ML17279A764

WPPSS,1987 Annual Rept. W/880108 Ltr

ML17279A764
Person / Time
Site:	Columbia, Satsop
Issue date:	12/31/1987
From:	Halvorson C, Mazur D, Sorensen G WASHINGTON PUBLIC POWER SUPPLY SYSTEM
To:	NRC OFFICE OF ADMINISTRATION & RESOURCES MANAGEMENT (ARM)
References
NUDOCS 8801120270
Download: ML17279A764 (80)

Text

' REGUL/MY INFORMATION D ISTF( I BUTI SYSTEM ( R IDS )

A%CESSION NBR: 880)120270 DOC. DATE: 87/12/3),NDTAR IZED: NO DOCKET FACIL: 50-397 WPPSS Nuclear Pro Jectp Unit 2p Washington Public Powe- 05000397 50-4b0 WPPSS Nuclear Pro Jectp Unit 1. Washington Public Powe 05000460 STN-50-508 WPPSS Nuclear Pro Jectp Unit 3p Washington Public 05000508 AUTH. NAME AUTHOR AFFILIATION HALVORSONp C. M. Washington Public Power Supply System MAZURp D. W. Washington Public Power Supply System SORENSEN) G. C. Washington Public Power Supply System RECIP. NAME RECIPlENT AFFILIATION baa 4 a i, .l A=Via

SUBJECT:

"Washington Public Power Supply Sgsp 1987 Annual Rept " /

ltr. '80108 DISTRIBUTION CODE: MOOAD COPIEB RECEIVED: LTR TITLE: 80. 7) ( t > Annual Financial Rap ant J ENCL Q SIZE:

NOTES: Standardized Plant. 05000508 App {'-or permit renewal. Requested exp date 890701.

c REC IP IENT COPIES RECIPIENT COPIES ID CODE/NAME LTTR ENCL ID CODE/NAME LTTR ENCL PD5 PD 1 SAMWORTHI R 1 0 PD5 PM 1 0 INTERNAL'EOD/DOA *EO~ '1 PAB 1 NRR/PMAS/PTSB EG LE 1 EXTERNAL: LPDR NRC PDR 1 1 TOTAL NUMBER OF COPIES REQUIRED'TTR 10 ENCL,

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WASHINGTON PUBLfC POWER SUPPLY SYSTEM P.O. Box 968 ~ 3000 George Washington Way ~ Richland, Washington 99352 Docket Nos: 50-397 50-508 50-460 January 8, 1988 Document Control Desk Office of Nuclear Regulatory Commission Washington, D. C., 20555 Gentlemen:

Subject:

NUCLEAR PROJECTS NOS. 1, 2 8 3 ANNUAL FINANCIAL REPORT Enclosed for your information, as required by 10CFR 50.71, ar e three (3) copies of the Washington Public Power Supply System's 1987 Annual Report. The financial statements of the Supply System's Nuclear Projects are not certified by our auditor (Ernst 8 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 Encl osur es cc: RM Boucher/PP8L* LS Rubenstein/NRC WJ Finnegan/PSPEL* NS Reynolds/BCP8R JR Lewis/BPA* WL Bryan/WWP*

G Knighton/NRC RE Dyer/PGE*

JB Martin/REG V C Bosted/Resident Inspector/901A

• w/o enclosure (copy sent under separate cover) g I po

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8~0> >20270 87123k

~D~CK 05000397 I PDR tag' NOTICE WAS HING TON THE ATTACHED FILES ARE OFFICIAL RECORDS OF THE PUBLIC POWER DIVISION OF DOCUMENT CONTROL. THEY HAVE BEEN SUPPLY SYSTEM CHARGED TO YOU FOR A LIMITED TIME PERIOD AND MUST BE RETURNED TO THE RECORDS FACILITY BRANCH 016. PLEASE DO NOT SEND DOCUMENTS CHARGED OUT THROUGH THE MAIL. REMOVAL OF ANY PAGE(S) FROM DOCUMENT FOR REPRODUCTION MUST BE REFERRED TO FILE PERSONNEL.

DEADLINE RETURN DATE

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RECORDS FACILITYBRANCH

~ Y ANNUAL REPORT

THE COVER s a 30-year member of the public utility family, the %'ashington Public Power Supply System has played a vital role in the Pacific Northwest's energy supply.

Electric generating plants, such as the Packwood Lake Hydroelectric Project, help supply the energy needs of eight million utility customers served by the Bonneville Power Administration.

1987 in Review 2 Looking Ahead 4 Plant Operations 6 Health and Safety 8 Future Resources 10 Supply System Boards 12 Financial Section 13

()

significant increase in overall power production, with a corresponding decrease in the unit price of electricity, is evidence of the Supply System's sound financial condition in Fiscal Year 1987.

FY 1987 FY 1986 As of Junc 30 Dollars in millions inancia and OPERATING PROJECTS NUCLEAR PLANT NO. 2 NANFORO PACKWOOD GENERATING PROJECT LAKE PROJECT NUCLEAR PLANT NO. 2 NANFORD PACKWOOO GENERATING PROJECT LAKE PROJECT Operating Total annual cost Highlights

%32.3 $ 33.5 $ 1.1 $ 421.5 $ 36.0 $ 0.9 Net generation/gWh 5520 1749 78 4360 2583 90 Cost mills/kWh 78.3 19.1 14.2 96.6 13.9 10.3 Fiant availability (%) 73.2 99.6 100 74.5 100 100 Fiant capacity (%) 57.6 23.2 32.2 45.5 34.5 37.5 NON-OPERATING NUCLEAR NUCLEAR NUCLEAR NUCLEAR NUCLEAR NUCLEAR PROJECT PROJECT PROJECTS PROJECT PROJECf PROJECTS PROJECTS NO. 1 NO. 3 NO/S 4/S NO. 1 NO. 3 NO:S 4/S Total annual cost $ 204.3 $ 171.0 $ 20.6 $ 192.6 $ 169.8 $ 19.8 TOTAL SUPPLY SYSTEM Investment income $ 62.3 $ 75.1 Rate of return (%) 7.8 9.1

1987 IN REVIE%'

Fiscal Year 1987, the refund bonds for Plant 2 and ad-Washington Public Power Supply vance refund, prior to 1992, WNP-1 System celebrated its 30th year as and WNP-3 bonds as long as the a member of the nation's public advance refunding bonds do not power family. National and inter- exceed $ 2 billion.

national events continued to im- Of course, current legal dif-pact the operation and the future ficulties must be resolved before of the Supply System and its public we can regain a credit-rating and utility partners. The historic Tax return to the market to refinance Reform Act of 1986, the aftermath this debt. An encouraging step was of the nuclear power plant accident taken in the WNP-0/5 securities at Chernobyl, and the extended litigation when a partial settlement depression of petroleum prices all was reached with bond under-had a direct bearing on the Supply writers. I can only hope that this System. important milestone is the begin-Through it all, the Supply ning of the end of this expensive System Executive Board exercised and time-consuming lawsuit.

its stewardship over an $ 8 billion Additional progress was public investment in three opera- made in several cases where the ting plants and two deferred nuclear Supply System has taken the lead construction projects, while steadi- in seeking to collect damages from ly working on pending legal mat- some contractors associated with ters including those resulting from constructing the plants. The most the default in 1983 on bonds for important development during the WNP-4 and WNP-5. past year was the filing of a com-We have also continued our plaint against the General Electric efforts to achieve a major regional Company alleging violations of the goal of refinancing a portion of the Racketeer Influence and Corrupt outstanding bonds for WNP-1, 2, Organizations Act (RICO). This and 3. Pacific Northwest ratepayers expands our lawsuit filed in could save hundreds of millions of January 1985 over design and con-dollars on their electric bills if the struction deficiencies at Plant 2 higher interest bonds could be that were corrected at great expense replaced with lower interest rate prior to commercial operation.

securities. In the aftermath of the That is why the Supply nuclear accident at Chernobyl in System continues to have such the Soviet Union, the spotlight keen interest in the Tax Reform continues to focus on the U.S.

Act passed by Congress in 1986. Department of Energy's N Reactor The bill places many new restric- and if it will be allowed to restart tions on issuing tax-free bonds. and continue operating. This is Under the law, the Supply System important to the Supply System can issue tax exempt bonds for because N Reactor supplies steam completing construction on WNP-1 to operate our 860-megawatt and WNP-3 and for current re- Hanford Generating Project.

funding of WNP-2 bonds. There is continued federal in-We were successful in having terest in possibly acquiring WNP-1 more favorable language inserted in at Hanford as a replacement for the proposed technical corrections N Reactor. The Supply System to the Tax Reform Act that allows cooperated with the technical feasi-the Supply System to current bility study, released in January,

The Executive Board is determined to reduce the cost of preserving these plants as low as is consistent with maintaining the construction permits and licensa-bility. Significant cuts are being made in the budgets for WNP-1 and WNP-3, insuring that pres-ervation costs are reduced to the absolute "rock bottom." The current fiscal year budget calls for annual preservation expenditures of $ 8 million at WNP-1 and

$ 8.7 million at WNP-3. We plan to reduce these costs even further over the next 12 months, to about

$ 5 million a year for each plant.

We remain convinced that both projects should be preserved as the most cost-effective means of meeting the region's future energy needs. In the meantime, the that showed the government could Supply System, with funds from convert the 63-percent complete participating utilities through the project to a defense production Bonneville Power Administration, reactor for one-third the cost will continue to meet its financial and complete it in half the time commitments to the holders of required to build a new plant. bonds for WNP-1, 2, and 3.

Institutional studies are currently At the same time, we are underway to determine the legal actively participating with other and contractual feasibility of public utilities in finding a solution acquiring the project to support to the problems resulting from the national defense. The Executive WNP-0/5 default that is fair to Board remains fully cognizant of our participating utilities, their the responsibilities and legal ob- ratepayers and the people who ligations it has to the ratepayers of invested in our securities.

the Northwest and to the holders of WNP-1 bonds to preserve the plant for eventual completion.

In the worldwide energy picture, depressed oil and natural gas prices contributed to a weak domestic market for surplus elec-tricity that strained the financial Carl M. Halvorson health of the Bonneville Power Administration. Although the Executive Board Supply System again underran its Chairman overall budget, BPA's fiscal short-fall has resulted in isolated, but vocal, calls to reduce costs further by terminating WNP-1 and WNP-3.

LOOKING AHEAD he Supply System's primary mid-June, but it was well into July mission is operating its publicly before Plant 2 was again operating owned generating facilities safely, reliably. We had five unplanned, dependably and efficiently for the automatic shutdowns, or scrams, region's public utilities and their during one 10-day period, promp-ratepayers. In Fiscal Year 1987, ting me to order the plant to we lived up to that responsibility remain shut down pending a by reliably generating more than thorough review of plant opera-7.3 billion kilowatt-hours of tions. The review revealed that reasonably priced electric power the five scrams were caused by an while remaining well under budget. unfortunate sequence of equipment Increasing our overall power failures that, for the most part, production by more than 1 billion could not have been anticipated.

kilowatt-hours over 1986 brought A thorough, self-critical examination us closer to achieving the standards lead to several changes in operating of excellence we have set for our- procedures, resulting in a stronger selves. The Supply System's drive operations organization and a more to establish itself as a leader in the solid-running plant.

power generation industry is most The performance-oriented evident at Plant 2, where the plant attitude of Supply System employ-capacity factor was up more than ees was further demonstrated in 26 percent, while the unit cost of achieving stringent safety goals.

electricity dropped 19 percent. Guided by the philosophy that a These statistics are indicative safe workplace is an efficient one, of Plant 2's overall success, but do we have implemented an ambitious not illustrate our continuing efforts program to minimize on-the-job to boost efficiency in several areas. radiation exposure to our own and These efforts were best demon- to contractor employees. Last year, strated during the spring refueling Plant 2 was at the head of its class and maintenance outage. By any with the best record of limiting measure, the 60-day outage was worker radiation exposure of any large and complex, involving more U.S. boiling water reactor. Our than 850 workers. Major jobs in- recirculation pump problems led cluded redesigning and rebuilding to higher-than-expected radiation defective reactor recirculation exposures during this year's outage, pumps, which had limited plant but Plant 2 continues to stay output to 72 percent of capacity; well ahead of rapidly improving dismantling, cleaning, inspecting industry trends.

and modifying two of the low- Our lost-time accident rate pressure turbines; placing new and recordable injury rate are corrosion-resistant tube bundles in much better than industry averages the moisture separator-reheaters; as our industrial safety program making a major modification to shows steady improvement towards the circulating water system, and a tough, but achievable goal.

performing hundreds of corrective Emergency planning is and preventive maintenance tasks. another area where our goals are Our workers met a tight being met. Annual emergency schedule, working literally around exercises demonstrate our ability the clock to wrap up the outage in to safeguard the health and safety

L LP c>I',

HGP, which has maintained an en-viable record of being available to generate electricity 99 percent of the time when steam was available from N-Reactor. Unfortunately, safety questions and political con-siderations have kept N Reactor in a prolonged shutdown since January 1987 and its future remains uncertain. HGP continues to be a reliable and valuable regional asset and preliminary studies are under-way to find an alternate source of steam to keep the plant generating electricity well into the future.

At WNP-1 and WNP-3, we are completing the transition to a long-term preservation program that will give the region confidence that these valuable generating resources will be available when needed in the future.

of the public in any kind of The Supply System finished emergency. The Supply System, FY 1987 on solid financial and with excellent cooperation from operational footing and is well local, state and federal officials, equipped to meet the challenges of showed it is prepared to deal with the future. We are serious about an emergency at Plant 2 when meeting our performance-based these diverse agencies came goals. Progress was made in 1987 together this year in a joint effort and I am confident we will attain that won the praise of both the our ultimate goal of establishing Federal Emergency Management the Supply System in the top Agency and the Nuclear Regu- 10 percent of the nation's latory Commission. electric utilities.

Operations at t'e Supply System's other generating plants, the Packwood Lake Hydroelectric Project and the Hanford Gener-ating Project, were curtailed by events beyond our control. A pro-longed drought limited available water for generation at Packwood Donald W. Mazur while the Hanford Generating Proj- Managing Director ect, the electric generating arm of the federally-owned N Reactor at Hanford, ended FY 1987 with its future in doubt. Last year we com-memorated 20 years of consistent and reliable power production at

PLANT OPERATIONS hen Plant 2 joined the Hanford Generating Project and the Packwood Lake Hydro-electric Project three years ago as a publicly owned generating resource, the Supply System set out to become one of the top performers in the electric utility industry.

The Supply System staff is dedicated to achieving its opera-tions goals. Plant 2 fuel costs remained among the lowest in the The Pacific Northwost's industry, while power generation in public utllitios 1987 was up more than 26 percent receive the due to steps taken to increase 1,100 megawatts generating capacity and plant of electricity generated by reliability. Plant 2.

The most important factor in the increased electricity production OTo achieve ur Goal:

a was the repair of a generic design defect in the plant's two reactor recirculation pumps, a problem tions, to the mundane, such as that has plagued Plant 2 for most testing lubricating oil in thousands standard of of its operating life. The defect was of electric motors.

excellence in corrected during this spring's main- In July, Plant 2 returned to tenance and refueling outage, when operation at its full 1,100-megawatt safe, efficient the pumps were rebuilt using newly capacity after eight months of and reliable designed components. operating at reduced power. The More than 850 workers plant continues to run solidly at operations. took part in the annual outage, full power, setting new Supply completing 6,000 preventive System generation records.

maintenance tasks and 1,200 plant With the Department of modifications and improvements Energy's N Reactor, which supplies within a tight schedule. The largest steam to the Hanford Generating job was removing the 100-ton Project, shut down for safety rotors from two of the plant's three improvements and the Packwood low-pressure turbines. The turbines, Project idling through a low water which convert the heat energy in year, the people of the region are the steam to the spinning motion looking to Plant 2 to continue pro-needed to drive the electric viding reliable, reasonably priced generator, were modified to in- electricity.

crease their performance and The Supply System in 1987 durability. lived up to its responsibility as a Other jobs ranged from the major supplier of electricity to the exotic, such as installing a process Pacific Northwest, while moving computer originally designed to closer to realizing its goal of being track space satellites to help recognized as an industry leader.

monitor and control plant opera-

Abovot Plant 2 safety and eHicloncy is enhanced by a now plant monitoring computer that helps operators identify trends that could load to problems in plant systems.

This spring's maintenance and rofuoling outage included dismantling and inspecting two of Plant 2's low pressure turbines.

HEALTH AND SAFETY safe operation is an efficient one that is the philos-ophy that guides the Supply System in its efforts to protect the health and safety of its workers and the public.

This responsibility is evident in the Supply System's "Fitness for Duty" program, that ensures employees work in an atmosphere Plant 2 ls situated free of alcohol and drugs. The pro- ln Washington State's Columbia gram survived a court challenge Basin, whoro this year, when the judge agreed abundant water that the program is fair and sen- and inexpensive electricity have sitive to the concerns of individual helped transform employees and is necessary to mllllons of acres assure the public that our plants of arid desert are operated by sound minds and Into productive farmland.

steady hands.

The Supply System's regard for its employees is also evident in

~e are its ALARAprogram. ALARA, committed to which stands for As Low As Supply System good marks for Reasonably Achievable, is the timely notification of the public maintaining philosophy which governs the and for successful recovery a safe and radiation protection program at operations in annual plant Plant 2. Last year, Plant 2 workers emergency excercises.

healthy had the lowest radiation exposure The quality of life in the environment, of any nuclear power plant of its rural area surrounding Plant 2 is type. While worker exposure in- assured by constant monitoring by creased in 1987 due to a greater- environmental scientists and than-anticipated outage workload, biologists. Environmental studies in the Supply System's record is still the surrounding area are routinely one of the best in the industry. conducted on milk and farm crop Being prepared for a poten- samples, soil, vegetation, water tially serious accident at Plant 2 is from the nearby Columbia River, a responsibility shared with local, and aquatic and terrestrial animal state and federal governments. It life, to make sure plant operations requires teamwork and coopera- have minimal impact on the tion to bring together more than environment, 600 employees and representatives The public places its trust of outside agencies into one in the Supply System and its cohesive, effective organization employees. The Supply System is that is capable of coping with all committed to doing everything kinds of emergencies. The Nuclear possible to live up to its respon-Regulatory Commission and the sibilities to protect its neighbors Federal Emergency Management and its employees.

Agency continue to give the

Above: Worker exposure to radiation at Plant 2 is minimized through a l., program that Is among tho best in the industry.

Tho noarby Columbia River and the surrounding p4(" countryside are routinely pe% r (

Ir

'r.rr(r~rt monitored to assure that Supply System operations have mlnlmal impact on tho onvironmont.

FUTURE RESOURCES ublic utilities will face new challenges in the next 30 years as the industry evolves. Supply System initiatives in employee training, preserving WNP-1 and WNP-3 for future completion and extending the life of the Hanford Generating Project are evidence of the organization's commitment to the future.

The future of the Pacific j (

Northwest's energy supply is being a safeguarded by the Supply System's efforts to preserve Nuclear Projects long. term presorvation 1 and 3 for eventual completion.

of WNP-1 and Construction was halted at WNP-1 WNP-3 Is being in 1982 and at WNP-3 in 1983, but acbiovod offi~

the mostly completed plants are ciontly and economically.

still in superb condition. A two- 0

(

year design asset preservation program was begun in FY 1987 to Lt he Supply protect the completed design work System is and to ensure that continuity is The Supply System's most maintained in the engineering ef- valuable resource is its employees.

poised to fort during the delay period. The As a fully accredited member of meet the readiness review program, a joint the National Academy for Nuclear effort with the Nuclear Regulatory Training, the Supply System has challenges of Commission to inspect and developed training programs that the future. approve construction work done ensure workers are motivated, to date, was halted due to budget qualified and skilled in their jobs.

cuts, but the groundwork was laid Performance-based training is to resume the program at a later continually conducted in reactor date. The goal of the preservation operations, health physics and program is to make sure WNP-1 chemistry, decontamination, and 3 are available when needed, maintenance, safety, first aid, fire since they remain the region's protection, emergency procedures least expensive source of new and security. With training pro-electrical generation. grams complementing on-the-job Another valuable regional experience, employees are kept resource, the Hanford Generating abreast of new concepts and work Project, remains in top working practices.

condition following 20 years of The region's public utilities economical and reliable service. will be hard-pressed in the future However, its steam source, the US. to maintain the Pacific Northwest's Department of Energy's N Reactor, supply of abundant, low-cost elec-is nearing the end of its operating tricity. The Supply System is deter-life. Keeping HGP as a viable mined to help meet this challenge source of low-cost electricity is a with reliable generation at its high priority and efforts are under- operating plants and responsible way to find a new, dependable preservation of its deferred heat source. projects.

10

Above: Completion of WNP-l and 3 is tho most cost.

effective means of supplying futuro noods.

Tho Supply Systom's training programs are fully accredited by tho National Academy for Nucloar Training, onsuring that workers meet Il~ the highest standards.

'.vg

EXEC UTIVE BOARD VERA CLAUSSEN (Assistant Secretary) PARKER L. KNIGHT Commissioner Commissioner Grant County PUD Skamania County PUD KENNETH R. COCHRANE PAUL J. NOLAN (Vice Chairman)

Commissioner Attorney Franklin County PUD Tacoma CORNELIUS R. DUFFIE (Secretary) WILLIAMD. SCOTT Consultant Commissioner Portland Chelan County PUD SAM J. FARMER SYDNEY STEINBORN Director Consultant Battelle Seattle Research Center Seattle CARL M. HALVORSON (Chairman) FRANK N. WARD President Commissioner HalvorsonMason Corporation Klickitat County PUD Portland LOUIS H. WINNARD Senior Management Consultant Los Angeles BOARD OF DIRECTORS VERA CLAUSSEN (Secretary) RALPH E. OLSON Commissioner Commissioner Grant County PUD Grays Harbor County PUD DONALD R. CLAYHOLD ELMER E. ROLOFF Manager Commissioner Benton County PUD Pacific County PUD EDWARD E. COATES JAMES G. ROWLAND Director Commissioner Department of Public Utilities Okanogan County PUD City of Tacoma PAUL L. RUNYAN (Assistant Secretary)

KENNETH R, COCHRANE Commissioner Commissioner Clark County PUD Franklin County PUD WILLIAMD. SCOTT RANDALLW. HARDY Commissioner Superintendent Chelan County PUD Seattle City Light KEITH SEDORE PARKER L. KNIGHT (Vice President) Energy Services Director Commissioner City of Richland Skamania County PUD ROGER C. SPARKS (President)

WILLIAMG. KUEHNE Commissioner Commissioner Kittitas County PUD Ferry County PUD FRANK N. WARD DAVID LEE MYERS Commissioner Commissioner Klickitat County PUD Wahkiakum County PUD Raymond E. Colbert and Lois M. Poweli served on the Executive Board and Board of Directors through 12/31/86.

12

REPORT OF INDEPENDENT ACCOUNTANTS Executive Board Washington Public Power Supply System Richland, Washington We have examined the individual financial statements, as listed in the finan-cial 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 0 and 5, and the Agency Clearing Account for the year ended June 30, 1987. 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 Projects No.'s 1 and 3 are involved in disputes con-cerning costs shared with Washington Public Power Supply System Nuclear Projects No.'s 0 and 5. Additionally, disputes arising from the extended con-struction delay of Washington Public Power Supply System 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, to be borne by Nuclear Projects No.'s 1 and 3 due to these matters is 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

Report of Independent Accountants 14 inancia Financial Statements:

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

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.

As explained in Note D, accrued liabilities have been reflected in the accom-panying 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 para-graphs, we are unable to express, and we do not express, an opinion on the financial statements of the Supply System's Nuclear Plant No. 2, Hanford Generating Project, Packwood Lake Hydroelectric Project, Nuclear Project No. I, Nuclear Project No. 3, Nuclear Projects No.'s 0 and 5, and Agency Clearing Account referred to above.

Seattle, Washington September 11, 1987, except as to the eighth and ninth paragraphs of Note D as to which the dates are October 21 and 8, 1987, respectively.

BALANCE SHEETS

~ ~ I As of June 30, l987 Dollars in thousands NUClEAR HANFORD PACKWOOD NUClEAR NUCLEAR NUCLEAR AGENCY PLANT GENERATING LAKE PROJECT PROJECT PROJECTS CLEARING ASSETS NO. 2 PROJECT PROJECT NO. I NO. 3 NO.'S SIS ACCOUNT CURRENT ASSETS OPERATING FUND Cash and investments $ 5,514 $ 3,501 $ 1,038 $ 8,069 $ 7,742 $ $ 4,242 Accounts receivable 4,872 211 Inventories 18,592 382 847 Prepaids and other assets 997 484 27 995 Due from participants 584 179 137 15Z 180 Due from other projects and agency clearing account 854 29 1,430 Due from other funds 29,246 898 14 29, 195 30 568 60 659 5,444 I 245 38,846 38 490 6,295 RESTRICTED ASSETS Notes B and C Special funds Cash and investments 30,391 3,191 295 125,773 29,478 6,302 Receivable from joint owners 7,035 138 Due from other projects and agency clearing account 7,822 251 17,443 Accounts receivable 3,431 4,002 593 Prepaids and other assets 68 49 19 Due from other funds 614 15,795 30,391 3,191 295 137,708 56,610 24,495 Revenue fund Cash and accounts receivable 844 Due from other projects 349 Chemical Bank fund accounts 2,687+

Debt service funds cash and investments 114,534 4 272 712 229,718 181,813 105,637*

144,925 7 463 1,007 367,426 238,423 134,012 UTILITY PLANT AND EQUIPMENT Note B In service 3,264,681 67,546 12,354 11,242 20,036 Improvements to U.S.

government facilities 16,528 Less allowance for depreciation and amortization (274,369 (61 350) (6 047) (1,612) (12,183) 2,990,312 22,724 6,307 9,630 7 853 Construction work in progress 7,268 Construction work in progress- deferred projects Z,237,558 2,420,686 Costs of terminated projects 3,118,530 Nuclear fuel and prepaid enrichment services 104,108 260,837 53,967 Less amount charged to joint owners (622,154) (87,468)

Less allowance for estimated unrecoverable costs (3,019,007) 3, 101,688 22,724 6,307 2,508,025 1,852 499 12 055 7 853 OTHER ASSETS AND DEFERRED CHARGES Unbilled reimbursable costs 2,687 Unamortized debt expense 3,169 81 19 3 264 2 386 TOTAL ASSETS $ 3,310,441 $ 35,712 $ 11,265 $ Z,917,561 $ 2, 131,798 $ 146,067 $ 14,148

~ Assets under control of Chemical Bank 16

NUCLEAR HANFORD PACKWOOD NUCLEAR NUCLEAR NUCLEAR AGENCY PLANT GENERATING lAKE PROJECT PROJECT PROJECTS ClEARING LIABILITIES NO. 2 PROJECT PROJECT NO. I No. 2 NO/S S/S ACCOUNT CURRENT LIABILITIES OPERATING FUND Accounts payable and accrued expenses $ 23,150 $ 44 $ 30 $ 20 $ 21 $ $ 8,838 Amounts withheld from contractors 1,408 Advance payments from participants 1,388 3,162 2,037 Due to other projects and agency clearing account 326 1,536 1,002 Amounts due power purchasers 31,387 364 1,100 32,050 13,'398 Amounts due other funds 614 20 035 57,659 1,944 1,130 35,846 35,491 9,840 LIABILITIES PAYABLE FROM RESTRICTED ASSETS Notes B and C Special funds Accounts payable and accrued expenses 2,510 8,153 9,013 25,797 Amounts withheld from contractors 3,143 8,434 6,303 Due to other projects and agency clearing account 17,280 8,034 Due to other funds 24 881 691 15 22,950 18,883 27,391 691 15 34,246 53,610 40 134 Revenue fund accounts payable and accrued expenses 160 Debt service funds Accrued interest payable 258 122 103,326 82,500 806,814 Due to other funds net 4,364 207 6,244 ',446 4,364 465 122 109,570 89 946 806 814 Chemical Bank fund accounts Accounts payable and accrued expenses 31,755 1,156 137 143,816 143 556 847,208 DEBT IN DEFAULT, CURRENTLY PAYABLE Revenue bonds payable 2,250,000 Subordinated revenue notes 67,866 2,317,866 LONG-TERM DEBT Note C Revenue bonds payable 2,233,775 23,820 9,978 2, 109,560 1,583,830 Less unamortized discount on bonds net (64,153) (446) (74) (49 199) (36 148) 2,169;622 23,374 9,904 2,060,361 1,547 682 OTHER LIABILITIESAND DEFERRED CREDITS Unearned revenue 1,008,157 6,653 Costs reimbursed under net billing 674,538 402,069 Deferred gain on redemption of revenue bonds 1,185 94 Advances and other 43,248 1,400 3,000 3,000 4 308 1,051,405 9,238 94 677,538 405,069 4,308 TOTAL LIABILITIES 3,310,441 35,712 11 265 2,917,561 2,131,798 3,165,074 14,148 Deficiency in assets (3,019,007)

TOTAL LIABILITIESAND DEFICIENCY IN ASSETS $ 3,310,441 $ 35,712 $ 11,265 $ 2,917,561 $ 2,131,798 $ 146,067 $ 14,148 17

STATEMENTS OF OPERATIONS For the year ended June 30, 1987 Dollars in thousands NUCLEAR HANFORD PACKWOOD PLANT GENERATiNG LAKE NO. 2 PROJECT PROJECT OPERATING REVENUES $ 432,271 $ 33,540 $ 1,101 OPERATING EXPENSES Nuclear fuel 23,387 Waste disposal 5,499 Decommissioning 941 Reactor availability 31,485 Depreciation and amortization 103,504 2,381 264 Operations and maintenance 75,630 3,132 508 Administrative and general 21,890 761 106 Taxes 1,967 (3 900 3 232 818 33 859 NET OPERATING REVENUE/(LOSS) 199,453 (319) 220 OTHER INCOME AND EXPENSE Investment income 16,639 1,239 151 Interest expense and discount amortization (216,092) (920) (371)

NET REVENUE $ $

STATEMENT OF CHANGES IN DEFICIENCY IN ASSETS For the year ended June 30, 1987 Dollars in thousands NUCLEAR PROJECTS NO:S 4/S BALANCE AT JULY 1, 1986 $ 2,817,154 ADDITIONS/(DEDUCTIONS)

Interest expense 198,194 Net increase in costs related to terminated nuclear projects 15,012 Administrative costs associated with asset disposition 3,075 Received from asset sales (2,162)

Investmcnt income (8,289)

Increase in recoverable value estimates (3,977)

BALANCE AT JUNE 30, 1987 $ 3,019,007 18

STATEMENTS OF CHANGES IN FINANCIAL POSITION For the year ended June 30, 1987 Dollars in thousands NUClEAR HANFORD PACKWOOD PlANT GENERATING lAKE OPERATiNG PROJECTS NO. 2 PROJECT PROJECT SOURCE OF FUNDS Operations-net revenue $

Items not affecting working capital Depreciation and amortization 129,584 2,444 Increase/(decrease) in costs reimbursable from power purchasers (59,863) 1,919 (10)

Less gain on redemption of revenue bonds (445) (72)

Total from Operations 69,721 3,918 186 TOTAL SOURCE OF FUNDS $ 69,721 $ 3,918 $ 186 USE OF FUNDS Construction and capital $ 21,611 $ 31 Fuel 23,185 Net improvements (16)

Cost of revenue bonds purchased and retired 24,925 6,616 111 Increase (decrease) in restricted assets (2,713) 71 69,721 3,918 186 Changes in working capital Cash and investments (17,051) (1,836) (21)

Receivables and other (10,696) (520) (85)

Payables and other 27,747 2,356 106 Net increase in working capital TOTAL USE OF FUNDS $ 69,721 $ 3,918 $ 186 NUClEAR NUClEAR NUClEAR pRD JEcr PROJECT PROJECTS NON-OPERATiNG PROJECTS NO. I NO. 3 NO.'S 4/S SOURCE OF FUNDS Collected under net billing $ 228,700 $ 177,259 $

Interest income 23,529 12,494 8,789 Charged to joint owners 5,129 (99)

Due from participants 4,926 3,438 Received from asset sales 2,162 Net decrease in restricted funds 8,863 206,497 TOTAL SOURCE OF FUNDS $ 266,018 $ 198,320 $217,349 USE OF FUNDS Costs related to construction or termination $ 15,747 $ 21,335 $ (1,223)

Interest expense 206,652 165,001 198,194 Nuclear fuel 2,998 2,938 Financing, trustee and paying agent expenses 127 25 16,804 Bonds redeemed 14,855 6,530 Revaluation of investments 90 96 499 Net transfers to Hanford Generating Project 25,549 Administrative costs associated with asset disposition 3,075 Net increase in restricted funds 2 395 TOTAL USE OF FUNDS $ 266,018 $ 198,320 $217,349 19

OUTSTANDING LONG- TERM DEBT Dollars in thousands EFFECTIVE SERIAL DATE INTEREST OFFERING COUPON OR TERM SERIES OF SALE RATE(8) PRICES RATE MATURITIES JUNE SO, 19S7 NUCLEAR PLANT NO. 2 Revenue Bonds 1973 6-26-73 5.66% (A) 5.00-5. 10% 7-148/1991 11,200 (excludes $ 2,400,000 100 5.70 7-1-2012 124,400 due July 1, 1987) 135,600 Revenue Bonds 1974 7-23-74 7.21 (A) 6.50-6.90 7-148/1994 16,200 (excludes $ 1,800,000 100 7.00 7-1-1999 15,000 due July 1, l987) 100 7.375 7-1-2012 37,000 68,200 Revenue Bonds 1974 A. 11-26-74 7.67 (A) 7.20 7-148/1994 14,000 (excludes $ 1,500,000 100 740 7-1-1999 15,000 due July 1, 1987) 100 7.75 7-1-2012 78,000 107,000 Revenue Bonds 1975A 3.6-75 6.71 (A) 6.60 7-148/1994 12,800 (excludes $ 1,500,000 100 6.60 7-1-1999 15,000 due July l, 1987) 100 6.875 7-1-2012 78,000 105,800 Revenue Bonds 1976 6-3-76 6.63 (A) 5.50-6.25 7-148/1998 21,445 (excludes $ 1,320,000 99.25 6.625 7-1-2006 42,300 due July 1, 1987) 100 6.75 7-1-2012 49 860 113,605 Revenue Bonds 1976A 11-18-76 5.87 (A) 5.50-5.875 7-148/2002 76,800 (excludes $ 3,245,000 100 6.00 7-1-2007 44,815 due July 1, 1987) 99.50 6.00 7-1-2012 60,990 182,605 Revenue Bonds 1978 7-11-78 6.71 (A) 5.50-6.60 7-148/2000 55,540 (excludes $ 2,535,000 100 6.80 7-1-2006 45,520 100 6.875 7-1-2012 66,230 due July 1, 1987) 167,290 Revenue Bonds 1979 3-13-79 6 49 (A) 5.50 6.00 7-148/1999 48,315 (excludes $ 2,785,000 100 640 7-1-2004 33,490 due July 1, 1987) 100 6.75 7-1-2012 83,605 165,410 Revenue Bonds 1979A 10.17-79 7.69 (A) 6.60 7.30 7-14S/1999 34,375 (excludes $ 2,000,000 100 7.60 7-1-2004 23,050 due July I, 1987) 100 7.75 7-1-2012 57,000 114,425 Revenue Bonds 1980 10-2140 9.36 (A) 8.90-10.90. 7-148/1997 31,675 (excludes $ 1,855,000 100 9.30 7-1-2001 23,735 due July 1, 1987) 100 9.60 7-1-2006 46,070 (A) 9.25 7-1-2011'-1-2012 75,045 (A) 8.25 19,920 196,445 Revenue Bonds 1981A 9-441 12 44 100 H.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 Z10,000 Revenue Bonds 1982A 2-11-82 14.76 100 10.50-13.75 7-148/1996 29,945 (excludes $ 1,780,000 100 14.50 7-1-2002 51,665 due July 1, 1987) 99.25 14.75 7-1-2012 215,000 296,610 (A) Various Prices (B) Based on original issue 20

EFFECTIVE SERIAL DATE INTEREST OFFERING COUPON OR TERM SERIES OF SALE RATE(8) PRICES RATE MATURITIES JUNE 30, 1981 Revenue Bonds 1982B 5-2042 13.82% 100 10.50 13.00% 7-148/1996 $ 35,185 (excludes $ 2,205,000 100 13.875 7-1-2012 139,320 due July I, 1987) 174,505 Revenue Bonds 1982 C 5-2042 13.89 100 13.50 7-1-2002 56,960 100 13.875 7-1-2012 139,320 196,280

$ 2,233,775 HANFORD GENERATING PROJECT Revenue Bonds 1963 5-8-63 3.26 98 3.25 9-1-1996 $ 23 820

$ 23,820 PACKWOOD LAKE PROJECT Revenue Bonds 1962 3-20-62 3.66 99 425 3.625 3-1-2012 $ 7,553 (includes $ 190,000 due within 1965 11-4-65 3.76 100.5 3.75 3-1-2012 2 525 one yeat at June 30, 1987) $ 9,978 NUCLEAR PROJECT NO. I Revenue Bonds 1975 9-18-75 7.73 (A) 6.25-7 40 7-1-87/2000 $ 35,000 (includes $ 1,500,000 100 7.70 7-1-2010 58,300 due July I, l987) 100 7.75 7-1-2017 74,700 168,000 Revenue Bonds 1976A 2-4-76 6.84 (A) 6.00-6.25 7-147/1998 28,710 (includes $ 1,665,000 100 6.90 7-1-2010 66,485 due July I, 1987) 100 7.00 7-1-2017 76,495 171,690 Revenue Bonds 1976B 8-31-76 6.37 (A) 5.00-5.90 7-147/1998 31,910 (includes $ I,940,000 100 6.50 7-1-2010 66,940 due July I, l987) 99.50 6.50 7-1-2017 71,235 170,085 Revenue Bonds 1978A 3-21-78 5.69 (A) 5.00-5.50 7-147/2002 57,635 (includes $ 2,450,000 100 5.80 7-1-2010 50,920 duc July I, 1987) 100 5.875 7-1-2017 64,810 173,365 Revenue Bonds 1978B 12-5-78 6.61 (A) 5.50 6.00 7-147/1998 33,035 (includes $ 1,980,000 100 6.35 7-1-2003 22,305 due July I, 1987) 100 6.60 7-1-2009 38,190 99.50 6.80 7-1-2017 81,150 174,680 Revenue Bonds 1979 6-19-79 6.64 (A) 6.00 7-147/1998 25,625 (includes $ 1,435,000 100 640 7-1-2003 18,560 due July I, 1987) 100 6.70 7-1-2009 32,370 100 6.80 7-1-2017 69 685 146,240 Revenue Bonds 1980A 8.5-80 8.87 (A) 7.00-8.25 7-147/1995 51,000 (includes $ 4,500,000 100 9.00 7-1-2002 37,000 due July I, 1987) 100 9.ZO 7-1-2005 16,950 99.00 9.25 7-1-2013 70,550 (A) 7.75 7-1-2017 30 000 205 500 21

OUTSTANDING LONG-TERM DEBT

~ ~

Dollars in thousands EFFECTIVE SERIAL DATE INTEREST OFFERING COUPON OR TERM SERIES OF SALE RATE($) PRICES RATE MATURITIES JUNE 30, 1987 Revenue Bonds 1981A 4-1341 11.30 (A) 11.30-13.00% 7-1-96/2003 2S,580 100 11.625 7-1-2012 91,420 120,000 Revenue Bonds 1981B 4-1341 11.30 (A) 10.00 7-1-2016 40,000 Revenue Bonds 198 1C 4. 13-81 10.29 100 10.25 7-1-2015 40,000 Revenue Bonds 198 1D 9841 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 1982 A 2-11-82 14.79% 100 10.50-13.75 7-148/1996 29,355 100 14.50 7-1-2002 50,645 99.25 14.75 7-1-2017 305,000 385,000

$ 2,309,5M NUCLEAR PROJECT NO. 3 Revenue Bonds 1975 12-3-75 7.87 (A) 6.00-7.25 7-1-87/1998 22,125 100 7.875 7-1-2010 52,695 (includes $ 1,200,000 100 7.875 7-1-2018 71,160 due July l, 1987) 145,980 Revenue Bonds 1976 4-13-76 6 48 (A) 5.50 6.00 7-147/1998 16,230 99.625 6.50 7-1-2010 35,100 (includes $ 965,000 100 6.60 7-1-2018 45,295 due July 1, 1987) 96,625 Revenue Bonds 1977 9-12-77 5.71 (A) 5.00-5.50 7-147/2000 53,960 99.50 5.70 7-1-2009 63,535 (includes $ 2,825,000 99.50 5.80 7-1-2018 107,160 due July 1, 1987) 224,655 Revenue Bonds 1978 9-12-78 6.27 (A) 5.90 6.00 7-1-87/2004 62,955 (includes $ 1,910,000 100 6.375 7-1-2010 42,985 due July 1, 1987) 99 6.40 7-1-2018 90,630 196,570 Revenue Bonds 1981A 2-1141 10.80 (A) 9.50-12.50 7-147/2001 64,375 100 11.125 7-1-2005 40,535 (includes $ 2,025,000 99.50 11.125 7-1-2010 80,310 duc July 1, 1987) 88.50 9.75 7-1-2017 18,950 88.50 9.75 7-1-2018 20 830 225,000 Revenue Bonds 1981 B 9441 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 198 2 A 2-11-82 14.83 100 10.50-13.75 7-1-88/1996 6,055 100 14.50 7-1-200 Z 10,445 99.25 14.75 7-1-2018 148,500 165,000 Revenue Bonds 1982 B 5-2042 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 13.50 7-1-2002 14,880

$ 3,583,830 (A) Various Prices (B) Based on original issue 22

NOTES TO FINANCIALSTATEMENTS NOTE AGENERAL No's. 4 and 5 termination costs are paid by Chemical Bank, bond fund trustee, from funds re-The Washington Public Power Supply System was maining at the time of project termination (See organized in 1957 as a municipal corporation and Note D) and from asset sales revenues.

joint operating agency of the State of Washington.

It is empowered to acquire, construct and operate facilities for the generation and transmission of NOTE B

SUMMARY

OF SIGNIFICANT electric power. On June 30, 1987, its membership ACCOUNTING POLICIES consisted of 13 public utility districts and three municipalities that own and operate electric The Supply System has adopted accounting systems within the state of Washington. policies and practices that are in accordance with generally accepted accounting principles applicable The Supply System constructed and is operating to utilities and governmental organizations.

Nuclear Plant No. 2, the Hanford Generating Proj- Separate books of account are maintained for each ect, and the Packwood Lake Hydroelectric Project. project, except that Nuclear Projects No.'s 4 and 5 Nuclear Project No. 1 is in the sixth year of an ex- are accounted for as a single entity, due to the tended construction delay, Nuclear Project No. 3 is legal separateness of each utility system as in the fifth year of an extended construction delay, established by bond resolutions.

and Nuclear Projects No.'s 4 and 5 were termin-ated on January 22, 1982. In addition, the Supply System maintains an Agency Clearing Account for centralized control Nuclear Plant No. 2, the Hanford Generating Proj- and accounting of certain fixed assets, such as data ect, the Packwood Lake Hydroelectric Project, and processing equipment, and for payment and ac-Nuclear Projects No.'s 1 and 4 are wholly owned counting of internal services, payrolls, benefits, by the Supply System. Nuclear Project No. 3 is administrative and general expenses, and certain jointly owned by the Supply System (70 percent) common contracted services on a cost-reimbursable and four investor-owned utilities (30 percent). basis. Assets of the Agency Clearing Account are Nuclear Project No. 5 is jointly owned by the Sup- owned by Supply System projects and are held in ply System (90 percent) and one investor~wned trust by the Agency Clearing Account. Deprecia-utility (10 percent). Each joint owner is responsible tion relating to fixed assets is charged to the for its share of the costs of construction, operation appropriate projects directly or indirectly based on or termination, and is entitled to its share of the actual usage. Liabilities of the Agency Clearing projects'perating capability. Account represent accrued payrolls, vacation pay, employee benefits, and common accounts payable The Supply System is currently unable to obtain which have been charged directly or indirectly to additional financing through the sale of bonds due projects and will be funded by projects when paid.

to pending litigation. Nuclear Project No. 1 preser- Net amounts owed to or from Supply System proj-vation costs are currently funded by proceeds from ects are recorded under Current Liabilities Due bonds sold in February, 1982, while Nuclear Proj- To Other Projects, or Current Assets Due From ect No. 1 debt service is funded by project par- Other Projects on the Agency Clearing Account ticipants and Bonneville Power Administration balance sheet.

under net-billing agreements (See Note C, Security Agreements and Contracts). The Supply CURRENT MATURITY OF REVENUE BONDS System's 70 percent share of Nuclear Project No. 3 preservation costs and debt service applicable to Current assets and liabilities in the accompanying the Supply System's ownership share of Nuclear balance sheets exclude current maturities of Project No. 3 are currently funded by project par- revenue bonds and accrued interest because debt ticipants and Bonneville Power Administration service funds are provided for their payment.

under net-billing agreements. Nuclear Projects 23

NOTES TO FINANCIALSTATEMENTS

~

t ~

RESTRICTED ASSETS INVESTMENT INCOME In accordance with project bond resolutions and Investment income consists of interest earned on related agreements, separate restricted funds are investments, realized gains and losses resulting established for each of the projects. The assets held from the sale of investments, and unrealized losses in these funds are restricted for specific uses in- applicable to certain investments. Investment in-cluding construction, debt service, capital addi- come relating to operating plants is recorded as a tions, extraordinary operation and maintenance, credit to operating costs. With respect to Nuclear termination, and decommissioning. Projects No.'s 1 and 3, income earned on any con-struction fund investments is recorded as a credit Cash and investments in the Operating Fund of to Construction Work in Progress Deferred Proj-Nuclear Plant No. 2 and in Special Funds of ects, shown on the balance sheet, and income Nuclear Projects No.'s 1, 3, 4, and 5 include earned on investments held in all other funds is

$ 18,744,149 retained in escrow for contractors as treated as a reduction of funding required under of June 30, 1987. the net-billing agreements. Investment income relating to Nuclear Projects No.'s 4 and 5 is CASH AND INVESTMENTS credited to Costs of Terminated Projects, shown Cash and investments for Nuclear Plant No. 2, on the balance sheet.

the Hanford Generating Project, the Packwood Lake Hydroelectric Project, and Nuclear Projects UTILITY PLANT AND EQUIPMENT No.'s 1 and 3 are maintained separately. Cash and DEPRECIATION AND AMORTIZATION investments for Nuclear Projects No.'s 4 and 5 are Utility plant and equipment are stated. at original pooled. All investments are held in the Supply cost, and are depreciated by the straight-line System's name by safekeeping agents. method over their estimated useful lives.

The Supply System's deposits at year-end were en- Improvements to U.S. governmentwwned facilities tirely covered by federal depository insurance or by are amortized over the period covered by the con-a pool of public funds through the Washington tract for dual-purpose operation of the U.S.

Public Deposit Protection Commission. Department of Energy's New Production Reactor.

Statutes authorize the Supply System to invest in CAPITALIZATIONOF CONSTRUCTION obligations of the United States Treasury, United COSTS AND EXPENSES States government agencies, banks, savings and During the normal construction phase of a project, loan corporations, and corporate mortgage com-panies. Supply System investment policies limit it is the Supply System's policy to capitalize all costs relating to the project, including interest (net investment authority to obligations of the United States Treasury, Federal National Mortgage of interest income), administrative and general expense, amortized financing expense and certain Association, Federal Home Loan Banks, and other expenses. Interest expense (net) during con-Federal Home Loan Mortgage Corporation.

struction is allocated to nuclear fuel and plant Investments held in the Bond Fund Reserve Ac- based on cumulative cash utilization. Admin-counts (included in Debt Service Funds) and istrative and general expenses and overhead Reserve and Contingency Funds (included in expenses are allocated to projects on the basis of Special Funds) are stated at the lower of purchase direct usage or direct salary cost.

price, par value, amortized cost or market as re-As of July 1, 1984, the Supply System discon-quired by bond resolutions. All other investments tinued capitalizing interest expense (net) applicable are stated at amortized cost and include accrued to Nuclear Projects No.'s I and 3 because of the interest. The combined carrying value of invest-extended delay of these projects. The interest ex-ments for all projects at year-end (including ac-pense, which is funded by payments under net-crued interest) approximates the market value.

24

billing agreements, will not be capitalized during the difference between cumulative depreciation and the delay period. Such net interest expense totaled amortization cost, and cumulative amounts receiv-

$ 191,147,375 and $ 152,625,365 for Nuclear Projects ed for payment of long-term debt is reflected as No.'s 1 and 3, respectively, for the year ended Unearned Revenue or Unbilled Reimbursable June 30, 1987. Costs, as appropriate, which will be amortized over the operating life of the project.

COSTS OF TERMINATED PROJECTS For Nuclear Projects No.'s 4 and 5, the costs of NUCLEAR FUEL EXPENSE construction through January 22, 1982, the date Nuclear Plant No. 2 capitalized nuclear fuel cost of termination, and the costs of termination and is amortized to nuclear fuel operating expense on other related costs subsequent to that date are the basis of quantity of heat produced for genera-shown at their estimated net realizable value in the tion of electric energy. Current period operating accompanying balance sheets as of June 30, 1987, expenses also include a charge for future spent based on Supply System staff estimates. The nuclear fuel storage and disposal to be provided by amount estimated for unrecoverable costs the Department of Energy in accordance with the

($ 3,019,007,240) has been reflected as Allowance Nuclear Waste Policy Act of 1982. Such charge is for Estimated Unrecoverable Costs and as Deficien- based on energy generated.

cy in Assets in the accompanying balance sheets.

DECOMMISSIONING FINANCING EXPENSE AND BOND DISCOUNT Estimated Nuclear Plant No. 2 decommissioning Financing expense and bond discount applicable to costs are being accrued and funded currently.

each project are amortized by the straight-line Monthly payments are made into a sinking-fund method over the period of each respective bond which, with accumulated interest, will be adequate issue to project capital cost or operating cost, as to fund decommissioning costs at the end of the appropriate, during plant construction or operation. 00-year plant operating life. Sinking-fund re-quirements are currently based on estimated REVENUES decommissioning costs of $ 114 million (in 1982 In accordance with covenants of bond resolutions, dollars). Payments to the decommissioning fund the Supply System is authorized to recover actual for Nuclear Plant No. 2 for fiscal year 1987 cash requirements for operations and debt service aggregated $ 941,242.

for each project over the life of the project. Accor-RETIREMENT PLAN dingly, the Supply System records revenues equal to operating costs for each period. No income or The Supply System participates in the Public loss is realized, and no equity is accumulated. Employees'etirement System of the State of Washington which provides for retirement benefits Payments received for debt service during construc- to eligible employees based on compensation and tion under Nuclear Plant No. 2 net-billing agree- length of service. The cost of the plan to the ments are recorded as Unearned Revenues on the Supply System is determined by the retirement balance sheet and will be reported as Revenues system's board. The actuarially computed value of over the operating life of the project. Payments pension benefits exceeds the fund assets for the received during construction under Nuclear Proj- retirement system. However, because the retire-ects No.'s 1 and 3 net-billing agreements have ment system is a multi-employer system, the been reclassified as Costs Reimbursed Under Net amount of any excess that relates to the Supply Billing because of the uncertainty as to when these System is not available. The Supply System's projects will be operational, as explained in Note E. required contribution was $ 5,114,396 during the year ended June 30, 1987.

For Nuclear Plant No. 2, Hanford Generating Project and Packwood Lake Hydroelectric Project, 25

NOTES TO FINANCIALSTATEMENTS NOTE C LONG-TERM DEBT ing (see Note D) and an event of default, as defined in the bond resolution, occurred on Except for Nuclear Projects No.'s 4 and 5, which July 22, 1983, and is continuing. In connection were financed together as one utility system, all with the issuance of the Nuclear Projects No.'s 4 Supply System projects are financed separately. and 5 subordinated revenue notes ($ 60,000,000 due The revenue bonds issued for each project are July 1, 1984, and $ 7,865,502 due June 30, 1983),

payable solely from the revenues of that project. the Supply System pledged to set aside money for payment of such obligations from funds to be ac-Outstanding revenue bonds of the various projects cumulated in the Revenue Fund. Payments under as of June 30, 1987, are presented on pages the participants'greements to be accumulated in 20 through 22. the Revenue Fund were not made and therefore the subordinated revenue notes were not paid. See SECURITY AGREEMENTS AND CONTRACTS Note E for a discussion of default on Nuclear Proj-Project participants have purchased the Supply ects No.'s 4 and 5 subordinated revenue notes.

System's ownership share of project capability of Nuclear Plant No. 2, Nuclear Projects No.'s 1 and 3, and the Hanford Generating Project. The U.S.

NOTE D TERMINATIONOF NUCLEAR Department of Energy, acting by and through the PROJECTS NO.'S 4 AND 5 Bonneville Power Administration (BPA), has in AND DEFAULT UNDER BOND turn acquired the entire capability from the project RESOLUTION participants under various net-billing and exchange agreements. BPA is obligated to pay the partici- On January 22, 1982, the Supply System's Nuclear pants and the participants are obligated to pay the Projects No.'s 4 and 5 were terminated. Construc-Supply System their pro rata share of the total an- tion was 24 and 16 percent complete, respectively, nual costs of the projects, including debt service at the time.

on the bonds, whether or not the projects are completed, operable or operating and notwith- The participants'greements (discussed in Note C standing the suspension, reduction or curtailment under Security Agreements and Contracts) pro-of the projects'utput. See Note E for a discussion vided that each participant pay its respective share of the Hanford Generating Project and its relation- of the debt service on the bonds and termination ship to Nuclear Project No. 1. costs beginning January 25, 1983. Payments due under the participants'greements were not made In connection with the issuance of the generating pending a judicial determination of the partici-facilities revenue bonds for Nuclear Projects No.'s pants'uthority and obligation to pay. On 4 and 5, the Supply System pledged the revenues June 15, 1983, and again on November 6, 1984, to be derived under participants'greements with the Washington State Supreme Court ruled that 88 utilities operating principally in the Northwest. Washington municipal utilities did not have The participants'greements provided that each statutory authority to enter into the participant pay its respective share of annual costs, participants'greements thus invalidating those agreements as including debt service on the bonds, whether or to the cities and public utility districts of the state not the projects were completed, operable, or of Washington, which collectively hold approx-operating and notwithstanding the suspension, imately 68 percent of the participants'hares of interruption, interference, reduction or curtail- Nuclear Projects No.'s 4 and 5. In addition, on ment of the projects'utput. Payments from the November 6, 1984, the Washington State Supreme participants for Nuclear Projects No.'s 4 and 5 Court ruled that, because of the invalidity of the termination costs and debt service were due begin- participants'greements entered into by the ning on January 25, 1983. Payments due under the Washington municipal utilities, all of the remain-participants'greements have not been forthcom- ing participants'greements were unenforceable 26

as well. Chemical Bank and the Supply System been accrued as Accounts Payable and Accrued petitioned the U.S. Supreme Court for grant of a Expenses in the accompanying balance sheets.

writ of certiorari by which the state court decision Although management of the Supply System is might be reviewed by that court. Grant of the satisfied that its estimates are reasonable, the final writ was denied by the U.S. Supreme Court on settlement for termination costs and the cost of April 29, 1985. dismantling the projects cannot be determined at this time. Certain physical assets of Nuclear Proj-On July 22, 1983, the Supply System acknowl- ects No.'s 4 and 5 are being maintained for a edged that it could not meet all Nuclear Projects period to maximize their sales value upon disposal.

No.'s 0 and 5 obligations as they became due. This admission represented an event of default under In August 1983, Chemical Bank filed a lawsuit in the Nuclear Projects No.'s 4 and 5 bond U.S. District Court, Western District of Wash-resolution. ington, which is now pending against the Supply System, all participants in Nuclear Projects No.'s On July 25, 1983, Chemical Bank, as bond fund 4 and 5 and Supply System member utilities. The trustee, demanded that all remaining project funds lawsuit alleges violations of federal and state be transferred to it to be held in a special account. securities statutes, fraud, misrepresentation, bad Under Section 11.4 of the Nuclear Projects No.'s 4 faith, negligence, and unjust enrichment, and seeks and 5 bond resolution, Chemical Bank, as bond monetary damages, rescission and restitution. In fund trustee, or a duly constituted addition, numerous lawsuits have been brought bondholders'ommittee, is entitled, to the extent permitted by against the Supply System and others alleging law, to take possession of the business and proper- claims and seeking relief, similar to those alleged ties of Nuclear Projects No.'s 4 and 5. At present, and sought in the Chemical Bank case. Certain of the Supply System is continuing to manage the these cases have been transferred to the U.S.

contract termination and asset disposal activities. District Court, Western District of Washington, Chemical Bank disburses the funds for payment of and most have been consolidated with the Nuclear Projects No.'s 0 and 5 termination ac- Chemical Bank case under the caption MDL 551i tivities in accordance with the payment priorities ln re WPPSS Securities Litigation. Discovery in the established in the bond resolution. Since total consolidated cases is virtually complete and the obligations currently exceed available cash and court has set a September I, 1988 trial date for revenues, certain lower priority obligations (as these cases.

defined in the bond resolution) are not being paid.

Another lawsuit has been filed against the Supply On August 18, 1983, Chemical Bank declared the System and others in a state court of the state of principal of all Nuclear Projects No.'s 4 and 5 Washington by a number of Nuclear Projects No.'s revenue bonds and interest accrued thereon to be 0 and 5 bondholders alleging substantially the due and payable immediately. same allegations as have been made in the federal cases. The case is not yet in the discovery phase, Since the participants'greements have been held and no trial date has yet been set.

to be invalid, the assets of Nuclear Projects No.'s 0 and 5 have been reduced to their estimated net The lawsuits described in the two preceding recoverable value, resulting in a deficiency in paragraphs seek to recover the bondholders'n-assets. Such recoverable value is based on Supply vestment in the principal amount of $ 2.25 billion, System staff estimates. However, the ultimate plus unspecified damages, interest, costs and recoverability cannot presently be determined. attorneys'ees.

The Supply System's current estimate of termina- The Supply System cannot predict the outcome tion costs ($ 22,850,720), including costs of con- of the above litigation.

tract settlements and other termination costs, has 27

NOTES TO FINANCIALSTATEMENTS Pursuant to state law and resolutions of the Sup- It was initially intended that Nuclear Project No. I ply System's Executive Board, the Supply System be constructed next to the Hanford Generating has agreed to indemnify its directors for certain of Project to provide the energy source to operate the the acts which have been alleged in complaints project when the DOE ceased operation of the relating to the Nuclear Projects No.'s 4 and 5 New Production Reactor. To allow for construc-securities litigation. The Supply System is obligated tion of Nuclear Project No. 1, it would have been for associated costs (including legal defense costs) necessary to shut down the Hanford Generating to the extent such costs are not covered by direc- Project on October 31, 1977. Because studies at tors and officers insurance. that time indicated that generating resources in the Pacific Northwest would be inadequate in the The primary carrier of directors and officers liabili- late 1970s and early 1980s, the Supply System and ty insurance has paid up to the limit of primary BPA determined that the Hanford Generating coverage for defense of Supply System directors. Project should be kept available for power produc-The excess carrier filed a suit in September 1985 tion. Therefore, the Nuclear Project No. ) net-seeking a declaration that it has no obligation billing, exchange and project agreements were under the policy because of the alleged failure of amended to provide for the separation of Nuclear the Supply System to disclose facts known to it Project No. 1 from the Hanford Generating which, if known to the insurer, would have Project. The amended agreements provide that resulted in it not issuing the policy. The suit has Hanford Generating Project costs, to the extent been stayed pending trial of the securities litiga- not otherwise provided for, be treated as Nuclear tion. The excess carrier has agreed to pay defense Project No. 1 costs with Hanford Generating costs of Supply System directors during the period Project having a first claim on the revenues of that of stay. project.

No opinion can be given as to the ultimate out- The amended agreements provide for the payment come of this litigation. of all debt service costs, net of investment income, of the Hanford Generating Project by Nuclear Project No. I participants, beginning July 1, 1980, NOTE ECOMMITMENTS AND regardless of continued operation of the reactor.

CONTINGENCIES If the reactor ceases operations, revenues to the Hanford Generating Project arising from these HANFORD GENERATING PROJECT AND ITS payments will nevertheless be recorded each year RELATIONSHIP TO NUCLEAR PROJECT NO. 1 thereafter in amounts that will result in full realiza-tion of the carrying value of the plant.

The U.S. Department of Energy (DOE) owns and operates the New Production Reactor (NPR), The U.S. government has an option to acquire which provides by-product steam to the Hanford ownership of the Hanford Generating Project Generating Project. The Supply System's current upon congressional approval. If the government agreement with the DOE provides for the con- exercises its option, it must assume all rights and tinuation of the dual-purpose operation of the obligations of the project, including the obligation reactor through June 1993. In accordance with cer- to pay all revenue bonds.

tain other project agreements, the operating costs of the project will be offset by payments from cer- The Hanford Generating Project Statement of tain public and investorwwned utilities in return Operations for the year ended June 30, 1987, for the power generated. Public participants cur- reflects unusually low revenues of $ 33,540,035 as rently fund debt service and 72 percent of the a result of the NPR shutdown for safety modifi-operating costs and two investorwwned utilities cations since January 1987. There is uncertainty fund 28 percent of the operating costs. as to when the NPR will be restarted due to cer-tain budgetary and legal issues which are being 28

addressed by the DOE and are not within the standpoint of economic risk management. BPA control of the Supply System. concluded that preservation of both Nuclear Proj-ects No.'s I and 3 is the prudent course of action The Hanford Generating Project operating costs at this time. This conclusion will be reviewed for the year reflect a credit of $ 3,900,000 for public again pending the resolution of several critical utility tax applicable to outwf<tate sales of elec- issues. Continued funding of preservation costs is tricity. The tax had been assessed by the state included in BPA's rates for their fiscal years 1988 of Washington and was accrued as a liability as of and 1989.

June 30, 1986. In 1987, this accrual was reversed because the United States Supreme Court has The Supply System is currently unable to predict ruled that certain taxes relating to interstate com- when Nuclear Projects No.'s I and 3 will be merce transactions, such as Hanford Generating completed.

Project out-of-state energy sales, are unconstitu-tional. The U.S. Department of Energy is currently study-ing acquisition of all or a part of Nuclear Project NUCLEAR PROJECTS NO.'S 1 AND 3 No. I for completion as a strategic material pro-CONSTRUCTION DELAY duction facility. Whether such an acquisition will On April 29, 1982, the Supply System, upon the occur, what the timing might be, and what form it recommendation of BPA, approved an extended might take, are unknown. Any such acquisition construction delay of Nuclear Project No. I, and would require payment of just compensation to on July 8, 1983, the Supply System, also upon the the Supply System for assets acquired. Payment recommendation of BPA, approved an extended of all outstanding Nuclear Project No. I obliga-construction delay of Nuclear Project No. 3. Dur- tions, including debt service on outstanding bonds, would continue to be made pursuant to the ing the construction delay, the Supply System will endeavor to preserve plant assets and maintain Nuclear Project No. I net-billing agreements.

project licenses. NUCLEAR PROJECTS NO.'S 4 AND 5 On January 23, 1986, the Northwest Power Plan- SUBORDINATED REVENUE NOTES ning Council (Council) released its 1986 Northwest In conjunction with the construction stoppage of Conservation and Electric Power Plan (Plan). In Nuclear Projects No.'s 0 and 5 during 1981, certain the Plan, the Council indicated that Nuclear Proj- project participants, investorwwned utilities and ects No.'s 1 and 3 are cost effective, However, the industrial customers of BPA agreed to loan Nuclear Council did not include Nuclear Projects No.'s 1 Projects No.'s 0 and 5 funds to underwrite a pro-and 3 in its resource portfolio, citing legal and gram to preserve the assets of those projects. These other uncertainties. The Council does view loans, called bridge loans, consisted of $ 60,000,000 Nuclear Projects No.'s I and 3 as energy options in subordinated revenue notes, bearing a stated for the future after the current uncertainties are maturity date of July I, 1984, and bearing interest removed. to due date at an annual rate of 15 percent.

On May I, 1987, BPA released its 1987 Resource Subsequently, when a decision was made to Strategy. In the 1987 Resource Strategy, BPA terminate Nuclear Projects No.'s 4 and 5, a focused on the economics and institutional ques- number of project participants agreed to loan tions surrounding Nuclear Projects No.'s I and 3. Nuclear Projects No.'s 4 and 5 funds to assist in A significant part of the study sought a conclusion avoiding an uncontrolled termination of the proj-as to whether Nuclear Projects No.'s I and 3 ects. These loans, called termination loans, con-should be preserved, terminated, or completed on sisted of $ 7,865,502 in subordinated revenue notes a fixed schedule. BPA found that there is no com- bearing a stated maturity date of June 30, 1983, pelling case for or against continued preservation and bearing interest to due date at an annual rate on a net present value basis, and that preservation of 15 percent.

of both projects is somewhat favorable from the 29

NOTES TO FINANCIALSTATEMENTS Because Nuclear Projects No.'s 4 and 5 do not Pacific has stated to the Supply System that it con-have sufficient funds to underwrite payment of the siders the termination of Nuclear Project No. 5 to subordinated revenue notes, the notes have not be a breach of the Nuclear Project No. 5 owner-been redeemed. ship agreement and has reserved its rights to pur-sue appropriate remedies with respect to such Sixteen participants and investorwwned utilities breach. On June 16, 1983, Pacific advised the filed lawsuits against the Supply System for pay- Supply System that, due to the Washington State ment of the notes, with Chemical Bank named as Supreme Court ruling that certain codefendant in several of them; one case was participants'greements were invalid (as described in Note D) dismissed. In 13 cases, summary judgments have and other related actions by the Supply System, been rendered against the Supply System, and in Pacific would no longer fund 10 percent of the certain cases the judgments stated that the obliga- Nuclear Project No. 5 termination costs.

tion to pay the notes was not restricted to the funds of Nuclear Projects No.'s 4 and 5. Some of It is the position of the Supply System that the these cases were subsequently appealed to the termination of Nuclear Project No. 5 does not Washington State Supreme Court and on constitute a breach of the Nuclear Project No. 5 September 5, 1985, the Court upheld previous rul- ownership agreement and that Pacific is responsi-ings that the Supply System must repay the bridge ble under the Nuclear Project No. 5 ownership and termination loans, but ruled that repayment agreement for payment of its 10 percent share of must be made only from funds of Nuclear Projects the costs of termination of such project.

No.'s 0 and 5. Plaintiffs motions for reconsidera-tion were denied, and modified judgments, Pacific has made payments prior to June 16, 1983, restricted in collectibility, have been entered as under the Nuclear Project No. 5 ownership agree-to all but two plaintiffs. Proceedings are pending ment pursuant to reservations of rights to sue the concerning the form of modified judgment to be Supply System for damages for failure to complete entered in all other appealed cases. the project. Pacific's claim would presumably be about $ 150 million its investment in the project.

In the BPA v. Supply System case, the three Such a claim could be a general claim against the investor-owned utility lenders have moved for assets of the Supply System.

summary judgment on their bridge loans and for the right to set off a bridge loan judgment against The claim is currently inactive. No opinion can be any cost-sharing obligation to Nuclear Projects expressed as to the ultimate outcome of this claim.

No.'s 4 and 5. No resolution has been reached as INTER-PROJECT CLAIMS AND CLAIMS to the setoff issue and no opinion can be expressed as to the possible outcome of that matter.

AGAINST GENERAL ASSETS As discussed above, Nuclear Projects No.'s 4 and 5 NUCLEAR PROJECT NO. 5 are currently unable to meet Nuclear Projects No.'s OWNERSHIP AGREEMENT 0 and 5 debts as they become due. Creditors have Under the terms of the ownership agreement with threatened to attempt to obtain payment from Pacific Power and Light Company (Pacific), Pacific assets or funds held for the benefit of other proj-is obligated to fund its respective ownership share ects of the Supply System or the revenues pledged of Nuclear Project No. 5 termination costs begin- thereto. Such creditors include those described in ning January 25, 1983, and continuing until all the Notes to Financial Statements and others who costs of termination have been paid. Ten percent may assert claims in the future against the Supply of the funds received from sales of Nuclear Project System and/or its projects.

No. 5 assets are applied as a reduction of Pacific's obligation for termination costs. Bond counsel to the Supply System are of the opinion that neither holders of bonds issued to 30

finance the construction of Supply System's Bond counsel has not undertaken an investigation Nuclear Projects No.'s 4 and 5, nor creditors of of the issues discussed above with respect to the the Supply System whose claims arose from the Packwood or Hanford Generating Projects.

furnishing of goods or services with respect to However, they believe that upon full investigation Nuclear Projects No.'s 0 and 5, will be able to the same opinions could be rendered with respect realize upon revenues or funds held in trust for to assets of the Packwood and Hanford Generating Supply System Nuclear Projects No.'s 1, 2 and 3 or Projects and revenues or funds held in trust or for holders of bonds issued by the Supply System relating to such projects or for the holders of to finance construction of such projects except to bonds issued by the Supply System to finance the the extent they might obtain rights through a construction of such projects.

valid exercise of the sovereign police power of the state of Washington or of the constitutional Supply System management is of the opinion that powers of the United States of America, or by a creditor claims can only be realized from the voluntary bankruptcy of the Supply System. assets, funds or revenues of the projects to which such claims relate. The Supply System will utilize Bond counsel also are of the opinion, based upon all legal remedies to defend their position. If it is Lampson Universal Rigging, lnc. v. Washington Public found that creditors are not limited to payment of Poiver Supply System, 105 Wash.2d.376, that a court their claims from the project to which such claims should hold that neither holders of bonds issued relate, it will have a material adverse impact on to finance the construction of the Supply System's the Supply System.

Nuclear Projects No.'s 0 and 5, nor creditors of the Supply System whose claims arose from the SHARED COSTS furnishing of goods or services with respect to The termination of Nuclear Projects No.'s 0 and Nuclear Projects No.'s 0 and 5, will be able to 5 creates an uncertainty as to how certain com-realize upon the assets of Supply System Nuclear mon services and facilities are to be shared with Projects No.'s 1, 2 and 3 that are necessary for the Nuclear Projects No.'s 1 and 3, respectively. In purposes of such projects or the Supply System, August 1982, the participants of Nuclear Projects except to the extent they might obtain rights No.'s 0 and 5 presented a claim to Nuclear Proj-through a valid exercise of the sovereign police ects No.'s 1 and 3 to reimburse Nuclear Projects power of the state of Washington or of the consti- No.'s 4 and 5 for a portion of the costs of shared tutional powers of the United States of America, or services and facilities paid by the projects before by a voluntary bankruptcy of the Supply System. July 1, 1981. The claim requested immediate payments of $ 75 million and $ 86 million plus Bond counsel's opinion as to the ability of bond-interest from Nuclear Projects No.'s 1 and 3, holders or other creditors to realize upon assets of respectively, plus amounts that may be determined Supply System Nuclear Projects No.'s 1, 2 and 3 is in the future. The claim is based on a method of limited to those assets located within the state of calculating shared costs that is different from the Washington, or as to which a court would apply method adopted by the Supply System.

the law of the state of Washington, and the opi-nion excludes assets that are not necessary for the The Supply System has reviewed its cost-sharing purposes of Supply System Nuclear Projects No.'s policy from inception of the projects to determine if 1, 2 and 3 or the Supply System. Bond counsel is costs were allocated properly. As of June 30, 1987, not able to determine at this time how a court of a $ 16,974,827 is due Nuclear Project No, 5 from state other than the state of Washington would Nuclear Project No. 3; $ 8,112,268 is due Nuclear treat assets of Supply System Nuclear Projects Project No. 1 from Nuclear Project No. 0; and No.'s 1, 2 and 3 located outside the state of

$ 162,975 is due Nuclear Project No. 0 from Washington, if such court were to apply the law Nuclear Plant No. 2 for shared costs. These of a state other than the state of Washington.

31

NOTES TO FINANCIALSTATEMENTS liabilities have been recorded in the accompanying NUCLEAR PROJECT NO. 3 CLAIMS balance sheets as of June 30, 1987. An undeter- In July and August 1983, the four investorwwned mined amount of interest may also be due. The utilities who own 30 percent of Nuclear Project results of the aforementioned review are subject to No. 3 filed claims against BPA, the Supply System audit by BPA and the investorwwned utilities hav- and Nuclear Project No. 3 participants arising out ing ownership shares in Nuclear Projects No.'s 3 of the extended construction delay at Nuclear Proj-and 5 and are subject to the litigation described ect No. 3. The claims were filed in the action below. entitled BPA v. Supply System, et al. (See "Shared Costs" ). Included are claims for injunctive and On October 26, 1982, the Supply System filed a declaratory relief, damages, rescission of the legal action against BPA, the four investorwwned Nuclear Project No. 3 ownership agreement and utilities who are joint owners of Project No. 3, the recovery of the total amount of payments made participants of Nuclear Projects No.'s 0 and 5, (the under the agreement to date. In October 1983, court has since allowed Chemical Bank to in-BPA amended its complaint to resolve the Nuclear tervene in this suit) and the construction fund Project No. 3 dispute.

trustee for Nuclear Project No. 1 seeking a judicial determination of past and future shared costs Final agreements permitting settlement of the con-among Nuclear Projects No.'s 1 and 0 and Nuclear struction delay claims were executed by the Supply Projects No.'s 3 and 5. (The court has since System on September 13, 1985, and by BPA and restructured the case as BPA v. Supply System, et the investor-owned utilities on September 17, 1985.

al., wherein BPA is now the plaintiff and the Sup. Pursuant to those agreements the parties ex-ply System and other aforementioned parties are changed covenants not to sue and asked the court defendants.) The lawsuit does not specify the to enter an order of dismissal of their delay claims.

amounts of money that the parties believe should The court has not yet ruled on this matter.

be reallocated. The method used to calculate the aforementioned claim is an issue in the lawsuit. A number of the Nuclear Project No. 3 partici-pants oppose the settlement and have filed sup-On September 2, 1986, BPA, the four investor- plemental pleadings asserting challenges to the set-owned utilities, and certain project participants of tlement agreements and have also filed complaints Nuclear Projects No.'s 1 and 3 moved for an or'der for direct review in the Ninth Circuit Court of dismissing Chemical Bank's claims against them Appeals invoking that court's original jurisdiction or, in the alternative, for summary judgment. On under the Northwest Regional Power Act. Certain October 31, 1986, Chemical Bank moved for sum-participants have also filed amended pleadings mary judgment against the Supply System.'The asserting mothballing claims unrelated to the set-motions were argued on May 13, 1987, and are tlement.

presently under advisement.

The parties signing the settlement agreements filed The Supply System's position in this litigation is motions in the district court to dismiss the claims essentially neutral, considering the Supply System's attacking the settlement agreements for lack of fiduciary obligations to Nuclear Projects No.'s 1 jurisdiction, lack of indispensable party, and mo-and 3, as well as to Nuclear Projects No's 4 and 5. tions for summary judgment. On July 3, 1986, the In the event the court should rule that Nuclear court granted BPA's motion to dismiss the settle-Projects No.'s 1 and 3 are obligated for costs shared ment claims for lack of jurisdiction for the reason and previously paid, in part, by Nuclear Projects that jurisdiction more properly lies in the Ninth No.'s 4 and 5 the potential liability to Nuclear Circuit. Certain settlement claims against the Projects No.'s 1 and 3 is in excess of $ 400 million. IOUs and mothballing claims not related to the settlement remain pending in the district court but The Supply System is unable to predict the out-further proceedings were stayed on July 3, 1986, come of this litigation.

32

C ~ ~ ~ ~

y pending a resolution by the Ninth Circuit of the to allegations of securities violations by the Supply claims under its original jurisdiction. System and others. Documents have been pro-duced to the commission pursuant to subpoena, The parties who signed the settlement agreements and the commission staff has taken depositions also filed motions in the Ninth Circuit cases to of numerous individuals, including present and dismiss some of the claims of the Nuclear Project former Supply System personnel. Further produc-No. 3 participants for lack of jurisdiction. The mo- tion of documentary and testimonial materials and tions have not yet been resolved. Subsequent to submission to the commission may occur. The the court's resolution of the motions regarding commission has not yet indicated what further jurisdiction, the Ninth Circuit will resolve some or action, if any, it may take in this matter.

all of the challenges to the settlement agreement.

LIABILITYINSURANCE If the settlement is overturned, the investorwwned utilities may renew their request for an order The Price-Anderson Act currently limits the granting them the right to rescind the Project: public liability claims that could arise from a Ownership Agreement and possible termination nuclear incident to $ 710 million. The Supply of the project. The investorwwned utilities have System has purchased the maximum available waived any claim to monetary damages against the private insurance of $ 160 million and the excess of Supply System. $ 550 million of coverage is provided by secondary financial protection.

NET-BILLING AGREEMENTS Under secondary financial protection, coverage The parties to the net-billing agreements are BPA, would be funded by a mandatory program of the Supply System, and the participants of Nuclear retrospective premiums assessed against all owners Projects No's. 1, 2 and 3. The agreements provide of licensed reactors. In the event of nuclear inci-that BPA is obligated to pay the participants, and dents at facilities covered under the Price-Anderson the participants are obligated to pay the Supply Act, the Supply System could be assessed up to System their pro rata shares of the total annual $ 5 million per incident but not more than costs of the projects, including debt service on the $ 10 million in a calendar year. New legislation bonds, whether or not the projects are completed, relating to nuclear liability insurance is pending.

operable, or operating, and notwithstanding the All proposals currently before Congress include suspension, reduction, or curtailment of the proj- substantially increased retrospective premium ects'utput. However, the agreements also provide limits.

that they shall not be binding on any of the aforementioned parties if they are not binding on OTHER LITIGATION AND COMMITMENTS all the parties.

The Supply System is involved in various claims, The validity of the net-billing agreements was legal actions and contractual commitments not challenged in November, 1982. In May 1983, the mentioned above as both a plaintiff and a defen-U.S. District Court of Oregon declared that the dant and in certain claims and contracts arising in net.billing agreements were binding. In February the normal course of business for a large construc-1985, this decision was upheld by the Ninth Cir-tion program. Although some suits, claims and cuit Court of Appeals, and in January 1986 the commitments are significant in amount, final United States Supreme Court denied a petition for disposition is not determinable. In the opinion of certiorari, ending proceedings in the case. management, the outcome of any such litigation, claims or commitments will not have a material SECURITIES AND EXCHANGE COMMISSION adverse effect on the financial positions of the INVESTIGATION projects. The estimated cost of the projects may either be increased or decreased as a result of the In January, 1984, the Securities and Exchange outcome of these matters.

Commission commenced a formal investigation in-33

STATEMENT OF DEBT-SERVICE REQUIREMENTS

~ ~

Dollars in thousands HANFORD GENERATING PACKWOOD LAKE NUCLEAR PLANT NO. 2* PROJECT PROJECT FISCAL YEAR PRINQPAL INTEREST TOTAL PRINQPAL INTEREST TOTAL PRINQPAL INTEREST TOTAL 1988 $ 26,645 $ 211,686 $ 238,331 $ 774 $ 774 $ 190 $ 362 $ 552 1989 28,510 209,818 238,328 3,485 680 4,165 195 355 550 1990 30,555 207,778 238,333 3,455 567 4,022 265 347 612 1991 32,800 205,540 238,340 5,065 411 5,476 275 338 613 1992 35,260 203,080 238,340 5,585 233 5,818 290 327 617 1993 37,980 200,383 238,363 5,835 45 5,880 300 317 617 1994 40,950 197,445 238,395 395 2 397 315 305 620 1995 44,225 194,227 238,452 330 294 624 1996 47,825 190,678 238,503 340 282 622 1997 65,575 186,769 252,344 360 269 629 1998 71,955 180,399 252,354 380 256 636 1999 79,330 173,291 252,621 400 241 641 2000 85,795 166,572 252,367 465 226 691 2001 93,290 159,093 252,383 490 209 699 2002 101,635 150,766 252,401 515 191 706 2003 93,055 141,479 234,534 540 171 711 2004 97,375 133,671 231,046 565 151 716 2005 106,765 124,280 231,045 590 130 720 2006 117,225 113,821 231,046 615 109 724 2007 128,850 102,201 231,051 640 86 726 2008 141,675 89,370 231,045 665 62 727 2009 155,940 75,104 231,044 690 38 728 2010 171,820 59,226 231,046 353 17 370 2011 189,510 41,538 231,048 150 6 156 2012 209,230 21,8H 231,044 60 2 62 2013 2014 2015 2016 2017 2018

$ 2,233,775 $ 3,740,029 $5,973,804 $ 23,820 $ 2,712 $ 26,532 $ 9 978 $ 5 091 $ 15 069 34

NUCLEAR PROJECTS NUCLEAR PROJECT NO. 1* NUCLEAR PROJECT NO. 3* NO.'5 4/5%*

FISCAl YEAR PRINCIPAL INTEREST TOTAL PRINOPAL INTEREST TOTAL PRINCIPAL TOTAL 1988 $ 18,055 $ 205,729 $ 223,784 $ 10,555 $ 164,368 174,923 $ 2,317,866 $ 2,317,866 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 2000 49,465 178,663 228,128 29,020 H8,218 177,238 2001 53,920 174,204 228,124 31,475 145,773 177,248 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 2004 55,430 159,406 214,836 42,730 136,746 179,476 2005 60,600 154,237 214,837 45,995 132,503 178,498 2006 66,320 H8,515 214,835 49,615 127,908 177,523 2007 72,665 H2,171 214,836 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

$ 2,094,090 $ 4,512,463 $ 6,606,553 $ 1,574,905 $ 3,847,815 $ 5,422,720 $ 2,317,866 $ 2,317,866

• Excludes payments of bond principal and interest made on July 1, 1987.

• • Refer to Note D Termination of Nuclear Projects No.'s 4 and 5 and Default Under Bond Resolution, page 26 and Note E-Commitments and Contingencies, page 28.

35

7

~ ~

~y he Supply System operates of the plant as well as information two visitors centers for the public, on nuclear power issues such as one at Plant 2, about 12 miles radiation, nuclear waste and plant north of Richland, and another operator training.

near Elma, Washington, at the Tours of the WNP-3 WNP-3 project. Displays in the construction site are offered visitor centers illustrate how plant by appointment by calling design, construction and operation (206)482-%28, ext. 5052. Tours have been planned with the public's of the WNP-1 site are available well-being in mind. by appointment by calling The Plant 2 Visitors Center (509) 372-5860.

offers a videotape "arm-chair" tour 36

TURBINE ROTORS INCREASING PlANT 2'S OUTPUT BOND SALE SUCCESS REFINANCING PAYS DIVIDENDS QUALITYIMPROVEMENT EMPHASIZING PROBlEM PREVENTION WASHINGTON PUBLIC POWER SUPPLY SYSTEM

ON THE COVER:

Boosting Plant 2's 1, 100-megawatt output by 13.7 megawatts, increasing reliability and cutting mainte-nance costs are the goals of a

$ 23 million contract signed in fiscal year 1989. Purchasing and installing three new low.pressure turbine rotors in 1991 willsolve a major plant maintenance problem by replacing the current rotors, which suffer from a generic design defect.

CONTENTS:

Letter from the Chairman of the Executive Board 2 Letter from the Managing Director 4 The Supply System: Here for the Long Run 6 Governing Boards 12 Financial Information 13

FINANCIALAND OPERATING HIGHL/GHTS For Jbeyear ended june 30 Dollars in millions FY 1989 FY 1988 NVGEAR PACKWOOD NVCJEAR PACKWOOD PROJKT IAKE PROJKT IAKE NO. 2 PROJKT No. 2 PROJKT OPERATING STATISTICS Total annual cost $ 454.5 $ 1.2 $ 4453 $ 1.1 Net generation/gWh 6034 91 5945 Cost in mills/kiv/h 75.3 12.6 7g 9 14.9 Plant availability 66.5% 100/o 65.1% 100o/o Plant capacity 62.9/o 37.7/o 61.8%%d%%d 30.8%

INVESTMENTINCOME ALL PROjECTS Total investment income $ 62.9 $ 55.2 Rate of return 8.5o/o 7.2%

PlANT 2 NET ElECTRIC GENERATION PIANT 2 CAPACITYFACTOR 0

Vl C

0 FY86 FY87 FY88 FY89 FY86 FY8/ FY88 FY89

s V ~

/y LHTER FROM THE EXECUTIVE BOARD CHAIRMAN ince 1985, we have conscientiously been working on many fronts preparing to re-enter the bond market. This year that objective came to fruition in September when we had our first bond sale in seven years.

We originally contemplated a bond issue of @50 million, but when a marketing tour prior to the sale indicated a much larger market, we raised the amount to $ 612 million. Buyer acceptance of the bonds was very strong on the sale day, so we added an additional $ 109 million, winding up with a sale of $ 721 million.

The true interest cost for this first refinancing issue was less than 7.7 percent, a far cry from rates as high as 15 percent on the issues being refunded.

This sale will save the Bonneville Power Administration's ratepay-ers more than $ 24 million in debt service annually for the next 20 years-a total of M80 million. Our overall refunding program, which includes current refunding of Plant 2 bonds in 1991 and 1992, could potentially save $ 70-to-$ 80 million per year, for a total savings of about $ 1.6 billion.

Refinancing is proceeding through a cooperative region-wide effort between the Supply System Executive Board, management and staff, the Bonneville Power Administration, and its public utility customers. The refinancing team, composed of investment bankers, bond counsel and financial representatives from both BPA and the Supply System, worked for more than a year assembling the required information and dealing with residual historical and legal problems so that this refinancing effort could be initiated.

Members of the Northwest Congressional Delegation were essential partners in our refinancing effort. They helped enact amend-ments to municipal bankruptcy Laws last year that strengthened the legal

+~~~a=~ 37K~ wall between our projects, precluding the possibility of WNPA/5 creditors Q acquiring the assets of the Supply System's net-billed projects. With this legislation in place, three rating agencies, Standard 8- Poors, Moody's, and The Supply System returned to Fitch Investor Service, reinstated investment grade ratings for all Supply the bond market in September, System bonds, except WNP-4/5.

when it sold $721 million in bonds to rel'und high-interest Nudear Project l and 3 bonds.

The refunding is expected to save Pacific Northwest ratepayers $ 25 million annually for the next 20 years.

Our Nottlnvest Congressional Delegation was also instrumental in ensuring that Projects 1 and 3 were included in the tax corrections bill passed last fall by Congress. This legislation, amending the Tax Reform Act of 1986, authorizes the Supply System to issue up to $ 2 billion in advance refunding bonds for WNP-1 and WNP-3 before 1992. Current refunding capability is in place for WNP-2 bonds.

All told, these efforts allowed us to take advantage of this summer's low interest rates and begin reducing the Supply System's annual $ 578 million debt service payments. Reduced debt service payments will lower Supply System annual budgets and help lower BPA's total revenue requirements. The benefits of the program will be equitably spread to affected BPA ratepayers and, through the exchange agreement, to resi-dential and small farm ratepayers of participating investor-owned utilities.

Much has been accomplished, but there is more to do to reach our $ 2.8 billion refunding objective. We plan to return to the market before the end of 1989 for another major sale and conclude the advance refinancing of Projects 1 and 3 bonds in 1990.

We continue to value the close relationship between ourselves and the Bonneville Power Administration. Bonneville Administrator Jim Jura and his team have ever been supportive of the safe, eAicient operation of our plants as well as thc refinancing activity.

With the settlement of the MDL-551 litigation, we arc close to putting the court-induced 1983 default on WNP-4/5 bonds behind us. We are all looking forward to bringing the remaining cost-sharing litigation to a close and to the sale of the remaining WNPA/5 assets, ending a difficult chapter in the Supply System's history.

As I look to the future, I see a bright road ahead.

Carl M. Halvorson Executive Hoard Chairman

LETTER FROM THE MANAGINGDIRECTOR he Supply System is an ever-evolving organization. During the past several years, it has evolved from a construction entity to an operating utility. Having made that difficult transition, our highest priority is to operate Plant 2 safely, reliably and economically, while continuing efforts to reduce the cost of operation and increase plant availability.

We have continued to improve Plant 2's performance since it began operating five years ago. The Supply System's Executive Board has made hard decisions necessary to provide the resources we need to meet our high expectations for the plant. Those efforts are meeting with suc-cess. In every year of its operating life, Plant 2 has generated more elec-tricity than in the previous year. In fiscal year 1989, we exceeded the six billion kilowatt-hour mark, generating 6.03 billion kilowatt-hours for the Bonneville Power Administration. That is enough electricity to provide the annual needs of about 350,000 all-electric Pacific Northwest homes. Plant availability and capacity were also up from previous years, and we have cut down significantly on the number of unplanned shutdowns.

Our improvement is the result of a renewed commitment to quality, manifested in a formal Quality Improvement Program that involves employees at all levels in achieving quality. The program stresses a style of management that encourages employee participation to assure that all components of the organization are supporting our overall efforts. It also encourages employees to be constantly on the lookout for ways to prevent and correct problems and make improvements.

All Supply System managers have attended Quality Improvement training to learn concepts of leadership, openness, teamwork and em-ployee involvement. Employees are also being introduced to these con-cepts and are being formed into Quality Action Teams to address prob-lems in selected areas, such as the organization's goals and objectives, access to vital areas of Plant 2 during maintenance outages, and accredited training of maintenance personnel.

The Supply System's Goals The Quality Improvement program is not a quick fix or a magical and Objectives progrom keeps employees informed about the road to our goal of continually improving operating performance. It is a organization's direction and long-range, strategic approach that will make the Supply System stronger, priorities ond reminds them that they are a vital link in the chain ofsuccess.

more quality-conscious, and morc responsive to the demands and changes we will face in our quest to remain a competitive regional supplier of electricity. The bottom line is that the Quality Improvement process will make the Supply System a better regional asset, capable of providing solutions to regional energy problems.

Achieving our operating performance goal means consistently meeting high safety and quality standards. Recent assessments of the Supply System's performance show that progress is being made. The Nuclear Regulatory Commission's Plant 2 performance ratings indicate improved performance over last year in plant operations, engineering/technical support, and emergency preparedness while performance remained satisfactory in four other key areas. Another assess-ment by an industry peer group, the Institute of Nuclear Power Operations, also shows we are on the right track.

As we concentnte on fine-tuning the organization, we are keeping an eye to the future. Equipment reliability prob-lems at Plant 2 have been disappointing, but decisions made in 1989 on long-mnge plant modifications and improvements will have a big payoff. The most significant is the signing of a

$ 23 million contract with Westinghouse Electric to replace Plant 2's three low-pressure turbine rotors. This action is the t

start of a major upgrade of Plant 2's turbine-generator that, when coupled with other plant improvements, will result in a minimum 100-megawatt increase in the plant's capacity over the next five-to-six years.

The work we are doing today will have a significant impact on the region as we get closer to electric load-resource balance. The same quality-improvement techniques being applied at Plant 2 are also being used in the preservation of Projects 1 and 3 and the Hanford Generating Project. As the Supply System evolves into a stronger organization, the Donald . azur value of these potential resources will be enhanced to the benefit of the Managing Director Supply System's public power members and all BPA customers.

I 989 OPERATIONS REVIEW o business is more complex or scrutinized more thoroughly than the commercial nuclear power industry. In today' environment, where internal and external forces continually pressure utilities to do more and do it better, it is essential that the Supply System demonstrate sustained improvement in Plant 2 operations.

Opemtions are monitored and evaluated by a wide variety of entities, such as the Nuclear Regulatory Commission, the state Energy Facility Site Evaluation Council, the Bonneville Power e Administntion, Northwest Power Planning Council, member utilities and utilities participating in Supply System projects, industry peer groups, such as the Institute of Nuclear Power Operations, and members of Congress and the state legislature.

These entities use "performance indicators" to gauge progress.

The most important of these, the amount of electricity delivered to the Bonneville Power Administration's transmission grid from Plant 2, was 6.03 billion kilowatt-hours (net) in fiscal year 1989, an increase of about lMPSQKM87CNES two percent over 1988, and the fourth ggggggoOjgJggtj GE0 consecutive year that generation has Qjgggieg) geeigQo~o ~

g3ZR

~ ~ ~ ~

increased. That is enough electricity to supply the needs of about 350,000 Sdh a@W.

RdR9$ SC23GKKEKb all-electric Pacilic Northwest homes.

I If%

XVe also made progress in IIhe Supply System paid nearly boosting Plant 2's capacity factor- $ 2.3 mi%I'on in generation taxes in the ratio of how much power the fiscal year 1989 on the value of electricity generated by the plant.

plant produced relative to how much Since the plant began operotion could have been generated had it in 1 984, the stato has received run continuously at full power, was $ 8. l million in generation taxes, 62.9 percent in fiscal year 1989, up which is shared with statewide schools and local taxing entities in from 61.8 percent in 1988.

tho vicinity of Plant 2.

The increase in the plant's The state also receives sales and capacity factor was helped by our use taxes on nuclear fuel, materials efforts to limit the number of automatic and services purchased by the Supply System, generating $ 3.2 million for shutdowns or unplanned "scrams".

state coffers in fiscal year 1989.

There were two unplanned scrams at These taxes, in addition to a Plant 2 in fiscal year 1989. The annual $66 million annual payroll, make goal was to have no more than three the Supply System an important scmms per year. (contintted) economic force in Woshington state.

Nearly 1,000 workers took part in Plant 2's annuol maintenance and refueling outage. The planned 65-day outage was 83 days due to increased work on a low-pressure turbine and two emergency electricol systems.

The outage put the plant in mndition to operate efficiently and reliably during the coming year. Accomplished were:

~ 2,000 maintenance tasks

~ 136 of 764 fuel assemblies replaced

~ Four main steam isolation valves overhauled

~ Two reactor feedwoter pump turbines overhauled

Operation and maintenance costs are another important indicator.

Plant 2's operating and maintenance costs in 1988 were about eight percent less than the industry average for U.S. boiling water reactors, and the Supply System paid less than half what the average plant did in fuel costs.

These indicators show that Plant 2 is moving in the right direction.

The Supply System's challenge is to keep improving. Several initiatives are under way in training, plant improvements, and overall organization that are expected to foster this trend.

The Supply System is recognized throughout the nuclear industry as having a highly qualified staff. Management's task is to help employees, and the organization, realize their potential. A Quality improvement program was instituted in fiscal year 1989 that recognizes the individual skills and talents of each employee and encourages them to use those talents to better the overall performance of the organization. The Quality

Improvement program is a long-range, strategic approach tltat will help build mutually supportive relationships among all employees and help the Supply System meet the needs and expectations of its customers, whether that customer is BPA, the region's ntepayers, or another Supply System employee.

Plans are in place to further strengthen these relationships by improving the facilities housing the plant's highly trained technical and engineering support personnel. The new Plant 2 Support Facility, a steel-and-concrete, two-story building of approximately 100,000 square feet that will be completed in 1991, will house technical and engineering department employees. The $ 10.5 million Support Facility will house the team that provides technical support for plant modifications and mainte-nance activities, and will contain a technical library, computer facilities, conference rooms and a security ggggoogQo+~Qog I~QQ control point for access to Plant 2. Being prepared for an eanCxkMlCo 05NeSCe Keeping technical and engineering emergency at Plant 2 is a

+Cgc4ctQQMFmRtm personnel readily available for testing, responsibility the Supply System 89$ 8$ ZCl 558igg%89 shares with local, state and Nbaqp, 8 omsm@xSI reporting and design modification programs will help increase plant federol governments. It requires KRRH86HKil8RPS&% teamwork and cooperation to reliability and keep maintenance costs bring together more than 600 t I7%

i'l he simulator, a full-scale, down. employees and representatives computerized replica of the plant's The Supply System's Executive of outside agencies into one cohesive, effective organization control room, provides handswn Board made a major commitment to that is capable of coping with trainingin an environment that reactor operator training in 1989 when all kinds of emergencies.

closely mimics the control room. It responds exactly as the plant would it approved a $ 14.7 million contract The Nuclear Regulatory with Westinghouse Electric Corp. to Commission, in its annual to normal and abnormal operating assessment of the Supply procedures during reactor startup, build a new Plant 2 control room System's performance, gave the increasing and decreasing reactor simulator. A full-scale computerized highest grado possible to power, and plant shutdown.

The Nuclear Regulatory mock-up of the plant's actual control emergency planning, citing Commission uses control room room, the new simulator will meet timely notificotion of the public and successfvl recovery simulators to examine reactor Nuclear Regulatory Commission 1991 operations in annual plant operotor candidates and to give certification requirements and enhance annual requalificotion examinotions emergency exercises.

the Supply System's training capabilities to licensed opercrtors. Simulator

. Iraimng is conducted one week out of by providing a more realistic training eveiy five to keep their knowledge arena. The long-range benefits of this and skills fine-tuned. upgrade will be increased reliability The Supply System is replacing its and safety.

present simulotor in 1991 to keep its training program vp to date and Another major commitment maintain the accuracy and realism of made by the Executive Board this year simulator training scenarios. is the decision to replace Plant 2's three

low-pressure turbine rotors. Plant 2's turbine, which converts the heat energy of steam produced in the nuclear reactor to the spinning motion to drive the 1,100-megawatt (net) electric gcnentor, consists of a single high-pressure stage and three low-pressure stages. A contract was signed with Westinghouse Electric Corp. in 1989 to supply and install new low-pressure turbine rotors at a cost of $ 23 million. Installation of the new turbine rotors in 1991 will solve a major plant maintenance problem by replacing the current rotors, which suffer from a generic de'sign defect.

Millions of dollars have been spent inspecting and repairing the low-The Packwood take Hydro- pressure turbine rotors since the plant began operation in 1985. The new electric Project has been a turbine rotors will cut maintenance costs, increase plant reliability and reliable, low-cost power increase Plant 2's electrical output by 13.7 megawatts. Future turbine generator for 25 years. In 1989, it recovered from several improvements, including replacing the years of drought and generated high-pressure turbine, will further QIIBRISI nearly 20 percent more increase reliability and electrical output. jijloootl0Qsl g3CGCICggB electricity than it did the previous year, far exceeding Other 1989 initiatives included cd CB ~QKQRt0

~ tiNQeegeee ~ )

Ib fjsctgeie budget forecasts.

reviewing, updating and rewriting 6Mhmxf@(m@ykkm opentions and maintenance procedures; creating a new planning and scheduling AIthough construction on the two group to schedule and prioritize plant 1,200-megawatt plants wos halted in work; cross-tnining of managers and 1982 and 1983, Nuclear Projects 1 supervisors; and placing additional and 3 remain in sound condition.

The mosHy completed projects wem emphasis on employee safety.

maintained in fiscal year 1989 for a Evaluations made the past year total cost of $ 10.5 million. Tho design by regulatory agencies and industry peer and physical assets of the projects groups show that progress is being made are being preserved using a Nuclear in several areas. Major improvements Regulatory Commission-approved The Hanford Generoting program that is a model for the Project remains in top working have been made in employee perform-rest of the nuclear industry. The condition following 20 years ance and equipmcnt reliability, but preservation programs are funded of economical and reliable continued improvement is needed. at a minimum level, bvt constant service, generating 860 Downtime must be reduced and the monitoring and budget adjustments megawatts of electricity from aro preventing deterioration of plant steam supplied by the capacity factor boosted during Plant 2's structures and equipment.

U.S. Department of Energy's 10-month openting cycle if the Supply As tho Bonnevillo Power N-Reactor. Maintaining the System is to meet its goals. The Supply Administration and the region's Hanford Generating Project as System will continue to support the public utilities begin looking for new a viable future resource now sources of electric generation, they that the N.Reactor is dosed Bonneville Power Administntion's efforts can be confident that their $ 5 bi%I'on remains a high priority. to maintain low electric ntes for its investment in WNP-1 and WNP-3 has public utility customers while ensuring been protected at the lowest possible the safe, reliable and cost-effective cost to the consumer and tho projects opention of Plant 2. willbe available when needed to meet their energy needs.

10

Nuclear Projects 1 and 3 have been in extended construction delay since 1982 and 1983 respectively. WNP-1 is 65 percent complete and WNP-3is 75 percent complete.

EXECUTIVE BOARD Vera Claussen Qssfstant Secretary) Parker Knight Commissioner Commissioner Grant County PUD Skamania County PUD Kenneth Cochrane Paul Nolan (Vice Chairman)

Commissioner Attorney Franklin County PUD Tacoma John Cockburn (Secretary) William Scott Investor/Consultant Commissioner Seattle Chelan County PUD Sam Farmer Sydney Steinborn Consultant Consultant Battelle Memorial Institute Seattle Seattle Frank Ward Ray Foleen Commissioner Consultant Klickitat County PUD Portland Carl Halvorson (Chairman) Cornellus Du+e, a Ponland consultant President screed on tbe Evecutfrre Board through FlalvorsonMason Corporation Dec. 31, 1988.

Portland BOARD OF DIRECTORS Don Carter Parker Knight (Vlcc Presfdent)

Energy Services Director Commissioner City of Richland Skamania County PUD Tom Casey William Kuehne Commissioner Commissioner Grays Harbor County PUD Ferry County PUD Vera Claussen (Secretary) James Rowland Commissioner Commissioner Grant County PUD Okanogan County PUD Donald Clayhold William Scott Manager Commissioner Benton County PUD Chelan County PUD Edward Coates Roger Sparks g resfderrt)

Director Commissioner Department of Public Utilities Kittitas County PUD City of Tacoma Ame Torget Qsst. Secretary)

Kenneth Cochrane Commissioner Commissioner IVahkiakum County PUD Franklin County PUD Frank Ward Randall Hardy Commissioner Superintendent Klickitat County PUD Seanle City Light Clarl. County PUD resfgned fts mernber-ship in the Supply System in Dec. 1988 arrd Pacfjic County PUD resigned in June 1989.

12

D BOD FINANCIALINFORMATION Management Report on Responsibility for Financial Reporting 14 Audit, Legal and Finance Committee Chairman's Letter 14 Report of Independent Auditors 15 Financial Statements Balance Sheets 16 Statements of Operations 18 Statement of Terminated Project Costs and Deficiency in Assets 18 Statements of Changes in Financial Position 19 Outstanding Long-Term Debt 20 Notes to Financial Statements 23 Statement of Debt-Service Requirements 34 WASHINGTON PUBLIC POWER SUPPLY SYSTEM

NANAGENENTREPORT ON RESPONSIBILITY FOR FINANCIALREPORTING The management of the Supply System is responsible for preparing the accompanying financial statements and for their integrity. The statements were prepared in accordance with generally accepted accounting principles applied on a consistent basis, and include amounts that are based on management's best estimates and judgements.

The financial statements have been audited by Ernst K Young, the'Supply System's independent auditors. Management has made available to Ernst K Young all financial records and related data, and believes that all representations made to Ernst & Young during its audit were valid and appropriate.

Management has established and maintains a system of internal control that provides reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from un-authorized use or disposition, and the prevention and detection of fraudulent financial reporting. The system of internal control provides for appropriate division of responsibility and is documented by written policies and procedures.

The Supply System maintains an ongoing internal auditing program that provides for independent assessment of the effectiveness of internal controls, and for recommendations of possible improvements thereto. In addition, Ernst k Young has completed a study and evaluation of selected internal accounting controls. Management has considered recommendations made by the internal auditor and Emst K Young concerning the system of internal control and has taken appropriate action to respond to the recommenda-tions. Management believes that as of June 30, 1989, the system of internal control is adequate.

D. W.N zu J. D. Perko Managing Director Chief Financial Officer AUDIT, LEGAL AND FINANCE CONNITTEE CHAIRNAN'S LHTER The Executive Board's Audit, Legal and Finance Committee is composed of five independent directors. Members of the Committee are: Sam J. Farmer, Chairman; Vera Claussen; Paul J. Nolan; william D. Scott; John F. Cockburn; and Carl M. Halvorson, Ex Officio. The committee held twelve meetings during the fiscal year ended June 30, 1989.

The Committee oversees the Supply System's financial reporting process on behalf of the Executive Board. In fulfillingits responsibility, the Committee recommended to the Executive Board the selection of the Supply System's independent auditors, discussed with the internal auditor and the independent auditors the overall scope and specific plans for their respective audits, and reviewed the Supply System's financial statements and the adequacy of the Supply System's internal controls.

The Committee met regularly with the Supply System's internal auditor and independent auditors to discuss the results of their examinations, their evaluations of the Supply System's internal controls, and the overall quality of the Supply System's financial reporting. The meetings were designed to facilitate any private communication with the Committee desired by the internal auditor or independent auditors.

Sam . Farmer Chairman, Audit, Legal and Finance Committee Id

REPORT OF INDEPENDENT AUDITORS Executive Board Washington Public Power Supply System Richland, Washington We have audited the accompanying individual balance sheets of Washington Public Power Supply System's Nuclear Project No. 2, Hanford Generating Project, Packwood Lake Hydroelectric Project, Nuclear Project No. 1, Nuclear Project No. 3, and Nuclear Projects Nos. 4 and 5 as of June 30, 1989, and the related statements of operations for Nuclear Project No. 2, Hanford Generating Project, and Packwood Lake Hydro-electric Project, the statement of terminated project costs and deficiency in assets for Nuclear Projects Nos. 4 and 5, and the statements of changes in financial position for all individual projects for the year then ended.

These financial statements are the responsibility of Washington Public Power Supply System's management.

We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence sup-porting the amounts and disclosures in the financial statements. An audit also includes an assessment of the accounting principles used and significant estimates made by management, as well as an evaluation of the overall financial statement presentation.

As further discussed in Note E to the financial statements, Washington Public Power Supply System Nuclear Projects Nos. 1 and 3 are involved in disputes concerning costs shared with Washington Public Power Supply System Nuclear Projects Nos. 4 and 5. The ultimate amount of additional costs, if any, to be borne by Nuclear Projects Nos. 1 and 3 due to this matter is presently indeterminable.

As further discussed in Note E to the financial. statements, some creditors of Nuclear Projects Nos. 4 and 5 have attempted 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 an impact on the individual projects of the Supply System in amounts which are presently indeterminable.

As further discussed in Note E, there are various claims and matters of litigation, the outcome of which is presently indeterminable.

Because of the possible material effects on the individual projects'inancial statements referred to above of the matters described in the three preceding paragraphs, we are unable to, and do not, express an opinion on these financial statements.

Seattle, Washington September 1, 1989, except as to the thirteenth paragraph of Note D, as to which the date is September 5, 1989.

15

BAtANCE SHEETS As ofiune30, 1989 Dollars in JbousaJJds NUQEAR HANFORD PACKWOOD NUQEAR NUQEAR NUQEAR PROJECT GENE RATNG lAKE PROJECT PROJECT PROJECTS No. 2 PROJECT PROJKT No. I No. 3 NOS. 4/5 ASSETS UTILITy'IANT(NOTE Bj In service $ 3,308,001 S 67,624 $ 12,409 S 12,086 S 2,060 Improvements to U.S.

government facilities 22,922 Allowance for depreciation and amortization (495,506) (72,490) (6,780) (2,875) (1,362) 2,812,495 18,056 5,629 9,211 698 Nuclear fuel 159,459 257,492 34,831 Allowance for nuclear fuel amortization (72,087) 87,372 257,492 34,831 Construction work in progress 7,563 Construction work in progress-deferred projects 2,249,018 2,447,931 Costs of terminated projects S 3,559,725 Amount charged to joint owners (622,230) (87,395)

Allowance for estimated unrecoverable cost (3,467,270) 2,907,430 18,056 5,629 2,515,721 118611230 5,060 RESTRICTED ASSETS (NOTE Bj Special funds Cash and investments 37,939 3,181 280 122,934 23,181 586 Receivable from joint owners 5,679 65 Due from other projects 8,113 18,530 Accounts receivable 1,263 1,684 1,242 Prepayments and other 76 77 , 16 Due from other funds 452 13,906 37,939 3,181 280 132,838 44,527 20,439 Debt service funds cash and investments 113,311 4,348 698 231,987 180,648 61,483 151,250 7,529 978 364,825 225,175 81,922 CURRENT ASSETS Cash and investments 10,909 2,999 1,185 7,621 7,161 Accounts receivable 2,623 Materials and supplies 30,813 374 Prepayments and other 1,776 4 3 Due from participants 307 Due from other projects 716 21 4 1,660 Due from other funds 29,539 1 133 35 29,711 23,614 76,376 4,531 1,534 38,992 30,775 DEFERRED CHARGES Unbilled reimbursable costs 2,823 Unamortized debt expense 2 915 45 16 3 044 2 230 2,915 45 2,839 3,044 2,230 TOTAL ASSETS $ 3,137,971 S 30,161 $ 10,980 $ 2,922,582 $ 2,119,410 S 86,982 16

NUQEAR HANTORD PACKWOOD NUQEAR NUQEAR NUQEAR PROJKT GENERATING IAKE PROJKT PROJKT PROJECTS No. 2 PROJECT PROJECT No. T No. 3 NOS. 4/S LIABIUTIES DEFICIENCY IN ASSETS (NOTE BJ $ 8,467,270)

UNEARNED REVENUE S s63,66s S 8,630 COSTS REIMBURSED UNDER NET BILQNG S 716,911 $ 430,162 ADVANCES FROM PARTICIPANTS 43,248 3,000 3,000 LONG-TERM DEBT (NOTE CJ Revenue bonds payable 2,178,620 17,105 S 9,390 2,076,035 1,564,350 Unamortized discount on bonds-net (59,021) (250) (64) (45,874) 83,796) 2,119,599 16,855 9,326 2,0301161 1,530,554 DEBT IN DEFAULT, CURRENTLY PAYABLE (NOTE DJ Revenue bonds payable 2,250,000 Subordinated revenue notes 66,652 2,316,652 LIABILITIES-PAYABLEFROM RESTRICTED ASSETS (NOTE BJ Special funds Accounts payable and accrued expenses 8,541 3,689 2,739 24,705 Amounts withheld from contractors 515 1,138 389 Due to other projects 321 18,639 8,113 Due to other funds 26,398 23,654 19,011 34,939 28,179 41,527 33,207 Debt service funds Accrued interest payable 185 114 102,282 81,789 '1,201>641 Accounts Payable 2,752 Due to other funds 3,141 451 35 6,057 4,603 38,080 1,318 149 136,518 127,919 1,237,600 CURRENT LIABILITIES Accounts payable and accrued expenses 37,119 42 46 1 16 Amounts withheld from contractors 492 Advance payments from participants 2,696 3,370 3,008 Due to other projects 291 1,680 Due to power purchasers 32,778 309 1,373 32,169 10,845 Due to other funds 452 13,906 73,376 2,031 1,419 35,992 27,775 DEFERRED CREDITS Deferred gain on redemption of revenue bonds 927 COMMITMENTSAND CONTINGENCIES (NOTE EJ TOTAL LIABIOTIES $ 3,137,971 $ 30,161 $ 10,980 $ 2,922,582 $ 2,119,410 S 86,982 17

STATEN ENTS OF OPERATIONS For tbepear ended June 30, 1989 Dollars in thousands NIJC LEAR HANFORJJ PACKWOOO PROJKT GENERAllNG IAJtE NO. 2 PROJKT PROJECT OPERATING REVENUES $ 454,537 $ 2,352 $ 1,151 OPERATING EXPENSES Nuclear fuel 25,231 Fuel disposal fee 6,052 Decommissioning 1,057 Depreciation and amortization 104,712 2,465 421 Operations and maintenance 93,143 134 454 Administrative and general 26,476 72 110, Taxes 2,286 3 258,957 2,671 988 NET OPERATING REVENUE/(LOSS) 195,580 819) 163 OTHER INCOME AND EXPENSE Investment income 18,850 1,024 190 Interest expense and discount amortization (212,511) (705) (353)

Other (1,919)

NET REVENUE 0 $ 0 $ 0, STATEMENT OF TERNINATED PROJECT COSTS AND DEFICIENCY IN ASSETS For tbepvar ended June 30, 1989 Dollars in thousands NUCJEAR PROJECTS NOS. 4/5 TERMINATED PROJECT COSTS Interest expense $ - 198,313 Net increase in costs related to terminated nuclear projects 25,132 Administntive costs associated with asset disposition 3,174 Receipts from asset sales 8,872)

Investment income 6,207)

Decrease in recovenble value estimates 4,460 TOTAL TERMINATED PROJECT COSTS S 222,000 DEFICIENCY IN ASSETS Balance July 1, 1988 $ 3,245,270 Balance June 30, 1989 83,467,270

STATEMENTS OF CHANGES IN FINANCIALPOSITION For tbepear ended Jane 30, /989 Dollars trr thorrsands NVQEAR HANTORD PACKWOOD PROJKT GENERAlrNG tAKE No. 2 PROJKT PROJECT OPERATING PROJECTS SOURCE OF FUNDS Operations net revenue 'S 0 S 0 S 0 Items not affecting working capital:

Depreciation and amortization 132,636 2,514 425 Increase/(decrease) in unearned revenue (70,285) 973 055)

Gain on redemption of revenue bonds (103) (56)

TOTAL SOURCE OF FUNDS S 62,351 $ 3,384 $ 214 APPIJCATION OF FUNDS Additions to utility plant S 11,905 S (77) S (5)

Nuclear fuel purchases 21,936 Cost of revenue bonds purchased and retired 28,510 3,759 176 Advances returned to power purchasers 1,000 Increase/(decrease) in restricted assets (298) 43 62,351 4,384 214 Changes in working capital:

Cash and investments (6,371) (830) 286 Materials and supplies 8,487 (1)

Receivables and other 1,787 28 (15)

Payables and other liabilities 8,903) 097) (271)

Decrease in working capital 0 (1,000) 0 TOTAL APPLICATION OF FUNDS S 62,351 $ 3,384 $ 214 NVQEAR NVQEAR NVQEAR PROJECT PROJECT PROJKTS No. 1 NO. 3 NOS. 4/S PROJECTS IN DElAYED CONSTRUCTION AND TERMINATEDPROJECTS SOURCE OF FUNDS Collections under net-billing agreements $ 147,345 $ 167,556 Collections under exchange agreements 67,573 Investment income 24,573 13,963 $ 4,985 Revaluation of investments 222 Sales of equipment 3,872 Charged to joint owners 1,712 184 Net decrease in restricted funds 218,754 TOTAL SOURCE OF FUNDS S 239,491 $ 183,231 $ 228,017 APPLICATION OF FUNDS Costs related to construction or termination S 6,368 S 6,484 S 1,798 Interest expense 204,564 163,579 198,313 Nuclear fuel additions/(deletions) 8,155) 105 Trustee and paying agent expenses 1,352 1,349 23,518 Bonds redeemed 18,055 10,555 1,214 Nct transfers to Hanford Generating Project 2,568 Administrative costs associated ~vith asset disposition 3,174 Increase in amounts due from participants 3,584 399 Net iticrease in restricted funds 6,155 760 TOTAL APPLICATION OF FUNDS $ 239,491 $ 183,231 $ 228,017 I9

OUTSTANDING LONG-TERM DEBT 41s ofjune 30, 1989 Dollars fn Lbousands EFFECTIVE INITIAL SERIAL DATE INTEREST OFFERING OR TERM SERIES OF SALE RATE ls) PRICES MAIURIIIES NUCLEAR PROJECT NO. 2 Revenue Bonds 1973 6-26-73 (A) 5.100/o 7-1-90/1991 $ 5,900 (excludes $ 2,700,000 5.6404'974 100 5.70 7-1-2012 124,400 duc July 1, 1989) 130,300 Revenue Bonds 7-23-74 7.80 (A) 6.7o-690 7-1-90/1994 12,200 (excludes $ 2,100,000 100 7.00 7-1-1999 15,000 duc July 1, 1989) 100 7.375 7-1-2012 37,000 64,2oo Revenue Bonds 1974A 11-26-74 7.67 Go 7.20 7-1-90/1994 10,700 (excludes $ 1,700,000 100 7.40 7-1-1999 15,000 duc July 1, 1989) 100 7.75 7-1-2012 78,000 103,700 Revenue Bonds 1975A 3-6-75 6.98 (A) 6.60 7-1-90/1994 9,700 (excludes $ 1,600,000 100 6.60 7-1-1999 15,000 duc July 1, 1989) 100 6.875 7-1-2012 78,000 102,700 Revenue Bonds 1976 6-3-76 6.63 (A) 5.70-6.25 7-1-90/1998 18,520 (cxclu des $ 1,485,000 99.25 6.625 7-1-2006 42,300 duc July 1, 1989) 100 6.75 7-1-2012 49,860 110,680 Revenue Bonds 1976A 11-18-76 5.86 (A) 5.50-5.875 7-1-90/2002 69,820 (excludes $ 3,580,000 100 6.00 7-1-2007 44,815 duc July 1, 1989) 99.50 6.00 7-1-2012 60,990 175, 25 Revenue Bonds 1978 7-11-78 6.71 (A) 5.6o-6.6o 7-1-90/2000 49,845 (excludes $ 2,955,000 100 6.80 7-1-2006 45,520 duc July 1, 1989) 100 6.875 7-1-2012 66 230 161 595 Revenue Bonds 1979 3-13-79 6.49 (A) 5.50-6.00 7-1-90/1999 42,310 (excludes $ 3,075,000 100 640 7-1-2004 33,490 duc July 1, 1989) 100 6.75 7-1-2012 83,605 159,405 Revenue Bonds 1979A 10-17-79 7.69 (A) 6.75-7.30 7-1-90/1999 30,050 (excludes $ 2,220,000 100 7.60 7-1-2004 23,050 due July 1, 1989) 100 7.75 7-1-2012 57,000 110,100 Revenue Bonds 1980 10-21-80 9.63 (A) 8.90-10.90 7-1-90/1997 27,430 (excludes $ 2,215,000 100 930 7-1-2001 23,735 duc July 1, 1989) 100 9.60 7-1-2006 46,o7o 00 9.25 7-1-2011 75,045 (A) 8.25 7-1-2012 19 920 192 200 Revenue Bonds 1981A 94-81 14.67 100 14.375 7-1-2001 30,000 57.895 8.25 7-1-2003 100,000 99 14.50 7-1-2oo6 30,000 100 13.25 7-1-2012 50,000 210 000 Revenue Bonds 1982A 2-11-82 15.04 100 11.50-13.75 7-1-90/1996 25,765 (excludes $ 2,205,000 100 14.50 7-1-2002 51,665 duc July 1, 1989) 99.25 14.75 7-1-2012 215 000 292 430 (A) Vnrlous prices (8) Based on original issue 20

EFFECTIVE NITIAL SERIAL DATE INTEREST OFFERING OR TERM OF SALE RATE gl) PRICES MATURfIIES Revenue Bonds 1982B 5-20-82 13.929o 100 11.50-13.00/o 7-1-90/1996 $ 30,085 (excludes $ 2,675,000 100 13.875 7-1-2012 139 320 due July 1, 1989) 169 405 Revenue Bonds 1982C 5-20-82 14.11 100 13.50 7-1-2002 56,960 100 13.875 7-1-2012 139 320 196,280

$ 2,178,620 HANFORD GENERATING PROJECT Revenue Bonds 1963 5-8-63 3.26 98 3.25 9-1-1996 $ 17 105

$ 17,105 PACKWOOD LAKE PROJECT Revenue Bonds 1962 3-20-62 3.66 99.425 3.625 3-1-2012 $ 7,120 includes $ 70,000 1965 11-4-65 3.76 100.5 3.75 3-1-2012 2,270 due within one year $ 9,390 at June 30, 1989)

NUCLEAR PROJECT NO. I Revenue Bonds 1975 9-18-75 7.73 (A) 6 40-7 40 7-1-89/2000 31,900 (includes $ 1,700,000 100 7.70 7-1-2010 58,300 due July 1, 1989) 100 7.75 7-1-2017 74,700 164,900 Revenue Bonds 1976A 2A-76 6.84 (A) 6.00-6.25 7-1-89/1998 25,285 Oncludes $ 1,870,000 100 6.90 7-1-2010 66,485 due July 1, 1989) 100 7.00 7-1-2017 76,495 168~25 Revenue Bonds 1 976 B 8-31-76 6.37 (A) 5.00-5.90 7-1-89/1998 27,935 (includes $ 2,145,000 100 6.5o 7-1-2010 66,94o due July 1, 1989) 99.50 6.50 7-1-2017 71 235 166 110 Revenue Bonds 1978A 3-21-78 5.70 (A) 5.00-5.50 7-149/2002 52,590 (includes $ 2,740,000 100 5.80 7-1-2010 50,920 due July 1, 1989) 100 5.875 7-1-2017 64 810 168 320 Revenue Bonds 1978B 12-5-78 6.60 (A) 5.5o-6.oo 7-149/1998 28,960 (includes $ 2,215,000 100 6.35 7-1-2003 22,305 due July 1, 1989) 100 6.60 7-1-2009 38,190 99 50 6.80 7-1-2017 81,150 170 605 Revenue Bonds 1979 6-19-79 6.64 (A) 6.oo 7-1-89/1998 22,660 Gncludes $ 1,640,000 100 640 7-1-2003 18,560 due July 1, 1989) 100 6.7o 7-1-2009 32,370 100 6.80 7-1-2017 69,685 143,275 Revenue Bonds 1980A 8-5-80 9.15 (A) 7.00-8.25 7-1-89/1995 42,000 (includes $ 4,500,000 100 9.00 7-1-2002 37,000 due July 1, 1989) 100 9.20 7-1-2005 16,950 99.00 9.25 7-1-2013 70,550 (A) 7.75 7-1-2017 30 000 196 500 21

OtJTSTANDlNG LONG-TERM DEBT 4Es ofJane 30, 1986I Dollars tn tboI4sands EffKcnvE LNIIIAL SERIAl DATE INTEREST OFFERING OR TERM oF sALK RATE is) PRICES MATURmES AMOUNT Revenue Bonds 1981A 4-13-81 11.92% (A) 11.30-13.00% 7-1-96/2003 S 28,580 100 11.625 7-1-2012 91 420 120 000 Revenue Bonds 1981 B 4-13-81 11.67 (A) 10.00 7-1-2016 Revenue Bonds 1981 C 4-13-81 10.41 100 10.25 7-1-2015 40,000 Revenue Bonds 1981 D 9441 15.42 100 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 15.13 100 10.50-13.75 7-149/1996 27,415 (includes $ 2,160,000 100 14.50 7-1-2002 50,645 due July 1, 1989) 99.25 14.75 7-1-2017 305 000 383 060 82,076,035 NUCLEAR PROJECT NO. 3 Revenue Bonds 1975 12-3-75 7.87 (A) 6.15-7.25 7-1-89/1998 S 19,635 (includes $ 1,390,000 100 7.875 7-1-2010 52,695 due July 1, 1989) 100 7.875 7-1-2018 71 160 143,490 Revenue Bonds 1976 4-13-76 6 48 (A) 5.50-6.00 7-1-89/1998 14,250 (includes $ 1,075,000 99.625 6.50 7-1-2010 35,100 due July I, 1989) 100 6.60 7-1-2018 45 295 94 645 Revenue Bonds 1977 9-12-77 5.71 (A) 5.00-5.50 7-1-89/2000 48,'190 (includes $ 3,065,000 99.50 5.70 7-1-2009 63,535 due July 1, 1989) 99 50 5.80 7-1-2018 107 160 218 885 Revenue Bonds 1978 9-12-78 6.27 (A) 5.90-6.00 7-1-89/2004 58,995 (includes $ 2,195,000 100 6.375 7-1-2010 42,985 due July 1, 1989) 99 6.40 7-1-2018 90 630 192,610 Revenue Bonds 1981A 2-11-81 11.18 (A) 9.50-12.50 7-1-89/2001 60,125 (includes $ 2,445,000 100 11.125 7-1-2005 40,535 due July 1, 1989) 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 20,830 220,750 Revenue Bonds 1981 B 9A-81 15.43 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 15.22 100 10.50-13.75 7-1-89/1996 5,655 (includes $ 445,000 14.50 7-1-2002 10,445 due July 1, 1989) 99.25 14.75 7-1-2018 148,500

~14,600 Revenue Bonds 1982 B 5-20-82 14.24 100 10.50-13.00 7-'1-89/1996 8,565 (includes $ 700,000 99.50 13.875 7-1-2018 280 925 due July 1, 1989) F 289 490 Revenue Bonds 1982 C 5-20-82 13.85 13.50 7-1-2002 14 880 81,564,350 (A) VartoI4sprtces (8) Based on origina tssI4c 22

NOTES TO FINANCIALSTATEMENTS Note A General wholly owned by the Supply System. Nuclear Project No. 5 is jointly-owned, 90 percent by the Supply ORGANIZATION System and 100/0 by Pacific Power &. Light Company, The Washington Public Power Supply System (Supply an investor-owned utility.

System), a inunicipal corporation and joint operating Each Supply System project is financed and accounted agency of the State of Washington, was organized in for as a utility system separate from all other current 1957. It is empowered to finance, acquire, construct or future projects, with the exception of Nuclear and operate facilities for the generation and transmis- Projects Nos. 4 and 5 which are treated as one utility sion of electric power. Its membership consists of system.

10 public utility districts and the cities of Richland, Seattle, and Tacoma. All members own and operate Over 100 Northwest utilities participating in Nuclear electric systems within the state of Washington. The Projects Nos. 1, 2 and the Supply System's 70 percent Supply System has no taxing authority. ownership share of Nuclear Project No. 3 have purchased all project capability of the Supply System's SUPPLY SYSTEM PROJECTS ownership share of each project. Pursuant to the terms of their purchase agreements, they are obligated to The Supply System is currently operating Nuclear pay the annual costs of each project, including debt Project No. 2, a 1,100 MWe generating plant com- service, whether or not the project is completed, pleted in 1984, and the Packwood Lake Hydroelectric operable or operating and notwithstanding the Project (Packwood), a 27.5 hPVe plant completed in suspension, reduction or curtailment of project output.

1964.

These project participants have resold such capability The Hanford Generating Project (HGP), a 860 MWe to the Bonneville Power Administration (BPA) and in plant which utilizes byproduct steam from the Depart- return BPA is obligated to pay annual costs of these ment of Energy's dual-purpose New Production projects, including debt service, by a procedure Reactor (N-Reactor), was completed in 1966 and was referred to as net-billing. Under net-billing, project in normal operation through 1986. In January 1987, participants pay the Supply System their respective the N-Reactor was shut down for safety improve- shares of annual costs and BPA pays project partici-ments. In February 1988, the Department of Energy pants identical amounts by reducing amounts due to placed the N-Reactor in standby status for an undeter- BPA by participants under power sales agreements.

mined length of time, eliminating the HGP's present Eighty-eight project participants in Nuclear Projects energy source. Nos. 4 and 5 were originally obligated by contract to Nuclear Project No. 1, a-1,250 MWe plant, is pay annual costs of Nuclear Projects Nos. 4 and 5, 65 percent complete and is in the eighth year of a including debt service, whether or not the projects construction delay. Nuclear Project No. 3, a 1,240 were completed. However, these contracts have been MWe plant, is 75 percent complete and is in the declared invalid. BPA has no obligation with respect seventh year of a construction delay. Nuclear Project to annual costs of Nuclear Projects Nos. 4 and 5.

No. 1 is wholly owned by the Supply System. Nuclear The Supply System does not own electrical distribu-Project No. 3 is jointly owned, 70 percent by the tion facilities. All electrical energy produced by Supply Supply System and 30 percent by four investor-owned System projects is delivered to electrical distribution utilities (Pacific Power S Light Company, Portland facilities owned and operated by BPA as part of the General Electric Company, Puget Sound Power 8t Federal Columbia River Power System. BPA in turn Light Company, and The Washington Water Power distributes the electricity to electric utilitysystems Company). throughout the Northwest, including participants in Nuclear Projects Nos. 4 and 5 were terminated on Supply System projects, for ultimate distribution to

'January 22, 1982 and are currently in an asset sales consumers. BPA is obligated by law to establish rates phase. The asset sales program is expected to be for electric power which will recover the, cost of completed by June 30, 1990. Nuclear Project No. 4 is acquisition (including all payments under net-billing agreements), and its other costs.

23

NOTES TO FINANCIALSTATEMENTS Note J3 Summary of $ 149,620,565 for Nuclear Projects Nos. 1 and 3, Si ni scant Accountin Policies respectively, for the year ended June 30, 1989.

BASIS OF ACCOUNTING COSTS OF TERMINATED PROJECTS The Supply System has adopted accounting policies Due to the termination of Nuclear Projects Nos. 4 and and practices that are in accordance with generally 5, the asset values of these projects have been re-accepted accounting principles applicable to utilities duced to estimated net realizable values, which are and governmental organizations. Accounts are main- based on Supply System staff estimates. Such revalu-tained in accordance with the uniform system of ation, totaling $ 3,467,269,848 at June 30, 1989, has accounts of the Federal Energy Regulatory Commis- created a negative equity position, reflected as defi-sion, even though the Supply System is not a regu- ciency in assets on the balance sheet.

lated rate-making utility. Separate books of account Contractor claims liabilities totaling $ 21,859,364 in-are maintained for Nuclear Projects Nos. 1. 2, 3, HGP cluding interest, are accrued as ofJune 30, 1989. No and Packwood as separate utility systems, and for source of funds is available to pay these obligations.

Nuclear Projects Nos. 4 and 5 as one utility system.

Financial statements are issued separately for each NUCLEAR FUEL utility system and are not consolidated. Bond resolu-tions require that funds be maintained separately for Nuclear fuel is stated at cost. Nuclear Project No. 2 each utility system. Payment of obligations of one nuclear fuel cost is amortized to nuclear fuel operating utilitysystem with funds of another utility system is expense on the basis of quantity of heat produced for prohibited, and would constitute violation of bond generation of electric energy. Current period operating resolution covenants. expenses also include a charge for future spent nuclear fuel storage and disposal to be provided by UTIUTYPLANT IN SERVICE the Department of Energy in accordance with the Nuclear Waste Policy Act of 1982. Such charge is Utilityplant is stated at original cost, and is depreci- based on energy generated.

ated by the straight-line method over the estimated useful lives of the various classes of plant in service. RESTRICTED ASSETS Improvements to U.S. government-owned facilities are amortized over the period covered by the contract for In accordance with project bond resolutions and dual-purpose operation of the U.S. Department of related agreements, separate restricted funds are Energy's N-Reactor. established for each of the projects. The assets held in these funds are restricted for specific uses including CAPITALIZATIONOF CONSTRUCTION COSTS construction, debt service, capital additions, extraordi-AND EXPENSES nary operation and maintenance, termination, and decommissioning.

During the normal construction phase of a project, it is the Supply System's policy to capitalize all costs CASH AND INVESTMENTS relating to the project, including interest (net of interest income), administrative and general expense, Cash and investments for Nuclear Projects Nos. 1, 2 and certain other expenses. Interest expense during and 3, HGP, and Packwood are maintained separately.

construction is allocated to nuclear fuel and plant Cash and investments for Nuclear Projects Nos. 4 and based on cumulative cash utilization. Administrative, 5 are pooled. All investments are held in the Supply general and overhead expense are allocated to System's name by safekeeping agents.

projects on the basis of direct usage or direct salary The Supply System's deposits are entirely covered by cosL federal depository insurance or by a pool of public As ofJuly 1, 1984, the Supply System discontinued funds through the Washington Public Deposit Protec-capitalizing interest expense (net) applicable to tion Commission.

Nuclear Projects Nos. 1 and 3 because of the extended Statutes authorize the Supply System to invest in delay of these projects. The interest expense, which is obligations of the United States Treasury, United States funded by payments under net-billing agreements, government agencies, banks, savings and loan corpo-will not be capitalized during the delay period. Such rations, and corporate mortgage companies. Supply net interest expense totaled $ 187,033,261 and System investment policies limit investment authority 2d

to obligations of the United States Treasury, Federal Estimated Nuclear Project No. 2 decommissioning National Mortgage Association, Federal Home Loan costs are being accrued and funded currently. Monthly Banks, and Federal Home Loan Mortgage Corporation. payments are made into a sinking fund which, with accumulated interest, is expected to be adequate to Investments held in the Bond Fund Reserve Accounts fund decommissioning costs at the end of the 40-year (included in Debt Service Funds) and Reserve and plant operating life. Sinking-fund requirements Contingency Funds (included in Special Funds) are through June 30, 1989 have been based on estimated stated at the lower of purchase price, par value, amortized cost or market as required by bond resolu- decommissioning costs of $ 114 million (in 1982 dollars). Payments to the decommissioning fund for tions. All other investments are stated at amortized Nuclear Project No. 2 for the year ended June 30, 1989 cost and include accrued interest. The combined aggregated $ 1,057,287. Effective July 1, 1989, sinking carrying value of investments for all projects at year-fund requirements will be based on revised estimates end (including accrued interest) approximates market of decommissioning costs of $ 403 million (in 1987 value.

dollars).

CURRENT MATURITYOF REVENUE BONDS INVESTMENTINCOME Current maturities of revenue bonds payable are Investment income consists of interest earned on reflected in Long-Term Debt, Revenue Bonds Payable.

investments, realized gains and losses resulting from Funding of current maturities is reflected in Restricted the sale of investments, and unrealized losses appli-Assets-Debt Service Funds.

cable to certain investments. Investment income FINANCING EXPENSE AND BOND DISCOUNT relating to operating plants is recorded as a credit to operating costs. With respect to Nuclear Projects Nos.

Financing expense and bond discount applicable to 1 and 3, income earned on construction fund invest-each project are amortized to project capital cost or ments, ifany, is recorded as a credit to Construction operating cost, as appropriate, by the straight-line Work in Progress Deferred Projects, and income method oyer the period of each respective bond issue. earned on investments held in all other funds is treated as a reduction of funding required under the REVENUES net-billing agreements. Investment income relating to In accordance with covenants of bond resolutions, the Nuclear Projects Nos. 4 and 5 is credited to Costs of Supply System is authorized to recover actual cash Terminated Projects.

requirements for operations and debt service for each project over the life of the project. Accordingly, the RETIREMENT PLAN Supply System's revenues equal its operating costs for Substantially all the Supply System's full-time employ-each period. No income or loss is realized, and no ees participate in the statewide local government equity is accumulated. Public Employees'etirement System (PERS). PERS is Payments received during construction under Nuclear a contributory multi-employer cost-sharing retirement Project No. 2 net-billing agreements were recorded as system administered by the State of Washington Unearned Revenues on the balance sheet and will be through the Department of Retirement Systems. In recognized as Revenues over the operating life of the addition to the state itself, there are approximately project. Payments received during construction under 1,200 local government employer members in the Nuclear Projects Nos. 1 and 3 net-billing agreements system.

have been reclassified from Unearned Revenues to PERS contains two plans. Plan I members (employed Costs Reimbursed Under Net Billing because of the on or before September 30, 1977) may retire with full uncertainty as to when these projects will be open- benefits at age 60 with at least five years of credited tional, as explained in Note E. service, at age 55 with 25 years of service, or upon reaching 30 years of service regardless of age. Plan II DECOMMISSIONING members (employed after September 30, 1977) may Decommissioning costs are charged to operations over retire with full benefits at age 65 with at least five the operating life of each project, starting at the time years of credited service. or with actuarially reduced of commercial operation. benefits at age 55 with 20 years of service. Pension plan provisions have been established by statute.

25

1 NOTES TO FINANCIALSTATEMENTS The Office of the State Actuary, using methods Outstanding Long-Term Debt of the various prescribed by statute, determines actuarially required projects as ofJune 30, 1989 is presented on pages 20 contribution rates. However, the rates actually levied through 22.

are determined by the legislature. Contribution rates are not necessarily adequate to fully fund the plan.

SECURITY NUCLEAR PROJECTS NOS. I, 2 AND 3 While the Supply System's contributions for the year Project participants have purchased all of the project ended June 30, 1989 of $ 3,878,414 on a covered capability of Nuclear Projects Nos. 1 and 2 and the payroll of $ 64,734,739-represent its full liabilityunder Supply System's 70 percent ownership share of project the system, any unfunded future pension benefit obli- capability of Nuclear Project No. 3. The U.S. Depart-gation could be reflected in future years as higher ment of Energy, acting by and through BPA, has in contribution rates. As of December 31, 1987 (the latest turn acquired the entire project capability from the actuarial valuation date), the pension benefit obliga- project participants under contracts referred to as net-tion of PERS, which is the actuarial present value of billing agreements. Under the net-billing agreements credited projected benefits adjusted for the effects of for each of the projects, project participants are projected salary increases, was $ 5.9 billion. As of the obligated to pay the Supply System their pro rata same date the value of net assets available to satisfy share of total annual costs of the respective projects, present and future pension benefit obligations was including debt service on bonds relating to each

$ 4.9 billion. Historical trend information showing project, and BPA in turn is obligated to pay the PERS progress in accumulating sufficient assets to pay participants identical amounts by reducing amounts benefits when due is presented in the State of Wash- due to BPA by participants under BPA power sales ington's June 30, 1988 comprehensive annual report. agreements. The net-billing agreements provide that Contributions for the year ended June 30, 1989 were project participants and BPA are obligated to make as follows: such payments whether or not the projects are completed, operable or operating and notwithstanding Plan I Plan H the suspension, interruption, interference, reduction or Rate Amount Rate Amount curtailment of the projects'utput. The validity of the Employer net-billing agreements was challenged in November Contributions: 1982. In May 1983, the U.S. District Court of Oregon Actuarially declared that the net-billing agreements were binding, determined and this decision was upheld on appeal.

requirement 8.199o $ 1,161,068 6.79/o $ 3,432,894 Actual SECURITY NUCLEAR PROJECTS NOS. 4 AND 5 Supply System In connection with the issuance of the generating contribution '.96o/o $ 844,929 6.00olo $ 3,033,485 facilities revenue bonds for Nuclear Projects Nos. 4 Employee and 5, the Supply System pledged the revenues to be Contributions: derived under participants'greements with 88 utilities Actuarially operating principally in the Northwest. The partici-determined pants'greements provided that each participant pay requirement 4.67o/o $ 2,361,062 its respective share of annual costs, including debt service on the bonds, whether or not the projects Actual Supply System were completed, operable, or operating and notwith-contribution 6 00o/o $ 850,621 4.90o/o $ 2,477,535 standing the suspension, interruption, interference, reduction or curtailment of the projects'utput.

Payments from the participants for Nuclear Projects Note C Lon -Term Debt Nos. 4 and 5 termination costs and debt service were due beginning on January 25, 1983'. As a result of a Except for Nuclear Projects Nos. 4 and 5, which were ruling by the Washington State Supreme Court declar-financed together as one utility system, all Supply ing the participants'greements invalid, payments due System projects are financed separately. The resolu- under the participants'greements were not made and tions of the Supply System authorizing issuance of an event of default, as defined in the bond resolution, revenue bonds for each project provide that such occurred on July 22, 1983 (see Note D).

bonds are payable solely From the revenues of that project.

26

SECURITY HANFORD GENERATING PROJECT Court ruled that Washington municipal utilities did not It was initially intended that Nuclear Project No. 1 be have statutory authority to enter into the thus invalidating the agreements. The participants'greements, constructed next to HGP to provide the energy source to operate the project when the DOE ceased opera- Supply System and Chemical Bank, trustee for Nuclear tion of the N-Reactor. To allow for construction of Projects Nos. 4 and 5 bondholders, petitioned the U.S.

Nuclear Project No. 1, it would have been necessary Supreme Court for grant of a writ of certiorari by to shut down HGP on October 31, 1977. Because which the state court decision might be reviewed by studies at that time indicated that generating resources that court. Grant of the writ was denied by the U.S.

in the Pacific Northwest would be inadequate in the Supreme Court on April 29, 1985.

late 1970s and early 1980s, the Supply System and On July 22, 1983, the Supply System acknowledged BPA determined that HGP should be kept available that it could not pay Nuclear Projects Nos. 4 and 5 for power production. Therefore, the Nuclear Project obligations as they became due. This admission No. 1 net-billing, exchange and project agreements represented an event of default under the Nuclear were amended to provide for the separation of Projects Nos. 4 and 5 bond resolution. On July 25, Nuclear Project No. 1 from HGP. 1983, Chemical Bank, as bond fund trustee, demanded The amended agreements provide for the payment of that all remaining project funds be transferred to it to all debt service costs, net of investment income, of be held in a special account. On August 18, 1983, HGP by Nuclear Project No. 1 participants, beginning Chemical Bank declared the principal of all Nuclear July 1, 1980, regardless of continued operation of the Projects Nos. 4 and 5 revenue bonds and interest reactor, and that other costs, to the extent not other- accrued thereon to be due and payable immediately.

wise provided for, be treated as Nuclear Project No. 1 In early 1983, a number of securities fraud class costs with HGP having a first claim on the revenues of actions were filed in federal courts on behalf of that project. purchasers of Nuclear Projects Nos. 4 and 5 bonds.

Other suits by plaintiffs on their own behalf were filed SECURITY PACKWOOD HYDROELECTRIC PROJECT in federal and state courts. The defendants named Under power sales agreements, 12 member purchasers included the Supply System, its member utilities, and have purchased all of the project capability of Pack- Nuclear Projects Nos. 4 and 5 participants. The wood. The member purchasers are obligated to pay lawsuits alleged violations of federal and state securi-annual costs of the project, including debt service, ties law, fraud, misrepresentation, negligence and whether or not the project is operable, until outstand- breach of contract, and sought monetary damages, ing bonds are paid or provision is made for their . rescission and restitution. The federal actions were retirement in accordance with provisions of the bond consolidated in a single multidistrict proceeding in tlie resolution. United States District Court for the Western District of Washington under the caption In re lPPPSS Securftfes Note D Nuclear Projects Nos. 4 and 5 Lftfgatfon, MDL551 (MDL551).

7ennination Bond De quit and liti ation In August 1983, Chemical Bank filed a lawsuit in United States District Court for the Western District of In January 1982; the Supply System's Nuclear Projects Washington, on behalf of all Nuclear Projects Nos. 4 Nos. 4 and 5 were terminated when construction was and 5 bondholders, against the Supply System, all 24 percent and 16 percent complete, respectively. The Nuclear Projects Nos. 4 and 5 participants, and Supply Supply System had previously issued $ 2.25 billion of System member utilities. The lawsuit alleged claims bonds to pay costs of the projects. and sought relief similar to that alleged and sought in the MDL551.

The participants'greements (discussed in Note C under Security Nuclear Projects Nos. 4 and 5) pro- Another lawsuit, Habennan v. 1PPPSS, et af. (Haber-vided that each participant pay its respective share of man), was filed against the Supply System and others the debt service on the bonds and termination costs in Washington State Superior Court by a number of beginning January 25, 1983. Payments due under the Nuclear Projects Nos. 4 and 5 bondholders alleging participants'greements were not made pending a substantially the same matters as were made in the judicial determination of the participants'uthority federal cases.

and obligation to pay. On June 15, 1983, and again on The lawsuits described above sought to recover the November 6, 1984, the Washington State Supreme bondholders'nvestment in the principal amount of 27

NOTES TO FINANCIAI.STATENENTS

$ 2.25 billion, plus unspecified damages, interest, costs and principal on the Nuclear Projects Nos. 4 and 5 and attorney'ees. bonds, based on common law fraud and other theories. The district court in MDL551 and the In September 1988, the Supply System's Executive Chemical Bank litigation has previously ruled that Board approved an agreement in principle to settle Chemical Bank represents all of the holders of Nuclear claims against the Supply System in MDL551, the Projects Nos. 4 and 5 bonds.

Chemical Bank litigation, and related litigation includ-ing the Haberman action. A definitive agreement has In another lawsuit entitled Ho+er v. State of 1Pashtng-been executed. The agreement provides for entry of ton, certain purchasers of Nuclear Projects Nos. 4 and judgment dismissing with prejudice any and all claims 5 bonds have filed claims on behalf of all bondholders which have been, could have been, or might in the against the State of Washington, the state auditor and future be asserted against the Supply System by other elected officials, asserting that the state is liable members of the classes in MDL551, by Nuclear to the plaintiffs for damages. The State of Washington Projects Nos. 4 and 5 bondholders represented by has advised the Supply System that if the litigation Chemical Bank, or by bond purchasers in any other against the State of Washington is not resolved, it will action arising out of the subject matter of MDL551. file crossclaims against the Supply System and the other MDL551 defendants.

The agreement calls for the Supply System to consent to future entry of a judgment on the contract claim on All of the settlements were approved by the court on the Nuclear Projects Nos. 4 and 5 bonds brought by September 5, 1989. The court's ruling permanently MDL551 class plaintiffs and Chemical Bank. All other bars Chemical Bank and all Nuclear Projects Nos. 4 claims against the Supply System are to be dismissed. and 5 bond purchasers from commencing, prosecut-The amount of said judgment shall be equal to the ing, or continuing any action against the Supply aggregate unpaid principal amount of the Nuclear System arising out of or relating to the allegations or Projects Nos. 4 and 5 bonds and accrued interest subject matter of the litigation. The ruling, however, thereon at the time the judgment is entered. As ofJuly will not preclude Chemical Bank from continuing with 1, 1989, the amount of such accrued interest was the cost sharing litigation described in Note B below.

approximately $ 1.127 billion. That judgment shall be The court further found that Chemical Bank repre-entered only upon a final judgment or final settlement sented all Nuclear Projects Nos. 4 and 5 bondholders of all claims in MDL551 and the Chemical Bank in the litigation.

litigation. Recourse for satisfaction of the judgment is The court's ruling is subject to appeal and the Supply expressly limited as provided in the Nuclear Projects System anticipates that one or more appeals willbe Nos. 4 and 5 bond resolution to the funds and assets filed. In the opinion of Supply System Special Counsel of the Supply System pledged to secure the Nuclear and Chief Counsel, the court's ruling, unless modified Projects Nos. 4 and 5 bonds.

or reversed on appeal, would bar the Heerey litigation All defendants in MDL551 and the Chemical Bank and the Haberman litigation, and would provide for litigation have reached agreements to settle claims the release of claims asserted in the Ho+er litigation.

against them. The total amount to be paid under these settlements in MDL551 approximates 8650 million, IF the Supply System's settlement is modified or reversed, or if the district court's ruling that the not including past payments by the Supply System Chemical Bank represents all of the Nuclear Projects and future payments from the proceeds of asset sales Nos. 4 and 5 bondholders is not upheld, the Supply of Nuclear Projects Nos. 4 and 5, and not including System is unable to predict the outcome of MDL551, proceeds of certain insurance claims assigned by the Chemical Bank litigation, Haberman, Heerey, or defendants to plaintiffs.

Hoger.

In April 1989, certain present holders of Nuclear The excess carrier of directors'nd officers'iability Projects Nos. 4 and 5 bonds served the Supply System insurance filed a lawsuit in September 1985, seeking a and others with notice of a suit, entitled Heerey v.

declaration that it has no obligation under the insur-Supply System gIeerey), in New York State Supreme ance policy because of the alleged failure of the Court for the County of New York which seeks S750 million and other relief. The plaintiffs in Hery Supply System to declare facts which if known to the insurer, would have resulted in it not issuing the allege that the Supply System and other defendants policy. The court in MDL551 has approved a settle-are liable to the plaintiffs for nonpayment of interest ment between the Supply System's directors and the 28

plaintiffs in MDL551, which dismisses all claims the payment of costs of, such other projects. Such against the directors in return for a payment by the creditors include present and former holders of the carrier. The court's approval is subject to appeal. Nuclear Projects Nos. 4 and 5 bonds and others who When finalized, this settlement will end the litigation may assert claims in the future against the Supply involving the insurance carrier and the directors. System and/or its projects.

Bond Counsel and Chief Counsel to the Supply Note L Commitments and Contin encies System are of the following opinions with respect to the ability of various classes of claimants, creditors, NUCLEAR PROJECTS NOS. 4 AND 5 BRIDGE AND and future creditors to realize upon the revenues or TERMINATIONLOANS physical assets of Nuclear Projects Nos. 1, 2 and 3.

In conjunction with the construction stoppage of First, with respect to the revenues, income, receipts, Nuclear Projects Nos. 4 and 5 during 1981, certain profits, and other moneys held under each of the net-project participants, investor-owned utilities and billed resolutions and pledged thereby for the pay-industrial customers of BPA agreed to loan Nuclear ment of the related net-billed bonds and for the Projects Nos. 4 and 5 funds to underwrite a program payment of all other costs of the related net-billed .

to preserve the assets of those projects. These loans, project (collectively, the "Pledged Revenues" ), Bond called bridge loans, consisted of 860,000,000 in Counsel and Chief Counsel to the Supply System are subordinated revenue notes bearing a stated maturity of the opinion that holders of Nuclear Projects Nos. 4 date ofJuly 1, 1984, and bearing interest to due date and 5 bonds, creditors of the Supply System whose at an annual rate of 15 percent. claims arose from the furnishing of goods or services Subsequently, when a decision was made to terminate with respect to Nuclear Projects Nos. 4 and 5, and Nuclear Projects Nos. 4 and 5, a number of project creditors whose judgments derived from other con-participants agreed to loan Nuclear Projects Nos. 4 tract claims against the Supply System that do not and 5 funds to assist in avoiding an uncontrolled arise from actions or failures to act relating directly or termination of the projects. These loans, called indirectly to such net-billed project will not be able to termination loans, consisted of $ 7,865,502 in subordi- realize upon such pledged revenues.

nated revenue notes bearing a stated maturity date of Second, with respect to the pledged revenues relating June 30, 1983, and bearing interest to due date at an to a particular net-billed project, while the specific annual rate of 15 percent. issue has not been decided by the Supreme Court of The Supply System defaulted on all of the loans at the the State of Washington, Bond Counsel and Chief same time it defaulted on Nuclear Projects Nos. 4 and Counsel to the Supply System are of the opinion that 5 bonds in 1983. creditors of the Supply System whose judgments derive from tort claims against the Supply System that Most of the lenders have sued the Supply System and do not arise from actions or failures to act relating all but three of the suits have been reduced to judg- directly or indirectly to such net-billed project will not ment. Some of the lenders obtained general judgments be able to realize upon such pledged revenues and against any Supply System assets, whether for Nuclear Bond Counsel and Chief Counsel to the Supply Projects Nos. 4 and 5 or another project. The Supply System believe that, ifpresented with the question, a System appealed these judgments, and in 1985 the court would so hold.

Washington State Supreme Court reversed, holding that the terms of the loans limited recovery to funds Third, with respect to the physical assets of the net-and assets of Nuclear Projects Nos. 4 and 5. billed projects that are necessary for the purposes of such projects, while the specific issue has not been INTER-PROJECT ClAIMS AGAINSTREVENUES AND decided by the Washington State Supreme Court, OTHER ASSETS Bond Counsel and Chief Counsel to the Supply System are of the opinion that holders of Nuclear Some creditors of Nuclear Projects Nos. 4 and 5 have Projects Nos. 4 and 5 bonds, creditors of the Supply attempted, and others have threatened to attempt, to System whose claims arose from the furnishing of obtain payment from the physical assets of other goods or services with respect to Nuclear Projects projects of the Supply System or from the revenues Nos. 4 and 5, and creditors whose judgments derive pledged as security for the Supply System bonds issued in connection with, and revenues pledged for from other contract or tort claims against the Supply 29

NOTES TO FINANCIALSTATEMENTS System that do not arise from actions or failures to act COST SHARING UTIGATION relating directly or indirectly to the net-billed projects Nuclear Projects Nos. 1 and 4 are of substantially the willnot be able to realize upon such assets; and Bond same design and are referred to as "twin units."

Counsel and Chief Counsel to the Supply System Nuclear Projects Nos. 3 and 5 are also twin units of believe that, ifpresented with the question, a court substantially the same design. Architect-engineer should so hold. The above opinion as to the ability of services, construction management, and certain bondholders or other creditors to realize upon the common equipment used in construction of twin units physical assets of the net-billed projects is limited to benefited both units and costs are sharable by the those assets located within the State of Washington, or twin units. The Supply System allocated such shared as to which a court would apply the law of the State costs on the basis of respective benefit to the projects of Washington. involved.

The above opinions exclude claims against the Supply In August 1982, the Participants'ommittee for System arising from a valid exercise of the sovereign Nuclear Projects Nos. 4 and 5, on behalf of the project police power of the State of Washington or of the participants, demanded that the Supply System constitutional powers of the United States of America. reallocate $ 161 million, plus interest, in shared costs In order to express the legal conclusions set forth in previously paid by Nuclear Projects Nos. 4 and 5, the foregoing opinions, Bond Counsel and Chief based on a revised formula for sharing of costs. The Counsel to the Supply System have assumed that the demand indicated this was not the total extent of activities giving rise to the claims described in such claims which could be made by the Nuclear Projects opinions were not directly or indirectly related to any Nos. 4 and 5 participants. The investor-owned utilities net-billed project. In any given suit or proceeding, (IOUs) owning 30 percent of Nuclear Project No. 3 however, the questions of whether a particular activity have asserted that they are entitled to set off the does or does not relate to a net-billed project is a amounts owed by the Supply System on loans made factual matter to be determined by the judge or jury, for Nuclear Projects Nos. 4 and 5 in 1981, totaling as the case may be. No assurance can be given that in $ 12 million plus interest, against any cost-sharing any such suit or proceeding there will not be a finding obligation.

that the complained-of activity relates to one or more In October 1982, the Supply System filed a complaint of the net-billed projects. Ifsuch a finding is made, for declaratory judgment in United States District Court the claimant may be able to realize on the pledged for Western Washington, naming the participants in revenues or physical assets of one or more of the net- Nuclear Projects Nos. 1, 2, 3, 4 and 5, BPA, the four billed projects. IOUs owning shares of Nuclear Project No. 3, and the Ifit were determined that a claim is an obligation of bond fund trustees for Nuclear Projects Nos. 1 and 3 one or more of the net-billed projects, the claim as defendants, and asking the court to declare the would be paid in the same manner as other obliga- rights and obligations of the parties with regard to the tions of those projects. allocation of costs among the projects.

Bond Counsel and Chief Counsel to the Supply In May 1983, the court designated BPA as the plaintiff System have not undertaken an investigation of the and all other parties as defendants. The case is issues discussed above with respect to the Packwood captioned BPA v. Supply System, et al. Certain other Lake Hydroelectric Project or Hanford Generating claims have been filed as part of this action.

Project. However, they believe that upon full investi- In June 1983, Chemical Bank filed a motion to inter-gation the same opinions could be rendered with vene as bond fund trustee on behalf of the Nuclear r'espect to assets of the Packwood Lake Hydroelectric Projects Nos. 4 and 5 bondholders. The motion was Pioject and Hanford Generating Project and revenues granted. Chemical Bank's position is that the Supply or funds held in tr'ust or for the holders of bonds Systein's allocations of costs among the twinned issued by the Supply System to finance the construc- projects were improper and that repayment to the of such projects. 'ion Nuclear Projects Nos. 4 and 5 bond fund is required f

If it is found that creditors are not limited to payment for such costs allegedly improperly allocated.

of their claims from the project to which such claims In May 1989, the court ruled that Chemical Bank has a relate, it will have a material adverse impact on tlie lien on any funds which may be determined in the Supply System.

30

~re to have been improperly expended as a result 1983, Pacific filed a counterclaim in BPA tr. Supply of costs misallocated to Nuclear Projects Nos. 4 and 5, System, et al asserting that termination of Nuclear but the court stated that any enforcement of the lien Project No. 5 was a breach of the ownership agree-must await resolution of the issue of whether there ment between Pacific and the Supply System. Pacific was any improper allocation. seeks damages in an unspecified amount. Such amount would presumably be approximately By agreement among the Supply System, BPA and

$ 150 million and could be a general claim against Chemical Bank signed August 29, 1989 and approved assets of the Supply System. Actions on that claim by the court, BPA agreed that any final, nonappeal- been stayed since 1983. The Supply System is 'ave able judgment entered in cost sharing litigation unable to predict the outcome of this litigation.

granting relief to Chemical Bank for costs misallocated from Nuclear Projects Nos. 1, 2 or 3 to Nuclear NUCLEAR PROJECTS NOS. 4 AND 5 SITE Projects Nos. 4 or 5 would be payable by BPA under RESTORATION net-billing agreements. In return, Chemical Bank released the lien on proceeds of any Nuclear Projects No provisions have been made for site restoration of Nos. 1, 2 or 3 refunding bonds to be issued in the Nuclear Projects Nos. 4 and 5, which is governed by future, and any other funds disbursed to pay amounts the site certification agreement between tlie Supply properly payable prior to a judgment in the cost System and the State of Washington and regulations sharing litigation. However, the release by Chemical adopted by the-Washington State Energy Facility Site Bank does not apply to any funds disbursed after a Evaluation Council (EFSEC). It is not known at this judgment in the cost sharing litigation. If, after such time what actions will be necessary to comply with EFSEC's requirements. Because the site certification judgment in the cost sharing litigation Chemical Bank seeks to enforce a lien on the Nuclear Projects Nos. 1, agreement for Nuclear Project No. 1 also covers 2 or 3 bond funds or revenue funds, Bond Counsel Nuclear Project No. 4, and the agreement for Nuclear and Chief Counsel to the Supply System are of the Project No. 3 also covers Nuclear Project No. 5, EFSEC opinion that a court should hold that any such lien might assert that Nuclear Projects Nos. 1 and 3 are would be subordinate to the lien of Nuclear Projects obligated to pay the cost of site restoration for Nuclear Nos. 1, 2 or 3 bondholders. Projects Nos. 4 and 5. Such costs are estimated to be in the range of $ 45 million to $ 77 million (in 1989 Counsel for Chemical Bank has estimated the dollars).

potential recovery for Nuclear Projects Nos. 4 and 5 at $ 1 billion, including interest. Ifa judgment were NUCLEAR PROJECTS NOS. I AND 3 awarded in favor of Chemical Bank, and costs previ- CONSTRUCTION DEIAY ously allocated to Nuclear Projects Nos. 4 and 5 were In April 1982, the Supply System commenced a allocated to other Supply System projects, such construction delay of Nuclear Project No. 1, and in amounts would be construction costs of such projects.

July 1983, it commenced a construction delay of The Supply System is unable to predict the outcome Nuclear Project No. 3. These projects are currently in of this litigation. an extended delay mode. Plant assets are being preserved and project licenses are being maintained NUCLEAR PROJECT NO. 5 TERMINATIONClAIM during the delay period in order to enable the Supply Under the terms of the Nuclear Project No. 5 owner- System to resume construction of the projects at such time as that action is determined appropriate.

ship agreement between the Supply System and Pacific Power and Light Company (Pacific), Pacific is In the 1986 Northwest Conservation and Electric obligated to fund its respective 10 percent ownership Power Plan, issued by the Northwest Power Planning share of Nuclear Project No. 5 termination costs Council (Council) in January 1986, the Council beginning January 25, 1983, and continuing until all indicated that Nuclear Projects Nos. 1 and 3 can be costs of termination have been paid. Ten percent of'he cost-effective for the region and should be preserved funds received from sales of Nuclear Project No. 5 as potential resource options. However, the Council assets are applied as a reduction of Pacific's obligation did not include Nuclear Projects Nos. 1 and 3 in its for termination costs. resource portfolio due to legal and other uncertainties.

Pacific has refused to pay its share of Nuclear Project In April 1989, the Council stated that it would reassess the status of Nuclear Projects Nos. 1 and 3 during No. 5 termination costs since Junc 1983. In August 1989 for its 1990 resource portfolio.

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NOTES TO FINANCIALSTATEMENTS In its May 1987 Resource Strategy, BPA indicated that the participants filed supplemental pleadings in the a study of Nuclear Projects Nos. 1 and 3 options Federal district court asserting challenges to the found that there was no compelling case for or against Nuclear Project No. 3 settlement agreements between continued preservation of Nuclear Projects Nos. 1 and BPA and the IOUs. None of the agreements executed 3 on a net present value basis, and that preservation by the Supply System has been challenged. However, of both projects was somewhat favorable from the the supplemental pleadings filed by some participants standpoint of economic risk management. BPA also include claims against the Supply System, the concluded that preservation of Nuclear Projects Nos. 1 IOUs and BPA unrelated to the validity of the settle-and 3 was the prudent course of action at that time. In ment. In July 1986, the district court dismissed for lack its July 1988 Resource Program, BPA indicated that its of subject matter jurisdiction the claims challenging assessment of the need for the projects remains BPA's authority to enter into the Nuclear Project No. 3 essentially the same as indicated in the 1987 Resource settlement agreements with the IOUs and stayed all Strategy. BPA is monitoring current issues relating to other claims relating to or arising out of the construc-Nuclear Projects Nos. 1 and 3, and will undertake a tion delay or the settlement.

new study when appropriate. Continued funding of These participants also filed an original proceeding in preservation costs is included in BPA's rates for fiscal the United States Court of Appeals for the Ninth year 1990, and is expected to be included in BPA's Circuit, challenging BPA's settlements with the IOUs proposed rates for fiscal years 1991 and 1992. as exceeding BPA's statutory authority. In January The Supply System is currently unable to predict 1989, the United States Court of Appeals for the Ninth whether or when Nuclear Projects Nos. 1 and 3 will Circuit rejected all statutory challenges to BPA's be completed. settlements, affirmed BPA's authority to enter the settlements, and dismissed other claims, including NUCLEAR PROJECT NO. 3 DElAYLITIGATION claims against the IOUs and the Supply System, for In July and August 1983, the four IOUs owning 30 lack of jurisdiction.

percent of Nuclear Project No. 3 filed claims against In May 1989, the district court dismissed the claims of BPA, the Supply System and the Nuclear Project No. 3 all but nine of the Nuclear Project No. 3 participants participants asserting that they suffered damages as a against the Supply System, BPA, and the IOUs relating result of the extended construction delay of Nuclear to or arising out of the construction delay of Nuclear Project No. 3. The claims were filed in United States Project No. 3 or the settlement, pursuant to a stipula-District Court for Western Washington in the pending tion of the parties. The claims of the nine participants action entitled BPA v. Supply System, et aI. (See "Cost who did not enter into the stipulation include, among Sharing Litigation" above.) Included are claims for others, claims that the settlement agreements between injunctive and declaratory relief, damages, rescission BPA and the IOUs are invalid and unenforceable of the Nuclear Project No. 3 ownership agreement and because performance of the Nuclear Project No. 3 recovery of the total amount of payments made under settlement agreement would breach contractual rights the Nuclear Project No. 3 ownership agreement to of the participants under the Nuclear Project No. 3 date. net-billing agreements, ownership agreement and The Supply System executed agreements to dismiss project agreements and because the settlement the construction delay claims with BPA and with each contravenes public policy of the State of Washington; of the IOUs owning shares of Nuclear Project No. 3 a demand that the Supply System give notice of on September 17, 1985. Pursuant to those agreements, termination of Nuclear Project No. 3; and a claim for a the Supply System and each of the other parties declaratory judgment that construction costs for exchanged convenants not to sue with respect to the Nuclear Project No. 3 cannot be net-billed on a construction delay. BPA also executed settlement current basis.

agreements with each of the IOUs. Pursuant to the In May 1983, the Nuclear Project No. 3 IOUs filed various agreements, the Supply System, BPA and the complaints in state courts in King County, Washing-IOUs asked the court to enter an order dismissing ton, and Multnomah County, Oregon, seeking similar their construction delay claims. A number of the declarative and equitable relief and damages because Nuclear Project No. 3 participants have opposed the of the Nuclear Project No. 3 construction delay as settlement and dismissal of claims. In October 1985, claimed by them in BPA v. Supply Syste>n, et aL They 32

filed these cases as a precaution against any determi- The Supply System has completed a review of altern-nation that the federal District Court lacked jurisdic- tive steam sources and BPA has completed a study to tion to try the Nuclear Project No. 3 construction delay determine ifconversion to an alternative steam source claims. Proceedings in these state court cases have warrants preservation of HGP. Results of the BPA been stayed by stipulation of the parties. study indicate that from a risk management stand-In the settlement agreements between the Supply point, it would not be prudent to terminate this project unless there was a substantial indication that it System and each of the IOUs, the parties agreed not had no value as a power resource.

to proceed further against each other on the claims in the state court cases, and agreed to dismiss these state Debt service costs of HGP are paid by Nuclear Project court cases after final dismissal of the parallel claims No. 1 participants and BPA under net-billing agree-in the federal court and the final dismissal of any ments, regardless of continued operation of the claims challenging the Nuclear Project No. 3 settle-project. See Note C Long-Term Debt, Security-ment agreements. Hanford Generating Project.

Ifthe settlement agreements between BPA and the For accounting purposes, HGP was treated as an IOUs are determined to be invalid or unenforceable, operating project for the year ended June 30, 1989.

the IOUs might renew their claim that they are entitled to rescission of the Nuclear Project No. 3 NUCLEAR OABIOTYINSURANCE ownership agreement. However, the IOUs have Based on current provisions of the Price-Anderson agreed in their settlement agreements with the Supply Act, public liabilityclaims that could arise from a System not to assert any claim against the Supply nuclear incident are limited to $ 7.807 billion. The System for money damages, restitution or injunctive Supply System has purchased the maximum available relief. private insurance of $ 200 million and the excess of The Supply System is unable to predict what results $ 7.607 billion of coverage is provided by secondary willbe reached with respect to these claims. financial protection. Under secondary financial protection, coverage would be funded by a mandatory HANFORD GENERATING PROJECT program of retrospective premiums assessed against all owners of licensed reactors (currently 115). In the HGP has generated power from steam supplied by the event of nuclear incidents at facilities covered under Department of Energy (DOE) N-Reactor since 1966. In the Price-Anderson Act, the Supply System could be January 1987, the N-Reactor was shut down for safety assessed up to $ 63 million per incident, payable at a improvements, and in February 1988 the DOE placed rate not to exceed $ 10 million per year for each the N-Reactor in a cold standby status for an undeter-incident.

mined length of time, while maintaining the capability to restart within a two-to-three year period.

OTHER LITIGATIONAND COMMITMENTS It is not known whether or when the N-Reactor will The Supply System is involved in various claims, legal resume operations. In 1989, the Supply System and actions and contractual commitments not mentioned DOE entered into a supplemental agreement that above as both a plaintiffand a defendant and in provided for DOE to pay certain Supply System certain claims and contracts arising in the normal operating costs in exchange for the Supply System course of business. Although some suits, claims and maintaining HGP in a condition capable of accepting commitments are significant in amount, final disposi-steam energy from the N-Reactor within two years tion is not determinable. In the opinion of manage-after notice by the DOE that the N-Reactor would ment, the outcome of such litigation, claims or resume operation. The term of this agreement contin- commitments will not have a material adverse effect ues through September 30, 1991. on the financial positions of the projects or the Supply The U.S. government has an option to acquire owner- System as a whole. The estimated cost of the projects, ship of HGP upon Congressional approval. Ifthe however, may either be increased or decreased as a government exercises its option, it must assume all result of the outcome of these matters.

rights and obligations of the project, including the obligation to pay all outstanding revenue bonds.

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L STATEMENT OF DEBT-SERVICE REQUIREMENTS hs ofJune 30, 7989 Doltaa tn tboI sands NUCLEAR PROJECT NO. 2'ANFORD GENERATING PROJECT PACKWOOD lAKE PROJECT PRINCIPAL INTEREST TOTAL PRINOPAL INTEREST TOTAL PRINCIPAL INTEREST TOTAL 1990 S 30,555 S 207,778 S 238,333 s ss6 s ss6 S 70 S 343 $ 413 1991 32,800 205,540 238,340 S 5,065 419 5,484 275 337 612 1992 35,260 203,080 238,340 5,585 240 5,825 290 327 617 1993 37,980 200,383 238,363 5,835 52 5,887 300 316 616 1994 40,950 197,445 238,395 620 3 623 315 305 620 1995 44,225 194,227 238,452 330 294 .624 1996 47,825 190,678 238,503 340 281 621 1997 6s,s7S 186,769 252,344 360 269 629 1998 71,955 180,399 252,354 380 255 635 1999 79,330 173,291 252,621 400 241 641 2000 85,795 166,s72 252,367 465 226 691 2001 93,290 159,093 252,383 490 209 699 2002 101,635 150,766 252,401 515 190 705 2003 93,055 141,479 234,534 540 171 711 2004 97,375 133,671 231,046 565 151 716 2005 106,765 124,280 231,045 590 130 720 2006 117,225 113,821 231,046 615 108 723 2007 1%,850 102,201 231,051 640 , 86 726 2008 141,675 89,370 231,045 665 62 727 2009 155,940 75,104 231,044 690 37 727 2010 171,820 59,226 231,046 340 17 357 2011 189,510 41,538 231,048 150 6 156 2012 209,230 21,814 231,044 65 67 2013 2014 2015 2016 2017 2018 2019

$ 2,178,620 $ 3,318,525 $ 5,497,145 $ 17,105 $ 1,270 $ 18,375 $ 9,390 $ 4,363 $ 13,753

NUCLEAR PROJECT NO. 1'UCLEAR PROJECT NO. 3'UCLEAR PROJECTS NOS. 4/5 "

FISCAL YEAR PRINQ PAL INTEREST TOTAL PRIMOPAL INTEREST TOTAL PRINQPAL TOTAL 1990 S 21,465 S 203,320 S 224,785 $ 12,145 S 162,760 S 174,905 $ 2,316,652 $ 2,316,652 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 2000 49,465 178,663 228,128 29,020 148,218 177,238 2001 53,920 174,204 228,124 31,475 145,773 177,248 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 2004 55,430 159,406 214,836 42,730 136,746 179,476 2005 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

$ 2,057,065 $ 4,102,170 $ 6,159,235 $ 1,553,035 $ 3,519,868 $ 5,072,903 $ 2,316,652 $ 2) 316,652

'xcludes payments of bond prtnctpal and tnterett made on July 1, 1989.

- Refer to h"ote D-Ãuclear PmJece h'as. 4 and 5 Termtnatton, Bond Default, and Litigatton, page 27, and h'ote 8-Comm!tmentt and Contingenctet, page 29.

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

The Plant 2 Visitors Center offers a video-tape "armchair" tour of the plant as well as infor-mation 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 (209 482-4428, ext. 5052. Tours of the WNP-1 site are available by appointment by calling (509) 372-5860.

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