ML17277B373

Annual Financial Rept 1983.W/840410 Ltr

ML17277B373
Person / Time
Site:	Columbia, Washington Public Power Supply System, Satsop
Issue date:	12/31/1983
From:	Halvorson C, Sorensen G WASHINGTON PUBLIC POWER SUPPLY SYSTEM
To:	Harold Denton Office of Nuclear Reactor Regulation
References
GO1-84-103, GO2-84-221, GO3-84-222, NUDOCS 8404170396
Download: ML17277B373 (42)

Text

REGULATORY WORMATION DISTRIBUTION SY < (RIDS)

ACCESSION NBR;8404170396 DOC ~ OATEN'3/12/31 NOTARIZED: NO DOCKET FACIL:56-397'PPSS Nuclear Pr ojecti Unit 2~ Liashington Public Powe 05000397

.50-460 NPPSS Nuclear Projecti Unit 1< llashington Public Powe 05000460 STN 50 508 YPPSS Nuclear Projecti Un.it 3~ Nashington Public 05000508 .

AUTH SHAME AUTHOR AFF ILI ATION HALYORSONiC.M. Washington Public Power Supply System SORENSEN,G.C, Nashington Public Power Supply System RECIP ~ NAMF- RECIPIENT AFF ILIATION DENTONiH ~ RE Office of Nuclear Re ct r Regulationi Director S UBJECT: Annual Financial Rept 1983,8/840410 ltr.

DISTRIBUTION CODE: M004S COPIES RECEIYED:LTR J ENCL' TITLE: Annual Financial Reports NOTES:Standardized Plant ~ PNL 1cy FSAR AMDTS 8 NON PROP REPT'5000508 RECIPIENT COPIES RECIPIENT COPIES ID CODE/NAME LTTR ENCL ID CODE/NAME LTTR ENCL NRR LB2 BC 1 0 NRR LB4 BC, 1 0 NRR LB3 BC 1 0 NRR LB2 LA 01 1 1 NRR LB4 LA 01 1 1 NRR LB3 LA 01 1 1 AULUCKgR ~ 0 THADANIg M 1 0 VIETTIiA 0 INTERNAL REG FILE 1 1 SP EXTERNAL: LPDR 03 2 2 NRC PDR 02 '1 1 NOTES'4 NTlS 05 1 1

1 TOTAL NUMBER OF COPIES REQUIRED: LTTR 16 ENCL 10

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Washington Public Power Supply System P.O. Box 968 3000 George Washington Way Richland, Washington 99352 (509) 372-5000 Docket Nos: 50-397 - G02-84-221 50-460 - G01-84-103 50-508 - G03-84-222 April 10, 1984 Mr. Harold R. Denton, Director Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, D.C. 20555

Subject:

SUPPLY SYSTEM NUCLEAR PROJECTS NO. 1, 2, and 3 ANNUAL FINANCIAL REPORT Enclosed for your information, as required by 10CFR50.71, are three (3) copies of the Washington Public Power Supply System 1983 Annual Report. The financial statements of the Supply System's Nuclear Projects are not certified by our auditor Ernst and Whinney, in view of certain facts, discussed in the Annual Report, with which the Nuclear Regulatory Commission is already familiar.

Very truly yours, G. C. Sorensen, Manager Regulatory Programs CVH/kd

Enclosures:

(3) As stated CC: R. Auluck, NRC T. Kenyon, NRC A. Vietti, NRC N. Reynolds, Bishop, Liberman, Cook, Purcell 8 Reynolds

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TABLE OF CONTENTS Letter from the Executive Board Chairman ... .1 Repaying Supply System bondholders....... .3 Operating Projects .5 A commitment to excellence 5 Preserving the assets of Projects 1 and 3...... .7 No room for compromise 9 Financial Section:

Balance Sheets . 4 Statement of Changes in Financial Position .. 14 Statement of Operations Hanford and Packwood Projects . ... 15 Outstanding Long-term Debt ,...16 Notes to Financial Statements .. 22 Statement of Debt Service Requirements... ... 32 ~

Report of Independent Accountants...., .. ~ ~ ~ 34 1983 Plant 2 Milestones . 36 Our cover During a year of uncertainty, Plant 2's construction completion and licensing stand as a bright example of Supply System tenacity.

~LETTER FROM THE EXECUTIVE BOARD CHAIRMAN

". The December 20, 1983, decision by the the Supply System was effectively barred U,S. Nuclear Regulatory Commission to from the nation's financial markets because grant an operating license for the Supply of litigation surrounding contractual System's Plant 2 represented more than the agreements for power from its plants, net-culmination of 11 years of construction billing agreements with BPA made it possi-work. That licensing, the subsequent fuel ble to complete the construction of Plant 2.

loading and attainment of initial criticality Through a program of rigorous tests by on January 19, 1984, provided the region both the NRC and the Supply System, and with a needed sign of recovery for an an independent technical review, Plant 2

' organization that had witnessed default on has proved to be solidly constructed. Its two of its power plants and a three-year startup and operations staff is recognized as delay of a third during 1983. one of the most qualified in the nation.

Zhe mission of the Supply System since it More than 3,800 years of nuclear industry was created in 1957 has been to respond to experience will be behind the controls the power requirements of the region as re- when Plant 2 begins commercial operation quested by its member utilities and the in 1984.

Bonneville Power Administration. The Plant 2 willjoin two other Supply System clear mandate in 1983 was to complete plants with excellent operations Plant 2 an 1,100 megawatt nuclear power records the Packwood Lake Hydroelectric plant that is an integral part of the North- Project and the Hanford Generating Proj-west Regional Power Plan. Even though ect. Together, they produced about Ten years ago Plant 2 was no more than a large hole in the ground in the Hanford desert. More than 194,000 cubic yards of earth were moved during site excava-tion, January 1973.

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THE S UFFLY SYSTEM IN 1983 3,653,896,800 kilowatt hours of electrical For the Supply System, the most significant power during 1983. ruling among the numerous court cases In a year where the destiny of four of our arising out of the termination of Projects 4 and 5 came on June 15, 1983. A decision nuclear construction projects was being formed in the region's courtrooms, Plant from the Supreme Court of Washington 2's construction completion and licensing and subsequent rulings effectively nullified the Participants'greements for Projects 4 stand as a bright example of the uncom-and 5 and thus removed the security promising attitude toward quality, safety behind the $ 2.25 billion debt for those proj-and cost-consciousness by the Supply Sys-ects. That decision resulted in the Supply tem's Executive Board and staff.

System's unavoidable admission in July 1983 that it could not pay the 4 and 5 Proj-ects debts when they became due and payable.

While it is still unclear when, how, or if the issues around Projects 4 and 5 bonds will be resolved, it is, now, in a national forum. Any resolution is beyond the power of the Supply System and will take place in Carl M. Halvorson the courts and/or through the actions of Chairman Executive Board public, private or political forces.

A technician carefully in- Construction is well under-spects one of the 746 way in October 1973 with uranium fuel bundles after the base of the containment delivery from the manufac- building.

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During fiscal year 1983 more than $ 600 outages, with the first refueling planned for million in interest and principal was paid the spring of 1986.

from proceeds of net-billing arrangements A commitment to excellence with the Bonneville Power Administration The licensing of Plant 2 on December 20, and project participants to Supply System's 1983, was a success story not only for the Projects 1, 2 and 3 bondholders. Supply System but also for the nuclear in-Operating projects dustry. The Supply System is proud of this The Hanford Generating Project produced accomplishment, but is also deeply aware about 3.5 billion kilowatt hours of electrici- of the high standards that it and the ty in 1983. The Packwood Hydroelectric nuclear industry share.

Project generated more than 100 million The Supply System intends to maintain a kilowatt hours during the same period. As standard of excellence in the operational a public power agency, revenues from reliability and safety of Plant 2. The com-these projects cover only the cost of pany's goal is to achieve a mode of opera-operating the plant and debt service on out- tion that places the Supply System in the standing bonds. top ten percent of the nuclear power Plant 2 is expected to join the two generating industry. This is not just generating projects in full commercial rhetoric but an integral part of our cor-operation by July 1984. Present plans call porate objectives as set forth in the general for keeping the plant on line except for budget criteria for fiscal year 1985. To this scheduled maintenance and surveillance end the Supply System is striving for a A technician inspects one of By August 1975 the bottle-the nearly 100 cones that shaped containment build-guide control rods at the top ing, left, was in place and of the Project 3 reactor work was well under way on vessel. the turbine generator building, right.

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70 percent plant capacity factor during its confident that our dedicated managers and first year of commercial operation. This skilled operators will run a safe plant at the will be a tough goal, but by setting high least cost.

standards and guidelines the best possible Preserving the assets of Projects I and 3 results will be achieved. Although construction of Project 3 was The success of the Supply System requires delayed in 1983 and Project 1 in 1982, the excellence in all aspects. The link between two plants continue to be considered quality, safety and the baseload resources for the Pacific North-west in all but the most pessimistic electric ratepayers'conomic well-being is obvious. To keep a nuclear plant up and running demands power forecasts. This position was recently constant caretaking. It is recognized that reaffirmed by the Northwest Power Plan-the cost of poor quality lack of attention ning Council, the Northwest's principal or lack of commitment would be an unac- electric power planning body.

ceptable burden to the ratepayers. While there are many unresolved issues The Supply System has assembled an ex- concerning future financing for these pro-perienced and well trained operating staff. jects, the Supply System has a comprehen-The people who run Plant 2 range from a sive and adequately funded program to en-plant manager, who is a 23-year veteran of sure that the investment in these two the nuclear industry, to plant operators, plants is preserved. The effort involves who passed their NRC qualifiying examina- maintaining quality assurance records, ad-tions in late 1983 with high marks. We are dressing key engineering issues, and While other people in the In September 1978 more Pacific Northwest were than 4,000 people were opening Christmas packages, working at the Plant 2 site, the first fuel bundle was then at the peak of its con-lowered into the Plant 2 struction.

reactor.

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answering questions regarding our safety creases in the cost of constructing nuclear documents filed with the NRC. power plants have plainly changed the Sup-This "down" time is also being put to good ply System's mission. We'e gone from building five plants to one. This shift has use by planning ways to streamline con-struction when it resumes. Under the Proj- placed extraordinary demands on the ect Enhancement Program at Project 1, we company demands that would have over-whelmed an organization not as strong as are working to find more efficient ways to this one. But the company has emerged complete the plant. This program involves tougher and more knowledgeable with the looking at ways of standardizing craft pro-change.

cedures, improving records management and consolidating contracts. With Plant 2's transition to commercial operation, stability is improving within the All this work and planning is directed at organization. The Supply System is clearly one goal assuring that construction will be focused on operating Plant 2 in the safest, cost effective when resumed. For planning most efficient manner possible in a purposes, the Supply System assumes Proj-economic climate that leaves no room for ect 3 (75 percent complete) will be com-mercial in December 1989 at the earliest, compromise.

and Project 1 (63 percent complete) will be Dedication to quality, cost consciousness commerical in June 1991. and safety is not just a slogan at the Supply System. It is an obligation to the public and No room for compromise ratepayers of the Northwest.

Decreasing electricity demands and in-Plant 2's reactor operators This is how Plant 2 looked spent more than 60 weeks in during the final stages of classroom training, including construction, September work on this control room 1983.

simulator, before receiving their license.

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.W A'.S H INGT0 N P U B LIC P 0WER S U P P LY S YS T E M I983 AN N U AL R E P 0 R T

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Two health physics tech- "We want to stand at the nicians inspect massive cir- top of our class." Jerry culating water pipes under Martin, Plant 2 Manager the main condenser at Plant

2. Water from the cooling towers flows into the main condenser at about half a million gallons a minute.

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FINANCIALSECTION

BALANCESHEETS ($ in thousan Current Assets-Operating Fund Cash and Investments.

Accounts Receivable....,........ +.

Prepaid and Other Due from Other Projects and Internal Service Fund ..

Due from Other Funds TOTALCURRENT ASSETS OPERATING FUND ..

Restricted Assets Notes B and C Special Funds (Primarily for Construction)

Cash and Investments Receivable from Joint Owners and Other Assets.....

Due from Other Projects and Internal Service Fund ..

Due from Other Funds-Net.

Chemical Bank Legal Fees Escrow Account Debt Service Funds Cash and Investments....

TOTALRESTRICTED ASSETS Utility Plant and Equipment- In Service Note B Improvements to U.S. Government Facilities.......

Less Allowance for Depreciation and Amortization ..

Construction Work in Progress.

Cost Related to Construction and Termination of UtilityPlants ..

Nuclear Fuel and Prepaid Enrichment Services...............

Less Amount Charged to Joint Owners Less Allowance For Estimated Unrecoverable Cost TOTALUTILITYPLANT AND EQUIPMENT ..

Other Assets and Deferred Charges Unbilled Reimbursable Costs.

Unamortized Debt Expense Other TOTALOTHER ASSETS AND DEFBRRBD CHARGES...

TOTALASSETS Current Liabilfties- Accounts Payable and Accrued Expenses Operatfng Fund Due to Other Projects and Internal Service Fund ........

TOTALCURRBNT LIABILITIBS-OPERATINGFUND ..

Liabflitfes-Payable from Special Funds (Primarily for Construction)

Restricted Assets-Notes B and C Accounts Payable and Accrued Bxpenses........

Amounts Withheld from Contractors Due to Other Projects and Internal Service Fund ..

Dueto Other Funds-Net ..............

Debt Service Funds Accrued Bond and Note Interest Payable Due to Other Funds-Net TOTAL LIABILITIES-PAYABLEFROM RESTRICTED ASSETS Debt in Default, Revenue Bonds Payable Currently Payable Subordinated Revenue Notes Long-Term Debt-Note C Revenue Bonds Payable .

Less Unamortized Discount on Bonds-Net TOTALLONG-TERM DBBT Other Lfabflitfes and Unearned Revenue .

De ferred Credits Deferred Gain on Revenue Bonds Due to Other Projects AdvancesandOthers .

TOTALOTHER LIABILITIESAND DBFERRED CREDITS .

TOTAL LIABILITIES Commitments and Deficiency in Assets Contingencies-Notes D and E TOTALLIABILITIESAND DBFICIENCYIN ASSETS...

HANFORD PACK&ODD LAKB NUCLEAR NUCLBAR N UCLBAR NUCLEAR INISRNAL CEN ERATIWO HYDROELECTRIC PROJECT PROJECT PROJECT PROJECT SERVICE PROJECT PROJECT NO. I NO. 2 NOi 3 NO.'S 4/S FUND

$ 6,8('35 $ 1,262 $ 4,400 $ 4,820 $ 5,420 $ 19,067 116 1 127 823 12 7 2,199 2,842, 686 280 1 902 108 27 163 34 326 17 312 9 610 1 498 34 406 39 839 23 012 21 393 3,588 316 193,906 123I083 108,767 48,170 733 267 23,473 7,885 11,034 4,331 5,201 15,758 242 3,588 316 205,673 127,681 137,683 71,813 8,824 7 560 712 221 094 119 753 173 560 167 450 11 148 1 028 426 767 .

247 434 311 243 248 087 67,008 12,204 10,661 20,046 1,787 10,773 14,486 51 841 ~4867 1 174 2 813 29 653 7 337 10 661 18 872 1 787 7 960 1,963I730 2,655,687 2,057,951 2,424,172 2901701- 75,955 48,202 (559,031) (94,889)

~2281 783 2 254 431 2 731 642 1 547 122 47 500 29 653 7337 2 265 092 2 750 514 1 547 122 49 287 7 960 470 2,964

,135 25 3,706 3I676 2,683 742 605 2 989 3706 3 676 2 683 742

$ 51,016 $ 12,852 '2,729,971

$ 3.041,463 $ 1,884,060 $ 297,374 $ 30,095

$ 3,412 $ 1,383 $ 31,406 $ 36,839 $ 20,012 $ 11,517 2 698 6 698 6 110 1383 31406 36839 20012 18 215 48/390 40,266 43,855 $ 123,320 18,108 22,890 16,810 20,585 1,103 15,373 9,005 1 088 36 19 263 24 743 11 478 1 088 36 85 761 89 002 87 516 152 910 429 136 104,471 82,941 108,381 814 72 7 900 9 583 5 998 1 243 208 112 371 9 583 88 939 108 381 2 331 198 132 98 585 176 455 261 291 2,250,000 67 866 2 317866 40,215 2,147,490 2,314,860 1I600,000 743 ~55 848 ~74 418 ~40 833 39 472 11 116 2 091 642 2 240 442 1 559 167 405,791 622,349 128,426 1,703 109 6,143 1 400 3 000 43 248 5 737 3 103 109 408 791 665 597 128 426 11 880

$ 51 016 $ 12 852 $2 729 971 $3 041 463 1 884 060 2 579 157 30 095 2 281 783

$ 51,016 $ 12,852 $ 2,729,971 $ 3,041,463 $ 1,884,060 $ 297,374 $ 30,095

A STATEMENTS OF CHANGES IN FINANCIALPOSITION (S In thous 'tds) 5%RQK5XSM~OEM)K00% 8%8XBNKHBI ~

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NUCLEAR NUCLEAR NUCLEAR NUCLEAR PROJECT PROJECT PROJECT PROJECTS No. 1 No. 2 No. 3 No.'3 4 sT s Source of Funds Collected Under Net Billing. $ 198,000 $ 221,000 $ 143,639 Termination Loans and Payments........ $ 86 Interest Income 45,388 64,376 46,807 33,941 Charged to Joint Owners . 136,264 {7,096)

Net Decrease in Restricted Funds........ 37,941 420,204 311,101 37,731 Revaluation of Investments 642 860 6,792 Other . 14 011 TOTALSOURCEOF FUNDS ....... $ 295,982 $ 706,440 $ 637,811 $ 71,454 Use of Funds Buildings . $ 10,661 $ 10,486 $ 1,787 Construction Costs . 51,235 442,386 $ 455I281 t164,709)

Interest Expense 208,940 217,937 165,882 198,209 Nuclear Fuel 13I773 3,464 30 36108 Financing, Trustee and Paying Agent Expenses... 634 1,070 789 59 Bonds Redeemed 3,815 15,010 Revaluation of Investments . 616 Increase in Amounts Due Participants.......... 4,623 16,087 15,213 Net Transfers to the Hanford Generating Project .. 2 301 TOTALUSEOFFUNDS ....., $ 295,982 $ 706,440 $ 637,811 $ 71,454 TTTTIITTTTT MTTTTTTl OOS 0 0 ~

HANPORD OENERAT1NO PACKWOOD PRO ECT PRO ECT Source of Eunds Operations Net Revenue $ $ Items Not Affecting Working Capital:

Depreciation and Amortization................. 2,688 259 Decrease (Increase) in Costs Reimbursable from Power Purchasers. 510 56 Less Gain on Redemption of Revenue Bonds......

Total fromm Operations

~129 ~158 3,069 157 Contributions for Improvements .....,......,.... 35 Advances from Participants for Working Capital..... TOTALSOURCE OF FUNDS $ 3,104 $ 157 Use of Funds:

Net Improvements $ 110 ..., ..

Cost of Revenue Bonds Purchased and Retired Increase in Restricted Assets 2,915 3 104 79 ~18 175 157 Changes in Working Capital Cash and Investments ................ (3,328) 635 Receivables and Other . 433 46 Payables and Other 2 895 ~681 Net Increase in Working Capital....... TOTALUSE OF FUNDS $ 3,104 $ 157

SX'ATEMENT OI" OPERATIONS ($ in thousands) lt l lllKHDHlu MIKII\ <<s moojiR583 HAN FORD GENERATING PACKWOOD PROJECT PROJECT Operating Revenues $ 43,274 $ 824 Operating Expenses Reactor Availability . 38,203 Depreciation and Amortization . 2,621 255 Power Production and Transmission. 1,627 299 Maintenance 1,079 114 Administrative and General . 500 60 44 030 728 Net Operating Revenue (Lossj 756 Other Income and Expense Interest and Other Income 1,615 325

~559 ~421 Interest Expense and Discount Amortization NET REVENUE $

756

~96 HANFORD Revenue Bonds (includes $ 3,010,000 due within one year at June 30, 1983)

GENERATING PROJECT PACKWOOD LAKE Revenue Bonds (includes $ 160,000 due within one year at June 30, 1983)

HYDROELECTRIC PROJECT Revenue Bonds NUCLEAR PROJECT NO. 1 Revenue Bonds (includes $ 1,100,000 due July 1, 1983)

Revenue Bonds (includes $ 1,340,000 due July 1, 1983)

Revenue Bonds (includes $ 1,605,000 due July 1, 1983)

Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds (A) Various Prices

(S in thousands)

EFFECTIVE SERIAL DATE INTEREST OFFERING COUPON OF TERhI SERIES OP SALB RATE PRICES RATB hIATURmES JUNE 30, 1933 1963 5-8-63 3.26%%uo (A) 2.90-3.10% 9-1-83/1986 $ 12,630 98 3.25 9-1-1996 27585 3 40,215 1962 3-20-62 3.66 99.425 3.625 3-1-2012 $ 8,502 1965 11-4-65 3.76 100.5 3.75 3-1-2012 2 710

$ 11,212 1975 9-18-75 7.73 (A) 5.75-7.40 7-1-83/2000 $ 40,000 100 7.70 7-1-2010 58,300 100 7.75 7-1-2017 74 700 173 000 1976A 2-4-76 6.84 (A) 6.00-6.25 7-1-83/1998 34,530 100 6.90 7-1-2010 66,485 100 7.00 7-1-2017 76 495 177 510 1976B 8-31-76 6.37 (A) 5.00-5.90 7-1-83/1998 38,805 100 6.50 7-1-2010 66,940 99.50 6.50 7-1-2017 71 235 176 98D 1978A 3-21-78 5.69 (A) 5.00-5.50 7-1-84/2002 64,270 100 5.80 7-1-2010 50,920 100 5.875 7-1-2017 64 810 180 000 1978B 12-5-78 6.61 (A) 5.50-6.00 7-1-84/1998 38,355 100 6.35 7-1-2003 22/305 100 6.60 7-1-2009 38,190 99.50 6.80 7-1-2017 81 150 180 000 1979 6-19-79 (A) 6.00 7-1-84/1998 29,385 100 6.40 7-1-2003 18,560 100 6.70 7-1-2009 32,370 100 6.80 7-1-2017 69 685 150 000 1980A 8-5-80 8.87 (A) 7.00-10.00 7-1-86/1995 55,500 100 9.00 7-1-2002 37,000 100 9.20 7-1-2005 16,950 99.00 9.25 7-1-2013 70,550 (A) 7.75 7-1-2017 3000D 210 DOD 1981A 4-13-81 11.30 (A) 11.30-13.00 7-1-96/2003 28,580 100 11.625 7-1-2012 91 420 120 000 1981B 4-13-81 11.30 (A) 10.00 7-1-2016 40 000 1981C 4-13-81 10.29 100 10.25 7-1-2015 40 000 1981D 9.4-81 14.78 100 14.375 7-1-2001 20,000 57.895 8.25 7-1-2003 30,000 100 15.00 7-1-2017 265 000 315 000 1982A 2-11-82 14.79 100 10.50-13.75 7-1-88/1996 29,355 100 14.50 7-1-2002 50,645 99.25 14.75 7-1-2017 305 000 385 ODO

$ 2,147,490

OUTSTANDING LONG-TERM DEBT (continued)

NUCLEAR PROJECT NO. 2 Revenue Bonds Revenue Bonds Revenue Bonds (excludes $ 2,500,000 due July 1, 1983)

Revenue Bonds (excludes $ 3,200,000 due July 1, 1983)

Revenue Bonds (excludes $ 885,000 due July 1, 1983)

Revenue Bonds (excludes $ 2,700,000 due July 1, 1983)

Revenue Bonds (excludes $ 1,875,000 due July 1, 1983)

Revenue Bonds (excludes $ 2,225,000 due July 1, 1983)

Revenue Bonds (excludes $ 1,625,000 due July 1, 1983)

Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds (A) Various Prices

(S in thousands)

EFPECTIVE SERIAL DATE INTEREST OFFERING COUPON OP TERM SERIES OP SALB RATB PRICES RATB MATURITIES JUNE 30. 1983 1973 6-26-73 5.66% (A) 5.00-5.10% 7-1-87/1991 $ 13,600 100 5.70 7-1-2012 124 400 138 000 1974 7-23-74 7.21 (A) 6.50-6.90 7-1-87/1994 18,000 100 7.00 7-1-1999 15,000 100 7.375 7-1-2012 37 000 70 000 1974A 11-26-74 7.67 (A) 7.20 7-1-83/1994 23,000 100 7.40 7-1-1999 15,000 100 7.75 7-1-2012 78 000 116 000 1975A 3-6-75 6.71, (A) 6.60 7-1-83/1994 26,000 100 6.60 7-1-1999 15,000 100 6.875 7-1-2012 78 000 119 000 1976 6-3-76 6.63 (A) 5.40-6.25 7-1-83/1998 26,080 99.25 6.625 7-1-2006 42,300 100 6.75 7-1-2012 49 860 118 240 1976A 11-18-76 5.87 (A) 5.50-5.875 7-1-83/2002 88,910 100 6.00 7-1-2007 44,815 99.50 6.00 7-1-2012 60 990 194 715 1978 7-11-78 6.71 (A) 5.50-6.60 7-1-83/2000 64,645 100 6.80 7-1-2006 45,520 100 6.875 7-1-2012 66 230 176 395 1979 3-13-79 6.49 (A) 5.50-6.00 7-1-83/1999 58,580 100 6.40 7-1-2004 33,490 100 6.75 7-1-2012 83 605 175 675 1979A 10-17-79 7.69 (A) 6.40-7.30 7-1-83/1999 41,785 100 7.60 7-1-2004 23,050 100 7.75 7-1-2012 57 000 121 835 1980 10-21-80 9.36 (A) 8.90-10.90 7-1-86/1997 35,230 100 9.30 7-1-2001 23,735 100 9.60 7-1-2006 46,070 (A) 9.25 7-1-2001 75,045 (A) 8.25 7-1-2012 19 920 200 000 1981A 9-4-81 12.44 100 14.375 7-1-2001 30,000 57.895 8.25 7-1-2003 100,000 99 14.50 7-1-2006 30,000 100 13.25 7-1-2012 50 000 210 000 1982A 2-11-82 14.76 100 9.50-13.75 7-1-86/1996 33,335 100 14.50 7-1-2002 51,665 99.25 14.75 7-1-2012 215 000 300 000 1982B 5-20-82 13.82 100 9.00-13.00 7-1-86/1996 39,400 100 13.875 7-1-2012 139 320 178 720

OUTSTANDING LONG-TERM DEBT tcontinued)

Revenue Bonds NUCLEAR PROJECT NO. 3 Revenue Bonds (includes $ 900,000 due July 1, 1983)

Revenue Bonds (includes $ 780,000 due July 1, 1983)

Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds (A) Various Prices

($ in thousands)

EFFECTIVE SERIAL DATE INTEREST OFFERING COUPON OP TERM SBRIES OFSALB RATB PRICES RATE MATURITIES JUNB 30, 1983 1982C 5-20-82 13.89% 100 13.50% 7-1-2002 56,960 100 13.875 7-1-2012 139 320 196 280 32,314,860 1975 12-3-75 7.87 (A) 5.40-7.25 7-1-83/1998 $ 26,145 100 7.875 7-1-2010 52,695 100 7.875 7-1-2018 71 160 150 000 1976 4-13-76 6.48 (A) 5.50-6.00 7-1-83/1998 19,605 99.625 6.50 7-1-2010 35,100 100 6.60 7-1-2018 45 295 10D 000 1977 9-12-77 5.71 (A) 5.00-5.30 7-1-85/2000 59,305 99.50 5.70 7-1-2009 63,535 99.50 5.80 7-1-2018 107 160 230 ODO 1978 9-12-78 6.27 (A) 5.90-6.00 7-1-85/2004 66,385 100 6.375 7-1-2010 42,985 99 6.40 7-1-2018 90 630 20D 000 1981A 2-11-81 10.80 (A) 9.50-12.50 7-1-87/2001 64,375 100 11.125 7-1-2005 40,535 99.50 11.125 7-1-2010 80,310 88.50 9.75 7-1-2017 18,950 88.50 9.75 7-1-2018 20 830 225 000 1981B 9-4-81 14.80 57.895 8.25 7-1-2003 20,000 99 14.50 7-1-2006 20,000 100 15.00 7-1-2018 185 000 225 000 1982A 2-11-82 14.83 100 10.50-13.75 7-1-88/1996 6,055 100 14.50 7-1-2002 10,445 99.25 14.75 7-1-2018 148 500 165 000 1982B 5-20-82 13.95 100 10.50-13.00 7-1-88/1996 97 195 99.50 13.875 7-1-2018 280 925 290 120 1982C 5-20-82 13.63 100 13.50 7-1-2002 14 880

$ 1,600,000

NOTES TO FINANCIALSTATEMENTS:

Note A Organization Note B Summary of Significant The Washington Public Power Supply System Accounting Folicies was organized in 1957 as a municipal corpora- The Supply System has adopted accounting tion and joint operating agency of the State of policies and practices that are in accordance Washington. Its membership consists of 19 with generally accepted accounting principles public utility districts and 4 municipalities that applicable to the utility industry. Separate own and operate electric systems within the books of account are maintained for each proj-State of Washington. It is empowered to ac- ect except for Nuclear Projects No.'s 4 and 5, quire, construct and operate facilities for the which are accounted for as a single entity.

generation and transmission of electric power and energy. Restricted Funds In accordance with project bond resolutions The Supply System has constructed and is now and certain related agreements, separate operating the Packwood Lake Hydroelectric restricted funds are required to be established Project and the Hanford Generating Project and for each of the projects. The assets held in has one nuclear electric generating plant cur- these funds are restricted for specific uses in-rently scheduled for commercial operation in cluding construction, termination, debt service 1984 (Nuclear Project No. 2). The Supply Sys- and other special reserve requirements.

tem's Nuclear Project No. 1 is in the secOnd Restricted funds are identified on the balance year of an extended construction delay of ap- sheet as Special Funds, Chemical Bank Legal proximately five years; Nuclear Project No. 3 is Fees Escrow Account, and Debt Service Funds.

in the first year of an extended construction delay; and Nuclear Projects No.'s 4 and 5 were Cash and investments in Special Funds of proj-terminated on January 22, 1982. In addition, ects under construction and in termination in-the Supply System has an Internal Service clude cash retainage amounts held in escrow Fund to account for the central procurement of for contractors of $ 74,566,328 at June 30, 1983.

certain common goods and services for the Current Assets and Current Liabilities projects on a cost-reimbursement basis. Assets and liabilities shown as current in the Nuclear Projects No.'s 1, 2, and 4 are wholly- accompanying balance sheets exclude current owned by the Supply System. Nuclear Project maturities on revenue bonds and accrued in-No. 3 is jointly owned by the Supply System terest thereon because Debt Service Funds are (70%) and four investor-owned utilities (30%). provided for their payment.

Nuclear Project No. 5 is also jointly owned by Investments the Supply System (90%) and one investor-owned utility (10%). Investments include time certificates of deposit, repurchase agreements (secured by Each joint owner is responsible for its own U.S. Government securities) and United States financing costs, providing its share of the costs Government and Government Agencies of construction, operation and termination and securities. Investments are stated at cost or is entitled to its ownership share of the proj- amortized cost as appropriate and include ac-ects'perating capability. crued interest.

The Supply System is currently unable to ob- Investments held in the Bond Fund Reserve tain additional financing through the sale of Accounts (included in Debt Service Funds) and bonds in public markets due to substantial Reserve and Contingency Funds (included in litigation matters. In accordance with the Special Funds) are stated at the lower of amor-covenants of the bond resolutions, the Supply tized cost or market as provided by their System is authorized to recover its cost of respective bond resolutions.

operation and debt service over the life of the The market value of investments approximates plant or bonds outstanding. Accordingly, the the carrying value.

Supply System realizes no income or loss and equity is not accumulated.

Income Earned on Investments the respective issues. For terminated projects Income earned on investments includes gains such costs are combined with Cost Related to and losses from the sale of investments. In- Construction and Termination of Utility Plants.

come earned on investments held by Nuclear Projects No.'s 1, 2, and 3 is recorded as a Revenues reduction in construction costs. Income earned Member purchasers of power are contractually on investments held by operating projects ac- obligated to pay project annual costs including crues to the benefit of the applicable project's debt service (excluding depreciation and amor-Operating Fund. Income earned on Nuclear tization). The Supply System records these Projects No.'s 4 and 5 is recorded as a reduc- reimbursable annual costs as operating tion of the Cost Related to Construction and revenues for the Hanford and Packwood proj-Termination of Utility Plants. ects. In addition to recovery of project annual costs, the Supply System records as revenue Capitalization of Construction Costs and each year an amount equal to the provisions Expenses for depreciation and amortization, less the During the construction, construction delay recorded gains on bond redemption. This ac-phase, or termination phase of a project, the counting policy is used in order to spread such Supply System will capitalize all costs of the revenues equally over the full term of the project including general, administrative, in- bonds.

terest, certain depreciation and other expenses.

Cumulative reimbursable annual costs, less Overhead expenses of the Supply System are payments by member purchasers for bond allocated from the Internal Service Fund to the redemption and operating costs, are reflected as various projects primarily on the basis of direct Unbilled Reimbursable Costs in the salary cost or direct usage. accompanying balance sheets.

UtilityPlant and Equipment For Projects No.'s 1, 2, and 3, payments re-Depreciation and Amortization ceived from member purchasers for bond Provisions for depreciation are computed by redemption and interest are shown as Unearn-the straight-line method based on the estimated ed Revenue in the accompanying balance useful lives of the projects, which approximate sheets. Such unearned revenue will be the term of the related revenue bonds. recognized as revenue during the period of operation of the plants.

Improvements to U.S. Government-owned facilities are being amortized over the period Cost Related to Construction and covered by the contract for dual-purpose opera- Termination of Utility Plants tion of the Department of Energy's New Pro- For Projects No.'s 4 and 5, the costs of con-duction Reactor. struction through January 22, 1982, the date of termination, and the costs of termination and Contributions Used for Purchase of other related costs subsequent to that date are Equipment Pachwood and Hanford shown at their estimated net recoverable value Proj ects in the accompanying balance sheets as of June Monies provided by participants to acquire 30, 1983 based upon Supply System staff equipment since completion of the projects are estimates. The amount provided recorded and accounted for as a reduction of ($ 2,281,782,980) as the allowance for estimated the carrying value of such equipment included unrecoverable cost to reduce the costs incurred in Utility Plant and Equipment. to net recoverable value has been reflected as Deficiency in Assets in the accompanying Debt Discount, Premium and Expenses balance sheets.

Debt discount, premium, or expenses relating to the issuance of revenue bonds are amortized Retirement Plan by the straight-line method over the terms of The Supply System participates in the Washing-ton State Public Employees'etirement System

NOTES TO FINANCIALSTATEMENTS (continued) that provides retirement benefits to eligible percentage allocation of power specified therein employees. Cost of the plan to the Supply Sys- at rates sufficient to operate and maintain the tem is determined by the Retirement System's project, and pay debt service on the bonds.

Board. The actuarially computed value of pen- Such payments continue until the bonds are sion benefits exceeds the fund assets for the paid or provision is made for their payment or Retirement System. However, because the retirement.

Retirement System is a multi-employer system, the amount of such excess, if any, that relates In connection with the issuance of the Generating Facilities revenue bonds for to the Supply System is not available. The Sup-Nuclear Projects No.'s 4 and 5, the Supply Sys-ply System's required contribution was tem pledged the revenues to be derived under

$ 3,885,964 in 1983.

Participants'greements with 88 utilities Note C Long-Term Debt operating principally in the Pacific Northwest.

Except for Nuclear Projects No.'s 4 and 5, The Participants'greements provided that which were financed together as one utility each participant was obligated to pay its system, all Supply System projects are financed respective share of annual costs, including debt separately. The revenue bonds issued with service on the bonds; whether or not the proj-respect to each project are payable solely from ects were completed, operable, or operating the revenues of that project. and notwithstanding the suspension, interrup-tion, interference, reduction or curtailment of Outstanding revenue bonds of the various pro- the projects'utput. Pay'ments from the partici-jects as of June 30, 1983 are presented on pages pants for Nuclear Projects No.'s 4 and 5 termi-16 through 21. nation costs and debt service were due begin-Security Agreements and Contracts ning on January 25, 1983. Payments due under the Participants'greements have not been The United States of America, Department of forthcoming and an Event of Default, as de-Energy (DOE), acting by and through the fined in the Bond Resolution, occurred on July Bonneville Power Administration (BPA) has 22, 1983, and is continuing. On August 18, purchased the entire capability of the Hanford 1983, Chemical Bank (Protects No.'s S and 5 r Project and the Supply System's ownership Bond Fund Trustee) declared the principal of share of the projects'apability of Nuclear all Nuclear Projects No.'s 4 and 5 revenue Projects No.'s 1, 2, and 3 from its statutory bonds and accrued interest thereon, due and preference customers and, in addition, with payable immediately. See Note D for a discus-respect to Project No. 1, five of its private utili- sion of the termination of Nuclear Projects ty customers. Each of these customers has, in No.'s 4 and 5, related challenges to the Partici-turn, purchased such capability from the Sup- pants'greements and default on the bonds.

ply System, all under the Net-Billing and Ex-change Agreements. BPA is obligated to pay In connection with the issuance of the Nuclear the participants, and the participants are Projects No.'s 4 and 5 subordinated revenue obligated to pay the Supply System their pro notes ($ 60,000,000 due July 1, 1984, and rata share of the total annual costs of the proj- $ 7,865,502 due June 30, 1983), the Supply Sys-ects, including debt service on the bonds, tem pledged to set aside funds for payment of whether or not the projects are completed, such obligations from funds to be accumulated operable or operating and notwithstanding the in the Revenue Fund. The note agreements suspension, reduction or curtailment of the provide that such repayments, to the degree projects'utput. not otherwise provided for, are to be included in the amounts due under the The Supply System's Packwood Project As noted above, payments due Participants'greements.

revenue bonds are secured by Power Sales under the Participants'greements to be ac-Contracts between the Supply System and each cumulated in the Revenue Fund were not of its 12 member purchasers. Pursuant to these made and therefore the $ 7,865,502 of notes due agreements, member purchasers pay for their June 30, 1983, were not paid. In addition, be-

cause of the default on the Nuclear Projects maining participants. The Supply System and No.'s 4 and 5 Revenue Bonds, the payment of Chemical Bank have appealed this ruling, and the $ 60,000,000 of subordinated revenue notes all other issues adjudicated by the Superior may be accelerated at the option of the note Court, to the Washington State Supreme Court.

holder. See Note D for a discussion of default Oral argument before the State Supreme Court on Nuclear Projects No.'s 4 and 5 subordinated is set for March 26, 1984.

revenue notes.

Since the Participants'greements were ruled Note D Termination of Nuclear Projects invalid, payments due under the agreements No.'s 4 and 5 and Default Under Bond ($ 62,438,000 as of June 30, 1983) were not Resolution made and there was a deficiency in the Bond On January 22, 1982, the Supply System's Fund Interest Account of $ 29,685,399 as of Nuclear Projects No.'s 4 and 5 were ter- June 30, 1983. On July 1, the Supply System minated. Construction was 24% and 16% transferred $ 10,029,746 from the Reserve and (respectively) complete at the termination date. Contingency Fund to Chemical Bank for credit The Supply System's current estimate of termi- to the Bond Fund Interest Account. Also, on nation costs ($ 120,624,000), including costs of that date, Chemical Bank transferred contract settlements and other termination $ 19,654,653 from the Bond Fund Reserve Ac-costs, have been accrued as Accounts Payable count to the Bond Fund Interest Account to and Accrued Expenses in the accompanying cover the remaining deficiency in the Bond balance sheets. Although management of the Fund Interest Account. These July 1, 1983, Supply System is satisfied that their estimates transfers have been reflected in the accompa-are reasonable, the final settlement for termina- nying June 30, 1983, balance sheet. These tion costs and the cost of decommissioning the transfers, together with funds held in the Bond projects cannot be determined at this time. Cer- Fund Interest Account at June 30, 1983, per-tain physical assets of Projects No.'s 4 and 5 mitted Chemical Bank to transfer $ 93,952,219 are continuing to be maintained for a period to from the Bond Fund Interest Account to the maximize their ultimate sales value upon paying agents to pay the July 1, 1983, coupon disposal. interest payment on the bonds. In addition, on July 1, 1983, Chemical Bank transferred a The Participants'greements (discussed in security with a book value of $ 8,825,864 from Note C under Security) provided that each par- the Bond Fund Reserve Account to a newly ticipant would pay its respective share of the established Trustee Legal Fee Escrow Account.

debt service on the bonds and termination The purpose of this transfer was to set aside costs beginning January 25, 1983. Payments funds to pay for Chemical Bank's legal fees, due under the Participants'greements were and a portion of the Supply System legal fees.

not made pending a judicial determination con- A deficiency continues to exist in the Reserve cerning the participants'uthority to pay. On and Contingency Fund and Bond Fund Interest June 15, 1983, the Washington State Supreme and Reserve Accounts (which is also a default Court ruled that the Washington State utilities under provisions of Nuclear Projects No.'s 4 did not have the statutory authority to enter in- and 5 Bond Resolution).

to the Participants'greements and that those agreements were invalid as to the Washington On July 22, 1983, the Supply System State public bodies (cities and public utility acknowledged that it could not meet all districts which collectively comprise approx- Nuclear Projects No.'s 4 and 5 obligations as imately 68 percent of the participants'hares). they became due. This admission represents an It is anticipated that this ruling will be appeal- event of default under the Nuclear Projects ed to the United States Supreme Court. The No.'s 4 and 5 Bond Resolution. As a result and Superior Court for King County, Washington, as required under Section 11.3 of the Bond Res-has also ruled that by virtue of the State olution, Chemical Bank demanded that remain-Supreme Court decision, the ing funds in the Construction Fund are unenforceable against all re- ($ 23,193,264), Construction Trust Account Participants'greements

NOTES TO FINANCIALSTATEMENTS (continued)

($ 723,256) and Operating Fund ($ 1,648,568) be Western District of Washington and are all in transferred to them to the credit of the Wash- the prediscovery phase of the litigation process.

ington Public Power Supply System Section Since the Participants'greements have been 11.3 Account. This transfer was made on July held to be invalid, the assets of Nuclear Proj-25, 1983. Under Section 11.4 of the Nuclear ects No.'s 4 and 5 have been reduced to their Projects No.'s 4 and 5 Bond Resolution, Chemical Bank as Bond Fund Trustee or a duly estimated net recoverable value. Such recoverable value is based on Supply System constituted Bondholders'ommittee is entitled, to the extent permitted by law, to take posses-staff estimates; however, the ultimate sion of the business and properties of Nuclear recoverability cannot presently be determined.

Projects No.'s 4 and 5. At present, the Supply In providing an allowance for estimated unrecoverable costs, a deficiency in Nuclear System is continuing to manage the termination activities; however, Chemical Bank disburses Projects No.'s 4 and 5 assets is created.

the funds for payment of Nuclear Projects Chemical Bank and the Supply System are con-No.'s 4 and 5 termination activities in accor- tinuing to pursue through the courts, recovery dance with the payment priorities established of the payment of principal and interest on the in the Bond Resolution. Since total obligations bonds.

currently exceed available cash and revenues, The Supply System cannot predict the outcome certain lower priority obligations as defined in of the above litigation.

the Bond Resolution are not being paid.

Note E Commitments an Contin encies On August 18, 1983, Chemical Bank declared the principal of all Nuclear Projects No.'s 4 and Hanford Generating Project and its Rela-5 Revenue Bonds and interest accrued thereon tionship to Nuclear Project No. 1 to be due and payable immediately. The Department of Energy owns and operates a nuclear reactor, the New Production Reactor.

In August 1983, Chemical Bank filed a lawsuit This reactor provides by-product steam to the in U.S. District Court Western District of Hanford Generating Project. The Supply Sys-Washington, against the Supply System, all par- tem's current agreement with the DOE pro-ticipants in Nuclear Projects No.'s 4 and 5, vides for the continuation of this dual-purpose Supply System member utilities and Directors, operation of the reactor through June 1993. In BPA and other individuals alleging Securities accordance with certain related agreements, the Act violations, fraud, failure to disclose operating costs of the project will in turn be mismanagement, negligence, bad faith and offset by payments from certain public and misrepresentation. This suit is currently in the private utilities in return for the energy prediscovery phase. Pursuant to state law and generated as a result of continued operation.

resolutions of the Supply System's Executive Board, the Supply System has undertaken to in- It was initially intended that Nuclear Project demnify its directors for certain of the acts No. 1 would be constructed adjacent to the which have been alleged in the aforementioned Hanford Generating Project and would provide complaints. The Supply System is obligated for the energy source to operate the project when associated costs (including legal defense costs) the DOE ceased operation of the New Produc-to the extent such costs are not covered by tion Reactor. To allow for construction of directors'nd officers'nsurance. Nuclear Project No. 1, it would have been necessary that the Hanford Generating Project In addition, during 1983, numerous class action be shut down on October 31, 1977. Because lawsuits have been filed by bondholders studies at that time indicated that generating against the Supply System and others alleging resources in the Pacific Northwest would be in-Securities Act violations, fraud, failure to adequate in the late 1970s and early 1980s, the disclose, negligence and misrepresentation. All Supply System and BPA determined that the the suits seek monetary damages for losses sus- Hanford Generating Project should be kept tained by the class represented. These cases available for power production. Therefore, the have been consolidated in U.S. District Court

Nuclear Project No. 1 Net-Billing, Exchange The Supply System is currently analyzing and Project Agreements were amended to pro- various construction restart alternatives for vide for the separation of Nuclear Project No. 1 Nuclear Project No. 3. The construction delay from the Hanford Generating Project and to alternatives vary from seven months to three provide that Hanford Generating Project costs, years. Since the duration of the slowdown is to the extent not otherwise provided for, will currently undecided, the Supply System has be treated as Nuclear Project No. 1 costs hav- suspended major construction contracts rather ing a first claim on the revenues of that project. than cancel or permanently delay them. There-fore, there is no accrual of estimated contract The amended agreements provide for the pay-termination or delay costs included in the ac-ment of all debt service costs of the Hanford companying balance sheet for Nuclear Project Generating Project by Nuclear Project No. 1 No. 3.

participants, commencing July 1, 1980, regardless of continued operation of the reac- The obligations of the participants of the proj-tor. If the plant ceases operations, revenues to ects and BPA under the Net-Billing Agreements the Hanford Generating Project arising from are not affected by the construction delay. See the aforementioned payments will nevertheless "Shared Costs" for a discussion of the Nuclear be recorded each year thereafter in amounts Project No. 3 investor-owned utilities challenge that will result in full realization of the carrying to the Ownership Agreement and BPA concern-value of the plant. ing the Nuclear Project No. 3 construction delay.

The U.S. Government has an option to acquire ownership of the Hanford Generating Project Nuclear Projects No.'s 4 and 5 upon obtaining Congressional approval. If the Subordinated Revenue Notes Government exercises its option, it must Prior to termination of Nuclear Projects No.'s 4 assume all rights and obligations of the project, and 5, certain project participants, investor-including the obligation to pay all revenue owned utilities and industrial customers of BPA bonds. agreed to loan Nuclear Projects No.'s 4 and 5 q Nuclear Projects No.'s 1 and 3 sufficient funds to avoid an uncontrolled termi-Construction Delay nation of the projects.

On April 29, 1982, the Supply System, upon The loans were in the form of subordinated the recommendation of BPA, approved the im- revenue notes consisting of:

plementation of an extended construction delay of Nuclear Project No. 1 for a period of approx-imately five years. On July 8, 1983, the Supply System, also based on BPA's recommendation, Interest 15% 07-01-84

~Od Amount

$ 60,000,000

'981 approved the implementation of an extended 1982 15% 06-30-83 7,865,502 construction delay of Nuclear Project No. 3.

During the construction delay, plant assets will $ 67,865,502 be preserved along with existing project licenses. The 1981 Series notes are held by certain Nuclear Projects No.'s 4 and 5 participants, The Supply System's current estimate of costs investor-owned utilities and industrial to settle terminated and delayed contracts for customers of BPA. The 1982 Series notes are Nuclear Project No. 1 is $ 8,605,000 and has held by certain Nuclear Projects No.'s 4 and 5 been accrued as Accounts Payable and Accured participants. Because there were insufficient Expenses in the accompanying balance sheets. funds in the Projects No.'s 4 and 5 Revenue Although management of the Supply System is fund on June 30, 1983, the 1982 Series notes satisfied that their estimates are reasonable, the were not redeemed. Certain participants have final settlement costs cannot be determined at filed lawsuits against the Supply System for this time. repayment of the notes. Except for one partici-pant who was granted its motion for repayment

NOTES TO FINANCIALSTATEMENTS (continued) by Benton County, Washington Superior Court, Agreement and has reserved its rights to pur-the other lawsuits are in various pre-trial sue appropriate remedies with respect to such stages. Because of the default on the Nuclear breach. It is the position of the Supply System Projects No.'s 4 and 5 Revenue Bonds, the that the termination of Project No. 5 does not 1981 Series note in the amount of $ 60000,000 constitute a breach of the Project No. 5 Owner-may be accelerated at the option of the holder. ship Agreement and that Pacific is responsible Certain of the participants who hold the subor- under the Project No. 5 Ownership Agreement dinated notes have accelerated them and have for payment of its 10 percent share of the costs sued the Supply System for repayment of the of termination of such project.

notes. As of this date, eleven lawsuits have been brought against the Supply System for On June 16, 1983, Pacific advised the Supply payment of the notes. Chemical Bank is a co- System that due to the Washington Supreme defendant in three of these cases. Three of Court ruling that certain were invalid (as described in Note Participants'greements these cases are in their pre-trial states. In all of the other cases, summary judgment has been D) and other related actions by the Supply Sys-rendered against the Supply System. Formal tem, Pacific would no longer fund 10 percent orders have been entered only in some of these of the costs of Nuclear Project No. 5 termina-cases. In two of these cases, the judgments tion costs. Pacific further advised that it would state that the Supply System's obligation to pay not make further termination cost payments the notes is not restricted to the funds of until adequate assurances are received from the Nuclear Projects 4 and 5. These cases have Supply System that it can re-establish and been or will be appealed by the Supply System maintain controlled termination of the project to the Washington Court of Appeals. in accordance with the agreements. The Supply System is currently working with Pacific to It is anticipated that the remaining note holders provide such assurance and anticipates that may accelerate the due date of their notes and Pacific will resume payments in the near file lawsuits. Although these payments are by future. As stated above, it is the Supply Sys-the terms of the L'oan Agreements repayable tem's position that Pacific is responsible for its only from a special fund to be created from 10 percent share of termination costs. Until payments under the Participants'greements, Pacific resumes payments, the Supply System these cases have the potential to result in at- is withholding Pacific's 10 percent share of tempts to satisfy Nuclear Projects No.'s 4 and 5 revenue received from Nuclear Project No. 5 obligations from the assets of the Supply Sys- asset sales. As of June 30, 1983, Pacific's 10 tem. percent share of Nuclear Project No. 5 accrued termination costs was $ 7,558,910. Of this Nuclear Project No. 5 Ownership amount, $ 431,788 is currently due and has Agreement been presented to Pacific for payment. The re-Under the terms of the Ownership Agreement maining amount represents the Supply with Pacific Power and Light Company System's estimate of future termination costs.

(Pacific), Pacific is obligated to fund its respec-tive ownership share of termination costs, Pacific Power and Light Company has made beginning January 25, 1983, and continuing un- payments under the Nuclear Project No. 5 til all costs of termination have been paid. Any Ownership Agreement pursuant to reservation funds received from the sale of plant assets of rights to its potential claim to sue the Supply reduce Pacific's obligation for termination System for damages for failure to complete costs. Nuclear Project No. 5. Pacific's claim would presumably be in the approximate amount of Pacific has stated to the Supply System that it $ 150,000,000, its investment in the project.

considers the failure of the Supply System to Such a claim would be a general claim against obtain necessary financing for Project No. 5 to the assets of the Supply System.

be a breach of the Project No. 5 Ownership

Inter-Project Claims and Claims Against Bond counsel has not undertaken an investiga-General Assets tion of the issues discussed above with respect As discussed above, Supply System Nuclear to the Packwood or Hanford Generating Proj-Projects No.'s 4 and 5 are currently unable to ects. However, they believe that upon full in-meet Nuclear Project No.'s 4 and 5 debts as vestigation the same opinion could be rendered they become due. Creditors of particular proj- with respect to assets of the Packwood and ects and other creditors {including claimants in Hanford Generating Projects and revenues or tort, contract, under the securities laws or funds held in trust or relating to such projects other actions) may attempt to obtain payment or for the holders of bonds issued by the Sup-from all projects and/or from the general assets ply System to finance the construction of such of the Supply System. Such creditors include projects.

those described in these footnotes and others Shared Costs who may in the future assert claims against the The termination of Nuclear Projects No.'s 4 Supply System and/or its projects. and 5 creates an uncertainty as to how certain In a January 5, 1984, opinion, bond counsel to common services and facilities are to be shared the Supply System indicated that neither the with Nuclear Projects No.'s 1 and 3, respective-holders of bonds issued to finance the construc- ly. In August 1982, the participants of Nuclear tion of Supply System Nuclear Projects No.'s 4 Projects No.'s 4 and 5 presented a claim to and 5, nor creditors of the Supply System Projects No.'s 1 and 3 to reimburse Projects whose claims arose from the furnishing of No.'s 4 and 5 for a portion of the costs of such goods or services with respect to Nuclear Proj- shared services and facilities paid by the proj-ects No.'s 4 and 5, will be able to realize upon ects prior to July 1, 1981 The claim included a

~

the assets of Supply System Nuclear Projects request for immediate payment of $ 75,000,000 No.'s 1, 2, and 3 necessary for the purposes of and $ 86,000,000 plus interest from Projects such Projects or the Supply System, or upon No.'s 1 and 3 respectively, plus such amounts revenues or funds held in trust or relating to as may be determined in the future. The claim Supply System Nuclear Projects No.'s 1, 2, and is based on an alternative method of calculating

~

3, or for the holders of bonds issued by the shared costs which is different from the Supply System to finance the construction of method adopted by the Supply System.

such projects, except to the extent they might In addition, the Supply System has performed a obtain rights through a valid exercise of the detailed analysis of the application of its cost sovereign police power of the State of Washing-sharing policy from inception of the projects to ton or of the constitutional powers of the determine if costs were allocated properly. The United States of America, or by a voluntary results of this analysis through August 1983 in-bankruptcy of the Supply, System. Bond dicate that approximately $ 16,000,000 plus in-counsel's opinion as to the assets of Supply terest is due Nuclear Project No. 5 from System Nuclear Projects No.'s 1, 2, and 3 is Nuclear Project No. 3, approximately limited to those assets located within the State

$ 8,400,000 plus interest is due Nuclear Project of Washington, or as to which a court would No. 1 from Nuclear Project No. 4, and approx-apply the law of the State of Washington, and imately $ 163,000 plus interest is due Nuclear the opinion excludes assets that are not Project No. 4 from Nuclear Project 2. These necessary for the purposes of Supply System amounts (excluding accrued interest) have been Nuclear Projects No.'s 1, 2, and 3 or the Supply recorded in the accompanying balance sheets System. Bond counsel is not able to determine as of June 30, 1983. The results of the at this time how a court of a state other than aforementioned analysis are subject to review the State of Washington would treat assets of and audit by BPA and the investor-owned Supply System Nuclear Projects No.'s 1, 2, and utilities in Nuclear Projects No.'s 3 and 5. Be-3 located outside the State of Washington, if cause of the preliminary nature of the such court were to apply the law of a state aforementioned findings, the uncertainty over other than the State of Washington.

NOTES TO IiINANClALSTATEMENTS

{continued) the shared cost policies adopted by the Supply Washington Public Power Supply System had System, and since the matter of the proper created doubt and uncertainty about the con-allocation of shared costs is currently in litiga- tractual obligations of Oregon public partici-tion, as described below, the ultimate allocation pants and their authority to enter into Net-of shared costs is uncertain. Billing Agreements. It also alleged that members of Oregon public utility boards are On October 26, 1982, the Supply System filed a exposed to personal liability for any payments legal action against BPA, the four investor- of public money not authorized by law. The owned utilities who are joint owners of Project complaint sought a declaratory judgment that No. 3, the participants of Nuclear Projects Oregon public participants had legal authority No.'s 4 and 5, Ithe court has since allowed to enter into the Net-Billing Agreements; or if Chemical Bank to intervene in this suit) and they did not, that BPA is liable to make con-theConstruction Fund Trustee for Nuclear tract payments and is estopped from denying Project No. 1, seeking a judicial determination its obligation to do so. In their responses to the of past and future shared costs among Nuclear complaint, BPA and the Supply System asked Projects No.'s 1 and 4 and Nuclear Projects for a declaration that all signatories to the Net-No.'s 3 and 5. (The court has since restruc-Billing Agreements had legal authority to enter tured the case wherein BPA is now the plantiff into them. Springfield ratepayers who were and the Supply System and other aforemen- parties to DeFazio intervened in the action, tioned parties are defendants.) Although the asking for a declaration that the Net-Billing lawsuit does not specify the amounts of money Agreements were invalid.

that the parties believe should be reallocated, the method used to calculate the aforemen- The parties to the Net-Billing Agreements are tioned claim is an issue in the lawsuit. BPA, the Supply System, and the participants.

The agreements provide that BPA is obligated The four investor-owned utilities who own 30 to pay the participants, and the participants are percent of Nuclear Project No. 3 have filed obligated to pay the Supply System their pro cross-claims against the Supply System seeking rata shares of the total annual costs of the proj-damages and other relief for the suspension of ects, including debt service on the bonds, construction of Project No. 3. These investor- whether or not the projects are completed, owned utilities also seek an injunction requir- operable, or operating, and notwithstanding the ing the Supply System to resume construction suspension, reduction, or curtailment of the of Project No. 3 and to collect funds from BPA projects'utput. However, the agreements also and the Nuclear Project No. 3 participants provide that they shall not be binding on any through the net-billing process sufficient to pay of the aforementioned parties if they are not for completion. binding on all the parties.

On September 2, 1983, the court entered an The U.S. District Court for Oregon entered a order staying this case until January 1, 1984. judgment declaring that all parties to the Net-The stay has been extended indefinitely. The Billing Agreements had legal authority to enter Supply System cannot predict the outcome of into them. Its decision was appealed by the these pending claims and litigations. ratepayers to the Ninth Circuit Court of Ap-Net-Billing Agreements peals in July 1983, and the case is now being On November 15, 1982, the City of Springfield, briefed. The argument has not yet been set, Oregon, filed a complaint against the Supply and Supply System counsel cannot predict the System, Bonneville Power Administration outcome of the appeal. If a final judicial deter-(BPA), and others, including investor-owned mination were rendered that the Net-Billing utilities in Nuclear Project No. 3 and all entities Agreements are not enforceable against the par-which have entered into Net-Billing Agree- ties, such a decision would have a material ments pertaining to one or more Supply System adverse impact on the financial condition of projects. The complaint alleged that the Lane the Supply System and its ability to repay the County Circuit Court's decision in DeFazio vs.

holders of bonds issued to finance Projects and approximately 77 percent by Nuclear Proj-No.'s 1, 2, 3, and the Hanford Generating ects No.'s 4 and 5. The Supply System has ap-Project. pealed in each of the Oklahoma cases and is resisting Western Nuclear's various efforts to Uranium Supplier Litigation execute on its judgment against the Supply Sys-In November 1981, the Supply System filed an tem's assets. In view of the proceedings now antitrust suit against Western Nuclear, a pending before the Ninth Circuit, and in view uranium supplier. Western Nuclear filed a of the new and preliminary nature of the counterclaim for breach of contract against the Oklahoma proceedings, it is not possible at this Supply System. On July 26, 1983, Western time to predict the outcome or future course of Nuclear was granted a summary judgment the Oklahoma cases.

order against the Supply System for

$ 53,626,000 plus interest. The Supply System In August 1983, Kerr-McGee filed a suit against has appealed the judgment to the United States the Supply System for anticipatory breach of Court of Appeals for the Ninth Circuit, and the their conversion services contract. The com-court has granted a stay of enforcement of the plaint seeks damages against the Supply System judgment pending resolution of the appeal. The in the amount of $ 14 million and a prejudg-appeal was argued in October, 1983. ment attachment of approximately $ 9.7 million worth of Supply System uranium (owned by On January 4, 1984, legal counsel advised that Nuclear Projects No.'s 1 and 2) now in Kerr-the Supply System and Western Nuclear are McGee's possession.

engaged in settlement negotiations, and the par-ties have asked the Court to defer its ruling See the discussion under Inter-Projects Claims pending completion of negotiations. The proj- and Claims Against General Assets, regarding ects'roportionate shares of the aforemen- creditors of one project attempting to obtain tioned summary judgment, excluding interest, payment from the assets of other projects.

have been recorded on the accompanying balance sheets of Projects No.'s 1, 4, and 5. It Securities and Exchange Commission is possible that a settlement will involve a Investigation change in the allocation of the Western Nuclear On January 12, 1984, the Supply System was

,'ummary judgment among the Supply System's advised that the Securities and Exchange Com-which differs from the allocation of mission had started a formal investigation into t projects the summary judgment recorded in the June the circumstances surrounding the default on 30, 1983, financial statements. Nuclear Projects No.'s 4 and 5 revenue bonds.

Before the Ninth Circuit granted its stay, Other Litigation and Commitments Western Nuclear filed three separate actions in The Supply System is involved in various Oklahoma, seeking to attach Supply System claims, legal actions and contractual com-uranium located there which is held by Kerr- mitments not mentioned above as both a plain-McGee Nuclear Corporation. Kerr-McGee is tiff and a defendant and in certain claims and under contract to the Supply System to convert contracts arising in the normal course of the uranium from U308 to other forms of business for a large construction program.

uranium. Although some suits, claims and commitments are significant in amount, final disposition is The uranium which Western Nuclear is pursu- not determinable. In the opinion of manage-ing in Oklahoma is owned by Nuclear Project ment, the outcome of any such litigation, No. 1 and Nuclear Project No. 2. Western claims or commitments will not have a material Nuclear has asserted that it will look to all adverse effect on the financial positions of the assets of the Supply System to satisfy its judg- projects. The estimated cost of the projects may ment. The Supply System's purported obliga- either be increased or decreased as a result of tions under the balance of the 1975 contract the outcome of these matters.

and summary judgment were recorded approx-imately 23 percent by Nuclear Project No. 1

STATEMENT OF DEBT SERVICE REQUIREMENTS Han ford Packwood Lake Nuclear Generatfng Hydroelectrfc Project Project Project No. I PISCAL YEAR PRINCIPAL INTEREST TOTAL PRINCIPAL INTEREST TOTAL PRINCIPAL TOTAL t MS $ 3,010 $ 1,210 $ 4,220 $ 160 $ 410 $ 570 $ 9,245 208,717 $ 217,962 NCII 3,125 1,114 4,239 170 404 574 9,785 208,211 217,995, 8m 3,240 1,014 4,254 175 398 573 14,855 207,674 222,529 NP 3,255 913 4I 168 180 391 571 15,470 206,652 222,122 8I 3,360 806 4,166 190 385 575 18,055 205,729 223,784 I5 8N~3 3,485 3,455 693 580 4,178 4,035 195 265 378 371 573 636 18,970 21,465 204,564 203,320 223,53~

224 78 NI 5,065 425 5,490 275 361 636 62,560 201,877 264,43<

219,98 8N9 5,585 246 5,831 290 351 641 23,755 196,226 NN 5,835 58 5,893 300 340 640 25,560 194,547 220,10I 9N8 800 4 804 315 329 644 26,985 192,684 219,66 NS 330 318 648 28,550 190,667 219,217 Nm 340 306 646 30,745 188,480 219,22 NÃ 360 293 653 38,080 185,949 224,02 NR3 380 280 660 41,565 182,462 224,02I ggitit) 400 266 666 45,455 178(573 224,02 Kiitt) 465 251 716 49,465 174,563 224,02 KIN 490 235 725 53I920 170,104 224,024 KIN 515 220 735 58,885 165,142 224,02 giiim 540 198 738 51,135 159,602 210,73<

KN 565 178 743 55,430 155,305 210 7 I KIN 590 158 748 60,600 150,137 210 glllg 615 136 751 66,320 144,415 210,'10,'c KIW 640 114 754 72,665 138,071 SKQ 665 90 755 79,705 131,031 210,7t KIM 690 66 756 87,525 123,213 210,73 Kiioi 715 41 756 96,220 114,518 210,73 Kiim 267 15 282 105,855 104,883 210,73 KIII 130 4 134 116,610 94I 129 210,73 838 118I635 82,105 200,74 Kiio 127,155 69,605 196,76 KN 142,820 55,476 198,29(

KIN 175,395 39,441 214,836 194,005 20,831 214,83C Kii'iio

$ 40,215 $ 7,063 $ 47,278 $ 11,212 $ 7,287 18,499 $ 2,143,445 $ 5,248,903 $ 7,392,34

'Exclude payments of bond principal and interest made on July 1, 1983

[$ in thousands)

Nuclear Nuclear Nuclear Project

¹. 2 Project No, 3 Projects No.'s 4/5 "AL 35 15,940 $ 217,020 $ 232,960 $ 1,785 165,791 $ 167,576 $ 2,317,866 $ 2,317,866 16,925 216,048 232,973 6I 175 165,692 171,867 N 23,295 215,015 238,310 6,530 165,357 171I887 S' 24,925 213,399 238I324 8,925 165,001 173,926 26,645 211,686 238,331 10,555 164,368 174,923 28,510 209,818 238,328 11,315 163,579 174,894 Pl) 30,555 207,778 238,333 12,145 162,761 174,906 N 82,800 205,539 288,339 13,050 161,901 174,951 S 35,260 196,455 231,715 14,045 160(961 175,006 Xl 37,980 193,758 231,738 15,125 159,932 175,057 35 40,950 190,820 231,770 16,310 158,798 175,108 44,225 187,602 231,827 17,615 157,546 175,161 47,825 184,053 231,878 19,045 156,163 175,208 Refer to Note D-Termination of 3i7 65,575 180,144 245,719 22,595 154,637 177I232 Nuclear Projects No.'s 4 and 5 and 93 71,955 173,774 245,729 24,605 152,628 177,233 Default Under Bond Resolution, 4+4 79,330 166,666 245,996 26,810 150,427 177,237 page 25, and Note B-i+i 85,795 159,947 245,742 29,020 148,218 177,238 Commitments and Contingencies, 93,290 page 26.

R 152,468 245,758 31,475 145,773 177,248 101,635 144,141 245,776 34,180 143,068 177,248 93,055 134,854 227,909 37,095 140,057 177,152 97,375 127,046 224,421 42,730 136,746 179,476 106,765 117,655 224,420 45,995 132,503 178,498 117,225 107,196 224,421 49,615 127,908 177,523 122,655 95,576 218,231 49,675 122,946 172,621 134,755 83,566 218,321 54,485 118,136 172,621 k 148,200 70,217 218,417 59,810 1121810 172,620 Qi 163,170 55,365 218,535 65,710 106,909 172,619 5 179,835 38,822 218,657 72,265 100,355 172,620 g 198,410 20,380 218,790 80,365 92,250 172,615 8 89,490 83,126 172,616 8 99,770 72,846 172,616 I 111,370 124,455 61,252 48,165 172,622 172,620 139,235 33,382 172,617 154 550 17 665 172 615

$ 2,314,860 $ 4,476,808 $ 6,791,668 $ 1,598,320 $ 4,509,657 $ 6,107,977 $2 317 866 $ 2,317,866

REPORT OF INDEPENDENT ACCOUNTANTS Executive Board Washington Public Power Supply System Richland, Washington We have examined the individual financial statements, as listed in the financial statements section of the table of contents, of Washington Public Power Supply System's Hanford Generating Project, Packwood Lake Hydroelectric Project, Nuclear Project No. 1, Nuclear Project No. 2, Nuclear Project No. 3, Nuclear Projects No.'s 4 and 5, and the Internal Service Fund for the year ended June 30, 1983. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. t As discussed in Note E to the financial statements, Washington Public Power Supply System Project No. 1 is negotiating with its contractors and suppliers to settle contract claims associated with an extended construction delay of the project. Due to the preliminary status of the settlement process, the ultimate amounts of such costs are not fully determinable at the present time.

As discussed in Note E to the financial statements, Washington Public Power Supply System Projects No.'s 4 and 5 are currently unable to meet Nuclear Projects No.'s 4 and 5 debts as they become due. Creditors may, through legal process, seek to reach assets or funds held by other projects of the Supply System or the revenues pledged thereto. Bond counsel to the Supply System indicated that the creditors of Nuclear Projects No.'s 4 and 5 will not be able to realize upon the assets of Projects No.'s 1, 2 and 3 necessary for the purposes of such proj-ects or the Supply System or upon the revenues or funds relating to such projects, except to the extent they might obtain rights through a valid exercise of the sovereign police power of the State of Washington, or of the constitutional powers of the United States of America, or by a voluntary bankruptcy of the Supply System. Bond counsel's opinion is limited to assets of the projects located within the State of Washington, or as to which a court would apply the law of the State of Washington. Bond counsel is not able to determine at this time how a court of a state other than the State of Washington would treat assets of the projects located outside the State of Washington, if such court were to apply the law of a state other than the State of Washington. See Note E to the financial statements as to the ability of creditors of Nuclear Projects No.'s 4 and 5 to realize upon the assets of the Packwood Lake Hydroelectric Project and the Hanford Generating Project and the related revenues or funds.

As discussed in Note E to the financial statements, Washington Public Power Supply System Projects No.'s 1 and 3 are involved in disputes concerning costs shared with Washington Public Power Supply System Projects No.'s 4 and 5. Due to the preliminary status of these disputes, the ultimate amount of additional costs, if any, to be borne by Projects No.'s 1 and 3 are not determinable at the present time.

As also discussed in Note E to the financial statements, Washington Public Power Supply Sys-tem is a party to litigation in which the Springfield ratepayers are challenging the decision of the U.S. District Court of Oregon, rendered on May 16, 1983, that all parties to the Net-Billing Agreements had authority to enter into them. This decision has been appealed. Be-cause of the preliminary status of the appeal, Supply System counsel cannot predict the out-come of this litigation.

As explained in Note D, Participants Agreements pertaining to Washington Public Power Sup-ply System Nuclear Projects No.'s 4 and 5 have been held to be invalid. Therefore, the Sup-ply System is unable to recover the costs of Nuclear Projects No.'s 4 and 5 from the Partici-pants and has reduced such costs to their estimated recoverable values in the accompanying balance sheets as of June 30, 1983. The ultimate recovery of such estimated amounts cannot presently be determined. In addition, as further discussed in Note D, accrued liabilities have been reflected in the accompanying balance sheets for estimated contract settlement and ter-mination costs. Due to the preliminary nature of the settlement process, the ultimate amounts owing to creditors are not fully determinable at the present time. In addition, as explained in Note E, there are various other matters of litigation for which the outcome is not presently known.

In vie w of the significance of the matters discussed in the preceding paragraphs, we are unable to express, and we do not express, an opinion on the financial statements of the Sup-ply System's Hanford Generating Project, Nuclear Project No. 1, Nuclear Project No. 2, Nuclear Project No. 3, Nuclear Projects No.'s 4 and 5, and the Internal Service Fund referred to above.

In our opinion, the financial statements present fairly the financial positions of Washington Public Power Supply System's Packwood Lake Hydroelectric Project at June 30, 1983, and the results of operations and changes in financial position of the Packwood Lake Hydroelec-

'< tric Project for the year then ended, in conformity with generally accepted accounting prin-ciples applied on a basis consistent with that of the previous year.

Seattle, Washington September 23, 1983, except as to the following sections of Note E:

Uranium Supplier Litigation, January 4, 1984; Inter-Project Claims, January 5, 1984; Securities and Exchange Commission Investigation, January 12, 1984

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