ML17278B173

Wppss Annual Rept 1986.

ML17278B173
Person / Time
Site:	Columbia, Satsop, Washington Public Power Supply System
Issue date:	12/31/1986
From:	Halvorson C, Mazur D WASHINGTON PUBLIC POWER SUPPLY SYSTEM
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ML17278B172	List: ML17278B171 ML17278B173
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NUDOCS 8701280297
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On the cover:

As a member of a large family of public utilities, the Washington Public Power Supply System plays a vital role in the Pacific Northwest s energy supply. Since 1957, employees lihe Senior Buyer Penney Enyeart and retiree Glenn Quinley have helped meet the energy needs of eight million public utility customers served by the Bonneville Power Administration.

Letter from the Chairman of the Board 2 Letter from the Managing Director 4 Individual Commitment to Quality 7 Preparing for the Future 9 Striving for a Common Goal 11 Executive Board and Board of Directors 12 Financial Information 18

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LETTER FROM THE EXECUTIVE BOARD CHAIRMAN In Fiscal Year 1986, important events happening in the world around us continued to directly impact the operation and the future of the Supply System. The historic Tax Reform Act of 1986, the nuclear power plant accident at Chernobyl, and the collapse of petroleum prices all had a direct bearing on the Supply System.

Through it 'all the Supply System Executive Board exercised its stewardship over an $ 8 billion public investment in three operating plants and two deferred nuclear construction projects, while steadily working on pending legal matters, including those resulting from the default in 1983 on bonds for WNP-4 and WNP-5.

Much of its efforts concentrated on a major Supply System goal of refinancing a portion of the outstanding bonds for WNP-1, 2, and 3.

Pacific Northwest ratepayers could save hundreds of millions of dollars if the higher interest bonds could be rolled over with lower interest rate securities. That is why the Supply System had such a keen interest in the Tax Reform Act passed by Congress in 1986. The bill, as finally 'arl enacted, contains many new restrictions on issuing tax-free bonds.

Under the new law, the Supply System can issue tax exempt bonds for completing construction on WNP-1 and WNP-3 and for current refunding of WNP-2 bonds. However, advance refunding with tax exempt securities, plus current refunding of WNP-1 and WNP-3 bonds, is not covered in the language of the bill. The Supply System will have M. Halvorson to wait until next year to try to get revised legislation passed in Congress Executive Board Chairman to allow refunding of Plant 2 bonds.

Of course, current legal difficulties must be resolved before we can regain a credit rating and refinance this debt. During the fiscal year, important progress was made toward this goal when the U. S. Supreme Court declined to review the so-called "Springfield III"lawsuit, affirming the authority of utilities participating in WNP-1, 2, and 3 to enter into the net-billing agreements with the Bonneville Power Administration.

Other legal successes came in several cases where the Supply System has taken the lead in seeking to obtain monetary damages from some contractors associated with constructing the plants. The most important resulted in a $ 25 million settlement the largest in state

history from six major electrical firms accused of engaging in a national conspiracy to rig bids.

The nuclear accident at Chernobyl in the Soviet Union also had direct repercussions on the Supply System, some unfavorable but others possibly favorable to our operations. The accident threw a spotlight on the Department of Energy's N-Reactor at Hanford, because of perceived similarities in design with the Russian reactor, and raised the question of how long it would be allowed to continue to operate. This is important to the Supply System because N-Reactor supplies steam to the 860-megawatt Hanford Generating Project.

The Chernobyl accident created federal interest in possibly acquiring WNP-1 as a replacement for N-Reactor. The Supply System is cooperating with the technical and institutional studies currently underway to determine the feasibility of converting one of the projects to nuclear materials for national defense. While it is too early to predict an outcome, the Executive Board remains fully cognizant of the responsibilities and legal obligations it has to the ratepayers of the Northwest and to the holders of Supply System bonds.

In the worldwide energy picture, the dramatic fall in oil and natural gas prices strained the budget of the Bonneville Power Administration. The resulting budget shortfall in turn has resulted in pressure to reduce costs by terminating one or both of the Supply System's deferred projects.

The Executive Board remains convinced that both projects should be preserved as the most cost-effective means of meeting the region's future energy needs. At the same time, the board is determined to reduce the cost of preserving these plants to as low as is consistent with maintaining the construction permits and licensability.

During the year, we have taken several steps to reduce preservation costs to the absolute "rock bottom." The current fiscal year budget calls for annual expenditures of $ 11.3 million at WNP-1 and

$ 16.7 million at WNP-3. We plan to reduce these costs further to about

$ 15 million for both plants during the next 18 months.

Meanwhile, the Supply System continues to meet its financial commitments to the holders of bonds for WNP-1, 2, and 3. At the same time, we are actively participating in finding a solution to the problems resulting from the WNP4/5 default that is fair to both the ratepayers and the people who invested in our securities.

LETTER FR OM THE MANAGING DIRECTOR l am proud of the Supply System's many accomplishments in FY 1986. We lived up to our regional responsibilities by safely and reliably generating 7 billion kilowatt-hours of reasonably priced electric power, while remaining sensitive to public concerns by keeping spending well under budget.

The continued safe and efficient operation of our three power plants is due to the skills and attitudes of the plant operators, technicians, and support people. These qualities are most evident at Plant 2, which completed its first full year of commercial operation in December 1985 after producing more than five billion kilowatt-hours of electricity.

Our experience operating a commercial nuclear power plant has been a mixture of successes and some disappointments. The biggest success was completing two 1004ay periods of uninterrupted operation one of many and longer periods of smooth power production in the years to come. Our biggest disappointment was the inability to run at full power much of the year because of vibrations in one of the plant's two reactor recirculation pumps. Despite that setback, the plant ran solidly at 72-percent of capacity, proving to be a reliable source of electric power during the cold winter months.

We fixed that problem during last spring's scheduled two-month maintenance and refueling outage, returning to full 1,100-megawatt production in June. This complex outage, which included our first Donald W. Mazur refueling, was completed under a tight 45-day schedule. Its successful Managing Director completion, including the replacement of one-fifth of the fuel core, required extensive advance planning and is a tribute to the skill and dedication of the more than 800 plant and contractor people involved.

Maintaining this high level of competence is a continuing effort.

We have an extensive operator training program that was accredited this year by the National Academy for Nuclear Training, an arm of the Insti-tute of Nuclear Power Operations. I was pleased to award certificates of achievement this year to the first graduates of this program and I look forward to next year when our remaining training programs are accredited.

We realize that an organization must look out for the safety of its own employees if it is to be trusted with the safety of the general public. That's why the Supply System has implemented an extensive

and ambitious program to minimize on-the-job radiation exposure, to our own and to contractor employees. We have set, and are meeting, a goal of accumulating no more than 230 man-rem of radiation for all our employees. Radiation exposure industry-wide is on the decline and we plan to stay ahead of the trend. Considering that the workers in an average nuclear power plant of Plant 2's class accumulate about 800 man-rem of radiation exposure a year, this is a very challenging goal.

The Supply System this year also instituted a "Fitness for Duty" program for all employees to help ensure they work in an atmosphere free of alcohol and drugs and to assure the public that our plants are operated by sound and steady hands. We believe our program is fair, effective and sensitive to the concerns of individual employees.

During the fiscal year the Supply System, with excellent cooperation from local, state and federal officials, continued to demonstrate that it is prepared to deal with any emergency. In our annual emergency exercise, these diverse agencies came together in a joint effort that won the praise of both the Federal Emergency Management Agency and the Nuclear Regulatory Commission.

While Plant 2 gets much of our attention, I cannot fail to mention the contributions made by the people who work at our two other operating plants, the Packwood Lake Hydroelectric Project and the Hanford Generating Project, as well as those who are stewards of our deferred construction projects, WNP-1 and WNP-3.

In the past year, we saluted the Hanford Generating Project on its 20th anniversary as the electric power generating arm of the federally owned N-Reactor at Hanford. The "Heck-of-a-Good Plant" celebration commemorated the years of consistent and reliable produc-tion of electric power since HGP went into operation on April 8, 1966.

Since then, the 43 people who work at the Hanford Generating Project have maintained an enviable record of having the plant available to generate electricity 99 percent of the time when steam was available from the nearby N-Reactor. Many of these people have been part of the Supply System family from the start of operation.

The Supply System finished FY 1986 on a solid operational footing. We have the people and organization to meet our prime objective supplying the people of the Pacific Northwest with low-cost, reliable power. I expect to see great strides made in the coming year toward our goal of becoming one of the nation's top operating utilities.

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INDIVID UAL COMMITMENT TO Q UALITY When Jack Baker visited Washington a few years ago to apply for a job at the state's only commercial nuclear power plant, he fell in love with the area. His free time is now spent raising a family on a small farm just 12 miles from Plant 2 while his days are committed to his job Jack Baker's small farm as assistant plant manager.

was part of a vast desert before abundant irrigation The Supply System has been operating electric generating plants water and inexpensive for over 20 years, but Plant 2 has been in commercial operation only electricity transformed since 1984. Yet, due to the technical and administrative skills of a Washington state' dedicated team of individuals, its record is a successful one.

Columbia Basin into Baker, with his 12 years of operating experience, was one of the productive farmland.

few on the plant staff who had been through a major maintenance and refueling outage when the first one was tackled last spring. They faced several formidable tasks: rebuilding a troublesome reactor recirculation pump that limited plant output to 72-percent power; preventive maintenance on the turbine-generator; removing the first spent fuel assemblies from the reactor and refueling it, and completing hundreds of corrective maintenance and surveillance tasks.

The work was finished within the 45-day schedule, allowing Plant 2 to return to full 1,100-megawatt operation. This accomplishment cannot be attributed to a long operating history at an established plant, but rather to the individual dedication to quality of the Plant 2 staff.

The plant's first operating cycle ended with a notable record of two back-to-back, 100-day generation runs. Now that the plant is in reliable continuous generation, the challenge is to fine-tune procedures and operating practices while continuing to supply the Bonneville Power Administration with dependable power at the lowest possible cost.

Plant 2 continues to run solidly, supplying the people of the Pacific Northwest with reliable electric power, while the plant staff prepares for next spring's maintenance and refueling outage.

"Our people have the resources and capabilities to meet the Supply System's goal of being in the top 10 percent of operating nuclear utilities," Baker said. "Now it's a matter of effort, desire and commitment. If our employees bring the values they live by at home and in the community to jobs they truly enjoy, we can't help but succeed."

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'PREPARING FOR THE F UT URE Educating others is a big part of Yvonne Derrer's life, both on the job and away from the work place. The senior training specialist devotes much of her free time to working with students in the community, educating them on energy issues. At work she joins 43 other Yvonne Derrer volunteers professionals who have trained a plant operations staff that is known in her free time to share her expertise on energy issues the nuclear industry as one of the most experienced and knowledgeable with area students. in the nation.

Training programs ensure that Plant 2 workers have the necessary qualifications and skills to protect the public safety through safe and reliable operation. Workers are trained in the varied areas of health physics and chemistry, decontamination, maintenance, safety, first aid, fire protection, emergency procedures and security. Whatever the area, the Supply System's training programs are designed to produce talented, competent and motivated people to operate Plant 2 at the highest standards of safety and reliability.

A specially designed, statecf-the-art training facility located near Plant 2 contains sophisticated training aids, including a computerized control-room simulator. This simulator, a duplicate of the Plant 2 control room, allows operators to hone their skills in routine operating procedures and to learn to deal with abnormal events and simulated accidents. The Supply System employs six rotating shifts of reactor operators to meet the requirements of 24-hours-a-day, seven1ays-a-week operations. Plant operators spend one week of every six in rigorous training, continually increasing their level of knowledge.

Derrer and her fellow instructors complement on-the-job experience with training programs based on an analysis of the job tasks.

This performance-based training, conducted on a continual basis, keeps employees abreast of new concepts and changing job practices. It is a concept that has had a measurable impact in the workplace.

"I believe training just for the sake of training is totally ineffective," Derrer says. "But if a trainer can analyze the tasks required and develop an interesting program based on the individual's level of knowledge, you can make the difference between satisfactory and superior performance."

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'S TRI VING FOR A COMMON GOAL When Fred Elauss is on the field coaching, he is part of a team effort where the players must support each other if they are to succeed.

He demonstrates that same commitment to team work in his job as emergency planner, where he is the liaison between Plant 2 and Fred E!auss led his

'Tri-QtyExpress" community agencies.

soccer team to an undefeated Being prepared for a potentially serious accident at Plant 2 is a season and the state finals responsibility the Supply System shares with local, state and federal by coaching cooperation government. Law enforcement agencies and community volunteer and teamwork.

agencies, such as the American Red Cross, are also involved. This responsibility requires teamwork and cooperation to ensure that an accident can be handled without harm to the public.

The Nuclear Regulatory Commission and the Federal Emergency Management Agency continue to give the Supply System good marks for timely notification of the public and for successful recovery operation in annual emergency exercises. These simulated emergencies bring together more than 600 employees and representatives of outside agencies into one cohesive, effective organization.

The objective is clear: protect the health and safety of the public. It is through the commitment and enthusiasm of the individual participants that this objective has been met.

Members of the Supply System's emergency planning organization bring these qualities into the community as they carry out their broad community responsibilities. They help with local agencies to develop procedures to respond to an emergency, train their staff and offer other assistance as needed. Meeting with residents living within 10 miles of Plant 2 to educate them on plant operations and supply them with special radios that automatically activate in an emergency is another responsibility of the emergency planning staff. They also fulfill their responsibility to recreational users of the Columbia River by maintaining a sophisticated siren system to warn fishermen and boaters of an emergency at the plant.

"The people of this community place their trust in us, just as they trust their elected government officials," Elauss said. "Our job is to live up to this trust by working with local leaders to be prepared at any given time, on any day, to rally together as a team to effectively handle any emergency."

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EXECUTIVE BOARD VERA CLAUSSEN (Assistant Secretaryj CARL M. HALVORSON (Chairman j Commissioner President Grant County PUD HalvorsonMason Corporation Portland KENNETH R. COCHRANE Commissioner PARKER L. KNIGHT Franklin County PUD Commissioner Skamania County PUD RAYMONDE. COLBERT Commissioner PAUL J. NOLAN (Vice Chairman)

Okanogan County PUD Tacoma CORNELIUS R. DUFFIE (Secretaryj LOIS M. POWELI Consultant Commissioner Portland Grays Harbor County PUD SAMJ. FARMER SYDNEY STEINBORN Director Consultant Battelle Seattle Research Center Seattle Robert E. Berney and Franh N. Ward served on LOUIS H. WINNARD the Executive Board until 6/17/86. Senior Management Consultant Los Angeles BOARD OF DIRECTORS VERA CLAUSSEN (Secretaryj DAVIDL. MYERS Commissioner Commissioner Grant County PUD Wahkiakum County PUD DONALDR. CLAYHOLD LOIS M. POWELL Manager Commissioner Benton County PUD Grays Harbor County PUD EDWARD E. COATES ELMER E. ROLOFF Director Commissioner Department of Public Utilities Pacific County PUD City of Tacoma PAUL L. RUNYAN (Assistant Secretaryj KENNETH R. COCHRANE (Presidentj Commissioner Commissioner Clark County PUD Franklin County PUD WILLLAMD. SCOTT RA YMOND E COLBERT Commissioner Commissioner Chelan County PUD Okanogan County PUD KEITH SEDORE RANDALLW. HARDY Energy Services Director Superintendent City of Richland Seattle City Light ROGER C. SPARKS PARKER I,. KNIGHT (Vice President j Commissioner Commissioner Kittitas County PUD Skamania County PUD FRANK N. WARD WILLIAMG. KUEHNE Commissioner Commissioner Klickitat County PUD Ferry County PUD 12

'FINANCIAL INFORMATION Report of Independent Accountants 14-15 Financial Statements:

Balance Sheets 16-17 Statements of Operations 18 Statement of Changes in Deficiency in Assets 18 Statements of Changes in Financial Position 19 Outstanding Long-Term Debt 20-22 Notes to Financial Statements 23-33 Statement of Debt Service Requirements 34-35 13

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 Nuclear Plant No. 2, Hanford Generating Project, Packwood Lake Hydroelectric Project, Nuclear Project No. 1, Nuclear Project No. 3, Nuclear Projects No.'s 4 and 5, and the Internal Service Fund for the year ended June 30, 1986. 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.

As discussed in Note E to the financial statements, Washington Public Power Supply System Nuclear Project No. 3 is negotiating with its contractors and suppliers to settle contract claims associated with extended construction delays of that project. Due to the nature 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 Nuclear Projects No.'s 1 and 3 are involved in disputes concerning costs shared with Washington Public Power Supply System Nuclear Projects No.'s 4 and 5.

Additionally, disputes arising from the extended construction delay of Nuclear Project No. 3 have been tentatively settled; however, such settlement is subject to approval by the Court. The ultimate amount of additional costs, if any,'o be borne by Nuclear Projects No.'s 1 and 3 due to these matters are not determinable at the present time.

As discussed in Note E to the financial statements, creditors of Nuclear Projects No.'s 4 and 5 have threatened to attempt to obtain payment from assets or funds held by other projects of the Supply System or the revenues pledged thereto. Supply System management is of the opinion that creditor claims can only be realized from the assets, funds or revenues of the projects to which such claims relate. If it is found that creditors are not limited to payment of their claims from the project to which such claims relate, it will have a material adverse impact on the Supply System.

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As explained in Note D, participants agreements pertaining to Washington Public Power Supply System Nuclear Projects No.'s 4 and 5 have been held to be invalid.

Therefore, the Supply System is unable to recover the costs of Nuclear Projects No.'s 4 and 5 from the participants and has reduced such costs to their estimated recoverable values in the accompanying balance sheets. 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 termination costs. Due to the 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 view of the significance of the matters discussed in the preceding paragraphs, we are unable to express, and we do not express, an opinion of the financial statements of the Supply System's Nuclear Plant No. 2, Hanford Generating Project, Packwood Lake Hydroelectric Project, Nuclear Project No. 1, Nuclear Project No. 3, Nuclear Projects No.'s 4 and 5, and the Internal Service Fund referred to above.

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Seattle, Washington September 12, 1986 15

BALANCE SHEETS AsofJunC30, IBEG, Dollars in thousands NUCLEAR HANFORD PACKWOOD NUCLEAR NUCLEAR NUCLEAR INTERNAL PLANT GENERATING LAKE PROJECT PROJECT PROJECTS SERVICE ASSETS NO. 2 PROJECT PROJECT NO. I NO. 3 NO.'S 4/5 FUND CURRENT ASSETS OPERATING FUND Cash and investments $ 22,565 $ 5,336 $ 1,059 $ 13,827 $ 9,125 $ $ 3,706 Accounts receivable 479 252 Accounts receivable-antitrust settlement 6,397 Inventories 14,002 351 979 Prepaid and other Assets 395 360 28 741 Due from participants 1,612 139 232 Due from other projects and internal service fund 404 7,660 Due from other funds 44,114 1,210 32 28,840 26,556 89,564 7,800 1,351 43,231 36,223 13,338 RESTRICTED ASSETS Notes B and C Special funds Cash and investments 43,758 3,293 300 132,689 30,560 6,573 Receivable from joint owners 8,939 237 Due from other projects and internal service fund 9,361 126 17,069 Accounts receivable-antitrust settlement 4,312 5,644 298 Prepaid and other assets 1,317 417 580 Due from other funds-net 155 14,599 43,758 3,293 300 147,834 60,285 24,757 Revenue fund cash 161 Accounts receivable 3,852 Chemical Bank fund accounts 17,044 Debt service funds '54 cash and investments 114,965 7 270 228,932 179,752 98,285 158,723

'54 10,563 376,766 240,037 144,099 UTILITYPLANTAND EQUIPMENT Note B In service 3,236,608 67,639 12,371 11,243 1,340 16,461 Improvements to U.S.

government facilities 16,544 Less allowance for depreciation and amortization 173,365 59,092 5,803 1,252 1,340 9,823) 3,063,243 25,091 6,568 9,991 6,638 Construction work in progress 16,230 Construction work in progress-deferred plants 2,227,501 2,398,100 Costs of terminated plants 2,912,131 Nuclear fuel and prepaid enrichment services 104,310 257,838 51,030 Less amount charged to joint owners (617,026) (87,567)

Less allowance for estimated unrecoverable cost 2,817,154 3,183,783 25,091 6,568 2,495,330 1,832,104 7,410 OTHER ASSETS AND DEFERRED CHARGES Unbilled reimbursable costs 2,677 Unamortized debt expense 3,296 104 20 3,375 2,464 TOTAL ASSETS $ 3,435,366 $ 43,558 $ 11,570 $ 2,918,702 $ 2,110,828 $ 151,509 $ 19,976

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NUCLEAR HANFORD PA CFOOD NUCLBAR NUCLEAR NUCLBAR INTERNAI PLANT GENERATING LAKE PROIECT PROIBCT PROJECTS SBR VICE LIABILITIES NO. 2 PROJECT PROJECT NO. I NO. 3 NO.'S 415 FUND C URRENT LIABILITIES OPERATING FUND Accounts payable and accrued expenses $ 21,208 $ 3,925 $ 63 $ 69 $ $ 9,793 Amounts withheld from contractors 3,443 Advance payments from participants 1,703 2 737 1,789 Due to other projects and internal service fund 2,671 296 Amounts due power purchasers 57,539 375 1,173 36,975 16,835 Amounts due other funds 155 14,599 86,564 4,300 1,236 40,232 33,223 9,793 LIABILITIES PAYABLE FROM RESTRICTED ASSETS Notes B and C Special funds Accounts payable and accrued expenses 1,439 7,639 12,725 26,997 Amounts withheld from contractors 3,386 8,837 6,572 Due to other projects and internal service fund 590 16,770 8,021 Due to other funds-net 39,319 793 20 23,278 18,954 40,758 793 20 34,893 57,286 41,590 Debt service funds Accrued interest payable 332 124 103,837 82,678 608,730 Due to other funds-net 4,795 418 11 5,562 7,602 4,795 750 135 109,399 90,280 608,730 Chemical Bank fund accounts Accounts payable and accrued expenses 477 45,553 1,543 155 144,292 147,566 650,797 DEBT IN DEFA ULT, C URRENTLYPAYABLE Revenue bonds payable 2,250,000 Subordinated revenue notes 67,866 2,317,866 LONG TERM DEBT Note C Revenue bonds payable 2,258,700 30,840 10,159 2,124,415 1,590,360 Less unamortized discount on bonds-net 66,719 574 78 50,861 37,324 2,191 981 30,266 10,081 2,073,554 1,553,036 OTHER LIABILITIESAND DEFERRED CREDITS Unearned revenue 1,068,020 4,734 Costs reimbursed under net billing 657,624 374,003 Deferred gain on redemption of revenue bonds 1,315 98 Due to other projects 6,303 Advances and other 43,248 1,400 3,000 3,000 3,880 1,111,268 7,449 98 660,624 377,003 10,183 TOTAL LIABILITIES 3,435,366 43,558 11,570 2,918,702 2,110,828 2,968,663 19,976 Deficiency in assets 2,817,154 TOTAL LIABILITIESAND DEFICIENCY IN ASSETS $ 3,435,366 $ 43,558 $ 11,570 $ 2,918,702 $ 2,110,828 $ 151,509 $ 19,976 17

For the year ended june 30, '1986 r STATEMENTS OF OPERATIONS Dollars in thousands NUCLEAR HANPORD PACKWOOD PLANT GENERA TtNG LAKE NO. 2 PROJECT PROJECT OPERATING REVENUES $ 421,471 $ 36,000 $ 933 OPERATING EXPENSES Nuclear fuel 20,468 Waste disposal 4,166 Decommissioning 888 Reactor availability 26,129 Depreciation and amortization 103,713 2,430 262 Operations and maintenance 74,485 3,013 485 Administrative and general 20,026 808 88 Taxes 1,555 3,900 2 225,301 36,280 837 NET OPERATING 196,170 280 REVENUE/(LOSS'THER INCOME AND EXPENSE Investment income 21,538 1,361 285 Interest expense and discount amortization 217,708 1,081 381 NET REVENUE $ $ $ STATEMENT OF CHANGES IN DEFICIENCY IN ASSETS For the year ended June 30, 1986 Dollars in thousands NUCLEAR PROJECTS NO.'3 4/5 BALANCEATJULY 1, 1985 $ 2,622,739 ADDITIONS/(DEDUCTIONS)

Interest Expense 198,084 Net increase in costs related to terminated nuclear projects 16,624 Administrative costs associated with asset disposition 3,210 Received from asset sales (7,900)

Investment income (10,233)

Decrease/(increase) in recoverable value estimates (5,370)

BALANCEATJUNE 30, 1986 $ 2,817,154 18

For the year ended June 30, 1986

"'S'ZATEMENTS OF CHANGES IN FINANCIAL POSITION Dollars in thousands NUCLEAR HANPORD PACKWOOD PLANT GENERA TlNG LAKE OPERATING PROJECTS NO. 2 PROJECT PROJECT SOURCE OF FUNDS Operations-Net revenue $ $ $ Items not affecting working capital Depreciation and amortization 126,874 2,497 266 Increase/(decrease) in costs reimbursable from power purchasers (49,592) 1,643 57 Less gain on redemption of revenue bonds (129) (146)

Total from Operations 77,282 4,011 177 TOTAL SOURCE OF FUNDS $ 77,282 $ 4,011 $ 177 USE OF FUNDS Construction and capital 11,534 Fuel 42,453 Net improvements 754 Cost of revenue bonds purchased and retired 23,295 3,240 164 Increase (decrease) in restricted assets 12 13 77,282 4,011 177 Changes in working capital Cash and investments 10,840 1,687 (544)

Receivables and other (7,048) (2,519) 35 Payables and other 3,792 832 509 Net increase in working capital TOTAL USE OF FUNDS $ 77,282 $ 4,011 $ 177 NUCLEAR NUCLEAR NUCLEAR PRO)ECT PRO)ECT PROJECTS NON-OPERATING PROJECTS NO.'S 4/5 SOURCE OF FUNDS Collected under net billing $ 235,125 $ 162,059 Interest income 26,851 15,287 10,216 Charged to joint owners 8,336 (1,235)

Net decrease in restricted funds 194,894 Received from sale of fuel 1,288 Revaluation of investments 3 59 17 Reduction of estimated cost of termination 5,912 Asset sales 7,900 Other 447 TOTAL SOURCE OF FUNDS $ 263,267 $ 185,741 $ 218,151 USE OF FUNDS Construction costs 14,203 24,011 Interest expense 207,674 165,357 198,084 Nuclear fuel 370 57 Financing, trustee and paying agent expenses (19) (121) 16,857 Bonds redeemed 9,785 6,175 Due to participants (357) (10,093)

Net transfers to Hanford Generating Project 29,045 Net increase in restricted funds 2,566 355 Administrative costs associated with asset disposition 3,210 TOTAL USE OF FUNDS $ 263,267 $ 185,741 $ 218,151 19

r OUTSTANDING LONGTERM DEBT Dollars in thous'ands BFFBCTIVB SBRIAI DATB INTBRBST OFFBRING COUPON OR TBRM SBRIBS OF SAI B RATB PRICBS RATB MATURITIBS JUNB 30, I986 NUCLEAR PLANT NO. 2 Revenue Bonds 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 Revenue Bonds 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 Revenue Bonds 1974A 11-26-74 7.67 (A) 7.20 7-1-87/1994 15,500 (excludes $ 2,500,000 due 100 7.40 7-1-1999 15,000 July 1, 1986) 100 7.75 7-1-2012 78,000 108,500 Revenue Bonds 1975A 3-6-75 6.71 (A) 6.60 7-1-87/1994 14,300 (excludes $ 4,300,000 due 100 6.60 7-1-1999 15,000 July 1, 1986) 100 6.875 7-1-2012 78,000 107,300 Revenue Bonds 1976 6-3-76 6.63 (A) 5.40-6.25 7-1-87/1998 22,765 (excludes $ 1,190,000 due 99.25 6.625 7-1-2006 42,300 July 1, 1986) 100 6.75 7-1-2012 49,860 114,925 Revenue Bonds 1976A 11-18-76 5.87 (A) 5.50-5.875 7-1-87/2002 80,045 (excludes $ 3,095,000 due 100 6.00 7-1-2007 44,815 July 1, 1986) 99.50 6.00 7-1-2012 60,990 185,850 Revenue Bonds 1978 7-11-78 6.71 (A) 5.50-6.60 7-1-87/2000 58,075 (excludes $ 2,355,000 due 100 6.80 7-1-2006 45,520 July 1, 1986) 100 6.875 7-1-2012 66,230 169,825 Revenue Bonds 1979 3-13-79 6.49 (A) 5.50-6.00 7-1-87/1999 51,100 (excludes $ 2,635,000 due 100 6.40 7-1-2004 33,490 July 1, 1986) 100 6.75 7-1-2012 83,605 168,195 Revenue Bonds 1979A 10-17-79 7.69 (A) 6.60-7.30 7-1-87/1999 36,375 (excludes $ 1,900,000 due 100 7.60 7-1-2004 23,050 July 1, 1986) 100 7.75 7-1-2012 57,000 116,425 Revenue Bonds 1980 10-21-80 9.36 (A) 8.90-10.90 7-1-87/1997 33,530 (excludes $ 1,700,000 due 100 9.30 7-1-2001 23,735 July 1, 1986) 100 9.60 7-1-2006 46,070 (A) 9.25 7-1-2011 75,045 (A) 8.25 7-1-2012 19,920 198,300 Revenue Bonds 1981A 94-81 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 Revenue Bonds 1982A 2-11-82 14.76 100 10.00-13.75 7-1-87/1996 31,725 (excludes $ 1,610,000 due 100 14.50 7-1-2002 51,665 July 1, 1986) 99.25 14.75 7-1-2012 215,000 298,390

/A/ Various prices 20

8t EFFECTIVE SBRIAI DATE INTBRBST OFFBRING COUPON OR TERM SERIES OF SALE RATB PRICES RATE MATURITIBS JUNE 30, 1986 Revenue Bonds 1982B 5-20.82 13.82% 100 9.75-13.00% 7-1-87/1996 $ 37,390 100 13.875 7-1-2012 139,320 (excludes $ 2,010,000 due July 1, 1986) 176,710 Revenue Bonds 1982C 5-20-82 13.89 100 13.50 7-1-2002 56,960 100 13.875 7-1-2012 139,320 196,280 82,258,700 HANPORD GENERATING PROJECT Revenue Bonds 1963 5.8.63 3.26 IA) 3.10 9-1-1986 $ 3,255 98 3.25 9-1-1996 27 585 (includes $ 3,255,000 due within one year at June 30, 1986) 8 30,840 PACKWOOD LAKE PROJECT Revenue Bonds 1962 3-20.62 3.66 99.425 3.625 3-1-2012 $ 7,684 (includes $ 180,000 due within 1965 11-4.65 3.76 100.5 3.75 3-1-2012 2,475 one year at June 30, 1986) 8 10,159 NUCLEAR PROJECT NO. I Revenue Bonds 1975 9-18-75 7.73 (A) 6.10-7.40 7-1-86/2000 $ 36,400 100 7.70 7-1-2010 58,300 (includes $ 1,400,000 due 100 7.75 7-1-2017 74,700 July 1, 1986) 169,400 Revenue Bonds 1976A 2-4-76 6.84 (A) 6.00-6.25 7-1-86/1998 30,285 100 6.90 7-1-2010 66,485 (includes $ 1,575,000 due July 1, 1986) 100 7.00 7-1-2017 76,495 173,265 Revenue Bonds 1976B =

8-31-76 6.37 (A) 5.00-5.90 7-1-86/1998 33,755 100 6.50 7-1-2010 66,940 (includes'$1,845,000 due 99.50 6.50 7-1-2017 71,235 July 1, 1986) 171,930 Revenue Bonds 1978A 3-21-78 5.69 (A) 5.00-5.50 7-1-86/2002 59,960 100 5.80 7-1-2010 50,920 (includes $ 2,325,000 due July 1, 1986) 100 5.875 7-1-2017 64,810 175,690 Revenue Bonds 1978B 12-5-78 6.61 (A) 5.50-6.00 7-1-86/1998 34,910 100 6.35 7-1-2003 22,305 (includes $ 1,875,000 due July 1, 1986) 100 6.60 7-1-2009 38,190 99.50 6.80 7-1-2017 81,150 176,555 Revenue Bonds 1979 6-19-79 6.64 (A) 6.00 7-1-86/1998 26,960 100 6.40 7-1-2003 18,560 (includes $ 1,335,000 due 100 6.70 7-1-2009 32,370 July 1, 1986) 100 6.80 7-1-2017 69,685 147,575 Revenue Bonds 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 (includes $ 4,500,000 due 100 9.20 7-1-2005 16,950 July 1, 1986) 99.00 9.25 7-1-2013 70,550 (A) 7.75 7-1-2017 30,000 210,000

/continued/

21

OUTSTANDING LONGTERM DEBT Dollars in thousaeh ~

EFFECTIVB SBRIAI DATE INTBRBST OFFERING COUPON OR TERM SERIES OF SAIB RATB PRICES RATE hfATURITIES JUNB 30, I986 Revenue Bonds 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 Revenue Bonds 1981B 4-13.81 11.30 (A) 10.00 7-1-2016 40,000 Revenue Bonds 1981C 4-13-81 10.29 100 10.25 7-1-2015 40,000 Revenue Bonds 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 Revenue Bonds 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 305,000 385,000

$ 2,124,415 NUCLEAR PROJECT NO. 3 Revenue Bonds 1975 12-3-75 7.87 (A) 5.85-7.25 7-1-86/1998 23,240 (includes $ 1,115,000 due 100 7.875 7-1-2010 52,695 July 1, 1986) 100 7.875 7-1-2018 71,160 147,095 Revenue Bonds 1976 4-13-76 6.48 (A) 5.50-6.00 7-1-86/1998 17,140 (includes $ 910,000 due 99.625 6.50 7-1-2010 35,100 July 1, 1986) 100 6.60 7-1-2018 45,295 97,535 Revenue Bonds 1977 9-12>>77 5.71 (A) 5.00-5.50 7-1-86/2000 56,685 (includes $ 2,725,000 due 99.50 5.70 7-1-2009 63,535 July 1, 1986) 99.50 5.80 7-1-2018 107,160 227,380 Revenue Bonds 1978 9-12-78 6.27 (A) 5.90-6.00 7-1-86/2004 64,735 (includes $ 1,780,000 due 100 6.375 7-1-2010 '42,985 July 1, 1986) 99 6.40 7-1-2018 90,630 198,350 Revenue Bonds 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 Revenue Bonds 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 Revenue Bonds 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 Revenue Bonds 19 82B 5-20-82 13.95 100 10.50-13.00 7-1-88/1996 9,195 99.50 13.875 7-1-2018 280,925 290,120 Revenue Bonds 1982C 5-20-82 13.63 100 13.50 7-1-2002 14,880

$ 1,590,360

/A/ Various Prices 22

'N 5 TES TO FINAN CIA L S TA TEMEN TS accounting principles applicable to the utility industry.

Note A Organization Separate books of account are maintained for each proj-ect except for Nuclear Projects No.'s 4 and 5, which are The Washington Public Power Supply System was accounted for as a single entity. In addition, the Supply organized in 1957 as a municipal corporation and joint System maintains an internal service fund for payment operating agency of the State of Washington. It is em-and accounting of payrolls, administrative and general powered to acquire, construct and operate facilities for expenses, and certain common goods and services pro-the generation and transmission of electric power. On curred for the projects on a cost-reimbursable basis.

June 30, 1986, its membership consisted of 13 public utility districts and three municipalities that own and Restricted Assets operate electric systems within the state of Washington. In accordance with project bond resolutions and related The Supply System constructed and is operating agreements, separate restricted funds must be establish-Nuclear Plant No. 2, the Hanford Generating Project ed for each of the projects. The assets held in these and the Packwood Lake Hydroelectric Project. The funds are restricted for specific uses including construc-Supply System's Nuclear Project No. 1 is in the fifth tion, termination, debt service and other special reserve year of an extended construction delay, Nuclear Project requirements.

No. 3 is in the fourth year of an extended construction Cash and investments in the Operating Fund of Nuclear delay, and Nuclear Projects No.'s 4 and 5 were Plant No. 2 and in Special Funds of Nuclear Projects terminated on January 22, 1982. No.'s 1, 3, 4 and 5 include $ 22,199,817 retained in Nuclear Plant No. 2 and Nuclear Projects No.'s 1 and 4 escrow for contractors as of June 30, 1986.

are wholly owned by the Supply System. Nuclear Proj- Current Assets and Current Liabilities ect No. 3 is jointly owned by the Supply System (70 per-cent) and four investor-owned utilities (30 percent). Current assets and liabilities in the accompanying Nuclear Project No. 5 is jointly owned by the Supply balance sheets exclude current maturities on revenue System (90 percent) and one investor-owned utility (10 bonds and accrued interest because debt service funds percent). Each joint owner is responsible for its own are provided for their payment.

financing costs and share of the costs of construction, Investments operation and termination and is entitled to its ownership share of the projects'perating capability. Investments include United States government and government agencies securities. Investments are stated The Supply System is currently unable to obtain addi- at cost or amortized cost, as appropriate, and include tional financing through the sale of bonds due to pend- accrued interest.

ing litigation. Project maintenance costs for Nuclear Project No. 1 are funded by proceeds from bonds sold Investments held in the Bond Fund Reserve Accounts during February 1982. Project maintenance costs for the (included in Debt Service Funds) and Reserve and Con-Supply System's 70 percent share of Nuclear Project tingency Funds (included in Special Funds) are stated at No. 3 and debt service for Nuclear Projects No.'s 1 and the lower of amortized cost or market as provided by 3 are funded by payments under the net-billing bond resolutions.

agreements. The market value of investments (including accrued interest) approximates the carrying value.

Note, B Summary of Significant Investment Income Accounting Folicies Investment income consists of interest earned on in-vestments and gains or losses resulting from the sale of The Supply System has adopted accounting policies and investments. Investment income relating to operating practices that are in accordance with generally accepted plants is recorded as a credit to operating costs. With 23

NOTES TO FINANCIAL STATEMENTS respect to Nuclear Projects No.'s 1 and 3, income earn- received under net-billing agreements and utilized to ed on any construction funds is recorded as a credit to fund debt service or other project expenditures is nor-Construction Work in Progress-Deferred Plants, shown mally recorded as Unearned Revenues on the balance on the balance sheet, and income earned on all other sheet and is amortized to Revenues over the operating funds is treated as a reduction of funding required life of the project. However, money received under under the net-billing agreements. Investment income Nuclear Projects No.'s 1 and 3 net-billing agreements is relating to Nuclear Projects No.'s 4 and 5 is credited to classified as Costs Reimbursed Under Net Billing be-Costs of Terminated Plants, shown on the balance sheet. cause of uncertainty as to when these projects will be operational, as explained in Note E.

Capitalization of Construction Costs and Expenses During the normal construction phase of a project it is For Nuclear Plant No. 2, Hanford Generating Project the Supply System's policy to capitalize all costs relating and Packwood Lake Hydroelectric Project, the dif-to the project, including interest (net of interest ference between cumulative operating costs, including income), general and administrative expense, amortized depreciation and amortization, and cumulative financing expense and certain other expenses. Interest payments, including debt service, is reflected as expense (net) during construction is allocated to nuclear Unearned Revenue or Unbilled Reimbursable Costs, as fuel and plant based on cumulative cash utilization. appropriate.

General and administrative expenses and overhead ex- In accordance with covenants of bond resolutions, the penses are allocated to projects primarily on the basis of Supply System is authorized to recover actual cash direct usage or direct salary cost. Financing expense ap- requirements for operations and debt service for each plicable to each project is amortized by the straight-line project over the life of the project. Accordingly, the method over the period of each respective bond issue, Supply System records revenues equal to operating to project capital cost or operating cost, as appropriate, costs for each period. No income or loss is realized, and during plant construction or operations. no equity is accumulated.

As of July 1, 1984, the Supply System discontinued Nuclear Fuel Cost capitalizing interest expense (net) applicable to Nuclear Projects No.'s 1 and 3 because of the extended delay of Nuclear Plant No. 2 capitalized nuclear fuel cost is these projects. The interest expense, which is funded by amortized to nuclear fuel operating expense on the basis payments under net-billing agreements, will not be of quantity of heat produced for electric generation.

capitalized during the delay. Such net interest expense Current period nuclear fuel operating expense also in-totaled $ 189,719,354 and $ 150,080,085 for Nuclear Proj- cludes a charge for future spent nuclear fuel storage ects No.'s 1 and 3, respectively, for the year ended and disposal to be provided by the Department of June 30, 1986. Energy in accordance with the Nuclear Waste Policy Act of 1982. Such charge is based on one mill per Utility Plant and Equipment kilowatt-hour of energy generated.

Depreciation and Amortization Decommissioning Buildings and equipment are depreciated by the straight-line method over their estimated useful lives. Estimated Nuclear Plant No. 2 decommissioning costs are being currently funded under the sinking-fund Improvements to U.S. government-owned facilities are method. Monthly payments are made into a sinking being amortized over the period covered by the contract fund which, with accumulated interest, will be ade-for dual-purpose operation of the U.S. Department of quate to fund decommissioning costs at the end of the Energy's New Production Reactor. 40-year plant operating life. Sinking-fund requirements are currently based on estimated decommissioning costs Revenues of $ 114 million (1982 dollars). Payments to the decom-During the construction phase of a project, money missioning fund for Nuclear Plant No. 2 for fiscal year 1986 aggregated $ 888,000.

24

Cost Related to Construction and Termination are obligated to pay the Supply System their pro rata of Nuclear Power Plants share of the total annual costs of the projects, including For Nuclear Projects No.'s 4 and 5, the costs of debt service on the bonds, whether or not the projects constructiori through January 22, 1982, the date of are completed, operable or operating and notwithstand-termination, and the costs of termination and other ing the suspension, reduction or curtailment of the related costs subsequent to that date are shown at their projects'utput. See Note E for a discussion of the estimated net realizable value in the accompanying Hanford Generating Project and its relationship to balance sheets as of June 30, 1986, based on Supply Nuclear Project No. 1.

System staff estimates. The amount estimated for In connection with the issuance of the generating unrecoverable costs ($ 2,817,153,800) has been reflected facilities revenue bonds for Nuclear Projects No.'s 4 and as Allowance for Estimated Unrecoverable Cost and as 5, the Supply System pledged the revenues to be de-Deficiency in Assets in the accompanying balance sheets. rived under participants'greements with 88 utilities Retirement Plan operating principally in the Pacific Northwest. The par-ticipants'greements provided that each participant pay The Supply System participates in the Washington State its respective share of annual costs, including debt ser-Public Employees'etirement System that provides vice on the bonds, whether or not the projects were retirement benefits to eligible employees. The cost of completed, operable, or operating and notwithstanding the plan to the Supply System is determined by the the suspension, interruption, interference, reduction or retirement system's board. The actuarially computed curtailment of the projects'utput. Payments from the value of pension benefits exceeds the fund assets for the participants for Nuclear Projects No.'s 4 and 5 termina-retirement system. However, because the retirement tion costs and debt service were due beginning on system is a multi-employer system, the amount of any January 25, 1983. Payments due under the excess that relates to the Supply System is not available. participants'greements have not been forthcoming (see Note D) and The Supply System's required contribution was an event of default, as defined in the bond resolution,

$ 4,579,454 during the period ended June 30, 1986.

occurred on July 22, 1983, and is continuing.

In connection with the issuance of the Nuclear Projects Note C Long-Term Debt No.'s 4 and 5 subordinated revenue notes t$ 60,000,000 due July 1, 1984, and $ 7,865,502 due June 30, 1983),

Except for Nuclear Projects No.'s 4 and 5, which were the Supply System pledged to set aside money for pay-financed together as one utility system, all Supply ment of such obligations from funds to be accumulated System projects are financed separately. The revenue in the Revenue Fund. Payments under the bonds issued for each project are payable solely from to be accumulated in the Revenue Fund participants'greements the revenues of that project. were not made and therefore the subordinated revenue Outstanding revenue bonds of the various projects as of notes were not paid. See Note D for a discussion of June 30, 1985, are presented on pages 20 through 22. default on Nuclear Projects No.'s 4 and 5 subordinated revenue notes.

Security Agreements and Contracts Project participants have purchased the Supply System's ownership share of project capability of Nuclear Plant Note D Termination of Nuclear Projects No. 2, the Hanford Generating Project, and Nuclear No.'s 4 and 5 and Default Projects No.'s 1 and 3. The U.S. Department of Energy, Under Bond Resolution acting by and through BPA, has in turn acquired the entire capability from the project participants under On January 22, 1982, the Supply System's Nuclear various net-billing and exchange agreements. BPA is Projects No.'s 4 and 5 were terminated. Construction obligated to pay the participants and the participants was 24 and 16 percent complete, respectively, at the time.

25

NOTES TO FINANCIAL STATEMENTS 1

~ I The participants'greements (discussed in Note C ceed available cash and revenues, certain lower priority under Security) provided that each participant pay its obligations (as defined in the bond resolution) are not respective share of the debt service on the bonds and being paid.

termination costs beginning January 25, 1983. Payments due under the participants'greements were not made On August 18, 1983, Chemical Bank declared the prin-pending a judicial determinatibn of the cipal of all Nuclear Projects No.'s 4 and 5 revenue and obligation to pay. On June 15, 1983, and participants'uthority bonds and interest accrued thereon to be due and again on November 6, 1984, the Washington State payable immediately.

Supreme Court ruled that Washington municipal Since the participants'greements have been held to be utilities did not have statutory authority to enter into invalid, the assets of Nuclear Projects No.'s 4 and 5 the participants'greements and, thus, that those have been reduced to their estimated net recoverable agreements are invalid as to the cities and public utility value, resulting in a deficiency in assets. Such districts of the state of Washington, which collectively recoverable value is based on Supply System staff hold approximately 68 percent of the participants'hares estimates. However, the ultimate recoverability cannot of Nuclear Projects No.'s 4 and 5. In addition, on presently be determined.

November 6, 1984, the Washington State Supreme Court also ruled that, because of the invalidity of the The Supply System's current estimate of termination participants'greements entered into by the costs t$ 26,764,478), including costs of contract set-Washington municipal utilities, all of the remaining tlements and other termination costs, has been accrued participants'greements are unenforceable as well. as Accounts Payable and Accrued Expenses in the ac-Chemical Bank and the Supply System petitioned the companying balance sheets. Although management of U.S.'Supreme Court for grant of a writ of certiorari by the Supply System is satisfied that its estimates are which the state court decision might be reviewed by reasonable, the final settlement for termination costs that court. Grant of the writ was denied by the U.S. and the cost of dismantling the projects cannot be deter-Supreme Court on April 29, 1985. mined at this time. Certain physical assets of Nuclear Projects No.'s 4 and 5 are being maintained for a period On July 22, 1983, the Supply System acknowledged that to maximize their sales value upon disposal. Supply it could not meet all Nuclear Projects No.'s 4 and 5 System management plans to continue the asset disposal obligations as they became due. This admission activities through at least June 1987.

represented an event of default under the Nuclear Proj-ects No.'s 4 and 5 bond resolution. In August 1983 Chemical Bank filed a lawsuit in U.S.

District Court, Western District of Washington, which On July 25, 1983, Chemical Bank, as bond fund trustee, is now pending against the Supply System, all partici-demanded that all remaining project funds be transfered pants in Nuclear Projects No.'s 4 and 5, Supply System to a special account. Under Section 11.4 of the member utilities and certain directors, BPA and other Nuclear Projects No.'s 4 and 5 bond resolution, individuals. The lawsuit alleges violations of federal and Chemical Bank, as bond fund trustee, or a duly con- state securities statutes, fraud, misrepresentation, bad stituted bondholders'ommittee is entitled, to the ex- faith, negligence, and unjust enrichment, and seeks tent permitted by law, to take possession of the money damages, rescission and restitution. This suit is business and properties of Nuclear Projects No.'s 4 and currently in the discovery phase. Depositions began

5. At present, the Supply System is continuing to in January 1985 and are expected to continue manage the contract termination and asset disposal ac- through mid-1987. The court has set a trial date of tivities. Chemical Bank disburses the funds for payment September 1, 1988.

of Nuclear Projects No.'s 4 and 5 termination activities in accordance with the payment priorities established in In addition, numerous lawsuits have been filed against the bond resolution. Since total obligations currently ex- the Supply System and numerous other individuals and entities by individuals purporting to represent classes of

bondholders. The lawsuits allege violations of federal The primary carrier is currently paying costs of defense and state securities statutes, negligent misrepresenta- of the Supply System's directors in the securities litiga-tion, common law fraud and deceit, gross negligence, tion, and the excess carrier agreed in June 1986 to pay and breach of contract, and seek monetary damages for such defense costs when the primary coverage is ex-losses allegedly sustained by the purported classes. hausted. Trial in this action will not occur until the These cases have been transfeired to the U.S. District securities litigation is resolved. Although this suit is not Court, Western District of Washington, and most have for money damages, it could have a serious financial been consolidated for pretrial purposes. All of these impact on the Supply System.

cases are in the discovery phase of litigation.

Another lawsuit, Haberman v. Washington Public Power Note E Commitments and Contingencies Supply System has been filed against the Supply System and others in a state court of the state of Washington by Hanford Generating Proj ect and its Relationship a number of Nuclear Projects No.'s 4 and 5 bondholders to Nuclear Project No. 1 alleging substantially the same allegations as have been The U.S. Department of Energy (DOE) owns and urged in the federal cases. Following oral decisions of operates the New Production Reactor (NPR), which pro-the court on July 26, 1985, and, upon motions for recon-vides by-product steam to the Hanford Generating Proj-sideration, on October 7, 1985, all claims in the action ect. The Supply System's current agreement with the against the Supply System have been dismissed. The DOE provides for the continuation of this dual-purpose court also indicated that it would stay the action pen-operation of the reactor through June 1993. In accor-ding disposition of comparable state law claims in the dance with certain other project agreements, the federal actions. The court's rulings have been appealed operating costs of the project will be offset by payments by the bondholders to the Washington State Supreme from certain public and investor-owned utilities in Court. return for the power generated. Public participants cur-The lawsuits described in the three preceding rently receive 72 percent of the power, and two paragraphs seek to recover the bondholders'nvestment investorwwned utilities receive 28 percent.

in the principal amount of $ 2.25 billion, plus Total Hanford Generating Project revenues were $ 36 unspecified damages, plus interest, costs and attorneys'ees.

million during the year ended June 30, 1986, compared to $ 67.8 million for the previous year. The decrease in The Supply System cannot predict the outcome of the revenues relates to reduced power generation which above litigation. resulted from a lower availability of steam provided by the DOE.

Pursuant to state law and resolutions of the Supply System's Executive Board, the Supply System has The Washington State Department of Revenue has agreed to indemnify its directors for certain of the acts assessed a manufacturers business tax and public utility which have been alleged in the complaint. The Supply tax on the value of Hanford Generating Project elec-System is obligated for associated costs {including legal trical energy sold to out-of-state participants and to BPA defense costs) to the extent such costs are not covered for resale to out-of-state, investorewned utilities and by directors and officers insurance. direct service industries. The potential tax liability, which totals $ 3.9 million for the period July 1, 1980, In a suit filed in September 1985, the excess carrier of through June 30, 1986, has been recognized and is directors and officers liability insurance for the Supply reflected in the Hanford Generating Project financial System seeks an adjudication that it has no liability as a statements as of June 30, 1986. However, the Supply result of the alleged failure of the Supply System to System believes that assessment of this tax is inap-disclose facts known to it which, if known to the in- propriate and has protested the assessment. The surer, would have resulted in its not issuing the policy.

27

NOTES TO FINANCIAL STATEMENTS ~ I Washington State Department of Revenue is currently Project No. 3. During the construction delay, the Supply reviewing this matter. System will endeavor to preserve plant assets and main-tain project licenses.

It was initially intended that Nuclear Project No. 1 be constructed next to the Hanford Generating Project to On January 23, 1986, the Northwest Power Planning provide the energy source to operate the project when Council (Council) released its 1986 Northwest Conserva-the DOE ceased operation of the New Production Reac- tion and Electric Power Plan (Plan.) In the Plan, the tor. To allow for construction of Nuclear Project No. 1, Council indicated that Nuclear Projects No.'s 1 and 3 it would have been necessary to shut down the Hanford are cost effective. However, the Council did not include Generating Project on October 31, 1977. Because Nuclear Projects No.'s 1 and 3 in its resource portfolio studies at that time indicated that generating resources citing legal and other uncertainties. The Council does in the Pacific Northwest would be inadequate in the view Nuclear Projects No.'s 1 and 3 as energy options late 1970s and early 1980s, the Supply System and BPA for the future after the current uncertainties are determined that the Hanford Generating Project should removed.

be kept available for power production. Therefore, the Nuclear Project No. 1 net-billing, exchange and project On March 21, 1986, BPA released its 1986 Resource agreements were amended to provide for the separation Strategy. In the 1986 Resource Strategy, BPA recom-

~

of Nuclear Project No. 1 from the Hanford Generating mended that a) the technical program, which would Project. The amended agreements provide that Hanford allow cost-effective earned-value work to continue, be Generating Project costs, to the extent not otherwise delayed until the need for the projects is better known; provided for, be treated as Nuclear Project No. 1 costs b) spending on preservation be reduced to a minimum with HGP having a first claim on the revenues of that level by late 1988; c) BPA should not include funds for project. construction restart for Nuclear Projects No.'s 1 and 3 in its budget for fiscal years 1988 and 1989; and d) BPA The, amended agreements provide for the payment of all should perform a new comprehensive review and debt service costs, net of investment income, of the analysis of possible future courses of action for Nuclear Hanford Generating Project by Nuclear Project No. 1 Projects No.'s 1 and 3 as part of BPA's 1987 and 1988 participants, beginning July 1, 1980, regardless of con- Resource Strategy.

tinued operation of the reactor. If the reactor ceases operations, revenues to the Hanford Generating Project The Supply System is currently unable to predict when arising from these payments will nevertheless be Nuclear Projects No.'s 1 and 3 will be completed.

recorded each year thereafter in amounts that will However, BPA has recommended that for the Supply result in full realization of the carrying value of the System's fiscal year 1987 financial planning process, the plant. Supply System assume a restart of construction of one unit in 1994 and restart of construction of the other unit The U.S. government has an, option to acquire owner- in 1996. BPA further stated there is approximately a ship of the Hanford Generating Project upon congres- one-in-three chance that restart of construction would sional approval. If the government exercises its option, be needed during or before 1992 for one unit and ap-it must assume all rights and obligations of the project, proximately a one-in-four chance that restart of con-including the obligation to pay all revenue bonds. struction would be needed during or before 1992 for the second unit to meet regional load growth. However, Nuclear Projects No.'s 1 and 3 Construction Delay consistent with its recommendations to assume a 1994 On April 29, 1982, the Supply System, upon the recom- restart, BPA has included funding in its budget for fiscal mendation of BPA, approved an extended construction years 1991 and 1992 for preconstruction engineering.

delay of Nuclear Project No. 1, and on July 8, 1983, the Supply System, also upon the recommendation of BPA, The U.S. Department of Energy is studying acquisition approved an extended construction delay of Nuclear of all or a part of Nuclear Project No. 1 for completion as a strategic material production facility. Whether such 28

an acquisition will occur, what the timing might be, and Supply System, and, in certain cases, the judgements what form it might take are unknown. Any such ac- stated that the obligation to pay the notes was not quisition would require payment of just compensation restricted to the funds of Nuclear Projects No.'s 4 and to the Supply System for assets acquired. Payment of all 5. Some of these cases were subsequently appealed to outstanding Nuclear Project No. 1 obligations, in'eluding the Washington State Supreme Court and on September debt service on outstanding bonds, would continue to 5, 1985, the Court upheld previous rulings that the Sup-be made pursuant to the Nuclear Project No. 1 net- ply System must repay the bridge and termination billing agreements. loans, but ruled that repayment must be made only from funds of. Nuclear Projects No.'s 4 and 5. Plaintiff's The Supply System's current estimate of costs to settle motions for reconsideration were denied, and modified

.terminated and delayed contracts for Nuclear Project judgments, restricted in collectibility, have been entered No. 3 is $ 4,944,226, and these costs have been accrued as to all plaintiffs except the three investor-owned as Accounts Payable and Accrued Expenses in the ac- utility lenders.

companying balance sheet. The Supply System's management is satisfied that this estimate is reasonable. In the BPA v. Supply System, et al case, these lenders However, final settlement costs cannot be determined have moved for summary judgment on their bridge at this time. loans and for the right to set off a bridge loan judgment against any cost-sharing obligation to Nuclear Projects Nuclear Projects No.'s 4 and 5 Subordinated No.'s 4 and 5. Responses were due October 1, 1986.

Revenue Notes In conjunction with the mothballing of Nuclear Projects Nuclear Project No. 5 Ownership Agreement No.'s 4 and 5, certain project participants, investor- Under the terms of the ownership agreement with owned utilities and industrial customers of BPA agreed Pacific Power and Light Company (Pacific), Pacific is to loan Nuclear Projects No.'s 4 and 5 funds to under- obligated to fund its respective ownership share of write a program to preserve the assets of those projects. Nuclear Project No. 5 termination costs beginning These loans, called bridge loans, consisted of $ 60 million January 25, 1983, and continuing until all costs of termi-in subordinated revenue notes, bearing a stated nation have been paid. Ten percent of the funds receiv-maturity date of July 1, 1984, and bearing interest to ed from the sale of Nuclear Project No. 5 assets reduce due date at a rate of 15 percent. Pacific's obligation for termination costs.

Subsequently, when a decision was made to terminate Pacific has stated to the Supply System that it considers Nuclear Projects No.'s 4 and 5, a number of project par- the termination of Nuclear Project No. 5 to be a breach ticipants agreed to loan Nuclear Projects No.'s 4 and 5 of the Nuclear Project No. 5 ownership agreement and funds designed to assist in avoiding an uncontrolled ter- has reserved its rights to pursue appropriate remedies mination of the projects. These loans, called termination with respect to such breach. On June 16, 1983, Pacific loans, consisted of $ 7,865,502 in subordinated revenue advised the Supply System that, due to the Washington notes bearing a stated maturity date of June 30, 1983, State Supreme Court ruling that certain were invalid (as described in Note D) and participants'greements and bearing interest to due date at a rate of 15 percent.

other related actions by the Supply System, Pacific Because Projects No.'s 4 and 5 do not have sufficient would no longer fund 10 percent of the Nuclear Project funds to underwrite payment of the subordinated No. 5 termination costs.

revenue notes, they have not been redeemed.

It is the position of the Supply System that the termina-Sixteen participants and investor-owned utilities filed tion of Nuclear Project No. 5 does not constitute a lawsuits against the Supply System for payment of the breach of the Nuclear Project No. 5 ownership agree-notes, with Chemical Bank named as codefendant in ment and that Pacific is responsible under the Nuclear several of them; one case was dismissed. In 13 cases, Project No. 5 ownership agreement for payment of its summary judgments have been rendered against the 29

I NOTES TO FINANCIAL STATEMENTS I p 10 percent share of the costs of termination of such to realize upon the assets of Supply System Nuclear project. Projects No.'s 1, 2 and 3 that are necessary for the pur-poses of such projects or the Supply System, except to Pacific has made payments prior to June 16, 1983, the extent they might obtain rights through a valid exer-under the Nuclear Project No. 5 ownership agreement cise of the sovereign police power of the state of pursuant to reservations of rights to its potential claim Washington or of the constitutional powers of the to sue the Supply System for damages for failure to United States of America, or by a voluntary bankruptcy complete the project. Pacific's claim would presumably of the Supply System.

be about $ 150,000,000-its investment in the project.

Such a claim could be a general claim against the assets Bond counsel's opinion as to the ability of bondholders of the Supply System. or other creditors to realize upon assets of Supply System Nuclear Projects No.'s 1, 2 and 3 is limited to Inter-Project Claims and Claims Against those assets located within the state of Washington, or General Assets as to which a court would apply the law of the state of As discussed above, Nuclear Projects No.'s 4 and 5 are Washington, and the opinion excludes assets that are currently unable to meet Nuclear Projects No.'s 4 and 5 not necessary for the purposes of Supply System debts as they become due. Creditors have threatened to Nuclear Projects No.'s 1, 2 and 3 or the Supply System.

attempt to obtain payment from assets or funds held for Bond counsel is not able to determine at this time how the benefit of other projects of the Supply System or the a court of a state other than the state of Washington revenues pledged thereto. Such creditors include those would treat assets of Supply System Nuclear Projects described in the Notes to Financial Statements and No.'s 1, 2 and 3 located outside the state of others who may in the future assert claims against the Washington, if such court were to apply the law of a Supply System and/or its projects. state other than the state of Washington.

Bond counsel to the Supply System are of the opinion Bond counsel has not undertaken an investigation of the that neither holders of bonds issued to finance the con- issues discussed above with respect to the Packwood struction of Supply System's Nuclear Projects No.'s 4 Lake Hydroelectric Project or Hanford Generating Proj-and 5, nor creditors of the Supply System whose claims ect. However, they believe that upon full investigation arose from the furnishing of goods or services with the same opinions could be rendered with respect to respect to Nuclear Projects No.'s 4 and 5, will be able assets of the Packwood Lake Hydroelectric Project and to realize upon revenues or funds held in trust for Sup- Hanford Generating Project and revenues or funds held ply System Nuclear Projects No.'s 1, 2 and 3 or for in trust or relating to such projects or for the holders of holders of bonds issued by the Supply System to bonds issued by the Supply System to finance the con-finance construction of such projects except to the ex- struction of such projects.

tent they might obtain rights through a valid exercise of the sovereign police power of the state of Washington Supply System management is of the opinion that or of the constitutional powers of the United States of creditor claims can only be realized from the assets, America, or by a voluntary bankruptcy of the Supply funds or revenues of the projects to which such claims System. relate. The Supply System will utilize all legal remedies to defend its position. If it is found that creditors are Bond counsel also are of the opinion, based upon Lamp- not limited to payment of their claims from the project son Universal Rigging, Inc. v. Washington Public Power to which such claims relate, it will have a material Supply System (Supreme Court of Washington, Case No. adverse impact on the Supply System.

51619-7, March 20, 1986), that a court should hold that neither holders of bonds issued to finance the construc- Shared Costs tion of the Supply System's Nuclear Projects No.'s 4 The termination of Nuclear Projects No.'s 4 and 5 and 5, nor creditors of the Supply System whose claims creates an uncertainty as to how certain common ser-arose from the furnishing of goods or services with vices and facilities are to be shared with Nuclear Proj-respect to Nuclear Projects No.'s 4 and 5, will be able 30

ects No.'s 1 and 3, respectively. In August 1982, the tioned claim is an issue in the lawsuit. The case has participants of Nuclear Projects No.'s 4 and 5 presented been stayed since 1983.

a claim to Nuclear Projects No.'s 1 and 3 to reimburse Nuclear Projects No.'s 4 and 5 for a portion of the costs On September 2, 1986, pursuant to an order partially of shared services and facilities paid by the projects lifting the stay, BPA, the four investor-awned utilities, before July 1, 1981. The claim requested immediate and certain project participants of Nuclear Projects No.'s 1 and 3 moved for an order dismissing Chemical payment of $ 75,000,000 and $ 86,000,000 plus interest Bank's claims against them or, in the alternative, for from Nuclear Projects No.'s 1 and 3, respectively, plus amounts that may be determined in the future. The summary judgment. Responses are due October 1, 1986.

claim is based on a method of calculating shared costs Nuclear Project No. 3 Claims that is different from the method adopted by the Supply In July and August 1983, the four investor-owned System.

utilities who own 30 percent of Nuclear Project No. 3 The Supply System has reviewed its cost-sharing policy filed claims against BPA, the Supply System and from inception of the projects to determine if costs were Nuclear Project No. 3 participants arising out of the ex-tended construction delay at Nuclear Project No. 3. The allocated properly. As of June 30, 1986, about claims were filed in the action entitled BPA v. Supply

$ 17,793,952 plus interest is due Nuclear Project No. 5 System (See "Shared Costs" ). Included are claims for in-from Nuclear Project No. 3; about $ 8,019,686 plus in-terest is due Nuclear Project No. 1 from Nuclear Project junctive and declaratory relief, damages, rescission of No. 4; and about $ 162,975 plus interest is due Nuclear the Nuclear Project No. 3 ownership agreement and Project No. 4 from Nuclear Plant No. 2 for shared recovery of the total amount of payments made under costs. These amounts (excluding accrued interest) have the agreement to date. In October 1983, BPA amended been recorded in the accompanying balance sheets as of its complaint to resolve the Nuclear Project No. 3 June 30, 1986. The results of the aforementioned review dispute.

are subject to audit by BPA and the investor-owned In November 1984, the court issued an interlocutory utilities in Nuclear Projects No.'s 3 and 5. Because of order on the parties'ross-motions for summary judg-the preliminary nature of the aforementioned findings, ment holding that the Supply System and BPA violated the uncertainty over the shared cost policies adopted by the terms of their contracts by not continuing construc-the Supply System, and since the matter of proper tion and including the costs in an annual budget to be allocation of shared costs is currently in litigation (as paid through net-billing. The court reserved for trial the described below), the ultimate allocation, collectibility, issues of whether the contracts were materially breached and payment of shared costs is uncertain. and whether the investor-owned utilities remain On October 26, 1982, the Supply System filed a legal obligated to pay further Nuclear Project No. 3 costs.

action against BPA, the four investorwwned utilities The judge on this case subsequently excused himself who are joint owners of Nuclear Project No. 3, the par- from the case. On May 16, 1985, the newly appointed ticipants of Nuclear Projects No.'s 4 and 5 (the court judge vacated all of the original judge's prior rulings in-has since allowed Chemical Bank to intervene in this cluding the summary judgment ruling made in Novem-suit) and the construction fund trustee for Nuclear Proj- ber 1984.

ect No. 1 seeking a judicial determination of past and The new judge allowed the parties to renew their prior future shared costs among Nuclear Projects No.'s 1 and motions without additional briefing. All of the parties 4 and Nuclear Projects No.'s 3 and 5. )The court has requested the court to reconsider their previous motions since restructured the case as BPA v. Supply System, et including the cross-motions for summary judgment. On al., wherein BPA is now the plaintiff and the Supply July 10, 1985, the new judge reestablished all of the System and other aforementioned parties are defen- original judge's previous rulings except the motions on dants.) Although the lawsuit does not specify the summary judgment regarding breach of the contracts.

amounts of money that the parties believe should be reallocated, the method used to calculate the aforemen- Final agreements permitting settlement of the construc-

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NOTES TO FINANCIAL STATEMENTS tion delay claims were executed by the Supply System original jurisdiction. Cost sharing issues were allowed to on September 13, 1985, and by BPA and the investor- proceed on a limited basis.

owned utilities on September 17, 1985. Pursuant to those agreements the parties exchanged covenants not The parties who signed the settlement agreements also to sue and asked the court to enter an order of dismissal filed motions in the Ninth Circuit cases to dismiss some of their delay claims. The court has not yet ruled on of the claims of the Nuclear Project No. 3 participants this matter. for lack of jurisdiction. The motions have not yet been resolved. Subsequent to the court's resolution of the BPA described the settlement as follows: BPA and the motions regarding jurisdiction, the Ninth Circuit will four utilities would enter into an agreement to exchange resolve some or all of the challenges to the settlement energy; BPA would exchange an amount of power to be agreement.

determined by the performance of four surrogate nuclear plants similar in design to Nuclear Project No. 3; In the absence of a settlement and if the IOUs were to If these plants perform as expected, BPA could ex- prevail in their request for an order granting them the change to the utilities about 193 average megawatts of right to rescind the Project Ownership Agreement and a energy each year. In return, the utilities would provide right to recover payments made thereunder, the Supply BPA: 1) payments equal to about $ 700 million (present System could face a loss contingency of some $ 2 billion, value) over the life of the agreement based on the costs plus possible termination of the project.

of operating and maintaining the surrogate plants (or Net-Billing Agreements Nuclear Project No. 3 if it is operated); 2) the opportuni-The parties to the net-billing agreements are BPA, the ty to use their combustion turbines if needed; and 3) the opportunity to complete, operate and use their Supply System, and the participants. The agreements 372-megawatt share of Nuclear Project No. 3 if it is provide that BPA is obligated to pay the participants, later determined to be both needed and cost effective. and the participants are obligated to pay the Supply System their pro rata shares of the total annual costs of A number of the Nuclear Project 3 participants the projects, including debt service on the bonds, oppose the settlement and have filed supplemental whether or not the projects are completed, operable, or pleadings asserting challenges to the settlement operating, and notwithstanding the suspension, reduc-agreements and have also filed complaints for direct tion, or curtailment of the projects'utput. However, review in the Ninth Circuit Court of Appeals invoking the agreements also provide that they shall not be that court's "original" jurisdiction under the Northwest binding on any of the aforementioned parties if they are Regional Power Act. Certain participants have also filed not binding on all the parties.

amended pleadings asserting mothballing claims unrelated to the settlement. On November 15, 1982, the city of Springfield, Oregon, filed a complaint against the Supply System, BPA, the The parties signing the settlement agreements filed mo- investor-owned utilities owning 30 percent of Nuclear tions in the district court to dismiss the claims attacking Project No. 3, and all other parties to the net-billing the settlement agreements for lack of jurisdiction, lack agreements pertaining to Supply System Nuclear Plant of indispensable party, and motions for summary judg- No. 2 and Nuclear Projects No.'s 1 and 3. The com-ment. On July 3, 1986, the court granted BPA's motion plaint alleged that the Lane County Circuit Court's deci-to dismiss the settlement claims for lack of jurisdiction sion in DeFazio v. Washington Public Pouer Supply System for the reason that jurisdiction more properly lies in the had created controversy and uncertainty about the con-Ninth Circuit. Certain settlement claims against the tractual obligations of Oregon public participants and IOUs and mothballing claims not related to the settle- their authority under Oregon law to enter into the net-ment remain pending in the district court but further billing agreements. It also alleged that members of proceedings were stayed on July 3, 1986, pending a res- Oregon public utility boards are exposed to personal olution by the Ninth Circuit of the claims under its liability for any payments of public money not authoriz-ed by law. The complainant sought a declaratory judg-32

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ment that it and other Oregon public participants had datory program of retrospective premiums assessed legal authority to enter into the net-billing agreements, against all owners of licensed reactors. In the event of or if they did not, that BPA is liable to make contract nuclear incidents at facilities covered under the Price-payments. In their responses to the complaint, BPA and Anderson Act, the Supply System could be assessed up the Supply System asked for a declaration that all to $ 5 million per incident but not more than $ 10 million signatories to the net-billing agreements had legal in a calendar year.

authority to enter into them. Springfield ratepayers who were parties to DeFazio intervened in the action claim- The Supply System is self-insured for automobile, ing that the plaintiff did not have authority to enter into general liability and directors and officers insurance.

the net-billing agreements under Oregon law. Antitrust Litigation On May 16, 1983, the U.S. District Court of Oregon On August 16, 1983, the Supply System filed a lawsuit entered a judgment declaring that all parties to the net- against nine corporations engaged in the electrical con-billing agreements had legal authority to enter into tracting business. The Supply System sought treble them. Its decision was appealed by intervenors and two damages and attorneys'ees under the antitrust and utilities to the Ninth Circuit Court of Appeals. On racketeering laws, charging that defendants had engaged February 4, 1985, the Court of Appeals affirmed the in bid-rigging.

judgment of the district court. The court subsequently The Supply System recently reached settlement with all denied the appellant's petition for rehearing. On defendants and stipulated orders of dismissal have been January 13, 1986, the United States Supreme Court filed with respect to all of the defendants. The set-denied the intervenor's petition for certiorari, ending tlements total $ 23,123,292 in cash payments and con-proceedings in the case.

struction claims releases. The cash proceeds, Securities and Exchange Commission Investigation $ 20,464,200, will be paid over the course of the next 10 years.

The Securities and Exchange Commission has for more than 30 months been conducting a preliminary inquiry Net credits relating to these settlements are appropriate-into allegations of securities violations by the Supply ly reflected in the balance sheets as of June 30, 1986, as System and others. In January of 1984, the commission follows: Nuclear Project No. 1: $ 5,949,282; Nuclear opened a formal investigation as to these allegations. Project No. 2: $ 6,396,583; Nuclear Project No. 3:

Documents have been produced to the commission pur- $ 5,644,043, and Nuclear Projects No.'s 4 and 5:

suant'to subpoena, and the commission staff has taken $ 1,319,174.

depositions of numerous individuals, including present and former Supply System personnel. Further produc- Other Litigation and Commitments tion of documentary and testimonial materials to the The Supply System is involved in various claims, legal commission is anticipated. As the investigation remains actions and contractual commitments not mentioned in a stage of information gathering, it is too early to above as both a plaintiff and a defendant and in certain predict what further action the commission may take. claims and contracts arising in the normal course of business for a large construction program. Although Liability Insurance some suits, claims and commitments are significant in The Price-Anderson Act currently limits the public amount, final disposition is not determinable. In the liability claims that could arise from a nuclear incident opinion of management, the outcome of any such litiga-to $ 665 million. The Supply System has purchased the tion, claims or commitments will not have a material maximum available private insurance of $ 160 million adverse effect on the financial positions of the projects.

and the excess of $ 505 million of coverage is insured by The estimated cost of the projects may either be in-secondary financial protection. Under secondary finan- creased or decreased as a result of the outcome of these cial protection, coverage would be funded by a man- matters.

33

Dollars in thousands STATEMENT OF DEBT SERVICE REQUIREMENTS NUCLEAR PLANT NO. 2* HANFORD GENERATING PROJECT PACKWOOD LAKEPROJECT PISCAL YEAR PRINCIPAL INTBRBST TOTAL PRINCIPAL INTBRBST TOTAL PRINCIPAI INTBRBST TOTAL 1987 $ 24,925 $ 213,399 $ 238,324 $ 3,255 $ 913 $ 4,168 $ 180 $ 371 $ 551 1988 26,645 211,686 238,331 3,360 806 4,166 190 365 555 1989 28,510 209,818 238,328 3,485 693 4,178 195 358 553 1990 30,555 207,778 238,333 3,455 580 4,035 265 351 616 1991 32,800 205,540 238,340 5,065 425 5,490 275 341 616 1992 35,260 203,080 238,340 5,585 246 5,831 290 331 621 1993 37,980 200,383 238,363 5,835 58 5,893 300 320 620 1994 40,950 197,445 238,395 800 4 804 315 309 624 1995 44,225 194,227 238,452 330 298 628 1996 47,825 190,678 238,503 340 286 626 1997 65,575 186,769 252,344 360 273 633 1998 71,955 180,399 252,354 380 260 640 1999 79,330 173,291 252,621 400 246 646 2000 85,795 166,572 252,367 465 232 697 2001 93,290 159,093 252,383 490 215 705 2002 101,635 150,766 252,401 515 197 712 2003 93,055 141,479 234,534 540 178 718 2004 97,375 133,671 231,046 565 158 723 2005 106,765 124,280 231,045 590 138 728 2006 117,225 113,821 231,046 615 116 731 2007 128,850 102,201 231,051 640 94 734 2008 141,675 89,370 231,045 665 70 735 2009 155,940 75,104 231,044 690 46 736 2010 171,820 59,226 231,046 359 21 380 2011 189,510 41,538 231,048 150 8 158 2012 209,230 21,814 231,044 55 2 57 2013 2014 2015 2016 2017 2018

$ 2,258,700 $ 3,953,428 $ 6,212,128 $ 30,840 $ 3,725 $ 34,565 $ 10,159 $ 5,584 $ 15,743

'Excludes payments of bond principal and interest made on July I, 1986 34

NUCLEAR PROJECT NO. 1'ISCAL NUCLEAR PROJECT NO. 3 'UCLEAR PROJECTS NO'S. 4/5 PRINCIPAL INTEREST TOTAL PRINCIPAL INTEREST TOTAL PRINCIPAL TOTAL YEAR 1987 $ 15,470 $ 206,652 $ 222,122 $ 8,925 $ 165,001 $ 173,926 $ 2,317,866 $ 2,317,866 1988 18,055 205,729 223,784 10,555 164,368 174,923 1989,"', 18,970 204,564 223,534 .11,315 163,579 174,894 1990 21,465 203,320 224,785 12,145 162,760 174,905 1991 22,560 201,877 224,437 13,050 161,901 174,951 1992 23,755 200,326 224,081 14,045 160,961 175,006 1993 25,560 198,647 224,207 15,125 159,932 175,057 1994 26,985 196,784 223,769 16,310 158,798 175,108 1995 28,550 194,767 223,317 17,615 157,546 175,161 1996 30,745 192,580 223,325 19,045 156,163 175,208 1997 38,080 190,049 228,129 22,595 154,637 177,232 1998 41,565 186,562 228,127 24,605 152,628 177,233 1999 45,455 182,673 228,128 26,810 150,427 177,237 Refer to Note D-2000 49,465 178,663 228,128 29,020 148,218 177,238 Termination of Nuclear Projects No.'s 4 and 5 and Default Under 2001 53,920 174,204 228,124 31,475 145,773 177,248 Bond Resolution, page 25 and Note E-2002 58,885 169,242 228,127 34,180 143,068 177,248 2003 51,135 163,703 214,838 37,095 140,057 177,152 Commitments and Contingencies, 2004 55,430 159,406 214,836 42,730 136,746 179,476 page 27.

'005 60,600 154,237 214,837 45,995 132,503 178,498 2006 66,320 148,515 214,835 49,615 127,908 177,523 2007 72,665 142,171 214,836 49,675 122,946 172,621 2008 79,705 135,131 214,836 54,485 118,136 172,621 2009 87,525 127,313 214,838 59,810 112,810 172,620 2010 96,220 118,618 214,838 65,710 106,909 172,619 2011 105,855 108,983 214,838 72,265 100,355 172,620 2012 116,610 98,229 214,839 80,365 92,250 172,615 2013 128,635 86,204 214,839 89,490 83,126 172,616 2014 142,155 72,680 214,835 99,770 72,846 172,616 2015 157,820 57,014 214,834 111,370 61,252 172,622 2016 175,395 39,441 214,836 124,455 48,165 172,620 2017 194,005 20,831 214,836 139,235 33,382 172,617 2018 154,950 17,665 172,615

$ 2,109,560 $ 4,719,115 $ 6,828,675 $ 1,583,830 $ 4,012,816 $ 5,596,646 $ 2,317,866 $ 2,317,866 35

The Supply System operates two visitor centers for the public, one at Plant 2, about 12 miles north of Richland, and another in Elma, Washington, near the WNP-3 project. Displays in the visitor centers illustrate how plant design, construction and operation have been planned with the public's well-being in mind.

The Plant 2 Visitors Center offers a videotape "arm-chair" tour of the plant as well as information on nuclear power issues such as radiation, nuclear waste and plant operator training.

Tours of the WNP-3 construction site are offered by appointment by calling I206) 482-4428, ext. 5052. Tours of the WNP-1 site are available by appointment by calling (509) 372-5408.