ML20085M464

Forwards 1994 Audited Financial Statements, for Cajun Electric Power Cooperative,Inc

ML20085M464
Person / Time
Site:	River Bend
Issue date:	06/22/1995
From:	Dolan K CAJUN ELECTRIC POWER COOPERATIVE, INC.
To:	Adensam E NRC (Affiliation Not Assigned)
References
NUDOCS 9506290203
Download: ML20085M464 (34)

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U CAJUN ELECTRIC POWER COOPERATIVE, INC.

10719 AIRLINE HIGHWAY.

• P. O. BOX 15540

- BATON ROUGE, LOUIS!ANA 70895 PHONE:

(504) 291-3060

, FAX:

(504) 296-1746' June 22,1995 t

i VIA CERTIFIED MAIL l

Ms. Elinor G.- Adensam-l Acting Director' 1

Division of Reactor Projects III/IV j

Office of Nuclear Reactor Regulation

. United States Nuclear Regulatory Commission i

Washington, DC 205554001 RE:

C4un Electric Power Cooperative, Inc.

j Docket No. 50-458 q

Dear Ms. Adensam:

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l The following are Cajun Electric Pos/er dooperative's responses to the information requests l

contained in your May 9,1995 letter: (

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c Please provide the details offunding requirements and paymenb by Cajun to GSUfor Rint Bend up until Cajunfiledfor bankruptcyv 1

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As joint owners the River Bend Joint Ownersliip' Participation and Operating - Agreement l

(JOPOA) provides that Gulf States Utilities

~ ~(GSU) bear 70% and Cajun Electric q

Power Cooperative, Inc. (Cajun) bear 30% of River d capital, operation and maintenance and related general and administrative costs. Except for certain disputed items, Cajun funded 30% of such costs through September,1991. / (g j!w

~n In September,1991, Cajun exercised its contractual ri his as stated in Section 6.5 of the-JOPOA and elected not to participate in the funding of

' service water project (SWP), the inlet feedwater nozzle repair, turbine rotor repairs and extended outage costs associated with the SWP. GSU declared Cajun in default'of the JOPOA and disputed Cajun's rights not to fund such projects. On November 27,:1991,1 Cajun filed a complaint, which it amended in December,1992, for declaratory and injunctive relief with the United Stated District Court, Middle District of Ieuisiana, seeking an interpretation of Ca un's contractual rights as related '

to this issue. Iegal counsel has advised Cajun that it is wi in its rights under the JOPOA to withhold these payments. Con uently, as of April 30, 1995,

'un has withheld payments -

to GSU for these activities totalin $44,418,284,. including $10,

,308 of billed interest and penalties. These withholdings and related charges are not reflected on Cajun's financial statements.

In September,1992, Cajun also began withholding payments to GSU for certain costs which it j

determined to be excessive and in October,1994, ceased all further payments to GSU for the' l

remainder of 1994 and 1995 except for safety related costs. (nuclear insurance and' l

decontamination and decommissioning assessments). Withholdings related to these activities totaled $32,190,812 through April 30, 1995 and includes billed interest of $847,377 through December 20,1994. These costs are reflected in Cajun's financial statements as a charge to the appropriate cost category. In November,1994, GSU began selling Cajun's 30% share of capacity and energy and applying such proceeds to these withholdings.

Total net sales proceeds (sales less transmission costs) through April 30,1995 totaled $16,123,187 resulting m net withholdings for excessive costs of $16,067,625.

I Total net withholdings at April 30,1995 are $60,485,909 consisting of $44,418,284 of Section

- 6.5 items and $16,067,625 related to excessive costs.

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9506290203 950622

1 Ms. Elinor G. Adensam June 22,1995 w

Please provide the efects, if any, of Cajun's bankruptcy on the funding requirements and payments by Cajun to GSUfor Riwr Bend as previously described.

' As stated above, Cajun discontinued all payments to GSU except for safety related items prior to filing for bankruptcy. It is Cajun's intention to continue to fund the safety related items unless relieved by the Court. As part of the proceeding before the Bankruptcy Court, in the Middle District of leuisiana, Case _No. 94-11474, Cajun has filed a motion to reject the JOPOA and GSU has filed pleadings with the Bankruptcy Court objecting to such motion.

The timing or outcome of this matter is uncertain.

Please pmvide the projected cost obligations of Cajun and plans for payment to cowr operations, maintenance, repair, insurance and decommissioning since Cajun filed for bankruptcy.

- Cajun's 30% share of the 1995 River Bend operating and capital budget as provided to Cajun by GSU in the first quarter of 1995 is $74,569,105. Please direct your inquiries to GSU for

- further long-term projections.

As previously discussed, Cajun intends to fund only the nuclear insurance, decontamination and decommissioning assessments unless otherwise directed by the Bankruptcy Court.

Please identify any other costs or obligations of Cajun associated with Riwr Bend that are not included in the abow, i.e., fuel costs, waste storage, etc., and how Cajun plans to meet these costs.

In December,1988, Cajun established an external grantor trust to provide for its share of River Bend decommissioning costs.

Cajun makes annual contributions to accumulate an amount which will be sufficient, based on a site-specific engineering study commissioned by GSU, to pay for its share of the cost of decommissiomng at the end of the estimated useful life of River Bend. Annual contributions to the trust are $1,416,897 which Cajun will continue to fund unless relieved by the Court. As of April 30,1995, the balance in Cajun's River Bend Decommissioning Trust Fund was $18,013,100.

Enclosed is a copy of Cajun's 1994 Audited Financial Statements.

Note 1 - Bankruptcy Proceeding and Note 12 - Gulf States Utilities Company may be of particular interest to the NRC.

Please advise if you have any questions or require additional information.

i Sincerely, s.D Kesin E. Dolan Senior Vice President and Chief Financial Officer KED/GFH/mbe cc:

Daniel E. MacLeod Ste) hen E. Parr Gary F. Hall William H. Patrick, III A. Kell McInnis, III James D. Pembroke (Duncan & Weinberg)

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AUDITED FINANCIAL STATEMENTS CAJUN ELECTRIC POWER COOPERATIVE, INC.

DECEMBER 31, 1994

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REPORT OF INDEPENDENT AUDIT 0RS....................................................

1 BALANCE SHEETS.................................................................. 2.

STATEMENTS OF REVENUE AND EXPENSES................................................ 4 STATEMENTS OF CHANGES IN EQUITY AND MARGIN (DEFICIT)..............................

5 STAT EM ENTS O F CASH F L0WS.......................................................... 6 NOTES TO FINANCIAL STATEMENTS:

NOTE 1 - BANKRU PTCY PROC E ED I NG.............................................. 7 i

NOTE 2 - SIGNIFICANT ACCOUNTING POLICI ES................................... 11 NOTE 3 - UT I L I TY P LANT..................................................... 13 NOTE 4 - INVESTMENTS IN ASSOCI ATED ORGANIZATIONS........................... 15 NOTE 5 - LON G - T E RM D E B T.................................................... 15 NOTE 6 - SHORT-TERM INV ESTMENTS............................................ 18 j

NOTE 7 - I N C OM E TAX E S...................................................... 18 NOTE 8 - EMP LOY E E BEN E F IT P LAN............................................. 19 NOTE 9 - RELATED PARTY TRANSACTIONS........................................ 20 NOTE 10 - SPENT NUCLEAR FUEL AND DECOMMISSIONING RESERVES................... 20 i

NOT E 11 - NUC L EAR INSURANC E................................................. 2 2 NOTE 12 - GULF STATES UTILITIES COMPANY..................................... 24 4

NOT E 13 - RAT E S AND REGULAT ION.............................................. 2 9 NOTE 14 - COMMITMENTS AND CONTINGENCIES..................................... 31 l

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.. mme: 504 sai cw 701 R)ydras Street j

New Orleans Louisiana 70139-9869 Report ofIndependent Auditors he Board of Directors Cajun Electric Power Cooperative, Inc.

We have audited the accompanying balance sheets of Cajun Electric Power Cooperative, Inc. (the Cooperative) as of December 31,1994 and 1993, and the related statements of revenue and expenses, changes in cquity and margin (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Cooperative's management. Our responsibility is to express an opinion on these financial statements based on our i

tudits.

We conducted our audits in accordance with generally accepted auditing standards and the standards for financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Rose 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 supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

l We believe that our audits provide a reasonable basis for our opinion.

t In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cajun Electric Power Cooperative, Inc. at December 31,1994 and 1993, and the results of its operations and its l

cash flows for the years then ended in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the Cooperative will continue as a going l

concern. As discussed in Note I to the Financial Statements, on December 21,1994, the Cooperative filed a I

voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. Management anticipates that it will continue to operate the Cooperative as a debtor-in-possession until a plan of reorganization is formulated. Any potential plan of reorganization will be subject to the approval of the Cooperative's creditors and will require confirmation by the Bankruptcy Court and there can be no assurance that any plan of reorganization will be approved or confirmed. In addition, in the event a plan of reorganization is approved by the Bank.ruptcy Court, continuation of the business after reorgsnization is dependent upon the success of future operations and the Cooperative's ability to meet its obligations as they become due. As discussed in Note 12 to the financial statements, the Cooperative is involved in significant litigation with Gulf States Utilities Company (GSU) as well as i

proceedings with the Federal Energy Regulatory Commission (FERC) involving certain transmission charges asserted by GSU. An unfavorable outcome of this litigation or the proceedings at the FERC or the uncertainties inherent in the bankruptcy process raise substantial doubt about the Cooperative's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.

As discussed in Note 13 to the financial statements, the Louisiana Public Service Commission (LPSC) has declared that the Cooperative's investment in the River Bend plant was imprudent and has disallowed recovery of its cost through the Cooperative's rates. The Cooperative has appealed these decisions. As discussed in Note 14 to the financial statements, the Cooperative is involved in certain class action litigation and related LPSC hearings. The ultimate outcome of these matters cannot presently be determined.

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LLP March 3,1995

BALANCE SHEETS CAJUN ELECTRIC POWER COOPERATIVE, INC.

(IN THOUSANDS)

December 31 1994 1993 ASSETS UTILITY PLANT Electric plant in service

$2,640,912

$2,633,779 Less accumulated depreciation and amortization 772.345 701.066' 1,868,567 1,932,713 Construction work in progress 11,542 8,446 Nuclear fuel at amortized cost 37,636 38,651 Electric plant held for future use 9.904 9.904 1.927.649 1.989.714 OTHER PROPERTY AND INVESTNENTS Nonutility property 670 675 Restricted funds held by trustees 6,735 5,375 Investments in associated organizations 27,944 36,492 Decommissioning reserve funds 17.729 15.301-53.078 57.843 CURRENT ASSETS Cash and cash equivalents 54,005 15,940 Accounts receivable - electric customers:

Members 30,789 28,845 l

Nonmembers 6,441 8,412 Accounts receivable - other 10,924 3,804 Fuel and supplies inventories 48,479 46,365 Prepayments 986 989 151.624 104.355 DEFERRED CHARGES 4,074 3,605

$2.136.425

$2.155.517 i i i

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December 31 i

1994 1993__

EQUITY AND LIABILITIES EQUITY AND MARGIN (DEFICIT)

Memberships 1

1 Patronage capital credits 35,988 35,988 Unallocated deficit (2,119,993)

(1,791,681)

Donated capital 389 389

( 2.0!l3,615)

(1.755.303)

LONG-TERM DEBT, LESS CURRENT PORTION 3,863,047 CURRENT LIABILITIES Accounts payable 1,037 Taxes other than income tax 193 181 i

Other accrued expenses 5,291 20,596 Current portion of long-term debt 450 5.484 22.264 OPERATING RESERVES Decommissioning 17,729 15,301 Excessive River Bend O&M 3.522 17.729 18.823 DEFERRED CREDITS 6,686 LIABILITIES SUBJECT TO COMPROMISE 4,196,827 1

1

$ 2.136.425

$ 2.155.517 The accompanying notes are an integral part of these financial statements..

STATEMENTS OF REVENUE AND EXPENSES CAJUN-ELECTRIC POWER COOPERATIVE, INC.

(IN THOUSANDS)

Year Ended December 31 1994 1993 OPERATING REVENUE Sales of electric energy:

Members 5 299,888

$ 304,336 Nonmembers 79,665

.85,309 Other 807 926 380.360 390.571 OPERATING EXPENSES Power production:

Fuel 151,691 144,527 Operations and maintenance 76,874 61,087 Purchased power 5,680 12,081 Other power supply expenses 491 552 Transmission 35,536 36,523 Administrative and general 25,525 26,532 Depreciation and amortization 75,451 75,738 Taxes, other than income 8.644 6.623 379.892 363.661 OPERATING NARGIN 468 26,908

-OTHER INCONE AND EXPENSES Interest, rents and leases 4,041 3,204 Other income 147 23,168 Loss on asset dispositions (766)

(7,786)

Litigation settlements 601 3.422 19.187 NARGIN BEFORE INTEREST AND OTHER DEBT EXPENSE 3,890 46,095 INTEREST AND OTHER DEBT EXPENSE 332.202 322.595 I

NET DEFICIT

$f328.312)

$(276.500)

)

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The accompanying notes are an integral part of these financial statements. --

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STATEMENTS OF CNANGES IN EQUITY AND MARGIN (DEFICIT)

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CAJUN ELECTRIC POWER COOPERATIVE, INC.

(IN THOUSANDS)

Year Ended December 31, 1994 and 1993 Patronage Member-Capital Unallocated Donated shios Credits Deficit Caoital Total BALANCE JANUARY 1, 1993 1

$35,988

$(1,515,181)

$389

$(1,478,803)

Net deficit for the year (276.500)

(276.500)

BALANCE DECEMBER 31, 1993 1

35,988 (1,791,681) 389 (1,755,303)

Net deficit for the year (328.312)

(328.312)

BALANCE DECEMBER 31, 1994 1

$35.988

$(2.119,993)

M

$(2,083.615) i i

The accompanying notes are an integral part of these financial statements. _

STATEMENTS OF CASH FLOWS CAJUN ELECTRIC POWER COOPERATIVE, INC.

(IN THOUSANDS)

~

Year Ended December 31 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from sales of power S 367,867

$ 392,138 i

Payments from joint owner of Big Cajun 2, Unit 3 24,892 32,102 Other cash receipts 4,253 3,412 Cash payments for fuel and fuel stock (163,811)

(151,603) l Operation and maintenance expenses paid (74,221)

(66,952)

Purchased power and transmission expenses paid (37,975)

(45,603)

Administrative and general expenses paid (31,267)

(32,154)

Taxes paid (15.998)

(9,796)

Interest and other income received 4,007 4,407 Interest paid (24.868)

(103.792)

NET CASH PROVIDED BY OPERATING ACTIVITIES 52,879 22,159 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (15,054)

(5,652)

Nuclear fuel purchased (10,557)

(3,221)

CoBank retirement of C stock 12,247 12,259 Proceeds from termination of power contract 12,756 Directors and Officers Liability Trust (1,000)

(2.000)

NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (14,364) 14,142 CASH FLOWS FROM FINANCING ACTIVITIES Repayment of long-term debt (450)

(31.920)

INCREASE IN CASH AND CASH EQUIVALENTS 38,065 4,381 Cash and cash equivalents at beginning of year 15.940 11.559 CASH AND CASH EQUIVALENTS AT END OF YEAR

$ 54,005

$ 15,940 RECONCILIATION OF NET DEFICIT TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net deficit

$(328,312)

$(276,500)

ADJUSTMENTS TO RECONCILE NET DEFICIT TO CASH PROVIDED BY OPERATING ACTIVITIES Depreciation and amortization 73,253 73,395 Amortization of nuclear fuel 12,459 12,901 Interest expense accrued to long-term debt 311,874 223,798 Net loss on asset. dispositions 2,271 8,127 Gain on RUS adjustment of Note B (10,379)

Gain on termination of power contract (12,756)

Decrease in accounts receivable and investments in associated organizations (11,148) 469 Decrease (Increase) in fuel and prepayments (2,579) 75 Increase in accounts payable and accrued expenses (4.939) 3.029 NET CASH PROVIDED BY OPERATING ACTIVITIES

$ 52,879 5 22,15j The accompanying notes are an integral part of these financial statements. - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _.

NOTES TO FINANCIAL STATEMENTS CAJUN ELECTRIC POWER COOPERATIVE, INC.

DECEMBER 31, 1994 NOTE 1 - BANKRUPTCY PROCEEDING On December 21, 1994, Cajun Electric Power Cooperative, Inc. (the Cooperative) filed a Petition for Reorganization under Chapter 11 of the United States Bankruptcy Code and is currently operating as debtor-in-possession under the supervision of the United States Bankruptcy Court for the Middle District of Louisiana.

The immediate need to file for Chapter 11 protection resulted from a conflict between the Louisiana Public Service Commission (LPSC) and the Rural Utilities Service (RUS),

formerly the Rural Electrification Administration, over the proper wholesale rate to charge the Cooperative's member distribution cooperatives (Members).

On December 14, 1994, the LPSC ordered the Cooperative to lower its wholesale Member rate, effective December 21, 1994, from 54.5 mills per kilowatt-hour to 48.8 mills per kilowatt-hour reducing revenues by approximately $30 million on an annual basis (see Note 13).

On December 20, 1994, the RUS ordered the Cooperative not to reduce its wholesale Member rate as required by the LPSC order, alleging that the LPSC order was implicitly preempted. Reduction of the Cooperative's wholesale rate without the consent of the RUS is an event of default under the terms of the Cooperative's 1990 Debt Restructure Agreement (DRA)(see Note 5). On December 21, 1994, the Cooperative complied with the order of the LPSC, filed a new tariff reflecting the lower rate as ordered by the LPSC, and filed for relief under the United States Bankruptcy Code.

On December 21, 1994, the Cooperative filed a complaint for declaratory judgment in the United States District Court for the Middle District of Louisiana against both l

the LPSC and the RUS regarding the issue of which entity, the LPSC or the RUS, has jurisdiction over the wholesale member rates of the Cooperative.

As of this date, the Court has taken no action on this matter. -

Notes to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 1 - Continued On December 23, 1994, the United States District Court for the Middle District of Louisiana withdrew the reference of the bankruptcy case from the Bankruptcy Court.

Certain issues not heard by the United States District Court will be heard by the Bankruptcy Court.

On December 28, 1994 the Cooperative filed a motion in the bankruptcy case to reject the River Bend Joint Ownership Participating and Operating Agreement (River Bend J0P0A) as an executory contract (see Note 12).

Gulf States Utilities (GSU) has opposed the motion. No timetable for discovery or trial has been established.

On January 18, 1995, a committee composed of seven Members of the Cooperative (Members Committee) moved to intervene in the complaint of the Cooperative seeking a declaratory judgment whether the LPSC or the RUS has authority to regulate the eholesale Member rates of the Cooperative.

The Members Committee asserts that its Members serve a majority of the retail patrons of the Cooperative's Members and represent a substantial proportion of the industrial and commercial load served by the Cooperative.

The Members Committee seeks a declaration that the RUS does not have the authority to preempt the LPSC.

On January 24, 1995, the Cooperative filed an appeal of the LPSC rate order with the 19th Judicial District Court for the state of Louisiana. On January 30, 1995, three of the Cooperative's Members filed a motion with the 19th Judicial District Court to dismiss the Cooperative's appeal alleging, among other things, that the vote to appeal the LPSC decision by the Cooperative's Board of Directors was an illegal act on behalf of the Cooperative and that the appeal was not properly authorized by the Cooperative's Board of Directors.

On January 30, 1995, these same Members filed a petition in the 19th Judicial District Court to appeal the LPSC's order alleging that the rate of 48.8 mills per kilowatt-hour was determined in an arbitrary and capricious manner which ignored evidence that the Cooperative's Member wholesale rate should be lower.

On January 25, 1995, the RUS sought a temporary restraining order in the United l

States District Court against the Cooperative preventing the Cooperative from

)

l lowering its Member rates as ordered by the LPSC.

On January 31, 1995 the request l

l Notes to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 1 - Continued by the RUS for a temporary restraining order was denied in the United States District Court.

On February 13, 1995, the Bankruptcy Court issued an order giving the Cooperative permission to use cash, in the ordinary course of business, to pay all usual and necessary operating expenses based on the Cooperative's 1995 budget.

Additionally, the Order noted that the Cooperative must notify the RUS of its intention to make any changes to budgeted capital projects or capital expenditures and prohibits any changes unless RUS consents or the Court, after a notice and hearing, orders otherwise. The Cooperative has the right under the Order to make unbudgeted capital expenditures without notifying the RUS if the amount of an unbudgeted expenditure does not exceed $100,000 for any single item nor $300,000 in the aggregate for any calendar quarter.

In the event that unbudgeted capital projects or expenditures exceed these thresholds, the approval of the RUS is required before any expenditures may be made. Additionally, the Cooperative has the right under the Order to make or incur any capital expenditure for an unbudgeted item in the event of an emergency in which case the RUS must be notified of the emergency aiid the related expenditures.

The Order also provides that as of February 14, 1995, and on the first day of each month thereafter, the Cooperative shall place in an escrow account any funds in excess of $35 million.

No distribution may be made from this account to any party except upon a Court order issued after a notice and hearing.

The excess funds are to be invested in accordance with the investment guidelines of the Cooperative which were approved by the Court on December 27, 1994.

In addition, the Order establishes May 9, 1995 as the date by which any party in interest must notify the Secured l

Creditors of any challenge to the validity, extent, or priority claimed by the Secured Creditors in the bankruptcy proceeding. Any party in interest not acting by this date will be deemed to have waived any such challenge.

Under the Bankruptcy Code, as of the petition date, essentially all actions of creditors to collect pre-petition indebtedness are stayed.

As a result, no party which has a security or adverse interest in the debtor's property may take any action against the debtor or the property of the debtor regardless of the location of the property or who is in possession of the debtor's property until the stay is modified.

Additionally, under the Bankruptcy Code, the Cooperative may reject - _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _

Notes to Financial Statements - Continued Cajun Electric Power Cooperative Inc.

Note 1 - Continued executory contracts with the approval of the Bankruptcy Court.

Substantially all of the liabilities of the Cooperative as of the petition date are subject to compromise under a plan of reorganization which may be filed and approved in accordance with the Bankruptcy Code.

In accordance with Generally Accepted Accounting Principles, the Cooperative has adopted the provisions of the American Institute of Certified Public Accountants Statement of Position (SOP) 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.

In general, certain provisions of the Bankruptcy Code may relieve a debtor from its obligation to pay interest while in Chapter 11.

Interest on secured claims is generally accrued and expensed only to the extent that the value of the underlying collateral exceeds the principal amount of the secured claim.

Additionally, interest on unsecured claims is not accrued if the debtor is insolvent.

If a plan of reorganization for the Cooperative is approved by the Bankruptcy Court, the ability of the Cooperative to continue as a going concern will be dependent upon the terms of the plan, and if contemplated by the plan, the Cooperative's ability to continue in business and meet any obligations under the plan as they become due.

The accompanying financial statements have been prepared on a going concern basis which assumes continued operations and the realization of assets and liquidation of liabilities in the ordinary course of business.

As a result of the reorganization i

proceeding, the Cooperative may have to sell assets and settle liabilities for amounts other than those reflected in the financial statements.

Also, a plan of reorganization could materially change the amounts currently recorded in the financial statements.

The accompanying financial statements do not give effect to any adjustments to the carrying value of assets or amounts and classification of liabilities that may be necessary as a consequence of the Chapter 11 proceeding.

The appropriateness of the continued use of the going concern basis is dependent upon several things, including confirmation of a plan of reorganization, the success of future operations, and the ability to generate sufficient cash to meet the obligations under the plan as they become due.

The Cooperative is in default under the terms of the DRA as well as all of its loan agreements and obligations.

All of the debt of the Cooperative, other than post- _

N,otes to Financial Statements - Continued Cajun Electric Power Cooperative Inc.

Note 1 - Continued petition payables, is classified as liabilities subject to compromise in the accompanying balance sheet as of December 31, 1994.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES General:

The Cooperative is a rural electric generation and transmission cooperative which is wholly-owned by 12 member distribution cooperatives.

The Members provide electricity to approximately 300,000 metered customers representing nearly 1,000,000 people residing throughout 80% of the land area of Louisiana.

The Cooperative and its Members have entered into wholesale all requirements power contracts which require the Members to purchase all of their electric energy requirements from the Cooperative generally through 2026.

The Cooperative is subject to certain rules and regulations promulgated for rural electric borrowers by the RUS and is also subject to the jurisdiction of the LPSC (see Note 13).

System of Accounts:

The Cooperative maintains its accounting records in accordance eith the Federal Energy Regulatory Commission (FERC) chart of accounts as modified and adopted by the RUS.

Electric Plant In Service:

Electric plant in service is stated on the basis of cost.

Depreciation is computed using the straight-line method over the expected useful lives of the related component assets.

The net book value of units of property replaced or retired, including costs of removal net of any salvage value, is charged to operations.

Nuclear Fuel:

The cost of nuclear fuel, including capitalized interest, is amortized to fuel expense on the basis of the actual number of units of thermal energy produced, multiplied by a unit cost which reflects the total thermal units expected to be produced over the life of the fuel (see Note 10).

Construction Work In Progress: Construction work in progress is stated on the basis l

of cost, net of the amounts applicable to a joint owner, and includes interest during construction on major projects. _ __ _ _ _ _ _ - _ _ _ _.

Notes to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

i Note 2 - Continued f

Investments:

The Cooperative has investments in The National Rural Utilities Cooperative Finance Corporation (CFC) and the National Bank for Cooperatives (CoBank) which are in the form of capital term certificates and Class "C"

and "E" stock, respectively.

In the accompanying financial statements, these investments are carried at cost and include undistributed patronage capital credits from these organizations.

Fuel and Supplies Inventories:

Fuel and supplies inventories are stated on the basi:, of cost 'stilizing the weighted average cost method of inventory valuation.

~~ ~

Deferred Charges:

The balance in deferred charges consists primarily of expenditures for preliminary surveys and investigations and capitalized software.

Patronage Capital Credits:

The Cooperative is organized and operates on a not-for-profit basis.

Patronage capital credits represent that portion of the Cooperative's net margins which have been allocated to Member cooperatives.

As provided in the Cooperative's bylaws, all amounts received from the furnishing of electric energy in excess of the sum of operating costs and expenses and amounts required to offset any current year losses are assigned to Members' patronage capital credit accounts on a patronage basis or, at the discretion of the Board of Directors, may be offset against losses of any prior fiscal year. All other amounts received from operations in excess of costs and expenses may be used to offset losses incurred during the current or any prior fiscal year and, to the extent not needed therefore, are allocated to Members on a patronage basis.

In accordance with the Cooperative's bylaws, the net deficits have not been allocated to the Member cooperatives.

Decommissioning:

Decommissioning reserves represent cumulative accruals for decommissioning expense.

The annual charge for decommissioning expense is the required addition to the decommissioning trust funds such that the balance of the funds (contributions plus net earnings) will be sufficient to satisfy estimated decommissioning costs at the end of the expected useful lives of the Cooperative's facilities (see Note 10).

Deferred Credits:

Deferred credits represent advance payments by the Members for their electric energy requirements.

Kotes to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 2 - Continued Income Taxes:

The Cooperative has adopted Statement of Financial Accounting Standards (SFAS) 109 which utilizes the liability method in accounting for income taxes.

Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities.

Fair Values of Financial Instruments:

The carryina amounts reported in the balance sheet for cash and cash equivalents and decommissioning reserve funds approximate their fair value.

Statement of Cash Flows:

The Cooperative utilizes the direct method of reporting cash flows.

Cash Equivalents:

The Cooperative considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Reclassifications:

Certain reclassifications have been made to the 1993 financial statements to conform to the 1994 presentation.

NOTE 3 - UTILITY PLANT Electric plant in service at December 31 consisted of the following (in thousands):

1994 1993 Production:

Nuclear

$1,463,532

$1,458,197 Coal 1,021,210 1,022,942 Gas 33,264 33,245 Transmission 104,221 101,040 General 18,685 18,355 52,640,912

$2,633,779

Nptes to Financial St1ttements - Continued Cajun Electric Power Cooperative. Inc.

Note 3 - Continued l

Net l

Megawatt Coooerative Ownershio Generatina Unit Ratina Fuel Percentaae Meaawatts River Bend 936 Nuclear 30%

281 Big Cajun 2, Unit 1 540 Coal 100%

540 Big Cajun 2, Unit 2 540 Coal 100%

540 Big Cajun 2, Unit 3 540 Coal 58%

313 Big Cajun 1, Unit 1 105 Gas 100%

105 Big Cajun 1, Unit 2 105 Gas 100%

105 River Ber,d and Big Cajun 2, Unit 3 are jointly owned by the Cooperative and GSU (see Note 12). Construction work in progress consists of improvements and additions to existing plants.

The estimated cost to complete these projects at December 31, 1994 was approximately $14 million.

Nuclear fuel represents the Cooperative's 30% share of River Bend fuel and as of December 31 consisted of the following (in thousands):

1994 1993 Nuclear fuel in process 5 5,533

$ 13,045 Nuclear fuel in reactor 91,489 72,534 Spent nuclear fuel 65.729 65.728 162,751 151,307 5

Less accumulated amortization of nuclear fuel 125.115 112.656 Net nuclear fuel

$ 37.636

$ 38,651 Nuclear fuel in process at December 31, 1994 represents the accumulated cost, including capitalized interest, of fuel required for the sixth reload.

The fuel is in various stages of conversion, enrichmant or fabrication.

Spent nuclear fuel consists of the original cost of nuclear fuel assemblies, in the process of cooling, uhich were removed from the reactor during each of the five previous fuel cycles.

Land relating to an abandoned lignite project has been retained as a possible site for a future generating facility and its cost, $9.5 million, is included in electric plant held for future use. _ _ _ _ _ _ _ _ _ _

-Notes to Financia1' Statements - Continued C'ajun Electric Power Cooperative, Inc.-

Note 3 - Continued The net change in accumulated depreciation and amortization for the years ended December-31 was (in thousands):

1994 1993 Charged to operating expenses.

$73,253-

$73,395 Charged'to fuel inventories

.and other assets 1.061 1.164 74,314 74,559

.Less asset disposals and other adjustments 3.035 2.033 571.279

$72.526 NOTE 4 - INVESTMENTS IN ASSOCIATED ORGANIZATIONS Investments in associated organizations at December 31 consisted of the following l

(in thousands):

1994 1993 CFC

$ 7,692

$ 7,692 CoBank 18,844 27,392 Other 1.408 1.408 527.944 536.492 i

NOTE 5 - LONG-TERM DEBT l

l On December 21, 1990, the Cooperative consummated the DRA effective May 31, 1990, with the United States of America acting through the RUS.

Under the terms of the DRA, the Cooperative executed and delivered to the RUS two notes which restructured l

all of the Cooperative's debt to or guaranteed by the RUS:

Note A, in the original face amount of $2,147,994,670, which matures on December 31, 2026, and Note B, in the original face amount of $1,037,007,550, which has a final maturity date of December 31, 2036..Both Notes A and B bear interest on the unpaid principal balance at a nominal rate of 8.64%, with an assumed effective annual rate of 8.99%.

Prior to December 21, 1994, accrued but unpaid interest on Notes A or B was added to i

. principal on a monthly basis (see Note 1).

The DRA provides that Note A may not be prepaid without the express written consent of the RUS.

Note B may be prepaid

. without premium or penalty. _ - _ _ - _ _ _ _ - - _ _ _ - - _ _.

Notes ko Financial Statements - Continued

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l Cajun Electric Power Cooperative, Inc.

Note 5 - Continued Long-term debt at December 31, consisted of the following (in thousands):

1994 1993 Note A to the RUS, due in varying annual installments through 2026, interest at 8.64% compounded monthly.

$2,659,586 52,467,740 Note B to the RUS, varying annual payments based upon several contingent factors, final maturity December 31, 2036, interest at 8.64%

compounded monthly.

1,513,985 1,393,957 Industrial Development Revenue Bonds, series 1982, interest at two-thirds of prime rate (4% at December 31,1994),due in 5 annual installments from 1994 through 1997.

1,350 1,800 Less current portion of long-term debt.

450 54,174,921 53,863,047 Liabilities subject to compromise (in thousands), including long-term debt at December 31, 1994, are as follows:

4 Long-term Debt

$4,174,921 Excessive 0&M Provision - River Bend 12,421 Accounts Payable and Other Accrued Expenses 9.485 54,196,827 Interest and other debt expense incurred on long-term debt for the years ended December 31 consisted of the following (in thousands):

1994 1993 Interest charged to operating expense

$331,971

$322,348 Other debt expense 231 247 l

Total interest and other debt expense 332,202 322,595 t

l Capitalized interest on nuclear fuel 555 892 l

J332,757 5323,487 l..

Notes to Financial S2atements - Continued Cajun Electric Power Cooperative, Inc.

Note 5 - Continued For the years ended December 31,1994 and 1993, the Cooperative paid $24.9 million and $103.8 million in interest, respectively.

In accordance with S0P 90-7, the Cooperative will recognize interest expense in the financial statements while in Chapter 11 only to the extent it is ordered to pay interest by the Bankruptcy Court.

Contractual interest on Notes A and B for 1994 was $347 million.

The Cooperative believes there is insufficient collateral to enable the RUS to recover the principal portion of these obligations.

Accordingly, the Cooperative ceased accruing interest on these obligations effective December 21, 1994.

Centractual interest related to secured claims not recognized for accounting I

purposes totaled $10 million in 1994.

l Substantially all of the Cooperative's assets are pledged to secure the Cooperative's debt to the RUS by the Supplement to the Supplemental Mortgage and l

Security Agreement (the RUS mortgage) executed November 28, 1990 between the Cooperative, the RUS and CoBank in order to facilitate the DRA.

Both the RUS mortgage and the DRA contain certain restrictive covenants including limitations on indebtedness, capital additions, distributions to Members and an agreement not to

)

lower the Cooperative's wholesale electric rate for the term of the DRA.

At December 31, 1994, the Cooperative was in default under the DRA as well as the RUS mortgage. Certain office facilities in Baton Rouge are separately pledged to secure the Industrial Development Revenue Bonds.

As a consequence of cross-default

{

provisions, the Cooperative is also in default under the terms of the Industrial I

Development Revenue Bonds as well.

CoBank is secured by the RUS Mortgage for two letters of credit amounting to approximately $27 million supporting potential indemnity payments under sale-leaseback transactions completed in 1983.

During 1993, CoBank renewed the letters of credit for an additional five-year period.

It was not practical for the Management of the Cooperative to estimate the fair value of the Cooperative's icng-term debt because of the lack of a quoted market price, the fact the Cooperative is under the protection of the Bankruptcy Court, and an inability to estimate fair value without incurring excessive costs. _ - _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Notes to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

NOTE 6 - SHORT-TERM INVESTMENTS At December 31, 1994, the Cooperative's cash was invested in United States Treasury securities, United States government agencies securities, commercial paper and a

short-term obligations issued by financial institutions.

All investments conform with the guidelines established by the RUS.

Maturities are selected to correspond with cash flow requirements and are generally for periods of less than three months and are considered to be cash equivalents.

N01E 7 - INCOME TAXES Effective January 1,1993, the Cooperative adopted the provisions of Statement of Financial Accounting Standards No.109, Accounting for Income Taxes.

The adoption of this statement had no effect on the Cooperative's financial statements.

The Cooperative had no current or deferred income tax provision for the years ended December 31, 1994 and 1993.

At December 31, 1994, the composition of the Cooperative's deferred tax assets and liabilities (tax effected at a rate of 20%) were as follows (in millions):

Deferred Tax Assets:

Operating Loss Carryforwards

$ 384 Long-term Debt Basis Difference 303 General Business Credit Carryforwards 166 853 Deferred Tax Liability:

Depreciation Temporary Differences (319)

Net Deferred Tax Asset 534 Less: Deferred Tax Asset Valuation Allowance (534)

Net Deferred Tax Asset / Liability 5

0 I -

No%es to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 7 - Continued At December 31, 1994, the Cooperative's operating loss and credit carryforwards were as follows (in millions):

l Nonmember Nonmember Member Year Net Member AMT Net AMT General l

Of Operating Operating Operating Operating Business Exoiration loss Loss loss Loss Credit 1999

$ 9 2000 27 2001 128 4

2002 2

2004 5 15 2005 232

$101 2007 95 94 2008 124 124 2009 93 94 2010 90 90 No Expiration

$1,272

$1.272 5649 51,272

$503 M

E66 66 NOTE 8 - EMPLOYEE BENEFIT PLAN All of the Cooperative's employees participate in the National Rural Electric Cooperative Association (NRECA) Retirement and Security Program once they have met minimum service requirements.

The Cooperative makes annual contributions to the plan equal to the amounts acc. rued for pension expense.

In this master multiple-employer defined benefit plan, which is available to all member cooperatives of the NRECA, the accumulated benefits and plan assets are not determined or allocated separately by individual employer.

The Cooperative made contributions to the plan totaling $407,924 in 1994. No contributions were required in 1993.

l The Cooperative also maintains a defined contribution pension plan which constitutes l

a cash or deferred arrangement under section 401(k) of the Internal Revenue Code of 1986 (as amended). 'Once minimum service requirements are met, all of the employees of the Cooperative are eligible to participate in the plan.

Under the terms of the plan, which is administered by the NRECA, the Cooperative matches 50% of employee contributions up to a maximum of 4% of each participating employee's base compensation. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Notes to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 8 - Continued In December 1990, the Financial Accounting Standards Board issued SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, which requires the accrual of benefits other than retirement income provided to retired workers.

The Cooperative makes available to those salaried employees who retire on or after age 62 and who also have at least 10 years of service, postretirement l

medical insurance benefits.

The Cooperative adopted SFAS No.106 in January 1995 i

and will expense the transition obligation of $4.6 million and an ongoing annual expense of approximately $790,000. These amounts were determined based upon a study concluded in 1994.

In 1994 and prior years, the Cooperative expensed the cost of postretirement benefits as they were paid.

NOTE 9 - RELATED PARTY TRANSACTIONS On June 30, 1993, one of the Cooperative's Members consummated a transaction with an investor owned utility (IOU) whereby the IOU acquired the assets and assumed the liabilities of this Member.

Accordingly, the wholesale power contract with this Member was terminated and a series of wholesale power contracts with the IOU were executed. Upon closing, the 100 paid $15.1 million to the RUS on behalf of the 4

Cooperative.

This amount was applied against the Cooperative's 1993 Note A debt service obligation.

Of this amount, $12.8 million was recognized as other income and $2.3 million represented the collection of an outstanding receivable from the former Member.

Additionally, to reflect the loss of this Member and the future l

contribution the Member would have made toward the Cooperative's Note B debt service obligations, and to protect the remaining Members from any adverse consequence as a result of this transaction, the RUS agreed to reduce the Note B June 30, 1993 balance by $10.3 million and, as the new wholesale power contracts with the IOU expire, the RUS will further reduce the Cooperative's Note B obligation by.765 percent of the Note B balance at that time.

NOTE 10 - SPENT NUCLEAR FUEL AND DECOMMISSIONING RESERVES GSU has executed a contract with the Department of Energy (DOE) whereby the DOE will furnish disposal service for the spent nuclear fuel from River Bend. Currently, the q

cost amounts to one-tenth of one cent per kilowatt hour of sales to ultimate _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Motes to Financial Statements - Continued Cajun Electric Power Cooperative Inc.

Note 10 - Continued consumers.

The DOE spent nuclear fuel fee is subject to change in accordance with the provisions of the Nuclear Waste Policy Act of 1982.

The Nuclear Regulatory Commission (NRC) in 1988 issued final regulations setting forth the technical and financial criteria for decommissioning licensed nuclear facilities.

The regulations require electric util'ities either to certify that a minimum dollar amount will be available to decommission the facility or to submit a decommissioning funding plan.

In addition, these regulations require that financial assurance be provided by either prepayment, an external sinking fund, or by a surety, insurance, or other form of guarantee.

In response to these regulations, on December 2,1988, the Cooperative established an external grantor trust, the River Bend Decommissioning Trust Fund, and intends to make annual contributions to accumulate an amount which will be sufficient, based on current estimates and assumptions, to pay for its share of the cost of decommissioning at the end of the estimated useful life of River Bend.

Annual contributions to the trust are 1

approximately $1.4 million. The Cooperative has based its contribution to the trust on a site-specific engineering study commissioned by GSU.

This study estimated the

)

total cost of decommissioning River Bend to be $206,000,000 (1992 dollars) of which the Cooperative's share is approximately $61.8 million (1992 dollars).

GSU commissioned another study which was completed in 1991 which indicated that the total decommissioning cost estimate had increased to approximately $398,000,000 (1992 dollars).

GSU has not yet accepted this study.

At the time GSU accepts this or other revised studies, the Cooperative will adjust its annual trust contributions accordingly. As of December 31, 1994, the balance in the River Bend Decommissioning Trust Fund was $15.6 million.

The Cooperative is required by the State of Louisiana Department of Environmental Quality (DEQ) to provide assurance that it has the ability to fund the actions which will be necessary to rehabilitate its Big Cajun 2 ash and wastewater impoundment areas which, as disposal sites, are subject to DEQ review and supervision.

The total liability for funding the solid waste disposal site rehabilitation is l

currently estimated to be approximately $4 million, of which GSU is responsible for I

approximately $500,000.

On July 1,1989, the Cooperative created the Solid Waste Disposal Trust and deposited $1.06 million with the trustee in satisfaction of its DEQ funding requirements.

The annual contributions to the trust are approximately l - _ _ _ _ _ - _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _.

Notes to Financial Statements - Continued C'ajun Electric Power Cooperative, Inc.

Note 10 - Continued

$116,000.

The actual payments for site rehabilitation are not scheduled to occur until the end of the estimated useful life of the Big Cajun 2 coal-fired facility.

The balance in the Solid Waste Disposal Trust at December 31, 1994 was $2.2 million.

The Energy Policy Act of 1992 (the Act) establishes a Fund to pay for the decontamination and decommissioning of three nuclear enrichment facilities operated by the DOE.

Electric utilities that have purchased enrichment services in prior years from the DOE are to be charged a special assessment for a portion of the Fund not to exceed $150 million each year, adjusted for inflation.

The special assessments are based on a formula that takes into account the total amount of enrichment services purchased from the DOE by electric utilities in previous years.

The Cooperative paid a special assessment of $257,898 in 1994 and $239,850 in 1993.

The net present value of its remaining liability for the 15 year period is approximately $3.2 million. The Cooperative intends to recognize these costs in the period in which cash payments are required.

NOTE 11 - NUCLEAR INSURANCE The ownership of an undivided interest in River Bend subjects the Cooperative to certain risks. The Cooperative is insured, as described below, for public liability and property damage.

The Price-Anderson Act (the Act) was renewed by Congress in 1988 and was extended through August 1, 2002.

Public liability under the Act for any nuclear incident is currently limited to $8.9 billion.

The Cooperative and GSU are insured for this exposure by private insurance as well as by a secondary financial program.

Changes to the Act related to the secondary financial program may require the Cooperative to become subject to a possible retroactive assessment of which the Cooperative's share would not exceed $23.8 million per incident with a maximum of $3 million per incident payable in any one year for losses at any licensed nuclear facility.

The Cooperative and G5U jointly maintain $500 million of property damage insurance through private insurance and $1.4 billion in excess of the $500 million through WEIL II as member insureds.

The Cooperative is subject to a maximum assessment of _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Notes to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 11 - Continued

$4.4 million in any one policy year as a condition of being a member insured of NEIL II.

There is additional property insurance carried in the amount of $850 million which is excess over the above listed $1.9 billion. Of this amount, the Cooperative has $255 million of property insurance, through private insurance and GSU has $595 million through NEIL III.

Although the Cooperative and GSU continue to attempt to increase insurance coverage l

as it becomes available, the Cooperative can give no assurance as to the adequacy of its coverage in the event of a major accident.

Total available property damage insurance is substantially less than the potential insurable value of River Bend.

In 1991, the NRC promulgated a rule providing that, in the event of an accident at River Bend in which the estimated costs of stabilizing and decontaminating the site exceed $100 million, insurance proceeds must first be dedicated to this purpose.

Proceeds not required for such stabilization and decontamination may then be used to l

repair or replace the damaged unit.

The Cooperative has joined GSU in obtaining a Nuclear Workers' Liability policy which covers liability for the claims of workers l

employed at River Bend after January 1, 1988 for noncatastrophic nuclear related injury such as prolonged exposure to low-level radiation.

Any claims by workers employed at River Bend prior to January 1,1988 will continue to be covered under the Nuclear Workers' Liability policy if the claim is made by December 31, 1997.

l Under the Nuclear Workers' Liability policy, the Cooperative is subject to a maximum potential retrospective premium assessment of approximately $1.0 million.

It is possible that liabilities related to the release or escape of a hazardous substance from River Bend may be greater than the coverage on policies currently carried and, consequently, existing insurance may not be sufficient to meet all possible liabilities or losses.

The Cooperative cannot provide assurance that it will be j

able to maintain coverage at present levels.

Any liability or loss in excess of that covered under existing policies could have a material adverse effect upon the Cooperative. - _ - _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _

Notes to Financial Statements - Continued Cajun Electric Power Cooperative. Inc.

NOTE 12 - GULF STATES UTILITIES COMPANY In August 1979, the Cooperative and GSU entered into a contractual agreement for the joint ownership of River Bend (see Note 3).

The Cooperative has a 30% undivided interest in River Bend and is responsible for 30% of River Bend's costs of construction, capital additions and operations.

On June 5,

1992, Entergy Corporation (Entergy) and GSU entered into an agreement to combine the two companies subject to various regulatory approval s.

The merger of Entergy and GSU was consummated on December 31, 1993.

Entergy Operations, Inc.,

a wholly-owned subsidiary of Entergy, is the operator of River Bend.

In November 1980, the Cooperative and GSU entered into a contractual agreement for l

I the joint ownership of Big Cajun 2, Unit 3, and certain common facilities at Big Cajun 2 (see Note 3).

The Cooperative retained a 58% undivided ownership interest in Unit 3 and an 86% undivided ownership interest in the common facilities.

The Cooperative is the operator of the Big Cajun 2 facilities.

I The Cooperative filed suit on June 26, 1989 against GSU in United States District Court in Baton Rouge alleging fraud in the inducement to enter into the River Bend l

J0P0A as well as misrepresentation, mismanagement, breach of fiduciary duty and

{

breach of contract. The Cooperative seeks the annulment of the River Bend J0P0A and l

the recovery of its investment in River Bend (approximately $1.6 billion) as well as damages resulting from the Cooperative's participation in the River Bend project.

j The Cooperative is seeking further damages associated with excessive operating costs of the facility which arose due to GSU's alleged mismanagement.

On November 7, l

1990, GSU filed an amended counterclaim with the Court requesting that the Big Cajun 2,

Unit 3 J0P0A be rescinded and asked for an appropriate monetary judgment sufficient to place the Cooperative and GSU in the same position as if the Big Cajun 2, Unit 3 J0P0A was never consummated.

Additionally, GSU's counterclaim asserts l

that its present transmission arrangements with the Cooperative should be terminated j

l by the Court. Further, GSU asserts that in any event it is entitled to monetary damages resulting from an alleged breach of contract and fiduciary duty by the Cooperative.

On March 31, 1992, the court appointed a mediator to engage in and j

coordinate settlement discussions t= acen the parties which commenced in July 1992.

On December 14, 1992, the Cooperative filed a motion with the Court seeking a L l

Notes to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 12 - Continued separate trial of the fraud and construction issues of the case.

On January 14, 1993, GSU filed a response with the Court consenting to the Cooperative's request.

In August 1993, the Court issued an order granting the Motion of.the Cooperative to bifurcate the fraud and breach of contract issues for trial. The Court will try the fraud issue first, without a jury; and if necessary, the second phase of the trial regarding the breach of contract issues will be conducted at a later date. The fraud l

trial began on April 12, 1994, and will conclude with closing arguments which will begin on March 6, 1995. The timing or outcome of this matter is uncertain.

In September 1991, the Cooperative commenced exercising its contractual rights under the River Bend J0P0A and elected not to participate in the funding of the Service Mater Project (SWP),

the inlet feedwater nozzle repair, turbine rotor repairs, and extended outage costs associated with the SWP.

Consequently, as of December 31, 1994, the Cooperative has not paid approximately $33.9 million related to these activities, plus $8.7 million of accumulated interest.

GSU asserts that the Cooperative is in default of the River Bend J0P0A and disputes the Cooperative's right to not pay such amounts.

The amounts not paid are based on the Cooperative's best estimate of the related costs to date and are not reflected in the accompanying financial statements. On November 27, 1991, the Cooperative filed a complaint which it amended in December 1992, for Declaratory and Injunctive Relief with the United States District Court, Middle District of 1.ouisiana seeking a declaration and interpretation of the Cooperative's rights as related to this issue under the River Bend J0P0A.

While the timing or outcome of this matter is uncertain, legal counsel has advised the Cooperative that it is within its rights under the River Bend J0P0A to withhold these payments.

in September 1992, the Cooperative began withholding payments to GSU for certain River Bend costs which it determined to be excessive.

During October 1994, the Cooperative ceased all further payments to GSU for River Bend costs for the remainder of 1994 and 1995, except for safety related costs such as nuclear insurance and decommissioning and decontamination payments.

Provisions for Excessive River Bend Costs in the net amounts of $12.4 million and $3.5 million as of December 31,1994 and 1993, respectively, as reflected in the Company's financial statements, are based on a combination of GSU's billings and the Cooperative's best estimates.

The 1994 Provision for Excessive River Bend Costs includes interest of Notes to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 12 - Continued

$847,377 through December 20, 1994 which is applicable to excessive River Bend costs (see Note 5). The timing or outcome of this matter is uncertain.

On November 1,1994, Entergy, responding on behalf of GSU, informed the Cooperative that GSU would begin exercising its rights under the terms of the River Bend J0P0A as a non-defaulting co-owner and sell the Cooperative's 30% share of the output of l

capacity and energy from River Bend and apply the proceeds to the River Bend costs not funded by the Cooperative.

The net proceeds (sales net of associated l

transmission costs) from the sale of the Cooperative's share of River Bend generation was $4.9 million as of December 31, 1994 and was recognized as nonmember revenue with a corresponding reduction of the Provision for Excessive River Bend Costs.

Entergy, asserting a right of compensation under Louisiana law, also informed the Cooperative that funds which were due to be paid to the Cooperative for current operating costs associated with Big Cajun 2, Unit 3, would instead be applied to the deficiency in River Bend funding.

In response, on November 2, 1994, the Cooperative informed Entergy that it would exercise its rights under the Big Cajun 2, Unit 3 J0P0A as a non-defaulting co-owner and sell GSU's 42% share of the output of capacity and energy from Big Cajun 2, Unit 3 and apply the proceeds to satisfy the deficiency in the funding of GSU's share of Unit 3 costs. GSU countered by filing a motion with the Court for a preliminary injunction obligating the Cooperative, among other things, to provide GSU with its share of Big Cajun 2,

Unit 3 output.

Effective December 19, 1994, the Court ordered the Cooperative to supply GSU with its share of Big Cajun 2, Unit 3 output providing that GSU deposits into the registry of the Court the amounts due the Cooperative under the Big Cajun 2, Unit 3 J0P0A from November 1,1994 and each month thereafter as the payments become due.

GSU deposited the required amounts through December 31,19f4.

The Court further stipulated that the Cooperative shall be permitted to withdraw the funds in the court registry when the Cooperative's financial obligations under the River Bend J0P0A are current.

The Cooperative's net receivable from GSU for Unit 3 costs was

$7.7 million as of December 31, 1994..

Notes to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 12 - Continued On December 21, 1994, the Cooperative filed a Petition for Reorganization under Chapter 11 of the Federal Bankruptcy Code with the United States Bankruptcy Court, Middle District of Louisiana (see Note 1).

As part of the Bankruptcy proceedings, the Cooperative filed a motion to reject the River Bend J0P0A with GSU.

GSU has filed pleadings with the Court objecting to the Cooperative's motion to reject the River Bend J0P0A. The timing or outcome of this matter is uncertain (see Note 1).

On July 17, 1987, the Cooperative filed a complaint at the FERC against GSU alleging overbilling and improper cost allocations for certain transmission service charges.

On May 11,1989, the FERC Administrative Law Judge (ALJ) issued an opinion which could have required the Cooperative to pay GSU approximately $25 million for transmission charges for the period 1981 through 1991.

On April 10, 1992, the FERC

~

issued an Initial Decision, which affirmed in part the opinion of the ALJ and stipulated certain additional adjustments.

Both the Cooperative and GSU filed Requests for Rehearing in May,1992.

On November 3,1992, GSU filed with the 5th Circuit Court of Appeals a Request for Review of the FERC's Initial Decision.

On August 25, 1993, the Court of Appeals issued a ruling reversing the Commission and remanding this matter back to the Commission for further consideration.

The Court of Appeals subsequently denied the Cooperative's Request for Rehearing.

On November 17, 1993, GSU filed a proposed rate schedule change with FERC purportedly implementing its interpretation of the Court's remand and requested an expedited ruling.

In an unpublished letter order dated January 13, 1994, the Commission rejected the filing.

On November 21, 1994, the Court of Appeals issued an order directing FERC to respond to GSU's argument and also advise the Court when FERC intends to act on the remand order.

On December 8,1994 the FERC issued an Order establishing an expedited procedural schedule.

Under the schedule, hearings will begin on March 1, 1995 and a decision of the ALJ is to be rendered by April 28, 1995.

The FERC anticipates issuing an Opinion on the remanded proceeding in July, 1995.

As of September 30, 1994, GSU alleges the Cooperative has underpaid total transmission charges of approximately 5156 million, including interest.

The timing or outcome of this matter is uncertain. Accordingly, no provision for any liability that may result has been made in the financial statements. '

Hotes"to Financial Statements - Continued Cajun Electric Power Cooperative. Inc.

Note 12 - Continued On August 7, 1989, the Cooperative filed a complaint at the FERC against GSU alleging that GSU failed to provide certain transmission service and additional delivery points.

The Cooperative further alleged that the transmission service and additional delivery points are necessary to allow one of the Members to supply power to two large industrial customers which could not be served by the Member's own transmission lines.

In 1989, FERC found that the contract did not require that GSU provide the Cooperative or the Member with the transmission service or delivery points requested.

FERC's 1989 ruling was appealed to the United States Court of Appeals.

The Court remanded the matter back to FERC holding that the 1980 transmission service schedule was ambiguous and that the FERC erred in the manner in which evidence was taken on this issue.

On June 24, 1992, the ALJ issued a finding in favor of GSU on this matter. On April 20, 1994, a Joint Request for Rehearing by the Cooperative and the RUS was filed with FERC. On August 3, 1994, the FERC denied the Request for Rehearing. On August 12, 1994, the Cooperative filed a Petition for Review with the Court of Appeals.

On November 10, 1994, the Court of Appeals granted the motions of GSU and the LPSC to intervene in the matter. No schedule has been set in these proceedings. The timing or outcome of this matter is uncertain.

In 1991 Entergy filed what was represented to be an open access transmission tariff

hich purportedly allows third parties to access Entergy's transmission grid.

This j

filing resulted in intervention by numerous parties including the Cooperative.

The FERC approved the tariff with modifications but set no issues for hearing.

The Cooperative and others appealed the FERC's decision to the D.C. Circuit Court of Appeal s.

On July 12, 1994, the D.C. Circuit Court of Appeals reversed the FERC's approval of Entergy's open access tariff on several grounds and remanded the case to the FERC for further proceedings.

While the FERC was considering the case on remand, Entergy submitted a letter to the FERC stating that Entergy intended to file amended tariffs which would comply with both the D.C. Circuit Court of Appeal's remand of the FERC's decision and which would satisfy the FERC's recently announced policy on transmission service comparability.

Entergy filed its tariffs on October 31, 1994.

The Cooperative as well as other parties intervened with the FERC.

On January 6,1995, the FERC issued an order rejecting certain portions of Entergy's proposal and setting the remainder for hearing.

The timing or outcome of this matter is uncertain.

Notes to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 12 - Continued On January 10, 1995, GSU filed with FERC a proposed amendment to their Power Interconnection Agreement with the Cooperative.

This amendment would allow GSU, in the event that the Cooperative failed to pay any sum due for services under any transmission service schedule, to suspend service and to cancel or terminate GSU's transmission arrangements with the Cooperative.

On February 6,

1995, the Cooperative filed an intervention requesting that the GSU filing either be rejected or set for hearing.

The FERC has not yet acted in this matter.

The timing or outcome of this matter is uncertain.

An unfavorable outcome of the litigation related to the SWP, the inlet feedwater nozzle repair or replacement, turbine rotor repairs, other excessive River Bend costs, or the proceedings at the FERC as discussed in the above paragraphs could have a material adverse impact upon the Cooperative.

NOTE 13 - RATES AND REGULATION The Cooperative has been regulated by the LPSC since 1989.

At the time the LPSC asserted jurisdiction over the Cooperative it also initiated an examination of the Cooperative's rates, LPSC Docket U-17735.

In May, 1990, the LPSC ordered the Cooperative to reduce its base rate by 4 mills, replacing a fuel credit of approximately the same amount which the Cooperative had been flowing through its i

fuel adjustment.

In July,1990, the LPSC approved the DRA between the Cooperative and the RUS and approved the Cooperative's existing wholesale rates, but added the condition that " annual average rates of 54.5 mills will be the maximum rates to be charged through December 31, 1991, subject to the other provisions of this Order and any prospective ratemaking adjustments which result from any ratemaking investigations of Cajun."

In early February, 1992, the LPSC approved the Cooperative's request to reduce the 4 mill credit to a 1 mill credit through a phase-out during 1992.

This base rate increase was intended to offset a decrease in fuel costs and keep rates stable.

The LPSC's approval was subject to certain conditions, including a continuation of the 54.5 mill rate cap.

Notes to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 13 - Continued In July, 1992, as part of its rate examination, the LPSC began investigating the l

prudence of the Cooperative's decision to invest in the River Bend nuclear plant.

As a result of its investigation, in June,1994, the LPSC in an Order:

(1) declared the River Bend investment imprudent; (2) declared the River Bend asset to be excess uneconomic capacity and disallowed it under the used and useful principle, but allowed the Cooperative to recover avoided costs for River Bend electricity; (3) disallowed under the retroactive ratemaking rule the cooperative's accumulated past losses; and (4) directed its consultants to update the test year and recommend to the LPSC rates consistent with these findings.

The Cooperative has appealed this Order to the 19th Judicial District Court.

The timing or outcome of this matter is uncertain.

In December 1994, pursuant to their prudence finding, the LPSC ordered the Cooperative to lower its rates by $30.2 million to 48.8 mills effective December 21, 1994.

This Order also adopted the Cooperative's proposed rate design changes.

The Cooperative has appealed this Order to the 19th Judicial District Court.

The timing or outcome of this matter is uncertain.

On December 20, 1994, the RUS ordered the Cooperative to maintain its current rates stating that the LPSC's rate reduction order " seriously compromises important federal interests,

. conflicts with the purposes of the Rural Electrification Act, and therefore is implicitly preempted by federal law."

On December 21, 1994, the Cooperative filed with the LPSC its revised rate schedules as ordered, then filed for protection under Chapter 11 of the United States Bankruptcy Code.

On the same day, stating that it was being subjected to conflicting jurisdictional assertions over its rates by the LPSC and the RUS, the Cooperative also filed a motion with the Bankruptcy Court asking for a preliminary injunction enjoining either RUS or the LPSC from taking any action, instituting any proceeding, or attempting in any way to impose upon the Cooperative its rate making authority and i

regulation until a final hearing and determination is made on which entity, the LPSC or RUS, has the authority to regulate the rates of the Cooperative.

The Court has not yet acted on this motion. l

Notes to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 13 - Continued In October,1993, the LPSC hired consultants to conduct a management audit of the Cooperative.

An initial meeting was held in March, 1994.

The Cooperative responded to several data requests and the LPSC's consultants interviewed 38 Cooperative personnel and four Board members, with the last set of interviews occurring in August, 1994.

Additional interviews are expected.

This audit is expected to be concluded with an issuance of findings and recommendations in 1995.

NOTE 14 -,'OMMITMENTS AND CONTINGENCIES Gulf States Utilities Company: As discussed more fully in Note 12, the Cooperative is involved in significant litigation and regulatory proceedings with GSU.

Coal and Transportation Comitments:

Purchases under the terms of contracts for the acquisition and related transportation of coal during 1994 and 1993 were approximately $121 million and $113 million respectively.

Certain purchases are subject to various price escalators and deflators, minimum quantity takes and periodic price reopeners at then current market prices.

Management is of the opinion that these contracts will properly meet anticipated coal supply needs.

The i

transportation contracts begin to expire in 1999 while the coal contracts are for the useful life of the coal-fired generating facility, provided the present supplier is willing to meet or better offers from other suppliers at scheduled periodic price reopeners.

Litigation:

On September 20, 1989, a class action petition was filed in the Tenth Judicial District State Court in Natchitoches Parish, Louisiana naming the Cooperative's Members as defendants. The plaintiffs in this action seek a refund of all rate increases enacted by the Cooperative's Members from 1978 until the respective Member voted to be subject to the jurisdiction of the LPSC or was placed under the jurisdiction of the LPSC by action of the State Supreme Court.

On October 17, 1989, the case was moved to the federal courts.

On June 23, 1990, motions were filed by the Cooperative's Members to name the Cooperative as a third party defendant in the case.

On July 15, 1991, the United States District Court in New Orleans entered an order retaining jurisdiction in the case and granting the motions of the Cooperative's Members to enjoin the Cooperative as a third party Notes' to Financial Statements - Continued Cajun Electric Power Cocperative, Inc.

Note 14 - Continued defendant in the case.

On August 28, 1992, the District Court abstained from this matter in favor of proceedings at the LPSC.

The LPSC currently has a docket associated with this matter.

Docket U-19943 is an examination of the cooperatives' rates during the period of non-regulation, 1978 through 1989.

The first hearings on this docket occurred in the first quarter of 1994.

These hearings are to deal with the question of the standards to be used by the LPSC in evaluating the cooperatives' rates and rate increases during that period. The timing or outcome of this matter is uncertain and no provision for any liability that may result has been made in the financial statements. An unfavorable outcome could have a material adverse impact upon the Cooperative, l

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