.50 7-1-2013/2017 186.600 186.600 2001B 5.50 7-1-2018 48.000 48.000 2002A 5.20-5.75 7-1-2017/2018 157.260 157.260 2002B 5.35-6.00 7-1-2018 123.815 123.815 2003A 5.50 7-1-2010/2015 154.490 154.490 2003B 4.15 7-1-2009 4.530 4.530 2003F 5.00-5.25 7-1-2007/2018 41.330 41.330 1997-2A-1 Average Variable 1.2%
51.195 51.195 1997-2A-2 Average Variable 1.2%
51.190 51.190 Compound interest bonds accretion 59.763 Revenue bonds payable 2,148,795 (B)
Estimated fair value at June 30, 2003
$2,384,394 (D)
(A) Includes amounts due July 1, 2003.
(B) Excludes amounts due July 1, 2003, which were paid as of June 30, 2003.
(C) Compound Interest Bonds.
(D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled.
(E) Auction Rate Certificates that will have a rate of 5.50 through 7/1/2009, anda variable rate thereafter until 711/2018.
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OUTSTANDING LONG-TERM DEBT (continued)
As of June 30, 2003 (Dollars in Thousands)
SERIAL COUPON OR TERM SERIES RATE MATURITIES AMOUNT PACKWQQDRLAKE-PROJECT REVENUBNDS 1962 3.625%
3-1-2012 3.191 3.191 1965 3.75 3-1-2012 1.125 Revenue bonds payable 4..A31.6 (8)
Estimated fair value at June 30, 2003 5_4.33 (D)
NUCLEAR PROJECT NQ. 1 REFUNDING REVENUE BONDS 1989B 7.125 7-1-2016 S 41.070 41 QZQ 1990B 7.25 7-1-2009 3.590 1992A 5.90-6.10 7-11-2004'2006
- 1. 5Q 1.360 1993A 5.30-7.00 7-1-2004'2009 51,330 51.330 1993B 5.10-7.00 7-1-2004,'2009 37.890 37.890 1993C 4.90-5.20 7-1-2004:2008 9,015 9Qi5 1996A 5.50-6.00 7-1-2004;2012
_337.790
_337.790 1996B 5.10-7.00 7-1-2004;2005 19.950 1 9.950 1996C 5.00-6.00 7-1-2004i2015 71,690 5.50 7-1-2017 24.8_Q
_96.55Q 1997A 6.00 7-1-2006@2008
_20.0Q04
_20.400 1997B 5.00-5.125 7-1-200402017
__244.375
-_244.375 1998A 5.00-5.75 7-1-200412017
$5.290
_8$i290 2001A 4.125-5.50 7-1-2004/2013 2.76
_8226Q7 2001B 5.50 7-1-2017 23,600 (E)
_2360QQ)
(A) Includes amounts due July 1, 2003.
(B) Excludes amounts due July 1, 2003, which were paid as of June 30, 2003.
(C) Compound Interest Bonds.
(D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of FinancialAccounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled.
(E) Auction Rate Certificates that will have a rate of 5.50 through 71112009 and a variable rate thereafter until 71112018.
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OUTSTANDING LONG-TERM DEBT (continued)
As of June 30, 2003 (Dollars in Thousands)
COUPON RATE SERIAL OR TERM MATURIES SERIES AMOUNT NUCLEAR PROJECT NO. 1 REFUNDING REVENUE BONDS (Continued) 2002A 5.5-5.75 2002B 6.00 7-1-2013/2017 7-1-2017 7-1-2013/2017 7-1-2009 S 248.485 248.485 101,950 101.950 241.455 241.455 18.210 18.210 2003A 5.50 2003B 4.06 1993-1 A-1 1993-1A-2 1993-1A-3 2003C Average Variable 1.1 %
Average Variable 1.1%
Average Variable 1.1%
Average Variable 1.1%
49.430 49.430 49.430 49.430 16.200 16.200 200.485 200.485
$1.980.615 (A)
$2.222.053 (D)
Revenue bonds payable Estimated fair value at June 30, 2003 (A) Includes amounts due July 1, 2003.
(B) Excludes amounts due July 1, 2003, which were paid as of June 30, 2003.
(C) Compound Interest Bonds.
(D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled.
(E) Auction Rate Certificates that will have a rate of 5.50 through 7/112008 anda variable rate thereafter until 71112017.
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OUTSTANDING LONG-TERM DEBT (continued)
As of June 30, 2003 (Dollars in Thousands)
SERIAL COUPON OR TI RM SERIES RATE MATURMES AMOUNT NU(CLEAR RROEC INO.
3REFUNDING REY "NUCBQND 1989A (C) 7-1-2004/2014
- 1. 17 107 17.107 1989B (C) 7-1-200412014 70,580 7.125 7-1-2016 76.145 146-25 1990B (C) 7-1-2001/2010 23.636
_23.636L 1993B 5.10-7.00 7-1-200412009 63.090 63.090 1993C 4.90-7.50 7-1-2004/2008 80,720 (C) 7-1-201312018 23.963 104683 1996A 5.50-6.00 7-1-2004/2009 30.735 1997A 5.00-6.00 7-1-2004/2018 107.695 107.695 1998A 5.00 7-1-2004/2005 16,675 5.125 7-1-2018 53.825 70.500 2001A 5.00-5.50 7-1-2004/2018 17Q0010 170.010 2001B 5.00-5.50 7-1-2018 25,675
_21,675 2002B 6.00 7-1-2016 75.360 2003A 5.50 7-1-2011/2017
_241.915
_241.915 2002B 4.15 7-1-2009 21.575
_21.575 1993-3A-3 Average Variable 1.2%
22.255 22255.
1998-3A Average Variable 1.2%
_ 144.33Q 144.330 2003D Average Variable 1.2%
201,065 201065 2003E Average Variable 1.2%
98025 (E) 98,Q25 Compound interest bonds accretion 374.134 Revenue bonds payable
$1,938,515 (A)
Estimated fair value at June 30, 2003
$1,989,747 (D)
(A) Includes amounts due July 1, 2003.
(B) Excludes amounts due July 1, 2003, which were paid as of June 30. 2003.
(C) Compound Interest Bonds.
(D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of FinancialAccounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled (E) Auction Rate Certificates that will have a rate of 5.50 through 71/12009 and a variable rate thereafter until 71112018.
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OUTSTANDING LONG-TERM DEBT (continued)
As of June 30, 2003 (Dollars in Thousands)
COUPON RATE SERIAL OR TERM MATURmES SERIES AMOUNT NINE CANYON WIND PROJECT REVENUE BONDS 2001A 4.00-6.00 2001B 4.30-6.00 7-1-2004/2023 7-1 -2017 7-1-2005/2023 S
50.410 50410 20.265 20.265 21.720 21.720
$ 92,395 (B)
$ 104,319 (D) 2003 3.00-5.00 Revenue bonds payable Estimated fair value at June 30, 2003 (A) Includes amounts due July 1, 2003.
(B) Excludes amounts due July 1, 2003, which were paid as of June 30, 2003 (C) Compound Interest Bonds.
(D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of Financial Accounting Standards (SPAS) 107 and does not purport to represent the amounts at which these obligations would be settled (E) Auction Rate Certificates that will have a rate of 5.50 through 711/2009 and a variable rate thereafter until 71/12018.
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DEBT SERVICE REQUIREMENTS As of June 30, 2003 (Dollars in Thousands)
COLUMBIA GENERATING STATION FISCAL YEAR PRINCIPAL INUlREST TOTAL 6/30/2003 Balance*:
Is 2004 2005 2006 2007 2008 2009-2013 2014-2018 123,424 101,885 94,046 151,996 146,665 887,621 583,395
$ 16,451 121,823 127,770 111,783 101,243 86,448 303,787 125,574 16,451 245,247 229,655 205,829 253,239 233,113 1,191,408 708,969 Adjustment **
59,763 (59,763)
S 2,148,795 S935,116 S 3,083,911
- Principal and interest due July 1, 2003.
- Adjustment for Compound Interest Bonds accretion; Compound Interest Bonds are reflected at their face amount less discount on the balance sheet.
PACKWOOD LAKE HYDROELECTRIC PROJECT FISCAL YEAR PRINCIPAL ITEREST TOTAL 6130/2003 Balance:*
2004 2005 2006 2007 2008 2009-2012 188 574 598 624 648 673 1,011 53 151 130 108 85 63 S9 241 725 728 732 733 736 1,070 S
4,316 649 4,965
- Principal and interest due July 1, 2003.
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DEBT SERVICE REQUIREMENTS (Continued)
As of June 30, 2003 (Dollars in Thousands)
NUCLEAR PROJECT NO. 1 FISCAL YEAR PRINCIPAL INTEREST TOTAL 6/30/2003 Balance:'
$ 42,875 2004 2005 2006 2007 2008 2009-2013 2014-2017 2018 66,910 56,510 77,890 64,575 79,000 540,290 1,095,440 103,785 100,144 97,030 92,625 88,954 374,678 156,704 S
42,875 170,695 156,654 174,920 157,200 167,954 914,968 1,252,144 S 1,980,615
$1,056,795
$ 3,037,410
- Principal and interest due July 1, 2003.
NUCLEAR PROJECT NO. 3 FISCAL YEAR PRINCIPAL INTEREST TOTAL 6130/2003 Balance:*
$s
$ 23,396 2004 2005 2006 2007 2008 2009-2013 2014-2018 62,906 64,471 65,392 60,176 63,330 352,241 895,865 96,156 94,872 93,377 93,845 90,853 411,430 236,003 23,396 159,062 159,343 158,769 154,021 154,183 763,671 1,131,868 Adjustment **
374,134 (374,134)
$ 1,938,515
$ 765,798 S 2,704,313
- Principal and interest due July 1, 2003.
- Adjustment for Compound Interest Bonds accretion; Compound Interest Bonds are reflected at their face amount less discount on the balance sheet.
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DEBT SERVICE REQUIREMENTS (Continued)
As of June 30, 2003 (Dollars in Thousands)
NINE CANYON WIND PROJECT FISCAL YEAR PRINCIPAL INTEREST 6/30/2003 Balance:*
$s 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 2,060 2,915 3,040 3,170 3,315 19,280 25,175 33,440 147 5,066 4,835 4,720 4,594 4,457 19,689 13,999 5,994 TOTAL S
147 7,126 7,750 7,760 7,764 7,772 38,969 39,174 39,434 S
92,395
$ 63,501 S
155.896
- Principal and interest due July 1, 2003.
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NOTE A - GENERAL Organization Energy Northwest, a municipal corporation and joint operating agency of the State of Washington, was organized in 1957. It is empowered to finance, acquire, construct and operate facilities for the generation and transmission of electric power.
On June30, 2003, its membership consisted of 15 public utility districts and 3 cities, Richland, Seattle and Tacoma.
All members own and operate electric systems within the State of Washington. Energy Northwest is exempt from federal income tax. Energy Northwest has no taxing authority.
Energy Northwest Business Units Energy Northwest operates Columbia Generating Station, a 1,153 MWe (Design Electric Rating, net) generating plant completed in 1984. Energy Northwest has obtained all permits and licenses required to operate Columbia, including a Nuclear Regulatory Commission (NRC) operating license that expires in December 2023.
Energy Northwest also operates the Packwood Lake Hydroelectric Project (Packwood), a 27.5 MWe generating plant completed in 1964.
Packwood operates under a fifty-year license from the Federal Energy Regulatory Commission (FERC) that expires on February 28, 2010.
The electric power produced by Packwood is sold to 12 utilities, which pay the costs of Packwood, including the debt service on the Packwood Hydroelectric revenue bonds. The Packwood Participants are obligated to pay annual costs of the Project including debt service, whether or not the Project is operable, until the outstanding bonds are paid or provisions are made for bond retirement, in accordance with the requirements of the bond resolution. The Participants share project revenue as well.
Nuclear Project No. 1, a 1,250 MWe plant, was placed in extended construction delay status in 1982, when it was 65 percent complete. Nuclear Project No. 3, a 1,240 MWe plant, was placed in extended construction delay status in 1983, when it was 75 percent complete. On May 13, 1994, Energy Northwest's Board of Directors adopted resolutions terminating Nuclear Projects Nos. 1 and 3 (see Note F - Nuclear Projects Nos. 1 and 3 Termination).
In fiscal year 1999, the assets and liabilities of Hanford Generating Project were consolidated into Nuclear Project No. 1. The Hanford Generating Project site is being restored and all funding requirements are net-billed obligations of Nuclear Project No. 1. Nuclear Project No. 1 is wholly owned by Energy Northwest.
Each Energy Northwest Business Unit is financed and accounted for separately from all other current or future Business Units.
All electrical energy produced by Energy Northwest net-billed Business Units is ultimately delivered to electrical distribution facilities owned and operated by BPA as part of the Federal Columbia River Power System.
BPA in turn distributes the electricity to electric utility systems People
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throughoutthe Northwest, including Participants in Energy Northwest's Business Units, for ultimate distribution to consumers. Participants in Energy Northwest's net-billed Business Units consist of publicly owned utilities and rural electric cooperatives located in the western United States that have entered into net-billing agreements with Energy Northwest and BPA for participation in one or more of Energy Northwest's Business Units. BPA is obligated by law to establish rates for electric power which will recover the cost of electric energy acquired from Energy Northwest and other sources as well as BPA's other costs (See Note E).
Energy Northwest also manages the Business Development Fund, Nine Canyon Wind Project, and Grays Harbor Energy Facility Project. The Business Development Fund was established in April 1997, to pursue and develop new energy-related business opportunities.
The Nine Canyon Wind Project was established in January 2001, for the purpose of exploring and establishing a wind energy Project.
Phase I of the project was completed in fiscal year 2003. Phase I of the Project consists of turbines which are rated at 48 MWe. Phase II of the project has been approved and construction is expected to be complete by December 31, 2003. Phase II of the Project will consist of turbines which are rated 15.6 MWe.
The Grays Harbor Energy Facility Project was established in July 1990, to collect advances and contributions to pay the costs of investigating new generating Projects, including the feasibility of a combustion turbine near Satsop, Washington. The Project purpose was amended during Fiscal Year 2002 to include the operation and maintenance of a gas fired combustion turbine placed on the Grays Harbor site (owned by Duke Energy Grays Harbor LLC) and included the option to purchase up to 50 MW of power generated by the facility. Due to current market conditions, Duke Energy North America has temporarily suspended construction of the combustion turbine plant.
The Internal Service Fund (formerly General Fund) was established in May 1957. It is currently used to account for the central procurement of certain common goods and services for the Business Units on a cost reimbursement basis. It is also used to account for the performance fees to Energy Northwest for achieving performance goals related to the operation of the projects.
NOTE B -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting Energy Northwest has adopted accounting policies and principles that are in accordance with accounting principles generally accepted in the United States of America. Accounts are maintained in accordance with the uniform system of accounts of the Federal Energy Regulatory Commission (FERC).
Separate funds and books of account are maintained for each Business Unit. Payment of obligations of one Business Unit with funds of another Business Unit is prohibited, and would constitute violation of bond resolution covenants.
Energy Northwest maintains an Internal Service Fund for centralized control and accounting of certain fixed assets such as data processing equipment, and for payment and accounting of internal services, payrolls, benefits, administrative and general
- expenses, and certain contracted services on a cost reimbursement basis.
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addition, it is used to account for performance fees including those paid to Energy Northwest for achieving performance goals related to the operation of the Projects. Certain assets in the Internal Service Fund are also owned by the Fund and operated for the benefit of other Projects. Depreciation relating to fixed assets is charged to the appropriate Business Units based upon direct labor costed to each Project.
Liabilities of the Internal Service Fund represent accrued payrolls, vacation pay, employee benefits, and common accounts payable which have been charged directly or indirectly to Business Units and will be funded by the Business Units when paid.
Net amounts owed to or receivable from Energy Northwest Business Units are recorded under Current Liabilities - Due to other Business Units, or Current Assets - Due from other Business Units on the Internal Service Fund balance sheet.
The Combined Total column on the financial statements is for presentation only as each Energy Northwest Business Unit is financed and accounted for separately, from all other current and future Business Units. The FY2003 Combined Total includes eliminations for transactions between Business Units as required in Statement No. 34, "Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments" of the Governmental Accounting Standards Board (GASB).
Pursuant to Statement No. 20 of the Governmental Accounting Standards Board (GASB), "Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting," Energy Northwest has elected to apply all Financial Accounting Standards Board statements and interpretations, except for those that conflict with or contradict GASB pronouncements.
Specifically, Statement of Governmental Accounting Standard No. 7, "Advance Refundings Resulting in Defeasance of Debt" and No. 23, "Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities" conflict with Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." As such, the guidance under Statement of Governmental Accounting Standard No. 7 and No. 23 is followed. Such guidance governs the accounting for bond defeasances and refundings.
The preparation of Energy Northwest financial statements in conformity with accounting principles generally accepted in the United States of America necessarily requires management to make estimates and assumptions that directly affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
Certain incurred expenses and revenues are allocated to the Business Units based on specific allocation methods and management considers the allocation methods to be reasonable.
Energy Northwest's fiscal year begins on July 1st and ends on June 30th.
Utility Plant Utility plant is stated at original cost. Plant in service is depreciated by the straight-line method overthe estimated People
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useful lives of the various classes of plant, which range from five to 60 years. The Nuclear Regulatory Commission now grants license extensions. Energy Northwest plans to file and receive extensions. This practice has been acknowledged and accepted by utilities abroad. In prior years, Energy Northwest had calculations for certain long lived assets based on a 40-year useful life. As of July 1, 2002, Energy Northwest is changing the depreciation schedules to reflect a 60-year useful life. This results in a decrease in depreciation expense of approximately $16 million in Fiscal Year 2003. In addition, the year to year depreciation expense effect is approximately $16 million peryear. The depreciation schedulewill reflect this change in Fiscal Year 2003 and prospectively.
During the normal construction phase of a Project, Energy Northwest's policy is to capitalize all costs relating to the Project, including interest expense (net of interest income), and related administrative and general expense.
The utility plant and net assets of Nuclear Projects Nos. 1 and 3 have been reduced to their estimated net realizable values due to termination. A write-down of Nuclear Projects Nos. 1 and 3 was recorded in fiscal year 1995 and is included in Cost in Excess of Billings. Interest expense, termination expenses and asset disposition costs for Nuclear Projects Nos. 1 and 3 have been charged to operations. Utility Plant activity for the year ended June 30, 2003, was as follows:
UTILITY PLANT ACTIVITY (Amount in Thousands)
BEGINNING BALANCE INCREASES DECREASES ENDING BALANCE Columbia Generation Decommission Construction Work in Progress Accumulated Depreciation Accumulated Amortization Utility Plant, net Nine Canyon Generation Decommission Construction Work in Progress Accumulated Depreciation Accumulated Amortization Utility Plant, net Packwood Generation Accumulated Depreciation Utility Plant, net Business Development General Accumulated Depreciation Utility Plant, net Internal Service Fund General Accumulated Depreciation Utility Plant, net
$ 3,419,489 30,355 (1,786,935) 33,039 31,110 (78,161)
(9,861)
(16,368) 3,452,528 31,110 13,987 (1,865,096)
(9,861)
$ 1,662,909
$ (23,873)
(16,368) 1,622,668 48,029 48,029 449 449 48,387 (44,422) 3,965 (1.622)
(1,622)
(8)
(8) 48,387 46,848 (44,422) 50,813 12,855 137 12,991 (11,722)
(362)
(12,084) 1,133 (225) 908 757 66 S
823 (166)
(48)
(214) 591 18 609 43,547 290 43,837 (27,591)
(1,533)
(29,124)
S 15,956 (1,243) 14,713 48 People
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Nuclear Fuel Restricted Assets All expenditures related to the purchase of nuclear fuel for Columbia, including interest, are capitalized and carried at cost. When the fuel is placed in the reactor, the fuel cost is amortized to operating expense on the basis of quantity of heat produced for generation of electric energy. Accumulated nuclear fuel amortization (the amortization of the cost of nuclear fuel assemblies in the reactor used in the production of energy and in the fuel pool for less than six months per FERC guidelines) is
$103 million as of June 30, 2003, for Columbia.
Energy Northwest has a contract with the Department of Energy (DOE) that requires the DOE to accept title and dispose of spent nuclear fuel. Although the courts have ruled that the DOE had the obligation to accept title to spent nuclear fuel by January 31, 1998, the repository is not expected to be in operation before 2010. The current period operating expense for Columbia includes a $7.3 million charge for future spent nuclear fuel storage and disposal to be provided by the DOE in accordance with the Nuclear Waste Policy Act of 1982.
Energy Northwest has completed a Project to store the spent fuel in commercially available dry storage casks on a concrete pad at the Columbia site. Spent Fuel will be transferred from the Spent Fuel pool to the Independent Spent Fuel Storage Installation periodically to allow for future refuelings. Current period operating costs include
$23.5 million for nuclear fuel and $3.6 million accrued dry cask storage costs. $2.1 million of the $3.6 million of accrued dry cask storage costs is related to an increase in the estimate of dry cask storage costs. The remaining
$1.5 million is directly related to amortization.
In accordance with Project bond resolutions, related agreements or state law, separate restricted funds have been established for each Business Unit. The assets held in these funds are restricted for specific uses including construction, debt service, capital additions, extraordinary operations and maintenance
- costs, termination, decommissioning, and workers' compensation claims.
Long-Term Receivables Long-term receivables include minimum guaranteed amounts adjusted annually pertaining to future discounts for certain goods and services to be provided to Columbia as the result of a litigation settlement and subsequent revisions.
Accounts and Other Receivables Accounts and other receivables for the Internal Service Fund include miscellaneous receivables outstanding from other Business Units that have not yet been collected. The amounts due to each Business Unit are reflected in the due to/from other Business Units account.
Asset Retirement Obligation, SFAS 143 Energy Northwest adopted the Statement of Financial Accounting Standards No.
- 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets" (SFAS 143) on July 1, 2002. SFAS 143 People
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requires an entity to recognize the fair value of a liability for an asset retirement obligation (ARO), such as nuclear decommissioning and site restoration liabilities, in the period in which it is incurred, rather than using a cost-accumulation approach (See Note G, Accounting Change: Accounting for Asset Retirement Obligations, for discussion regarding the impact of adopting SFAS 143).
Decommissioning and Site Restoration Energy Northwest established decommissioning and site restoration funds for Columbia and monies are being deposited each year in accordance with an established funding plan.
The NRC has issued rules to provide guidance to licensees of operating nuclear plants on decommissioning the plants at the end of each plant's operating life.
In September 1998, the NRC approved and published its "Final Rule on Financial Assurance Requirements for Decommissioning Power Reactors." As provided in this rule, each power reactor licensee is required to report to the NRC the status of its decommissioning funding for each reactor or share of a reactor it owns. This reporting requirement began on March 31, 1999, and reports are required every two years thereafter. Energy Northwest submitted its most recent report to the NRC in March, 2003.
Energy Northwest's current estimate of Columbia's decommissioning cost is approximately $608 million (in 2003 dollars). This current estimate is based on the NRC minimum amount required to demonstrate reasonable financial assurance for a boiling water reactor with the power level of Columbia.
Site restoration requirements for Columbia are governed by the site certification agreements between Energy Northwest and the State of Washington and regulations adopted by the Washington Energy Facility Site Evaluation Council (EFSEC). Energy Northwest submitted a site restoration plan for Columbia that was approved by the EFSEC on June 12, 1995.
Energy Northwest's current estimate of Columbia's site restoration cost is approximately $65 million (in 2003 dollars).
Both decommissioning and site restoration estimates (in 2003 dollars) are used as the basis for establishing a funding plan that includes escalation and interest earnings until decommissioning activities occur. Payments to the decommissioning and site restoration funds have been made since January 1985. The fair value of cash and investment securities in the decommissioning and site restoration funds as of June 30, 2003, totaled approximately $74.4 million and $7.6 million, respectively.
Since September 1996, these amounts have been held and managed by BPA in external trust funds in accordance with NRC requirements and site certification agreements.
Materials and Supplies Materials and supplies are valued at cost, using a weighted-average cost method.
Financing Expense, Bond Discount and Deferred Gain and Losses Financing expenses and bond discounts are amortized 50 People
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over the terms of the respective bond issues using the bonds outstanding method.
In accordance with the Statement of Governmental Accounting Standard No. 23, losses on debt refundings have been deferred and amortized as a component of interest expense over the shorter of the remaining life of the old or new debt. The balance sheet includes the original deferred amount less recognized amortization expense and is included as a reduction to the new debt.
Current Maturities of Revenue Bonds Current maturities of revenue bonds payable from restricted assets are reflected in Long-Term Debt. Current maturities of bonds for which funds have not yet been restricted are reflected in Current Liabilities.
Accounts Payable and Accrued Expenses Restricted Liabilities Internal Service Fund accounts payable and accrued expenses include $508,102 for unclaimed bearer bonds. Columbia includes $47.8 million for decommissioning and site restoration. Nuclear Project No. 1 includes $25.9 million for decommissioning and site restoration. The Nine Canyon Wind Project includes
$466,989 for decommissioning and site restoration.
substation costs for Phase II and contract retainage amounts related to construction in the amount of
$175,158.
Fair Value of Financial Instruments The fair value of financial instruments has been estimated using available market information and certain assumptions.
Considerable judgment is required in interpreting market data to develop fair value estimates and such estimates are not necessarily indicative of the amounts that could be realized in a current market exchange. The following methods and assumptions were used to estimate the fair value of each of the following financial instruments.
Financial instruments for which the carrying value is considered a reasonable approximation of fair value include: cash, accounts and other receivables, accounts payable and accrued expenses, advances from Members and others, other non-current liabilities and due to/from Participants, funds, and other Business Units. The fair values of investments (see Note C) and revenue bonds payable (see Outstanding Long-Term Debt Schedule) have been estimated based on quoted market prices for such instruments or based on the fair value of financial instruments of a similar nature and degree of risk.
Revenues Current Liabilities Internal Service Fund accounts payable and accrued expenses include $645,558 for payroll and related benefits, $16 million for compensated absences, and $7.2 million for outstanding warrants.
Columbia includes accrued expenses of $1.4 million for arbitrage penalty (as defined by the Internal Revenue Code). The Nine Canyon Wind Project includes $50,000 of accrued Energy Northwest accounts for expenses on an accrual basis and recovers, through various agreements, actual cash requirements for operations and debt service for Columbia, Packwood, Nuclear Project No. 1 and Nuclear Project No. 3. For these Business Units, Energy Northwest recognizes revenues equal to expenses for each period.
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No net revenue or loss is recognized, and no equity is accumulated.
Concentration of Credit Risk The difference between cumulative billings received and cumulative expenses is recorded as either billings in excess of costs (liability) or as costs in excess of billings (asset), as appropriate.
Such amounts will be settled during future operating periods.
Energy Northwest accounts for revenues and expenses on an accrual basis for the remaining Business Units. The difference between cumulative revenues and cumulative expenses is recognized as net revenue or losses and included in fund equity for each period.
Energy Northwest has accrued as income (contribution) from the Department of Energy, Renewable Energy Performance Incentive (REPI) that enables Nine Canyon Wind Project to receive revenue based on generation as it applies to the REPI bill. Fiscal Year 2003 resulted in an approximate amount of income of $230,000.
The REPI was created as part of the Energy Policy Act of 1992 to promote increases in the generation and utilization of electricity from renewable energy sources and to further the advances of renewable energy technologies. This program, authorized under section 1212 of the Energy Policy Act of 1992, provides financial incentive payments for electricity produced and sold by new qualifying renewable energy generation facilities. Income amounts were recorded upon Energy Northwest's application for participation in the REPI program, and are based on the qualifying generation data submitted to the Department of Energy.
Financial instruments which potentially subject Energy Northwest to concentrations of credit risk consist of available-for-sale investments, accounts receivable, other receivables, long-term receivables and costs in excess of billings. Energy Northwest invests exclusively in U.S.
Government securities and agencies. Energy Northwest's accounts receivable and costs in excess of billings are concentrated with Project Participants and BPA through the net billing agreements. See Note E, Security - Nuclear Projects Nos. 1, 3, and Columbia and Security - Packwood Lake Hydroelectric Project. The long-term receivable is with a large and stable company which Energy Northwest considers to be of low credit risk. Other large receivables are secured through the use of letters of credit and other similar security mechanisms or are with large and stable companies which Energy Northwest considers to be of low credit risk. As a consequence, Energy Northwest considers the exposure of the Business Units to concentration of credit risk to be limited.
Statements of Cash Flows For purposes of the statements of cash flows, cash includes unrestricted and restricted cash balances.
Short-term, highly liquid investments are not considered cash equivalents.
NOTE C - CASH AND INVESTMENTS Cash and investments for each Business Unit are separately maintained. Energy Northwest's deposits are insured by 52 People
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federal depository insurance or through the Washington Public Deposit Protection Commission. Energy Northwest resolutions and investment policies limit investment authority to obligations of the United States Treasury, Federal National Mortgage Association and Federal Home Loan Banks.
All investments are held for the benefit of the individual Energy Northwest Business Units by safekeeping agents, custodians, or trustees.
Investments are classified as available-for-sale and are stated at fair value with unrealized gains and losses reported in investment income.
Available-for-sale investments at June 30, 2003, are categorized below to give an indication of the types and amounts as well as maturities of investments held by each Business Unit at year-end (See tables following).
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AVAILABLE-FOR-SALE-INVESTMENTS (Dollars in Thousands)
Amortized Cost Unrealized Gains Unrea-lze-dLosie Fair Value Columbia U.S. Government Agencies Total Packwood U.S. Government Securities Total Nuclear Project No. 1 U.S. Government Securities U.S. Government Agencies Total Nuclear Project No. 3 U.S. Government Agencies Total Business Development Fund U.S. Government Agencies Total CT Project U.S. Government Agencies Total Internal Service Fund U.S. Government Agencies Total Nine Canyon Wind U.S. Government Securities U.S. Government Agencies Total 38,099 38,099 2,796 1
2,796 1
255 53,349 53,604 42,666 42,666 895 895 2,209 2,209 25,914 3
25,914 3
756 19 24,337 30 25,093 49 S 38,099 38,099 S
2,797 2,797 255 53,349 S 53,604 S 42,666 42,666 895 895 2,209 2,209 25,914 25,914 775 24,367 25,142 54 People
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AVAILABLE-FOR-SALE-INVESTMENTS (Continued)
(Dollars in Thousands)
< 1 year 1-5 years 5-10 years
> 10 years Total Columbia U.S. Government Agencies Total Packwood U.S. Government Securities Total Nuclear Project No. 1 U.S. Government Securities U.S. Government Agencies Total Nuclear Project No. 3 U.S. Government Agencies Total Business Development Fund U.S. Government Agencies Total CT Project U.S. Government Agencies Total Internal Service Fund U.S. Government Securities Total Nine Canyon Wind U.S. Government Securities U.S. Government Agencies Total
$ 38,099
$ 38,099 2,797 2,797 255 53,349
$ 53,604
$ 42,666 42,666 895 895
$ 2,209
$ 2,209
$ 25,914
$ 25,914 775 24,367
$ 25,142
$ 38,099
$ 38,099 2,797 2,797 255 53,349
$ 53,604
$ 42,666
$ 42,666 895 895 2,209 2,209
$ 25,914
$ 25,914 775 24,367
$ 25,142 People
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NOTE D - RETIREMENT BENEFITS Substantially all Energy Northwest full-time and qualifying part-time employees participate in one of the following statewide retirement systems administered by the Washington State Department of Retirement Systems, under cost-sharing, multiple-employer, public employee defined benefit and defined contribution retirement plans. The Department of Retirement Systems (DRS), a department within the primary government of the State of Washington, issues a publicly available comprehensive annual financial report (CAFR) that includes financial statements and required supplementary information for each plan. The DRS CAFR may be obtained by writing to: Department of Retirement Systems, Administrative Services Division, P.O. Box 48380, Olympia, WA 98504-8380. The following disclosures are made pursuant to GASB Statement No. 27, Accounting for Pensions by State and Local Government Employers.
including Energy Northwest. The PERS system includes three plans.
Participants who joined the system by September 30, 1977, are Plan 1 members. Those joining thereafter are enrolled in Plan 2, unless they exercise an option to transfer their membership to Plan 3. PERS participants joining the system on or after March 1, 2002, for state and higher education employees, or September 1, 2002, for local government employees have the option of choosing membership in either PERS Plan 2 or PERS Plan 3. The option must be exercised within 90 days of employment. Retirement benefits are financed from employee and employer contributions and investment earnings. Retirement benefits in Plan 1 and Plan 2 are vested after completion of five years of eligible service.
PERS Plan 3 participants are vested immediately.
Funding Policy Public Employee's Retirement System (PERS) Plans 1, 2, and 3 Plan Description PERS is a cost-sharing, multiple-employer, defined benefit pension plan. Membership in the plan includes: elected officials; state employees; employees of the Supreme, Appeals, and Superior courts (other than judges in a judicial retirement system); employees of legislative committees; college and university employees not in national higher education retirement programs; judges of district and municipal courts; non-certificated employees of school districts; and employees of local government, Each biennium, the state Pension Funding Council adopts Plan 1 employer contribution rates and Plan 2 employer and employee rates, and Plan 3 employer contribution rates. Employee contribution rates for Plan 1 are established by statute at six percent and do not vary from year to year. The employer and employee contribution rates for Plan 2 and employer rate for Plan 3 are set by the director of the Department of Retirement Systems based on recommendations by the Office of the State Actuary to continue to fully fund the plan. All employers are required to contribute at the level established by state law. The methods used to determine the contribution requirements are established under state statute in accordance with chapters 41.40 and 41.45 Revised Code of Washington.
The required contribution rates for the defined benefit 56 People
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plan expressed as a percentage of current year covered payroll, as of June 30, 2003, were:
401(k) and 457 Plan Deferred Compensation Plan I PERS Plan 1 I PERS Plan 2 l PERS Plan 3 l i
I I Employer*l 1.32%
1.32%
i 1.32%**
Employee 6.00%
1 0.65%
I
- The employer rates include the employer administrative expense fee currently set at 0.22%
- Plan 3 defined benefits portion only.
- Variable from 5.0% minimum to 15.0% maximum based on the rate selected by PERS 3 member.
Both Energy Northwest and the employees make the required contributions.
Energy Northwest's required contributions for three years ended June 30, were:
PERS Plan 1 PERS Plan 2 PERS Plan 3
- 2003
$108,239
[$1,077,1061 $95,821 2002
[$147,307
[$1,238,861 N/A 2001
[$410,640 l $ 3,100,152 N/A In addition to the pension benefits available through PERS, Energy Northwest offers post-employment life insurance benefits to retirees who are eligible to receive pensions under PERS Plan 1, Plan 2, and Plan 3. One hundred twenty-five retirees have elected to participate in this insurance. In 1994, Energy Northwest's Executive Board approved provisions which continued the life insurance benefit to retirees at25 percent of the premium for employees who retire prior to January 1, 1995, and charged the full 100 percent premium to employees who retired after December 31, 1994. The life insurance benefit is equal to the employee's annual rate of salary at retirement for non-bargaining employees retiring prior to January 1, 1995. The cost of coverage for employees who retired after January 1, 1995, is $2.33 per $1,000 of coverage with a maximum limit of $10,000. Employees who retired prior to January 1, 1995, contribute $.58 per $1,000 of coverage while Energy Northwest pays the remainder. Premiums are paid to the insurer on a current period basis.
Energy Northwest provides a
401 (k)
Deferred Compensation Plan (the 401 (k) Plan), and a 457 Deferred Compensation Plan. Both Plans are defined contribution plans that were established to provide a means for investing savings by employees for retirement purposes.
All permanent, full-time employees are eligible to enroll in the Plans. Each participant may elect to contribute pre-tax annual compensation, subject to current Internal Revenue Service limitations. For the 401(k) Plan, Energy Northwest matches 50 percent of the portion of the participant's salary deferral amount, which does not exceed 5 percent of the participant's 401(k) eligible earnings for the 401(k) Plan year.
Participants direct the investment of their contributions. Participants are immediately vested in their contributions plus actual earnings thereon. During FY 2003, Energy Northwest contributed $1,887,237 in employer matching funds.
NOTE E - LONG-TERM DEBT Each Energy Northwest Business Unit is financed separately.
The resolutions of Energy Northwest authorizing issuance of revenue bonds for each Business Unit provide that such bonds are payable from the revenues of that Business Unit. All bonds issued under Resolutions Nos. 769, 775, and 640 for Nuclear Projects Nos. 1, 3, and Columbia, respectively, have the same priority of payment within the Business Unit (the "Prior Lien Bonds"). All bonds issued under Resolutions Nos.
835, 838, and 1042 for Nuclear Projects Nos. 1, 3, and Columbia, respectively, are subordinate to the Prior People
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Lien Bonds and have the same subordinated priority of payment within the Business Unit (the "Electric Revenue Bonds").
During the year ended June 30, 2003, Energy Northwest issued, for Nuclear Projects 1, 3, and Columbia, the Series 2003-A Bonds, Series 2003-B Bonds, Series 2003-C Bonds, the Series 2003-D Bonds, the Series 2003-E Bonds, and Series 2003-F Bonds. The Series 2003-A Bonds, issued for Nuclear Project No.1, Nuclear Project No. 3, and Columbia are fixed rate bonds with an average coupon interest rate of 5.5 percent. The Series 2003-A Bond Proceeds of $714.1 million refunded $714.1 million of outstanding bonds having an average coupon interest rate of 5.59 percent. This transaction resulted in a net loss for accounting purposes of $757,092 for Nuclear Project 1, a net gain of $1,866,695 for Nuclear Project 3, and a net gain of $888,458 for Columbia. According to GASB 7 "Advance Refundings Resulting in Defeasance of Debt," the amortization of the gain and losses on the refundings are calculated based on the shorter of the life of the new debt compared to old debt.
The Series 2003-B Bonds, issued for Nuclear Project No.1, Nuclear Project No. 3, and Columbia, in the aggregate amount of $44.3 million, are taxable fixed rate bonds with an average coupon interest rate of 4.10 percent.
The 2003-B Bond Proceeds of $44.3 million were used to refund $32.7 million of outstanding bonds, as well as for the payment of the Cost of Issuance, Underwriter's Discount, and Bond Insurance for all 2003 bonds. This transaction resulted in a net loss for nuclear project No. 1; Nuclear Project No. 2, and Columbia Generating Station of $17,881,186, $20,840,140 and $4,501,741 respectively.
The Series 2003-C Bonds, issued for Nuclear Project No.
1, in an aggregate amount of $200.5 million, are auction rate Bonds with 7-day and 35-day auction periods. This transaction resulted in a net gain to Nuclear Project No.
3 of $663,028.
The Series 2003-D Bonds, issued for Nuclear Project No.
3, in an aggregate amount of $201.1 million, are variable rate demand Bonds with weekly reset periods.
This transaction resulted in a net gain to Nuclear Project No.
3 of $1,186,237.
The Series 2003-E Bonds, issued for Nuclear Project No.
3, in an aggregate amount of $98.0 million, are variable rate demand Bonds with weekly reset periods.
The Series 2003-C/D/E Bonds were used to refund $499.6 million of outstanding bonds, all of which were called for redemption on July 1, 2003. As a result, the refunded bonds are considered to be defeased and the liability for these bonds has been removed from long-term debt.
This transaction resulted in a net loss to Nuclear Project No. 3 of $203,228.
The Series 2003-F Bonds, issued for Columbia, in an aggregate amount of $41.3 million, are fixed rate bonds with an average coupon interest rate of 5.08 percent.
The Series 2003-F Bonds were issued for the purpose of refunding certain short-term indebtedness, to pay costs of other capital improvements at Columbia, and to pay costs relating to the issuance of the Series 2003-F Bonds.
In prior fiscal years, Energy Northwest also defeased certain revenue bonds by placing the net proceeds from the refunding bonds in irrevocable trusts to provide for all required future debt service payments on the refunded 58 People
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bonds until their dates of redemption. Accordingly, the trust account assets and liability for the defeased bonds are not included in the financial statements in accordance with GASB Nos. 7 and 23. Including the Fiscal Year 2003 defeasements, approximately $771,210 million, $610,200
- million, and $523,740 million of defeased bonds were not called or had not matured at June 30, 2003, for Nuclear Projects No.'s 1, 3, and Columbia, respectively.
During the Fiscal Year ended June 30, 2003, Energy Northwest also issued, for the Nine Canyon Wind Project, the Series 2003 Wind Project Revenue Bonds.
The Series 2003 Bonds, in aggregate principal amount of $21.7 million, are fixed rate bonds with an average coupon interest rate of 4.51 percent. The Series 2003 Bonds were issued to finance the costs of acquiring, constructing and installing Phase II of the Project which consists of an additional 12 wind turbines.
Outstanding revenue bonds for the various Business Units as of June 30, 2003, and future debt service requirements for these bonds are presented at the end of the Financial Section of this report.
The refinancings entered into during the year have resulted in fixed rate debt being defeased by variable rate debt. This has exposed a portion of our outstanding debt to movements in interest rates. Our objective in managing this interest rate exposure is to limit the impact of interest rate changes on earnings and cash flows, and to reduce overall borrowing costs. To achieve these objectives, we maintain a mix of medium and long-term fixed rate debt.
Security - Nuclear Projects Nos. 1, 3, and Columbia Project Participants have purchased all of the capability of Nuclear Projects Nos. 1, 3, and Columbia. BPA has in turn acquired the entire capability from the Participants under contracts referred to as net-billing agreements.
Under the net-billing agreements for each of the Business Units, Participants are obligated to pay Energy Northwest their pro rata share of total annual costs of the respective Projects, including debt service on bonds relating to each Business Unit, and BPA in turn is obligated to pay the Participants identical amounts by reducing amounts due to BPA by Participants under BPA power sales agreements.
The net-billing agreements provide that Participants and BPA are obligated to make such payments whether or not the Projects are completed, operable or operating and notwithstanding the suspension, interruption, interference, reduction or curtailment of the Projects' output.
On May 13, 1994, Energy Northwest's Board of Directors adopted resolutions terminating Nuclear Projects Nos.
1 and 3. The Nuclear Projects Nos. 1 and 3 Project agreements and the net-billing agreements, except for certain sections which relate only to billing processes and accrued liabilities and obligations under the net-billing agreements, ended upon termination of the Projects.
Energy Northwest entered into an agreement with BPA to provide for continuation of the present budget approval, billing and payment processes. With respect to Nuclear Project No. 3, the ownership agreement among Energy Northwest and private companies was terminated in fiscal year 1999. The ownership of all real and personal property interests was transferred to Energy Northwest.
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Security - Packwood Lake Hydroelectric Project Energy Northwest, Benton County PUD, and Franklin County PUD have signed Power Sales agreements which became effective November 4, 2002, and run through October 30, 2003.
A subsequent one-year extension has been executed for the period beginning November 1, 2003, and extending through October 30, 2004.
Benton and Franklin County PUD's agree to pay Energy Northwest in exchange for the total output of electric capacity and energy delivered from the Packwood Generation Project. The Packwood Participants are obligated to pay annual costs of the Project including debt service, whether or not the Project is operable, until the outstanding bonds are paid or provisions are made for bond retirement, in accordance with the requirements of the bond resolution. The Participants share project revenue as well.
NOTE F - COMMITMENTS AND CONTINGENCIES Nuclear Project No. 1 Termination Since the Nuclear Project No. 1 termination, Energy Northwest has been planning for the demolition of Nuclear Project No. 1 and restoration of the site, recognizing that there is no market for the sale of the Project in its entirety and to date, no viable alternative use has been found. The final level of demolition and restoration will be in accordance with agreements discussed later in Note F under "Nuclear Projects Nos. 1 and 4 Site Restoration."
Nuclear Project No. 3 Termination In June 1994, the Nuclear Project No. 3 Owners Committee voted unanimously to terminate the Project. During 1995, a group from Grays Harbor County, Washington, formed the Satsop Redevelopment Project (SRP). The Satsop Redevelopment Project introduced legislation with the State of Washington under Senate Bill No. 6427, which passed and was signed by the Governor of the State of Washington on March 7, 1996. The legislation enables local governments and Energy Northwest to negotiate an arrangement allowing such local governments to assume an interest in the site on which Nuclear Project No. 3 and Nuclear Project No. 5 exists for economic development by transferring ownership of all or a portion of the site to local government entities. This legislation also provides for the local government entities to assume regulatory responsibilities for site restoration requirements and control of water rights.
In February 1999, Energy Northwest entered into a transfer agreement with the Satsop Redevelopment Project (SRP) to transfer the real and personal property at the site of Nuclear Project No. 3 and Nuclear Project No. 5. The SRP also agreed to assume regulatory responsibility for site restoration. Therefore, Energy Northwest is no longer responsible to the State of Washington and Washington Energy Facility Site Evaluation Council (EFSEC) for any site restoration costs.
Nuclear Projects Nos. 1 and 4 Site Restoration Site restoration requirements for Nuclear Projects Nos.
1 and 4 are governed by site certification agreements between Energy Northwest and the State of Washington and regulations adopted by the Washington EFSEC, and 60 People
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a lease agreement with the Department of Energy (DOE).
Energy Northwest submitted a site restoration plan for Nuclear Projects Nos. 1 and 4 to EFSEC on March 8, 1995, which complied with EFSEC requirements to remove the assets and restore the sites by demolition, burial, entombment, or other techniques such that the sites pose minimal hazard to the public.
EFSEC approved Energy Northwest's site restoration plan on June 12, 1995.
In its approval, EFSEC recognized that there is uncertainty associated with Energy Northwest's proposed plan.
Accordingly, EFSEC's conditional approval provides for additional reviews once the details of the plan are finalized. A new plan with additional details was submitted in Fiscal Year 2003. This submittal was used to calculate the Asset Retirement Obligations (ARO) discussed in Note G of the financial statements.
purpose. The maximum principal share (with step-up) the Business Development Fund could be required to pay is $2,490,800. It's important to note the Business Development Fund is not obligated to reimburse losses of NoaNet unless an assessment is made to NoaNet's members based on a two-thirds vote of the membership.
In Fiscal Year 2003, the Business Development Fund contributed $119,796 to NoaNet based on an assessment by the NoaNet members.
This equity contribution was reduced to zero at year-end because NoaNet had a negative net equity position of $13.3 million as of June 30, 2003. Future equity contributions, if any, will be treated the same until NoaNet has a positive equity position.
Other Litigation and Commitments Business Development Fund Interest in Northwest Open Access Network The Business Development Fund is a member of the Northwest Open Access Network ("NoaNet"). Members formed NoaNet pursuant to an Interlocal Cooperation Agreement for the development and efficient use of a communication network in conjunction with BPA for use by the Members and others.
The Business Development Fund has a 7.38 percent interest in NoaNet with an additional 25 percent step-up possible for a maximum 9.23 percent. As of June 30, 2003, NoaNet has $27 million in outstanding bonds. The members are obligated to pay the principal and interest on the bonds when due, in the event and to the extent that NoaNet's Gross Revenue (after payment of costs of Maintenance and Operation) is insufficient for this Energy Northwest is involved in various claims, legal actions and contractual commitments and in certain claims and contracts arising in the normal course of business.
Although some suits, claims and commitments are significant in amount, final disposition is not determinable.
In the opinion of management, the outcome of such litigation, claims or commitments will not have a material adverse effect on the financial positions of the Business Units or Energy Northwest as a whole. The future annual cost of the Business Units, however, may either be increased or decreased as a result of the outcome of these matters.
Nuclear Licensing and Insurance Energy Northwest is a licensee of the Nuclear Regulatory Commission and is subject to routine licensing and user People
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fees, to retrospective premiums for nuclear liability insurance, and to license modification, suspension, or revocation, or civil penalties in the event of violations of various regulatory and license requirements.
The Price-Anderson Act currently provides for nuclear liability insurance of over $10.6 billion per incident, which is covered by a combination of commercial nuclear insurance and mandatory industry self-insurance. Energy Northwest has purchased the maximum commercial insurance available of $300 million, which is the first layer of protection. The second layer of protection is provided through a mandatory industry self-insurance plan wherein each licensed nuclear facility required to participate in the plan (currently 105 participants) may be assessed up to $100.6 million per incident, subject to a maximum annual assessment of $10 million per year.
Nuclear property damage and decontamination liability insurance requirements are met through a combination of commercial nuclear insurance policies purchased by Energy Northwest and BPA.
The total amount of insurance purchased is currently $2.25 billion. The deductible for this coverage is $5 million per occurrence.
NOTE G - NEW ACCOUNTING PRONOUNCEMENT Energy Northwest adopted SFAS No. 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets", on July 1, 2002 (see Note B, Summary of Significant Accounting Policies). This Statement requires an entity to recognize the fair value of a liability for an asset retirement obligation (ARO), measured at estimated fair value, for legal obligations related to the dismantlement and restoration costs associated with the retirement of tangible long-lived assets, such as nuclear decommissioning and site restoration liabilities, in the period in which it is incurred. Upon initial recognition of the AROs that are measurable, the probability weighted future cash flows for the associated retirement costs, discounted using a credit-adjusted, risk-free rate, are recognized as both a liability and as an increase in the capitalized carrying amount of the related long-lived assets. Capitalized asset retirement costs are depreciated over the life of the related asset with accretion of the ARO liability classified as an operating expense on the statement of operations and fund equity each period. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss if the actual costs differ from the recorded amount.
However, with regard to the net-billed Projects, BPA is obligated to provide for the entire cost of decommissioning and site restoration therefore, any gain or loss recognized upon settlement of the ARO results in an adjustment to either the excess of costs (liability) or costs in excess of billings (asset), as appropriate, as no net revenue or loss is recognized, and no equity is accumulated for the net-billed projects.
Energy Northwest has identified legal obligations to retire generating plant assets at the following business units: Columbia Generating Station, Nuclear Project No.
1, and Nine Canyon Wind Project. Decommissioning and site restoration requirements for Columbia and Nuclear Project No. 1 are governed by the Nuclear Regulatory Commission (NRC) regulations and site certification agreements between Energy Northwest and the State of Washington and regulations adopted by the Washington Energy Facility Site Evaluation Council (EFSEC) and a 62 People
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lease agreement with the Department of Energy (DOE)
(see Notes B and F). Under the current agreement, the Nine Canyon Wind Project has the obligation to remove the generation facilities upon expiration of the lease agreement if requested by the lessors.
Packwood's obligation has not been calculated because the time frame and extent of the obligation was considered under this statement as indeterminate, as a result, no reasonable estimate of the asset retirement obligation can be made. An ARO will be required to be recorded if circumstances change. Management believes that these assets will be used in utility operations for the foreseeable future.
Upon adoption of SFAS 143 on July 1, 2002, Columbia Generating Station recorded an ARO of $70.222 billion at its net present value of $31.110 million, and increased depreciable assets by $21.768 million. Nuclear Project No.
1 recorded an ARO of $49.612 million at its net present value of $25.253 million, however, no asset retirement cost was recorded as the project was terminated prior to the adoption date. Prior obligations recorded with regard to the decommissioning obligation of Columbia and Nuclear Project No. 1 were reversed as of the adoption date. As a result of the net-billing arrangement, the adoption of SFAS 143 for Columbia Generating Station and Nuclear Project No. 1 did not result in a cumulative effect adjustment on the statement of operations and fund equity, rather the net impact resulted in an increase to costs in excess of billings in the amount of
$24.994 million and $25.253 million, respectively. As of June 30, 2003, Columbia Generating Station has a net asset value of $21.249 million and an accumulated liability of $47.754 million. Nuclear Project No. 1 has an accumulated liability of $41.354 million.
During the year, Nine Canyon Wind Project recorded an ARO of $458,115 with regard to Phase I of the generation project which began commercial operations in September 2002. As of June 30, 2003, the Nine Canyon Wind Project had a recorded asset retirement cost asset value of $449,683 with accumulated depreciation of
$8,432 and an ARO asset of $466,989.
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CURRENT DEBT RATINGS (Unaudited)
ENERGY NORTHWEST (Long-Term)
Fitch, Inc.
Moodys Investors Service, Inc. (Moodys)
Standard and Poor's Ratings Services (S & P)
NET BILLED RATING AA-Aal AA-NINE CANYON RATING A-A3 A-VARIABLE RATE DEBT Letter of Credit Banks Bank of America Long-Term Short-Term JPMorgan Chase Bank Long-Term Short-Term Bond Insurance (Long-Term)
MBIA Insurance Corporation FSA (Short-Term)
Credit Suisse First Boston Dexia S & P FITCH MOODYS AA-A-1 +
Aa1 P-1 AA-A-1 +
AAA Aa3 VMIG1 F1 AAA Aaa A-1 A-1 +
P-1 P-1 F1+
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