NLS2006053, Nebraska Public Power District 2005 Annual Financial Report for Cooper Nuclear Station

Nebraska Public Power District 2005 Annual Financial Report for Cooper Nuclear Station

ML061710090
Person / Time
Site:	Cooper
Issue date:	06/16/2006
From:	Fleming P Nebraska Public Power District (NPPD)
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
NLS2006053
Download: ML061710090 (28)

Text

Nebraska Public Power District Always there when you need us 50.7 1(b)

NLS2006053 June 16, 2006 U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555-0001

Subject:

Nebraska Public Power District 2005 Annual Financial Report Cooper Nuclear Station, Docket No. 50-298, DPR-46, The purpose of this letter is to transmit the Nebraska Public Power District Annual Financial Report for the calendar year 2005 in accordance with the requirements of 10 CFR 50.71(b). Copies of this report are being distributed in accordance with 10 CFR 50.4.

Should you have any questions or require additional infonnation, please contact Paul Fleming, Licensing Manager, at (402) 825-2774.

Sincerely, Paul Fleming Licensing Manager

/cb Enclosure cc: Regional Administrator w/enclosure USNRC - Region IV Cooper Project Manager w/enclosure USNRC - NRR Project Directorate IV- I Senior Resident Inspector w/enclosure.

USNRC - CNS NPG Distribution w/enclosure CNS Records w/enclosure COOPER NUCLEAR STATION P.O. Box 98 / Brownville, NE 68321-0098 Telephone: (402) 825-3811 / Fax: (402) 825-5211 www.nppd.com

i ATTACHMENT 3 LIST OF REGULATORY COMMITMENTS© Correspondence Number: NLS2006053 The following table identifies those actions committed to by Nebraska Public Power District (NPPD) in this document. Any other actions discussed in the submittal represent intended or planned actions by NPPD. They are described for information only and are not regulatory commitments. Please notify the Licensing Manager at Cooper Nuclear Station of any questions regarding this document or any associated regulatory commitments.

COMMITMENT COMMITTED DATE COMMITMENT NUMBER OR OUTAGE None

________I___ I ____

PROCEDURE 0.42 REVISION 19 PAGE 20 OF 27

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A Statistical Review I Management Analysis 2 Report of Independent Auditors 9 Financial Statements 10 Notes to Financial Statements 14 KILOWATT-HOUR SALES 18.2 BILLION OPERATING REVENUES 726.8 MILLION COST OF POWER PURCHASED AND GENERATED 379.6 MILLION OTHER OPERATING EXPENSES 263.7 MILLION INCREASE INFUND EQUITY 41.4 MILLION DEBT SERVICE COVERAGE 1.68

2005 STATISTICAL REVIEW Revenues from Average Electric Energy Electric Sales Number of MWH Sales (000's)

SALES Revenue Per Customers Amount  % Amount  % KWH Retail:

Residential 67,744 770,977 4.2 $ 70,962 9.8 9.20¢ Rural & Farm 2,942 65,810 0.4 5,142 0.7 7.81¢ Commercial 14,737 856,450 4.7 57,572 7.9 6.72¢ Industrial 54 1,234,889 6.8 43,920 6.0 3.56¢ Public Lighting 190 18,053 0.1 2,023 0.3 11.21$

Municipal Power 180 28,954 0.1 1,903 0.3 6.57¢ Miscellaneous Municipal 1,912 123,033 0.7 5,897 0.8 4.79$

Total Retail Sales 87,759 3,098,166 17.0 187,419 25.8 6.05$

Wholesale:

52 Municipalities (Total Requirements) 1,887,165 10.4 10.2 74,427 3.94$

2 Municipalities (Partial Requirements) 32,197 0.2 1,246 0.2 3.87t 24 Public Power Districts & Cooperatives (Total Requirements) 6,116,286 33.6 224,050 30.8 3.66$

Total Wholesale Sales (Excluding Sales to LES, MEC and Other Utilities) 8,035,648 44.2 299,723 41.2 3.73¢ Total Retail and Wholesale Sales (Excluding Sales to LES, MEC and Other Utilities) 11,133,814 61.2 487,142 67.0 4.38$

Sales to LES and MEC (1) 3,257,824 17.9 11.8 85,920 2.64¢ Other Utilities (Nonfirm and Other Sales) 3,808,713 20.9 135,163 18.6 3.55¢ Total Electric Energy Sales 18,200,351 100.0 708,225 97.4 3.89t Other Operating Revenues (Net of Deferred) 18,558 2.6 Total Operating Revenues $ 726,783 100.0 Production Costs MWH (000's)

GENERATION Amount  % Amount  %

Production (Including Interchange) 17,353,972 92.4 $ 324,593 85.5 Power Purchased 1,432,015 7.6 54,973 14.5 Total Power Produced and Purchased 18,785,987 100.0 $ 379,566 100.0 (1) Sales to Lincoln Electric System ("LES") include power and energy produced at Nebraska Public Power District's Gerald Gentleman Station and Sheldon Station. Sales to MidAmerican Energy Company ("MEC") are for power and energy produced at Cooper Nuclear Station.

Miles of Transmission Line in Service 5,036 Number of Employees 2,143 2005 Accrued Contractual and Tax Payments (000's):

Payments to Retail Communities $ 17,622 Payments in Lieu of Taxes $ 6,636 Hydro & Renewable SOURCES OF ENERGY- 2005 (11.5%)

For service to retail and total Gas & Oil requirements wholesale customers (2.5%) Coal (excludes sales to Other Utilities and (57.9%)

Sales to LES and MEC). Nuclear (28.1%)

I NEBRASKA PUBLIC POWER DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS The following Management's Discussion and Analysis should be read in conjunction with the audited Financial Statements and Notes to Financial Statements beginning on page 10.

OVERVIEW OF BUSINESS Nebraska Public Power District (the "District") operates an integrated electric utility system including facilities for generation, transmission and distribution of electric power and energy for sales at wholesale and retail. The District is a summer peaking utility. An all-time system summer anytime peak of 2,539 MW was established in July 2005 for the District's firm requirements customers. The District's all-time winter peak is 1,856 MW, which was established in December 2005.

The District owns or has operating control over 36 generating plants, which had a combined accredited capacity during the summer of 2005 of 3,111.2 MW.

GENERATION PLANTS Number of Accredited Percent of Type: Plants (1) Capability (MW) Total Coal - Gerald Gentleman Station 1 1,365.0 43.9 Coal - Sheldon Station 1 225.0 7.2 Gas - Beatrice Power Station 1 237.0 7.6 Gas/Oil - Canaday Station 1 118.0 3.8 Nuclear - Cooper Nuclear Station 1 756.1 24.3 Hydro 9 151.6 4.9 Diesel 19 103.5 3.3 Combustion Turbine 3 155.0 5.0 36 3,111.2 100.0 (1) Includes six hydro plants and 17 diesel plants under contract to the District In addition to the above generating plants, the District purchases 451.3 MW of firm power from the Western Area Power Administration and other capacity and energy on both a short-term and non-firm basis in the wholesale energy market.

The District also owns and operates 5,036 miles of transmission and subtransmission lines, encompassing the entire State of Nebraska.

The District's customer base for firm energy sales consists of approximately 87,800 retail customers plus 76 municipalities, public power districts, and cooperatives that are total requirements wholesale customers of the District. In addition, the District has several participation sale contracts in place with other utilities for the sale of power and energy at wholesale from specific generating plants. The District also sells energy on a non-firm basis in the wholesale energy market.

ENERGY SALES(1)

Gigawatt Hours 20,000 15,000 7,191 8,000 6,772 7,189 7,066 10,000..

5,000 10,088 10,755 10,799 10,763 11,134 0075 2001 2002 2003 2004 2005 Firm Energy Sales Additional Energy Sales (1) All years include the sale of energy to MidAmerican Energy Company from Cooper Nuclear Station NEBRASKA PUBLIC POWER DISTRICT 2

- h CONDENSED BALANCE SHEETS 2005 2004 2003 Condensed Balance Sheets (000's):

Utility Plant, net $ 1,715,339 $ 1,652,915 $ 1,538,213 Special Purpose Funds 566,546 554,358 561,906 Current Assets 369,070 328,848 379,604 Deferred Charges and Other Assets 392,077 309,827 307,053 Total Assets $ 3,043,032 $ 2,845,948 $ 2,786,776 Fund Equity $ 786,042 $ 744,598 $ 720,554 Long-Term Debt 1,339,617 1,184,656 1,289,331 Current Liabilities 188,886 254,362 162,898 Deferred Credits and Other Liabilities 728,487 662,332 613,993 Total Fund Equity and Liabilities $ 3,043,032 $ 2,845,948 $ 2,786,776 RESULTS OF OPERATIONS 2005 2004 2003 Condensed Statements of Revenues, Expenses, and Changes in Fund Equity (000's):

Operating Revenues $ 726,783 $ 644,562 $ 659,695 Operating Expenses (643,255) (590,510) (604,587)

Operating Income 83,528 54,052 55,108 Investment and Other Income 21,416 25,604 21,416 Debt and Other Expenses (63,500) (55,612) (58,661)

Increase in Fund Equity $ 41,444 $ 24,044 $ 17,863 Total operating revenues were $726.8 million in 2005, $644.6 million in 2004, and $659.7 million in 2003. The sources of operating revenues were as follows (000's):

2005 2004 2003 Firm Sales -Wholesale & Retail $487,142 $ 464,327 $ 465,542 Participation Sales to LES & MEC 85,920 105,954 116,274 Sales to Other Utilities 135,163 78,819 59,599 Other Operating Revenue 45,982 21,309 21,480 Deferred Revenue (27,424) (25,847) (3,200)

Total Operating Revenue $ 726,783 $ 644,562 $ 659.695 3 NEBRASKA PUBLIC POWER DISTRICT

I Revenues From Firm Sales - Wholesale & Retail Revenue from firm sales increased $22.8 million, or 4.9%, from $464.3 million in 2004 to $487.1 million in 2005. This increase is due primarily to an increase in Kilowatt-hour energy sales of 3.4% and a 2.5% increase in the District's wholesale rates. Revenue from firm sales decreased $1.2 million, or 0.3%, from $465.5 million in 2003 to $464.3 million in 2004.

This decrease is due primarily to a decrease in Kilowatt-hour energy sales of 0.3%.

AVERAGE REVENUE PER KWh SOLD- RETAIL (Retail - All Classes)

Cents per KWh 2001 2002 2003 2004 2005 AVERAGE REVENUE PER KWh SOLD - WHOLESALE (Firm Wholesale Customers Only)

Cents per KWh 4.00 -

3.80+ 3.73 3.66 3.64 3.60.

3.42 3.40.

3.20.

3.00 F-2001 2002 2003 I -

2004 2005 Revenues From Participation Sales to LES & MEC and Sales to Other Utilities During 2005, the District made participation sales to Lincoln Electric System ("LES") from the capacity and energy produced at Gerald Gentleman Station ("GGS") and Sheldon Station; to MidAmerican Energy Company ("MEC") from Cooper Nuclear Station ("CNS"); to Aquila Inc. ("Aquila") from GGS and CNS; to Heartland Consumers Power District ("Heartland") from CNS; and to the Municipal Energy Agency of Nebraska ("MEAN") from GGS and CNS. The District also engaged in sales of energy with other utilities on a non-firm basis.

Revenue from participation sales to LES and MEC decreased from $106.0 million in 2004 to $85.9 million in 2005, a decrease *of$20.1 million. The decrease was due primarily to the termination of the original MEC power sales contract for 380 MW from CNS on December 31; 2004. A new MEC power sales contract for 250 MW from CNS went into effect on January 1, 2005. Revenue from such participation sales decreased from $116.3 million in 2003 to $106.0 million in 2004, a decrease of $10.3 million. The decrease was due primarily to the termination of the LES participation sales agreement for capacity and energy from CNS on September 30, 2003.

Sales to other Utilities consist of the participation sales to Aquila, Heartland, and MEAN and non-firm off-system sales.

The Energy Authority ("TEA"), of which the District is a member, has energy marketing responsibilities for the District's non-firm off-system sales and the related management of credit risks. Sales to other utilities increased from $78.8 million in 2004 to $135.2 million in 2005, an increase of $56.4 million. This increase is due primarily to having more capacity and energy available for sale in 2005 as a result of the net decrease of 130 MWs between the two MEC power sales contracts from CNS, fewer planned and unplanned outage days in 2005 at the District's major base load generating facilities (CNS, GGS, and Sheldon Station), and favorable market prices on sales.

NEBRASKA PUBLIC POWER DISTRICT 4

I.

Other Operating Revenue Other operating revenue consists primarily of transmission wheeling revenues and revenue from work for other utilities.

These revenues were $46.0 million, $21.3 million and $21.5 million in 2005, 2004, and 2003, respectively. The increase in 2005 is due primarily to an $18.4 million settlement with the Central Interstate Low-Level Radioactive Waste Commission

("Commission") on August 1, 2005.

Deferred Revenue The District's wholesale and retail electric rates are established on a prospective basis. The estimated revenue requirements used to establish rates include operating expenses, excluding depreciation and amortization; debt service requirements on revenue bonds; payments of principal and interest on subordinated debt; amounts for capital projects to be paid from current revenues; and amounts for reserves to pay future costs, such as future nuclear facility decommissioning costs.

Under the provisions of the District's wholesale power contracts, if the rates for wholesale power service in any year result in a surplus or deficiency in revenues necessary to meet revenue requirements, such surplus or deficiency, within certain limits set forth in the wholesale power contracts, may be retained in a rate stabilization account. Any amounts in excess of the limits will be included as an adjustment to revenue requirements in future rate periods. A similar process is followed in accounting for any surplus or deficiency in revenues necessary to meet revenue requirements for retail electric service.

Under generally accepted accounting principles for regulated electric utilities, such surpluses or deficiencies are accounted for as "regulatory assets or liabilities." The District follows this accounting treatment.

The District recognizes all revenues in excess of revenue requirements in any year as a deferral or reduction of revenues.

Such surplus revenues are excluded from the net revenues available under the General Resolution to meet debt service requirements for such year. Surplus revenues are included in the determination of net revenues available under the General Resolution to meet debt service requirements in the year that such surplus revenues are taken into account in setting rates. During the years 2005, 2004, and 2003, respectively, revenues from firm wholesale and retail sales exceeded actual revenue requirements in each such year.

The District deferred or reduced revenues a net amount of $27.4 million in 2005. The District's revenues in 2005 from firm wholesale and retail electric sales resulted in a surplus, or over collection of costs, of $31.2 million, which surplus amount was deferred (decrease in revenues). In addition, the wholesale and retail rates that were in place for 2005 included a refund of $3.8 million of surplus net revenues from past rate periods. Such surplus had previously been accounted for as a reduction in revenue in the year(s) the surplus occurred. Accordingly, the 2005 revenues from electric rates, which reflect the surplus being refunded, are offset by a revenue adjustment (increase in revenues) for such amount.

The District deferred or reduced revenues a net amount of $25.8 million in 2004. The District's revenues in 2004 from firm wholesale and retail electric sales resulted in a surplus, or over collection of costs, of $41.1 million, which surplus amount was deferred (decrease in revenues). In addition, the wholesale rates that were in place for 2004 included a refund of $15.3 million of surplus net revenues from past rate periods. Such surplus had previously been accounted for as a reduction in revenue in the year(s) the surplus occurred. Accordingly, the 2004 revenues from electric rates, which reflect the surplus being refunded, are offset by a revenue adjustment (increase in revenues) for such amount. In comparison, for 2003, the District deferred or reduced revenues a net amount of $3.2 million. The District's revenues in 2003 from firm wholesale and retail electric sales resulted in a surplus, or over collection of costs, of $20.9 million, which surplus amount was deferred (decrease in revenues). In addition, the wholesale and retail rates that were adopted for 2003 included a refund of $17.7 million of surplus net revenues from past years. Such surplus had previously been accounted for as a reduction in revenue in the year(s) the surplus occurred. Accordingly, the 2003 revenues from electric rates, which reflect the surplus being refunded, are offset by the revenue adjustment (increase in revenues) for such amount.

As of December 31, 2005, 2004, and 2003, the District had $93.7 million, $66.3 million, and $40.5 million, respectively, of surplus deferred revenues yet to be applied as credits against revenue requirements in future rate periods. The District's wholesale and retail electric rates for 2006 include a refund of $25.7 million of surplus deferred revenues.

Operating Expenses Total operating expenses in 2005 were $643.3 million, an increase of $52.8 million from 2004. Total operating expenses in 2004 were $590.5 million, a decrease of $14.1 million from 2003. Total operating expenses in 2003 were $604.6 million. The changes were due to the following:

Purchased power and production fuel expenses were $186.9 million, $161.0 million, and $179.9 million, in 2005, 2004, and 2003, respectively. These expenses increased $25.9 million in 2005 compared to 2004 due primarily to fuel associated with the District's new 250 MW gas-fired Beatrice Power Station coming on-line in January 2005.

5 NEBRASKA PUBLIC POWER DISTRICT

These expenses decreased $18.9 million in 2004 compared to 2003. This decrease was due primarily to there being fewer planned and unplanned outage days at the District's major base load generation facilities (CNS, GGS, and Sheldon Station) in 2004 compared to 2003. As a consequence of the number of days of planned and unplanned outages being less in 2004 as compared to 2003, the need to purchase replacement energy and generate energy from other District plants at higher incremental costs was substantially less.

Production operation and maintenance expenses were $192.7 million, $200.3 million, and $203.2 million, in 2005, 2004, and 2003, respectively. These costs decreased $7.6 million in 2005 compared to 2004 due primarily to the accrual of $13.0 million for certain stay benefits to employees at CNS paid out in late 2004. There was no such accrual for stay benefits in 2005. This decrease is partially offset by costs associated with a planned refueling and maintenance outage at CNS in 2005. No such refueling outage occurred in 2004. These costs decreased $2.9 million in 2004 as compared to 2003 due primarily to there being no planned refueling and maintenance outage at CNS in 2004.

The transmission and distribution operation and maintenance expenses were $39.1 million, $34.9 million, and $33.9 million, in 2005, 2004, and 2003, respectively. These costs increased $4.2 million in 2005 as compared to 2004 due to work done in connection with the strategic asset management program.

Customer service and information expenses were $14.7 million, $14.6 million, and $15.2 million, in 2005, 2004, and 2003, respectively. These expenses did not vary significantly from year to year.

The administrative and general expenses did not vary significantly from year to year. These expenses were $49.3 million,

$46.4 million, and $46.1 million, in 2005, 2004, and 2003, respectively.

Decommissioning expenses represent the net amount accrued each year for the future decommissioning of CNS. In 2003, the District adopted the provisions of SFAS No. 143, "Accounting for Asset Retirement Obligations' (SFAS No. 143), See ACCOUNTING CHANGE. Subsequent to the adoption of SFAS No. 143, the decommissioning expense recognized by the District is determined by a combination of the calculated accretion expense under SFAS No. 143, revenues billed to customers in rates for decommissioning costs and investment earnings on monies accumulated in decommissioning funds.

To the extent that the accretion expense on the asset retirement obligation ("ARO") determined under SFAS No. 143 is different from the total of amounts collected in rates and investments earnings on monies accumulated in the decommissioning funds, the District will defer that difference as a regulatory asset or liability to be recovered or refunded in future periods. Accretion expense for 2005, 2004, and 2003 was $29.0 million, $27.6 million, and $26.3 million, respectively, and decommissioning expense was $32.7 million, $18.9 million, and $17.9 million, respectively.

Decommissioning expenses increased by $13.8 million in 2005 as compared to 2004 due to the District designating an

$18.4 million refund from the Commission to be used for the eventual decommissioning of CNS. This increase is partially offset by a $4.6 million net decrease in investment earnings from 2004. Decommissioning expenses increased by $1.0 million in 2004 as compared to 2003 as a result of higher investment earnings.

Depreciation and amortization expenses were $103.5 million, $91.5 million, and $85.4 million in 2005, 2004, and 2003, respectively. These expenses increased $12.0 million between 2005 as compared to 2004 and increased $6.1 million between 2004 as compared to 2003 because of new plant additions.

Increase in Fund Equity The increase in fund equity (net revenues) was $41.4 million in 2005, $24.0 million in 2004, and $17.9 million in 2003.

The increase in fund equity of $17.4 million in 2005 as compared to 2004 and $6.1 million in 2004 as compared to 2003 reflects increases in revenue requirements used to establish rates for 2005 and 2004 for the purpose of increased commercial paper principal payments and increased payments of principal amounts on outstanding revenue bonds.

NEBRASKA PUBLIC POWER DISTRICT 6 i:

CAPITAL REQUIREMENTS The District's Board of Director's authorized capital projects totaling approximately $91.2 million in 2005, $208.9 million in 2004, and $96.0 million in 2003. The amount for 2005 included $14.0 million for costs associated with the license renewal for CNS and $14.3 million for a coal burner equipment replacement project at GGS. CNS is currently licensed to operate until January 2014. The District plans to seek a 20-year license extension from the Nuclear Regulatory Commission to operate the plant to 2034. The amount for 2004 included $81.3 million for the installation of 60 MW of wind generation that became operational in the fourth quarter of 2005, $20.3 million for a generator rewind at CNS, $10.7 for a generator rewind at GGS, and $12.0 million for the installation of a well field to provide a supplemental source of cooling water for GGS. Drought-like conditions have existed in western Nebraska for the last six years, which could impact the future availability of cooling water for GGS from the Platte River system and Lake McConaughy. The well field was installed as part of the District's drought mitigation strategy to insure the continued availability of cooling water. The amount for 2003 included $35.4 million for the purchase of low pressure turbine rotors for CNS to replace the turbine rotors that failed during 2003 and again in 2004. The new replacement low pressure turbines, which required a long lead-time to be manufactured and shipped, were installed during the refueling and maintenance outage in January 2005. The remaining capital projects authorized in 2005, 2004, and 2003, which totaled $62.9 million, $84.6 million, and $60.6 million, respectively, were primarily for renewals and replacements to existing facilities and other minor additions and improvements.

The District's Board approved budget for capital projects in 2006 is $147.3 million, which includes $45.0 million for the installation of a dry cask fuel storage system at CNS and $9.2 million for a high pressure turbine retrofit at GGS. The District's capital requirements are funded by a combination of monies generated from operations, issuance of revenue bonds, issuance of short-term debt, and other available reserve funds.

FINANCING ACTIVITIES The District had $1.354 billion (par amount) of outstanding revenue bonds at December 31, 2005, as compared to $1.242 billion (par amount) at December 31, 2004, and $1.258 billion (par amount) at December 31, 2003. Except for $53.1 million of auction rate revenue bonds issued in April 2004, the revenue bonds outstanding are at fixed interest rates and were issued at premiums or discounts. In addition, the District had outstanding $70.0 million of tax-exempt commercial paper ("TECP") notes at December 31, 2005, $83.9 million at December 31, 2004, and $81.9 million at December 31, 2003. A bank credit agreement is maintained to support the sale of the commercial paper notes.

In January 2005, the District issued $103.6 million of tax-exempt revenue bonds at a premium to fund a 60 MW wind generation facility, and a well field and generator rewind at the District's GGS coal-fired generating plant. In February 2005, the District issued $75.3 million of tax-exempt revenue bonds at a premium to advance refund $76.9 million of bonds, which amount represented a portion of the bonds issued in 1999 and 2003 with maturities from January 1, 2011 through January 1, 2016. The refunding is anticipated to result in total debt service savings to the District of $3.0 million during the period January 2005 through December 2015. In February 2005, the District issued $140.6 million of tax-exempt revenue bonds at a premium to advance refund a portion of the bonds issued in 1998 with maturities from January 1, 2009 through January 1, 2017. The refunding is anticipated to result in total debt service savings to the District of $6.5 million during the period February 2005 through December 2016. In October 2005, the District issued $131.9 million of tax-exempt revenue bonds at a premium to fund its $78.4 million share of construction costs through December 2006 of the Omaha Public Power District's Nebraska City Station Unit 2 coal-fired generating plant and to advance refund $44.3 million of bonds. The District's total share of the plant construction costs is estimated to be $170.0 million over the next three years. The refunded bonds represent a portion of the bonds issued in 1999 with maturities from January 1, 2017 through January 1, 2019. The refunding is anticipated to result in total debt service savings to the District of $2.2 million during the period October 2005 through December 2018.

In November 2004, the District issued $149.0 million of tax-exempt revenue bonds at a premium to advance refund

$151.0 million of bonds, which amount represented a portion of the bonds issued in 1998 with maturities from January 1, 2011 through January 1, 2014. The refunding is anticipated to result in total debt service savings to the District of $6.1 million during the period November 2004 through December 2013. InApril 2004, the District issued $53.1 million of taxable auction rate revenue bonds for the purpose of funding the cost of various capital projects at CNS. In September 2003, the District issued $205.0 million of tax-exempt revenue bonds at a premium to refund the $75.0 million of construction notes outstanding and to provide completion financing for the construction of a combined cycle generation plant.

The District retired $76.8 million, $69.9 million, and $70.8 million of General System Revenue Bonds in 2005, 2004, and 2003, respectively.

The District's current credit ratings on its long-term debt are as follows:

Moody's Investors Service Al (stable outlook)

Fitch Ratings A+ (stable outlook)

Standard & Poor's Ratings Services A (stable outlook)

. 7 NEBRASKA PUBLIC POWER DISTRICT

DEBT SERVICE COVERAGE The District's debt service coverage was 1.68 in 2005, 1.58 in 2004, and 1.47 in 2003. The coverage is provided primarily by the amounts collected in operating revenues to fund the cost of utility plant additions, the amounts collected in operating revenues for principal and interest payments on the outstanding commercial paper notes, and the amounts collected in operating revenues to fund the cost of payments made to those municipalities served by the District under long-term Professional Retail Operating Agreements. The District has established a goal in its planning process to maintain a debt service coverage of approximately 1.5 times annual debt service.

CNS FUTURE OPERATION Cooper Nuclear Station is currently licensed to operate until January 2014. The District is currently performing additional studies on CNS to uprate station capacity by 2 to 17 percent. In November 2004, the District's Board of Directors approved a recommendation by management to proceed with the process to seek approval from the Nuclear Regulatory Commission to extend the operating license of CNS to 2034. A recommendation to the Board regarding the issues associated with power uprate options is expected in 2006.

The District entered into an agreement for support services at CNS with Entergy Nuclear Nebraska, LLC, a wholly owned indirect subsidiary of Entergy Corporation, in October 2003. The Entergy Agreement is for an initial term ending January 18, 2014. The agreement requires the District to reimburse Entergy's costs of providing services and to pay Entergy annual management fees. Beginning in 2007 and each year thereafter, Entergy could also earn additional incentive fees if CNS achieves identified safety and regulatory performance targets during each such year.

The power sales contract with MEC for the sale of 380 MW of capacity and energy from CNS ended on December 31, 2004. The District entered into a new power sales contract with MEC to provide 250 MW of capacity and energy from January 1, 2005 until December 31, 2009. The District also entered into agreements for the sale of capacity and energy from CNS to Heartland, to Aquila, and to MEAN. The Heartland agreement provides for delivery of capacity and energy beginning on January 1, 2004 and terminating on December 31, 2013 in amounts ranging from 5 MW up to 45 MW. The Aquila agreement provides for delivery of 75 MW of capacity and energy from January 1, 2005 until January 18, 2014.

The MEAN agreement, amended on May 1, 2005, provides for delivery of capacity and energy beginning May 1, 2004 and terminating on April 30, 2014 in amounts ranging from 60 MW up to 90 MW, of which 60% will be provided from CNS and 40%from GGS.

ACCOUNTING CHANGE In 2003, the District adopted the provisions of SFAS No. 143, which provides accounting requirements for the recognition and measurement of liabilities for legal obligations associated with the retirement of tangible long-lived assets. Amounts recorded under SFAS No. 143 are subject to various assumptions and determinations, such as determining whether a legal obligation exists to remove assets, estimating the fair value of the costs of removal, estimating when final removal will occur, and the credit-adjusted risk-free interest rates to be utilized to discount the estimated cost of the future liabilities.

The District identified CNS as an asset for which a legal retirement obligation exists. As of December 31, 2005, 2004, and 2003, the District has recorded an estimated liability of $608.7 million, $579.8 million, and $552.1 million, respectively, for an ARO. The District has accumulated, as of December 31, 2005, 2004, and 2003, a total of $402.8 million, $374.0 million, and $355.1 million, respectively, in special purpose decommissioning funds to meet suchestimated liability. In 2005, $3.9 million was collected through electric rates and will be used for the installation of additional spent fuel racks at CNS. The differences of $202.0 million, $205.8 million, and $197.0 million between the estimated ARO and the funds accumulated for such purpose, as of December 31, 2005, 2004, and 2003, respectively, have been recorded as a regulatory asset and represents amounts which will be collected through electric rates and future investment earnings on the monies held for this purpose.

In addition, the District has identified an ARO for the future closure of ash landfills at the sites of the District's GGS and Sheldon Station coal-fired plants. The District recorded an estimated liability of $1.1 million as of December 31, 2005, 2004, and 2003, respectively, for such ARO.

In 2005, the District adopted the provisions of FIN 47, which further expands the scope of SFAS No. 143 to require the recognition of a liability for those AROs that are conditional on a future event that may or may not be within the control of the District. These AROs include removal of asbestos at the District's various coal, gas and hydro generating facilities, polychlorinated biphenyls (PCBs) from substation and distribution equipment, and underground storage tanks as well as abandonment of water wells. The District recorded an estimated liability of $13.5 million as of December 31, 2005 for such ARO. Acorresponding fixed asset, net of accumulated depreciation, of $2.2 million was recorded with the difference of $11.3 million being recorded as a regulatory asset which represents amounts to be collected through electric rates.

NEBRASKA PUBLIC POWER DISTRICT 8 1>js.. .:

t REPORT OF INDEPENDENT AUDITORS To the Board of Directors of the Nebraska Public Power District:

We have audited the accompanying balance sheets of Nebraska Public Power District (the "District"), a public corporation and political subdivision of the State of Nebraska, as of December 31, 2005 and 2004, and the related statements of revenues, expenses, and changes in fund equity and of cash flows for the years then ended. These financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller Federal of the United States. 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 supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the District at December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 2 and 13 to the financial statements, the District changed the manner in which it accounts for asset retirement obligations as of January 1, 2005.

Management's discussion and analysis included on pages two through eight is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board.

We have applied certain limited procedures, which consisted primarily of inquires of management, regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

In accordance with GovernmentalAuditing Standards,we have also issued our report dated April 7, 2006 on our consideration of the District's internal control over financial reporting and on our test of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters for the year ended December 31, 2005. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Governmental Auditing Standards and should be considered in assessing the results of our audits.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole.

The supplemental schedule, "Calculation of Debt Service Ratios in accordance with the General Revenue Bond Resolution for the years ended December 31, 2005 and 2004," is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

St. Louis, Missouri April 7, 2006

-- 9 NEBRASKA PUBLIC POWER DISTRICT

FINANCIAL STATEMENTS Balance Sheets-December 31. 2005 and 2004 (000's) 2005 2004 Utility Plant, at Cost: ASSETS Utility plant in service $ 3,374,138 $ 3,103,166 Less reserve for depreciation 1,821,331 1,836,379 1,552,807 1,266,787 Construction work in progress 98,093 302,277 Nuclear fuel, at amortized cost 64,439 83,851 1,715,339 1,652,915 Special Purpose Funds:

Cash and cash equivalents:

Construction funds 5,027 244 Debt reserve fund 10 1 Employee benefit funds 1,248 1,657 Investments:

Construction funds 71,487 92,206 Debt reserve fund 83,110 82,903 Employee benefit funds 2,838 3,318 Decommissioning funds 402,826 374,029 566,546 554,358 Current Assets:

Cash and cash equivalents 55,014 13,212 Investments 132,718 142,404 Receivables, less allowance for doubtful accounts of $592 and $516 72,345 72,705 Fossil fuels, at average cost 23,974 22,204 Materials and supplies, at average cost 82,627 75,860 Prepayments and other current assets 2,392 2,463 369.070 328,848 Deferred Charges and Other Assets:

Deferred asset retirement obligation 214,044 206,440 Long-term capacity contracts 121,062 44,733 Deferred settlement charges 31,751 35,765 Unamortized financing costs 14,300 11,735 Investment in The Energy Authority 5,856 6,028 Other 5,064 5,126 392,077 309,827 TOTAL ASSETS $ 3,043,032 $ 2,845,948 Fund Equity: FUND EQUITY AND LIABILITIES Invested in capital assets, net of related debt $ 349,364 $ 416,459 Restricted 33,211 32,363 Unrestricted 403,467 295,776 786,042 744,598 Long-Term Debt:

Revenue bonds, net 1,269,617 1,184,656 Commercial paper notes 70,000 -

1,339,617 1,184,656 Current Liabilities:

Current maturities of long-term debt 114,861 160,744 Accounts payable and accrued liabilities 47,276 68,313 Accrued in lieu of tax payments 6,556 6,214 Accrued payments to retail communities 3,960 3,699 Accrued compensated absences 11,076 10,416 Other 5,157 4,976 188,886 254,362 Deferred Credits and Other Liabilities:

Asset retirement obligation 623,432 580,863 Deferred revenues 93,734 66,311 Other 11,321 15,158 728,487 662,332 TOTAL FUND EQUITY AND LIABILITIES $ 3,043,032 $ 2,845,948 The accompanying notes to financial statements are an integralpart of these statements.

NEBRASKA PUBLIC POWER DISTRICT 10

I Statements of Revenues, Expenses, and Changes in Fund Equity for the years ended December 31, (000's) 2005 2004 Operating Revenues $ 726,783 $ 644,562 Operating Expenses:

Power purchased 54,973 53,801 Production -

Fuel 131,941 107,171 Operation and maintenance 192,652 200,255 Transmission and distribution operation and maintenance 39,138 34,866 Customer service and information 14,709 14,644 Administrative and general 49,316 46,404 Payments to retail communities 17,622 16,724 Decommissioning 32,744 18,875 Depreciation and amortization 103,524 91,489 Payments in lieu of taxes 6,636 6,281 643,255 590,510 Operating Income 83,528 54,052 Non Operating Income:

Investment income 21,018 20,802 Other income 398 4,802 21,416 25,604 Increase in Fund Equity Before Debt and Other Expenses 104,944 79,656 Non Operating Expenses:

Interest on long-term debt 64,981 63,419 Allowance for funds used during construction (1,740) (6,798)

Other expenses (income) 259 (1,009) 63,500 55,612 Increase in Fund Equity 41,444 24,044 Fund Equity:

Beginning balance 744,598 720,554 Ending balance $ 786,042 $ 744,598 The accompanying notes to financialstatements are an Integral part of these statements.

" "II NEBRASKA PUBLIC POWER DISTRICT

Statements of Cash Flows for the years ended December 31, (000's) 2005 2004 Cash Flows from Operating Activities:

Receipts from customers and others $ 752,078 $ 704,421 Receipt from legal settlement 18,428 -

Payments to suppliers (366,488) (305,784)

Payments to employees (186,400) (207,674)

Net cash provided by operating activities 217,618 190,963 Cash Flows from Investing Activities:

Proceeds from sales and maturities of investments 702,624 640,426 Purchase of investments (669,237) (576,166)

Income received on investments 7,941 8,898 Net cash provided by investing activities 41,328 73,158 Cash Flows from Capital and Related Financing Activities:

Proceeds from issuance of bonds 462,705 203,448 Proceeds from issuance of notes - 9,000 Proceeds from sale of nuclear fuel 9,063 Proceeds from repayment of notes receivable 506 724 Capital expenditures for utility plant (176,403) (224,838)

Purchase of capacity contract (78,395)

Principal payments on long-term debt (343,235) (220,940)

Interest payments on long-term debt (61,500) (60,095)

Principal payments on notes (13,900) (7,000)

Interest payments on notes (2,052) (1,034)

Other non-operating revenues (487) 676 Net cash used in capital and related financing activities (212,761) (290,996)

Net increase (decrease) in cash and cash equivalents 46,185 (26,875)

Cash and cash equivalents, beginning of year 15,114 41,989 Cash and cash equivalents, end of year $ 61,299 $ 15,114 Reconciliation of Operating Income To Cash Provided By Operating Activities:

Operating income $ 83,528 $ 54,052 Adjustments to reconcile operating income to net cash provided (used) by operating activities:

Depreciation and amortization 103,524 91,489 Undistributed net revenue - The Energy Authority 172 (1,053)

Decommissioning, net of customer contributions 14,316 14,929 Amortization of nuclear fuel 21,146 23,495 Changes in assets and liabilities which provided (used) cash:

Receivables, net 767 (11,482)

Materials and supplies (6,767) (6,731)

Fossil fuels (1,770) (2,227)

Prepayments and other current assets 71 (160)

Deferred charges (686) 4,467 Accounts payable and accrued payments to retail communities (20,776) 21,838 Deferred revenues 27,423 25,847 Accrued stay benefits - (18,611)

Other liabilities (3,330) (4,890)

Net cash provided by operating activities $ 217,618 $ 190,963 The accompanying notes to financial statements are an Integralpart of these statements.

NEBRASKA PUBLIC POWER DISTRICT 12 fET77I§-'"

Supplemental Schedule-- Calculation of Debt Service Ratios in accordance with the General Revenue Bond Resolution for the years ended December 31, (000's) 2005 2004 Operating revenues $ 726,783 $ 644,562 Operating expenses (643,255) (590,510)

Operating income 83,528 54,052 Investment and other income 21,416 25,604 Debt and other expenses (63,500) (55,612)

Increase in fund equity 41,444 24,044 Add:

Debt and related expenses 62,755 55,612 Depreciation and amortization 103,524 91,489 Payments to retail communities

• 17,622 16,724 Inventory price adjustment 3,006 992 186,907 164,817 Deduct:

Gain on sale of property 140 93 Investment income retained in construction funds 3,558 1,544 Unrealized loss on investment securities (1,812) (2,936) 1,886 (1,299)

Fund equity available for debt service under the General Revenue Bond Resolution $ 226,465 $ 190,160 Amounts deposited in the General System Debt Service Account:

Principal $ 83,120 $ 69,945 Interest 51,538 50,183

$ 134,658 $ 120,128 Ratio of fund equity available for debt service to debt service deposits 1.68 1.58

• Under the provisions of the General Revenue Bond Resolution, the payments required to be made by the District with respect to the Professional Retail Operating Agreements are to be made on the same basis as subordinated debt.

The accompanyingnotes to financialstatements are an Integral part of these statements.

- 7.i .13 NEBRASKA PUBLIC POWER DISTRICT

NOTES TO FINANCIAL STATEMENTS

1.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES:

A. Organization -

Nebraska Public Power District (the "District"), a public corporation and a political subdivision of the State of Nebraska, operates an integrated electric utility system which includes facilities for the generation, transmission and distribution of electric power and energy to its wholesale and retail customers. The control of the District and its operations is vested in a Board of Directors consisting of 11 members popularly elected from districts comprising subdivisions of the District's chartered territory. The Board of Directors is authorized to establish rates.

B. Basis of Accounting -

The financial statements are prepared in accordance with generally accepted accounting principles and follow accounting guidance provided by the Governmental Accounting Standards Board ("GASB"). The District elected the option permitted by GASB Statement No. 20, "Accounting and FinancialReporting for ProprietaryFunds and Other Governmental Entities That Use ProprietaryFund Accounting" to implement all Financial Accounting Standards Board ("FASB") pronouncements that do not conflict or contradict GASB pronouncements.

The District follows the provisions of SFAS No. 71, "Accounting for the Effects of CertainTypes of Regulation" (SFAS No. 71). In general, SFAS No. 71 permits an entity with cost-based rates to defer certain costs or income that would otherwise be recognized when incurred to the extent that the rate-regulated entity is recovering or expects to recover such amounts in rates charged to its customers.

C. Use of Estimates -

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

D. Revenue -

Wholesale revenues are recorded in the period in which service is rendered, and retail revenues are recorded in the month retail customers are billed. Consequently, revenues applicable to service rendered to retail customers from the period covered by the last billing in a year to the end of the year are not recorded as revenues until the followingyear.

In August 2005, the District received an $18.4 million settlement from the Central Interstate Low-Level Radioactive Waste Commission ("Commission") which was recorded in Operating Revenues.

The District is required under the General Revenue Bond Resolution (the "Resolution") to charge rates for electric power and energy so that revenues will be at least sufficient to pay operating expenses, aggregate debt service on the General Revenue bonds, amounts to be paid into the Debt reserve fund, and all other charges or liens payable out of revenues. In the event the District's rates for wholesale service result in a surplus or deficit in revenues during a rate period, such surplus or deficit within certain limits may be retained in a rate stabilization account. Any amounts in excess of the limits will be taken into account in projecting revenue requirements and establishing rates in future rate periods. Such treatment of wholesale revenues is stipulated by the District's long-term wholesale power supply contracts. The District accounts for any surplus or deficit in revenues for retail service in a similar manner.

The surpluses and deficits from prior years have been accounted for in these financial statements by either a deferral of revenue or costs. During the years ended December 31, 2005 and 2004, the District deferred net revenues of $27.4 million and $25.8 million, respectively. The cumulative surplus at December 31, 2005, to be reflected in future revenue requirements is approximately $93.7 million. The District's electric rates for 2006 include a refund of $25.7 million of the cumulative surplus.

E. Depreciation,Amortization and Maintenance -

The District records depreciation over the estimated useful life of the property primarily on a straight-line basis. The District's electric rates are established based upon debt service and operating fund requirements. Straight-line depreciation is not considered in the design of rates. As such, the District has provided for depreciation of utility plant funded from debt in its rate setting process by using the debt service principal requirements as the basis for depreciation as opposed to the straight-line basis of depreciation included in the financial statements of the District. Under the methodology employed in establishing rates, the cumulative excess of depreciation expense calculated using the debt service principal approach over the amount calculated using the straight-line method is $26.0 million and $24.7 million for the years ended December 31, 2005 and 2004, respectively. Depreciation expense calculated under the debt service principal approach exceeded straight-line depreciation by $1.3 million and $5.9 million for the years ended December 31, 2005 and 2004, respectively. Depreciation expense recorded on a straight-line basis on utility plant was $90.0 million and $82.4 million for the years ended December 31, 2005 and 2004, respectively. Depreciation on utility plant was approximately 3% in each of the years ended December 31, 2005 and 2004. The District has fully depreciated utility plant that is still in-service of

$583.2 million and $594.7 million at December 31, 2005 and 2004, respectively, primarily relating to CNS.

Current rates for electric service provide for a portion of plant additions to be funded from revenues. These plant additions are capitalized and depreciated over their estimated useful life. At December 31, 2005 and 2004, $437.3 million and $416.5 million, respectively, of net utility plant was funded from revenues. Provision for depreciation of utility plant funded from revenues is computed using the straight-line method.

The District owns and operates the electric distribution system in two of the 80 municipalities that it serves at retail. In addition, the District has long-term Professional Retail Operating ("PRO") Agreements with 78 municipalities for certain retail electric distribution systems. These PRO Agreements obligate the District to make payments based on gross revenues from the municipalities and pay for normal property additions during the term of the agreements. The District has recorded provisions, net of retirements, for amortization of these plant additions of $7.4 million in 2005 and $6.5 million in 2004 which is included in Depreciation and amortization expense.

These plant additions, which are fully depreciated, totaled $110.5 million at December 31, 2005 and $104.2 million at December 31, 2004.

NEBRASKA PUBLIC POWER DISTRICT 14 U:y7 7..

The District charges maintenance and repairs, including the cost of renewals and replacements of minor items of property, to maintenance expense accounts. Renewals and replacements of property (exclusive of minor items of property, as set forth above) are charged to utility plant accounts. Upon retirement of property subject to depreciation, the cost of property is removed from the plant accounts and charged to the reserve for depreciation, net of salvage.

F. Cash and Investments -

The District follows GASB Statement No. 31, "Accounting and FinancialReporting for Certain Investments and for External Investment Pools" (GASB 31). GASB 31 requires the District's investments to be recorded at market value with the changes in the market value of investments reported as Investment income in the Statement of Revenues, Expenses, and Changes in Fund Equity.

Investments are recorded at market value as determined by quoted market prices. The District had unrealized net losses of $1.8 million and $2.9 million as of December 31, 2005 and 2004, respectively.

Cash deposits, primarily interest bearing, are covered by federal depository insurance or pledged collateral of unregistered U.S.

Government securities held by various depositories. Investments at December 31, 2005 and 2004, were in unregistered U.S. Government securities and Federal Agency obligations held in the District's name by the custodial banks.

The District considers highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

G. Materials and Supplies -

The District maintains an inventory for materials and supplies which is valued at average cost. Due provision is made for slow moving or obsolete items.

H. Nuclear Fuel -

The District has entered into several long-term contracts for the various nuclear fuel components of uranium concentrates, conversion, enrichment, and fabrication. These contracts do not obligate the District to purchase fuel components in excess of the requirements of operations. Nuclear fuel in the reactor is being amortized on the basis of energy produced as a percentage of total energy expected to be produced. Fees for disposal of fuel in the reactor are being provided as part of the fuel cost.

I. Unamortized FinancingCosts -

These costs represent issuance expenses on all bonds and are being amortized over the life of the respective bonds using the bonds outstanding method. Deferred unamortized financing costs associated with bonds refunded are amortized using the bonds outstanding method over the shorter of the original or refunded life of the respective bonds in accordance with GASB Statement No.

23, "Accountingand FinancialReporting for Refundings of Debt Reported by ProprietaryActivities."

J. Allowance for Funds Used During Construction ("AFUDC") -

This allowance, which represents the cost of funds used to finance construction, is capitalized as a component of the cost of the utility plant and is credited to Non Operating Expenses. The capitalization rate depends on the source of financing. The rate for construction financed with revenue bonds is based upon the interest cost of each bond issue less interest income. Construction financed on a short-term basis with tax-exempt commercial paper ("TECP") is charged a rate based upon the projected average interest cost of TECP outstanding, For the periods presented herein, the AFUDC rates for construction funded by revenue bonds vary from 3.8%

to 5.0%. For construction financed on a short-term basis with TECP, the rate charged was 3.6% in 2005 and 3.0% in 2004.

K. Fund Equity-Fund equity consists primarily of cumulative operating revenues collected to finance capital additions through current earnings, to repay debt issued to fund capital additions, and to provide for working capital to fund fuel and inventory requirements. Such fund equity accumulated for utility plant additions Is net of accumulated depreciation on such utility plant assets.

L. Recent Accounting Pronouncements -

In April 2004, the GASB issued Statement No. 43, "FinancialReporting for Postemployment Benefit Plans Other Than Pension Plans" (GASB No. 43) and in June 2004, the GASB issued Statement No. 45, "Accounting and FinancialReporting by Employers for Postemployment Benefits Other Than Pensions"(GASB No. 45). These statements relate to the accounting and financial reporting of postemployment benefits other than pensions to be measured and recognized during the periods when employees render the services and to provide relevant information about other postemployment benefit obligations and the funding of those obligations. GASB No.

43 is effective for financial statement periods beginning after December 15, 2005 and GASB No. 45 is effective for financial statement periods beginning after December 15, 2006. The District is currently engaged in studies to quantify this obligation.

In December 2004, the GASB issued GASB Statement No. 46, "Net Assets Restricted by EnablingLegislation, an amendment of GASB Statement No. 34" (GASB No. 46). This standard is to help governments determine when net assets have been restricted to a particular use by the passage of enabling legislation and to specify how those net assets should be reported in financial statements when there are changes in the circumstances surrounding such legislation. GASB No. 46 is effective for financial statement periods beginning after June 15, 2005. The District does not anticipate any impact to its financial statements with the adoption of GASB No.

46.

In December 2004, the GASB issued Technical Bulletin 2004-02, "Recognition of Pension and Other Postemployment Benefit (OPEB) Expenditures/Expenseand Liabilities by Cost-SharingEmployers" (TB 2004-02). The Technical Bulletin clarifies that, with respect to contractually required employer contributions that are assessed for a cost-sharing employer's financial reporting period, the employer should recognize the contributions as expenditures of that period. Any unpaid contributions should be recognized as liabilities. For pension transactions, TB 2004-02 applies to financial statement periods ending after December 15, 2004. For OPEB SNEBRASKA PUBLIC POWER DISTRICT

transactions, TB 2004-02 should be applied simultaneously with the implementation of GASB No. 45, "Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions." The adoption of TB 2004-02 is not anticipated to have a material impact on the District's financial statements.

M. Reclassifications-Certain amounts in the prior year's financial statements have been reclassified to conform to the 2005 presentation. These reclassifications had no effect on Increase in Fund Equity and Fund Equity.

2. ACCOUNTING CHANGES:

In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for ConditionalAsset Retirement Obligations"(FIN 47) and is an interpretation of FASB Statement No. 143, "Accountingfor Asset Retirement Obligations"(SFAS No. 143). FIN 47 clarifies the term "conditional" asset retirement obligation as used in SFAS No. 143 to refer to the recognition of a liability for the fair value of a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. As discussed in Note 13, the District adopted FIN 47 as of December 31, 2005.

3. UTILITY PLANT:

Utility plant activity for the year ended December 31, 2005 was as follows (000's):

December 31, December 31, 2004 Increases Decreases 2005 Nondepreciable utility plant:

Land and improvements $ 38,394 $ 5,236 $ (69) $ 43,561 Construction in progress 302,277 160,846 (365,030) 98,093 Total nondepreciable utility plant 340.671 166.082 (365.099) 141.654 Nuclear fuel* 83,851 1,734 (21,146) 64,439 Depreciable utility plant:

Generation - Fossil 1,096,177 275,112 (40,598) 1,330,691 Generation - Nuclear 968,305 57,166 (32,121) 993,350 Transmission 609,245 23,751 (12,474) 620,522 Distribution 133,771 9,000 (493) 142,278 General 257,274 7,819 (21,357) 243,736 Total depreciable utility plant 3,064,772 372,848 (107,043) 3,330,577 Less reserve for depreciation (1,836,379) (91,995) 107,043 (1,821,331)

Depreciable utility plant, net 1,228,393 280,853 - 1,509,246 Utility plant activity, net $1,652,915 $448,669 $(386,245) $1,715,339

• Nuclear fuel decreases represent amortization of $21.1 million.

The 2006 construction plan includes authorization for future expenditures of $147.3 million. These expenditures will be funded from existing bond proceeds, revenues, other available funds and additional financings as deemed appropriate.

4. CAPITAL LEASE:

The District entered into a capital lease in June 2000 with the City of Norfolk, Nebraska for a new centralized retail customer call center. At the expiration of the capital lease in 2010, the District assumes ownership of the call center.

Future capital lease payments as of December 31, 2005 are as follows (000's):

Year Payments 2006 $ 134 2007 134 2008 134 2009 134 2010 67 Total payments 603 Less amounts representing interest (83)

Net principal payments $ 520 NEBRASKA PUBLIC POWER DISTRICT 16 T[:::" <

5. SPECIAL PURPOSE FUNDS:

Special purpose funds of the District as of December 31 are as follows (000's):

The Construction funds are used for capital improvements, additions and betterments to and extensions of the District's system.

The sources of monies for deposits to the construction funds are from revenue bond proceeds and issuance of short-term debt.

2005 2004 Construction funds - Cash and cash equivalents $ 5,027 $ 244 Construction funds - Investments 71,487 92,206

$ 76,514 $ 92,450 The Debt reserve fund, as established under the Resolution, consists of a Primary account and a Secondary account. The District is required by the Resolution to maintain an amount equal to fifty percent of the maximum amount of interest accrued in the current or any future year in the Primary account. Such amount totaled $33.2 million and $32.4 million as of December 31, 2005 and 2004, respectively. The Secondary account can be established at such amounts and can be utilized for any lawful purpose as determined by the District's Board of Directors. Such account totaled $49.9 million and $50.5 million as of December 31, 2005 and 2004, respectively. 2005 2004 Debt reserve fund - Cash and cash equivalents $ 10 $ 1 Debt reserve fund - Investments 83,110 82,903

$ 83,120 $ 82,904 The Employee benefit funds consist Of a self funded hospital-medical benefit plan and a retired employee life insurance benefit plan. The District pays 80% of the hospital-medical premiums with the employees paying the remaining 20% of the cost of such coverage. The plan had contributed funds of $2.5 million and $3.5 million at December 31, 2005 and 2004, respectively. The District pays the total cost of the employee life insurance benefit once the employee retires. The plan had contributed funds of $1.6 million and $1.4 million at December 31, 2005 and 2004, respectively. Both funds are held by outside trustees in compliance with the funding plans approved by the District's Board of Directors. 2005 2004 Employee benefit funds - Cash and cash equivalents $ 1,248 $ 1,657 Employee benefit funds - Investments 2,838 3,318

$ 4,086 $ 4,975 The Decommissioning funds are utilized to account for the investments held to fund the estimated cost of decommissioning CNS when its operating license expires. The Decommissioning funds are held by outside trustees or custodians in compliance with the decommissioning funding plans approved by the District's Board of Directors which are invested primarily in fixed income governmental securities.

2005 2004 Decommissioning funds $ 402,826 $ 374,029

6. LONG-TERM CAPACITY CONTRACTS:

Long-term capacity contracts include the District's $78.4 million share of the initial estimated construction costs through December 2006 of Omaha Public Power District's ("OPPD") 663 MW Nebraska City Station Unit 2 ("NC2") coal-fired power plant. The total plant construction costs are estimated to be $716.0 million. The District has entered into a participation power agreement with OPPD for a 23.7% share of the power from this plant. The District's total share of the plant construction costs is estimated to be $170.0 million which will be incurred over the next three years.

Long-term capacity contracts also include the District's purchase of the capacity of a 50 MW hydroelectric generating facility owned and operated by The Central Nebraska Public Power and Irrigation District ("Central"). The District is recording amortization on a straight-line basis over the 40-year estimated useful life of the facility. Accumulated amortization was $40.0 million in 2005 and $37.9 million in 2004. The unamortized amount of the Central capacity contract is $42.7 million and $44.7 million as of December 31, 2005 and 2004, respectively.

The District has an agreement whereby Central makes available all the production of the facility and the District pays all costs of operating and maintaining the facility plus a charge based on the amount of energy delivered to the District. Costs of $1.3 million in 2005 and $1.1 million in 2004 are included in Power purchased.

7. DEFERRED SETTLEMENT CHARGES:

The District deferred the cost of a $39.1 million payment to MidAmerican Energy Company ("MEC") in 2002 in conjunction with the settlement of litigation with respect to the operation of the District's Cooper Nuclear Station ("CNS"). The deferred costs of the MEC payment will be recognized as expense in future rate periods when such costs are included in the revenue requirements used to establish electric rates. The balance of such deferral was $35.5 million and $39.1 million as of December 31, 2005 and 2004, respectively, of which $3.8 million and $3.3 million was included in Receivables as of December 31, 2005 and 2004, respectively.

- ..- J.:..T 17 NEBRASKA PUBLIC POWER DISTRICT

AI

8. INVESTMENT IN THE ENERGY AUTHORITY:

The District is a member of The Energy Authority ("TEA"), a power marketing corporation. TEA assumes the wholesale power marketing responsibilities of its members with each member having ownership in the joint venture. TEA has access to approximately 14,000 megawatts of its members' generation located in Nebraska, Missouri, Florida, Georgia and South Carolina. TEA also provides its members with natural gas procurement or contract management services for gas used in the generation of electricity and for local distribution. TEA provides the District with gas contract management services.

The table below contains the condensed unaudited financial information for TEA as of December 31, (000's):

Condensed Balance Sheet 2005 2004 Current Assets $ 163,902 $ 126,880 Noncurrent and Restricted Assets 6,714 6.430 Total Assets $ 170,616 $ 133,310 Current Liabilities $ 140,414 $ 102,738 Noncurrent Liabilities 1,899 1,837 Net Assets 28,303 28,735 Total Liabilities and Net Assets $ 170,616 $ 133.310 Condensed Statement of Operations Revenues $ 1,509,836 $ 800,493 Energy Costs (1,325,357) (677,675)

Gross Profit 184,479 122,818 Operating Expenses (20,917) (17,994)

Operating Income 163,562 104,824 Non-Operating Income 1,418 607 Increase in Net Assets $ 164,980 $ 105,431 At December 31, 2005 and 2004, the District had a 21.4% ownership interest in TEA. All of TEA's revenues and costs are allocated to the members. TEA's net revenues are allocated among the members based upon a combination of each respective member's purchased power and power sales transactions and natural gas transactions with TEA and each member's ownership interest.

The following table summarizes the transactions applicable to the District's investment in TEA as of December 31, (000's):

2005 2004 Beginning Balance $ 6,028 $ 4,975 Reductions to power costs and increase in electric revenues 50,403 35,369 Distributions from TEA (48,511) (32,657)

Other Expenses (2,064) (1,659)

Ending Balance $ 5,85 6 $ 6,028 The District's power purchases and sales with TEA are reflected in the Statements of Revenues, Expenses and Changes in Fund Equity as Power purchased and Operating Revenues, respectively. For the years ended December 31, 2005 and 2004, the District recorded Operating Revenues of $65.9 million and $42.7 million, respectively, and Power purchased expenses of $16.6 million and

$17.7 million, respectively.

At December 31, 2005 and 2004, $8.3 million and $4.4 million due from TEA was included in Receivables and $0.8 million and

$0.4 million due to TEA was included in Accounts payable, respectively.

As of December 31, 2005, the District is obligated to guaranty, directly or indirectly, TEA's electric trading activities in an amount up to $28.9 million plus attorney's fees which any party claiming and prevailing under theguaranty might incur and be entitled to recover under its contract with TEA. The guaranty for gas trading was removed January 1, 2005. Generally, the District's guaranty obligations for electric trading would arise if TEA did not make the contractually required payment for energy, capacity or transmission which was delivered or made available or if TEA failed to deliver or provide energy, capacity or transmission as required under a contract The District's exposure relating to TEA is limited to the District's capital investment in TEA, any accounts receivable from TEA and trade guarantees provided to TEA by the District. These guarantees are within the scope of FASB Interpretation No. 45, 'Guarantor's Accounting and Disclosure Requirements for Guarantees,Including Indirect Guaranteesof Indebtedness of Others' (FIN 45). Upon the District making any payments under its electric guaranty, it has certain contribution rights with the other members of NEBRASKA PUBLIC POWER DISTRICT 18 '.:

TEA in order that payments made under the TEA member guaranties would be equalized ratably, based upon each member's equity ownership interest in TEA. After such contributions have been effected, the District would only have recourse against TEA to recover amounts paid under the guaranty. The term of this guaranty is generally indefinite, but the District has the ability to terminate its guaranty obligations by causing to be provided advance notice to the beneficiaries thereof. Such termination of its guaranty obligations only applies to TEA transactions not yet entered into at the time the termination takes effect. As of December 31, 2005 and 2004, the District has not recorded a liability related to these guaranties.

9. COMMERCIAL PAPER NOTES:

The District is authorized to issue up to $150.0 million of tax-exempt commercial paper ("TECP") notes. A $150.0 million credit agreement, which expires August 1, 2008, is maintained with a bank to support the sale of the TECP notes. The previous credit agreement expired November 1, 2005. Accordingly, the TECP notes had been classified within Current maturities of long-term debt as of December 31, 2004. The District had $70.0 million and $83.9 million of TECP notes outstanding at December 31, 2005 and 2004, respectively. The proceeds of the TECP notes have been used to provide short-term financing for certain capital additions and for other lawful purposes of the District. The effective interest rates on outstanding TECP notes for 2005 and 2004 were 2.5% and 1.2%, respectively.

The $70.0 million of TECP notes outstanding at December 31, 2005, are anticipated to be retired by future collections through electric rates and issuance of revenue bonds. The carrying value of commercial paper notes approximates market due to the short-term nature of the notes.

10. LINE OF CREDIT ARRANGEMENTS:

The District has a $150.0 million bank line of credit agreement that supports the payment of the principal outstanding of the tax-exempt commercial paper notes. See Note 9 for additional information. The District also has a $15.0 million bank line of credit to satisfy the payment guarantee requirements established by the Federal Price-Anderson Act. At December 31, 2005 and 2004, no amounts have been drawn on either line of credit.

11. REVENUE BONDS:

In January 2005, the District issued General Revenue Bonds, 2005 Series A, in the amount of $103.6 million to finance the cost of a 60 MW wind generation facility, a GGS well field project and a generator rewind project at GGS.

In February 2005, the District issued General Revenue Bonds 2005 Series B-1 and B-2 in the amount of $215.9 million to advance refund a portion of the outstanding 1998 Series A, 1999 Series A,and 2003 Series A Bonds. The net proceeds of $234.9 million (after payment of $2.4 million in underwriting fees, insurance, and other issuance costs) plus an additional $0.9 million of debt service monies were used to purchase U.S. Government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the refunded portion of the 1998 Series A Bonds, 1999 Series A Bonds, and 2003 Series A Bonds. As a result, a portion of the 2008-2016 maturities of the 1998 Series A Bonds, 2010-2015 maturities of the 1999 Series A Bonds, and 2013-2014 maturities of the 2003 Series A Bonds are considered to be defeased and the liability for those bonds has been removed from the revenue bond long-term debt account group. The District advance refunded a portion of the 1998 Series A Bonds, 1999 Series A Bonds, and 2003 Series A Bonds to reduce its anticipated total debt service payments over the next 12 years by $9.5 million.

In October 2005, the District issued General Revenue Bonds, 2005 Series C, in the amount of $131.9 million to finance the District's initial share of the cost of construction of OPPD's NC2 coal-fired power plant through December 2006 and to advance refund a portion of the outstanding 1999 Series A Bonds. With respect to the refunded portion, net proceeds of $46.5 million (after payment of $0.6 million in underwriting fees, insurance, and other issuance costs) plus an additional $0.6 million of debt service monies were used to purchase U.S. Government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the refunded portion of the 1999 Series A Bonds. As a result, a portion of the 2016-2018 maturities of the 1999 Series A Bonds are considered to be defeased and the liability for those bonds has been removed from the revenue bond long-term debt account group. The District advance refunded a portion of the 1999 Series A Bonds to reduce its anticipated total debt service payments over the next 13 years by $2.2 million.

In April 2004, the District issued General Revenue Bonds, 2004 Series A (Taxable), in the amount of $53.1 million to pay for certain capital improvement projects at Cooper Nuclear Station.

In November 2004, the District issued General Revenue Bonds, 2004 Series B, in the amount of $149.0 million to advance refund a portion of the outstanding 1998 Series A Bonds. The net proceeds of $163.3 million (after payment of $1.8 million in underwriting fees, insurance, and other issuance costs) plus an additional $3.3 million of debt service and float forward monies were used to purchase U.S. Government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the refunded portion of the 1998 Series A Bonds. As a result, a portion of the 2010-2013 maturities of the 1998 Series A Bonds are considered to be defeased and the liability for those bonds has been removed from the revenue bond long-term debt account group. The District advance refunded a portion of the 1998 Series A Bonds to reduce its anticipated total debt service payments over the next 10 years by $6.1 million.

19NEBRASKA PUBLIC POWER DISTRICT

Revenue bonds consist of the following (000's):

December 31, Interest Rate 2005 2004 General Revenue Bonds:

1998 Series A:

Serial Bonds 2005 - 2016 4.45%- 5.25% $ 97,000 $ 264,210 Term Bonds 2017 - 2027 5.00% 13,485 13,485 Capital Appreciation Bonds 2005 4.65%

• 23,514 2006 4.70%

• 25,416 24,262 2007 4.75%

• 26,647 25,425 1998 Series B:

Serial Bonds 2005 - 2017 4.40% - 5.25% 88,185 101,790 Term Bonds 2018 - 2027 5.00% 83,570 83,570 1999 Series A Serial Bonds 2005 - 2011 4.125% - 5.00% 37,920 160,890 2002 Series A Serial Bonds 2005 - 2006 4.50% - 5.00% 40,365 42,595 2002 Series B:

Serial Bonds 2005 - 2025 4.00% - 5.00% 67,955 72,320 Term Bonds 2026 - 2032 5.00% 22,885 22,885 2003 Series A:

Serial Bonds 2005 - 2026 2.50% - 5.00% 110,670 118,905 Term Bonds 2027 - 2034 5.00% 86,095 86,095 2004 Series A Auction Rate Bonds 2013 Variable 53,075 53,075 2004 Series B Serial Bonds 2010 - 2013 4.25% - 5.00% 149,030 149,030 2005 Series A Serial Bonds 2006 - 2025 2.50% - 5.25% 103,625 2005 Series B-1 Serial Bonds 2010 - 2015 5.00% 75,335 2005 Series B-2 Serial Bonds 2008 - 2016 4.00% - 5.00% 140,610 2005 Series C:

Serial Bonds 2010 - 2025, 2040 3.50% - 5.125% 74,385 Term Bonds 2026 - 2029 5.00% 11,765 2030-2034 4.75% 18,240 2035 - 2040 5.00% 27,500 Total par amount of revenue bonds 1,353,758 1,242,051 Unamortized premium net of discount 30,720 19,449 1,384,478 1,261,500 Less - current maturities of revenue bonds (114,861) (76,844)

Total revenue bonds $1.269.617 $1.184.656

• Approximate yield to maturity.

NEBRASKA PUBLIC POWER DISTRICT 20 -

Debt service payments and principal payments of the General Revenue Bonds as of December 31, 2005 are as follows (000's):

Debt Service Principal Year Payments** Payments 2006 $ 175,016-** $ 114,861-**

2007 131,735 73,267 2008 132,968 77,975 2009 132,951 81,740 2010 129,639 82,505 2011-2015 580,207 405,000 2016-2020 290,093 182,655 2021-2025 210,267 141,000 2026-2030 134,525 96,785 2031-2035 89,202 73,700 2036-2040 27,999 24,270 Total Payments $2,034,602 $1,353,758

• • Excludes interest on 2004 Series A Auction Rate Bonds which interest rate can change every 28 days on the Auction Date. The interest rate at issuance on April 28, 2004 was 1.10% and the interest rate on December 31, 2005 was 4.25%.

• • • Includes $36,932,000 of the 2002 Series A Bonds maturing in 2006 which the District expects to refinance with General Revenue Bonds.

The fair value of outstanding revenue bonds is determined using currently published rates. The fair value is estimated to be

$1,413.2 million and $1,323.2 million at December 31, 2005 and 2004, respectively.

12. LONG-TERM DEBT:

Long-term debt activity net of current activity for the year ended December 31, 2005 was as follows (000's): Principal Amounts December 31, December 31, Due Within 2004 Increases Decreases 2005 One Year Revenue bonds $1,184,656 $490,151 $(405,190) $1,269,617 $114,861 Commercial paper notes 83,900 - (13,900) 70,000 Total long-term debt activity $1.268.556 $490,151 $(419,090) $1,339,617 $114,861

13. ASSET RETIREMENT OBLIGATION:

The District has recorded an obligation for the fair value of its legal liability for asset retirement obligations associated with CNS and various ash landfills at its two coal-fired power stations. During 2005, the District adopted FIN 47 which resulted in additional asset retirement obligations related to the removal of asbestos at the District's various coal, gas and hydro generating facilities, polychlorinated biphenyls from substation and distribution equipment, and underground storage tanks as well as abandonment of water wells. The District has recorded a corresponding conditional asset retirement obligation of $13.5 million. At December 31, 2005, the total asset retirement obligation liability recorded by the District is $623.4 million and is included in Deferred Credits and Other Liabilities.

The following table shows costs as of January 1, and charges to the ARO that are included in Deferred Credits and Other Liabilities on the balance sheet as of December 31, (millions of dollars):

For the Year Ended December 31, 2005 2004 Balance, beginning of year $580.9 $553.2 Accretion expense 29.0 27.7 Adoption of FIN 47 13.5 Balance, end of year $623.4- $580.9 At the point the liability for the asset retirement is incurred, SFAS No. 143 requires capitalization of the costs to the related asset.

For asset retirement obligations existing at the time of adoption, the statement requires capitalization of costs at the level that existed at the point of incurring the liability. These capitalized costs are depreciated over the same period as the related asset. At the date of adoption, the depreciation expense for past periods was recorded as a regulatory asset in accordance with SFAS No. 71 because the District will be able to recover these costs in future rates.

21 NEBRASKA PUBLIC POWER DISTRICT

The initial liability is accreted to its present value each period. The District defers this accretion as a regulatory asset based on its determination that these costs can be collected from customers. Accretion was $29.0 million and $27.7 million for 2005 and 2004, respectively.

The following table presents the asset retirement obligations that would have been included In Deferred Credits and Other Liabilities on the balance sheets if FIN 47 had been applied during all periods presented (millions of dollars):

For the Year Ended December 31, 2005 2004 Balance, beginning of year $ 12.9 $ 12.3 Accretion expense .6 .6 Balance, end of year $ 13.5 $ 12.9 The pro forma asset retirement obligation the District would have recognized as of January 1, 2004 had the District implemented FIN 47 as of that date, was approximately $12.3 million based on the information, assumptions, and interest rates as of December 31, 2005, used to determine the $13.5 million liability recognized upon initial adoption of FIN 47. Because the District is recovering these costs in future rates, adoption of FIN 47 in 2004 has no impact on fund equity. Accordingly, pro forma impacts are not presented.

14. PAYMENTS IN LIEU OF TAXES:

The District is required to make payments in lieu of taxes, aggregating 5% of the gross revenue derived from electric retail sales within the city limits of incorporated cities and towns served directly by the District.

15. LOW-LEVEL RADIOACTIVE WASTE DISPOSAL:

The District has access to the Barnwell, South Carolina low-level radioactive waste disposal facility and ships low-level radioactive waste generated as a result of operations at Cooper Nuclear Station to this facility on a routine basis. Legislation has been passed in South Carolina which would significantly reduce the amount of waste accepted from outside South Carolina and eliminate access after June 30, 2008. The District is also now utilizing the Envirocare Facility in Clive, Utah for a portion of its low-level radioactive waste disposal needs. The District cannot predict future costs for the Barnwell and Envirocare facilities or whether the Barnwell and Envirocare facilities will remain open or available to the District.

16. DEPARTMENT OF ENERGY FACILITIES ASSESSMENT:

Under the provisions of the National Energy Policy Act adopted in 1992, the District is subject to assessments initially estimated to be $1.67 million per year (to be adjusted for inflation) for a period up to 15 years for the purpose of paying the costs of decontaminating and decommissioning Department of Energy ("DOE") operated uranium enrichment facilities. Such assessments commenced in 1993 and are to end in 2006. The District and a number of other utilities have filed legal proceedings to challenge DOE's past and future collections. The estimated amount for such annual assessment for the one remaining year is approximately $2.4 million. The District has recorded such annual assessments by reflecting a liability of approximately $2.4 million as of December 31, 2005 and $4.8 million as of December 31, 2004.

17. RETIREMENT PLAN:

The District's Employees' Retirement Plan (the "Plan") is a defined contribution pension plan established by the District to provide benefits at retirement to regular full-time and part-time employees of the District. At December 31, 2005, there were 2,011 Plan members. Plan members are required to contribute a minimum of 2%, up to a maximum of 5%, of covered salary. The District is required to contribute two times the Plan member's contribution based on covered salary up to $40,000. On covered salary greater than $40,000, the District is required to contribute one times the Plan member's contribution. Plan provisions and contribution requirements are established and may be amended by the District's Board of Directors. The District's contribution was $10.0 million for 2005 and 2004, respectively, of which $0.9 million was accrued and in Accounts payable at December 31, 2005 and 2004.

NEBRASKA PUBLIC POWER DISTRICT 22 'Y

,r. 1. A '

18. POSTRETIREMENT BENEFITS: of cost (determined by retirement age) hired on or prior to December 31, 1992, pays all or part of the The District, for employees when these employees retire. to a contribution certain hospital-medical premiums on or after January 1, 1993, are subject amended the plan effective January 1, 1993. Employees hired employee or retired employee reached The District of the cost of such coverage to the full premium the year the subsequent years cap that limits the District's portion of such coverage in employee retires if older than age 65. Any increases in the cost age 65, or the year in which the are not eligible would be paid by the retired employee. hired on or after January 1, 1999 further amended the plan effective January 1, 1999. Employees District further amended the plan The District once they reach age 65 or Medicare eligibility. The hospital-medical benefits for postretirement hospital-medical that date will not be eligible for postretirement that employees hired on or after effective January 1, 2004, to provide benefits once they retire. all of the District's retired and active employees a life insurance benefit when they retire. Substantially as the premiums are paid. The The District also provides benefits is recognized as expense Currently, the cost of these employees are eligible for such benefits. million for both 2005 and 2004.

and life insurance benefits was $5.8 by State and Local Governmental total cost of postretirement hospital-medical Postemployment Benefits OtherThan Pension Benefits of Information on OPEB provided.

Statement 12, Disclosure minimum disclosures regardingthe issued by the GASB provides that entities should provide certain above, currently funds OPEB Employees ("OPEB"), indicated for differing methods for financing OPEB. The District, as basis. The District Additionally, Statement 12 provides an actuarially determined and has not elected to fund OPEB through advance funding on and GASB No. 45.

on a 'pay-as-you-go" basis adoption of GASB No. 43 for OPEB in accordance with the will analyze alternative funding methods

19. COMMITMENTS AND CONTINGENCIES:

of $201.7 million. The various coal and coal transportation contracts with minimum future payments contracts are subject The District has coal supply coal transportation contracts expire at the end of 2011. These The various contracts expire at the end of 2009.

adjustments. through 2020 with annual to price escalation power purchase commitments with the Western Area Power Administration The District has wholesale to rate changes,

$21.2 million. This contract is subject 31, 2004.

minimum future payments of approximately The initial contract for 380 megawatts ("MW") ended on December contracts with MEC. 31, 2009. Both power sales contracts The District has two power sales January 1, 2005 and ending on December is for a term beginning CNS at prices as set The second contract for 250 MW of the accredited capacity and associated energy from MW and 250 MW, respectively, are for the delivery of 380 of Nebraska ("MEAN"), JEA forth in the contracts. power agreements with OPPD, Municipal Energy Agency Wind Energy The District has entered into participation Grand Island Utilities for the sale of power from the 60 MW Ainsworth MEAN Authority) and for 16.8 percent; (formerly the Jacksonville Electric the following amounts: OPPD power agreements are each for a term of 20 years and in Facility. The participation percent and Grand Island Utilities for 1.7 with 78 municipalities for the for 11.8 percent; JEA for 16.8 percent; having initial terms of 15, 20 or 25 years The District has entered into long-term PRO Agreements to make payments based on gross distribution systems. These PRO agreements obligate the District operation of certain retail electric during the term of the agreement.

and pay for normal property additions 2021, with the majority revenues from the municipalities with a term that expires December 31, entered into new 20-year wholesale power contracts, energy requirements through 2007, after which The District customers to provide them with their total power and its power and energy of its firm requirements wholesale and thereafter could reduce could level-off its power and energy purchases through 2010 the wholesale customer notice.

year with at least three years advance with OPPD to purchase purchases up to ten percent per a Participation Power Agreement (the ONC2 Agreement") be known as into Effective January 2004, the District entered to be constructed by OPPD and to share, of the power from a 663 MW coal fired power plant and has entered into similar 157 MW, which is a 23.7% for its own use to be in service in 2009. OPPO will retain 50.0% of the output NC2 Agreement to make payments NC2. The plant is expected The District's obligation under the other power purchasers. part thereof is participation power sales agreements with whether or not NC2 or any obligation, obligating the District to make such payments provision obligating is an unconditional "take-or-pay" contains a step-up available, operable, operating or retired. The NC2 Agreement and reserves related to completed, delayed, terminated, debt service, other costs share of the cost of anydeficit in funds for operating expenses, provision is limited to 160.0% of the District to pay a obligation pursuant to such step-up purchaser. The District's NC2 as a result of a defaulting power each its original participation share (23.7%). nuclear power plant operators could the Federal Price-Anderson Act, the District and all other licensed involving any licensed facility Under the provisions of in the event of any nuclear incident up to $100.6 million per unit owned the obligation, the District be assessed for claims in amounts $15.0 million per year per incident per unit owned. To satisfy of in the nation, with a maximum assessment NRC has obtained a $15.0 million line of credit. of its reactor oversight process. The Commission ("NRC") evaluates nuclear plant performance as part 2000 to April 2002 October The Nuclear Regulatory identified during the period from As a result of performance deficiencies lowest of the five performance categories and was required has five performance categories. District was placed in the second Action the NRC also issued a Confirmatory in the area of emergency preparedness, plan at CNS with NRC oversight. The improvement to develop and implement a performance of its improvement plan.

assure completion by the District Letter ("CAL") in January 2003 to DISTRICT

....: . +:......;:23 NEBRASKA PUBLIC POWER

Subsequent to the issuance of the CAL, the NRC conducted periodic inspections to assess whether sustained performance improvements were being achieved at CNS. In August 2004, the District informed the NRC that all of NPPD's commitments related to the CAL had been satisfactorily completed. In October 2004, the NRC conducted a CAL Closure Inspection to review the results of the District's improvement efforts. In January 2005, the NRC stated that the District had completed the improvement plan actions described in the CAL for CNS and the CAL was closed. With the closure of the CAL, and subsequent closure of a remaining Operator Requalification White Finding, CNS moved to the Licensee Response column, which is the highest or best rating of the five performance categories, in the first quarter of 2005. Subsequently, the level of NRC oversight has been reduced to that of other power plants in the Licensee Response column of the NRC's Action Matrix.

As part of a 1989 settlement of various disputed matters between General Electric Company and the District, General Electric has agreed to continue to store at the Morris Facility the spent nuclear fuel assemblies from the first two full core loadings at Cooper Nuclear Station at no additional cost to the District until the expiration of the current NRC license for the Morris Facility. The expiration date for the current NRC license was recently extended from May 2002 to May 2022. After that date, storage would continue to be at no cost to the District as long as General Electric can maintain the NRC license for the Morris Facility on essentially the existing design and operating configuration.

On December 4, 2002, Region VIl of the Environmental Protection Agency ("EPA") sent a letter to the District, and three other utilities located within Region VII, requesting documents and certain information pursuant to Section 114(a) of the Federal Clean Air Act. On April 10, 2003, Region VII of the EPA sent a supplemental request for documents and information to the District and the other three electric utilities. The letters' requests pertain to the District's Gerald Gentleman Station and Sheldon Station. The EPA is interested in determining compliance with the Clean Air Act, Nebraska's implementation plan and potential application of federal new source review requirements. In general, a finding of non-compliance can require the installation of air pollution control equipment and the assessment of penalties. The District has provided the documents and information requested to the EPA. The District has not received any further written communications from the EPA regarding this inquiry.

On August 19, 2002, the District received notice from the EPA identifying the District as a Potentially Responsible Party ("PRP")

for liability associated with a former Manufactured Gas Plant ("MGP") located in Norfolk, Nebraska. The District is identified as a current owner of property located adjacent to the Norfolk MGP operations. In 2002, the EPA asked identified PRPs to participate in negotiations for completing an Engineering Evaluation/Cost Analysis ("EE/CA"). The identified PRPs met with the EPA Region VII in October 2002 to discuss the site. No other activities between the District and the EPA had taken place related to this site from the time of the October 2002 meeting with the EPA until June 2004. On June 14, 2004, PRPs received notice from the EPA that the EPA was interested again in beginning efforts to complete an EE/CA to address this site. The District has denied that it has any liability as related to the MGP operations, but has indicated to the EPA willingness to cooperate with efforts to address the site. The District is engaged in on-going negotiations with the other PRPs to resolve the District's potential liability, if any, with respect to conducting an EE/CA for the site. The District is unable to predict what costs may be incurred with respect to MGP.

In October 2003, the District entered into an agreement (the "Entergy Agreement") for support services at Cooper Nuclear Station with Enter&, a wholly owned indirect subsidiary of Entergy Corporation. The Entergy Agreement is for an initial term ending January 18, 2014, subject to either party's right to terminate without cause by providing notice and paying a termination charge. The Enterg Agreement requires the District to reimburse Entergy's cost of providing services, and to pay Entergy annual management fees. These annual management fees were $12.0 million through 2004, $13.0 million for 2005, and $14.0 million for 2006 and all years thereafter.

Beginning in 2007, Entergy could also earn additional annual incentive fees if CNS achieves identified safety and regulatory performance targets.

20. LITIGATION:

In December 2004 a resident of North Platte, Nebraska initiated an action in a Nebraska court against the District petitioning the court to void the agreement with Entergy (see Note 19), enjoining the District from entering into similar contracts and seeking reimbursement of the monies paid to Enter&y pursuant to the Entergy Agreement. Said complaint (as amended) alleges that the Entergy Agreement violates Nebraska law since it is not at cost and improperly provides indemnification and the payment of certain additional fees. The District filed an answer to the complaint, and each amended complaintdenying that the Entergy Agreement is invalid in any respect and seeking dismissal of the complaint. In November 2005, the court overturned the District's motion for summary judgment.

The District has responded to the plaintiff's discovery requests. No additional proceedings have been scheduled.

A number of other claims and suits are pending against the District for alleged damages to persons and property and for other alleged liabilities arising out of matters usually incidental to the operation of a utility such as the District. In the opinion of management, based upon the advice of its General Counsel, the aggregate amounts recoverable from the District, taking into account estimated amounts provided in the financial statements and insurance coverage, are not material as of December 31, 2005.

21. SUBSEQUENT EVENTS:

In February 2006, the District was notified by the Commission that an additional settlement amount of approximately $1.6 million would be made. The District received this amount on April 3, 2006.

NEBRASKA PUBLIC POWER DISTRICT 24 V'7