NLS2008050, Transmittal of Annual Financial Report for Cy 2007
ML081640332 | |
Person / Time | |
---|---|
Site: | Cooper ![]() |
Issue date: | 06/05/2008 |
From: | Vanderkamp D Nebraska Public Power District (NPPD) |
To: | Document Control Desk, Office of Nuclear Reactor Regulation |
References | |
NLS2008050 | |
Download: ML081640332 (35) | |
Text
Nebraska Public Power District 50.7 (b)
"Always there when you need us" NLS2008050 June 5, 2008 U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555-0001
Subject:
Nebraska Public Power District 2007 Annual Financial Report Cooper Nuclear Station, Docket No. 50-298, DPR-46
Dear Sir or Madam:
The purpose of this letter is to transmit the Nebraska Public Power District Annual Financial Report for the calendar year 2007 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 information, please contact me at (402) 825-2904.
Sincerely, David W. Van Der Kamp Licensing Manager
/jo Enclosure cc: Regional Administrator w/enclosure USNRC - Region IV Cooper Project Manager w/enclosure USNRC - NRR Project Directorate IV-1 Senior Resident Inspector w/enclosure USNRC - CNS NPG Distribution w/o enclosure CNS Records w/enclosure COOPER NUCLEAR STATION.
P.O. Box 98 / Brownville, NE 68321-0098 Telephone: (402) 825-3811 / Fax: (402) 825-5'211 wvw.nppd.comrn1
ATTACHMENT 3 LIST OF REGULATORY COMMITMENTS@
ATTACHMENT3 LIST OF REGULATORY COMMITMENTSNO Correspondence Number: NLS2008050 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 4
4 4
I PROCEDURE 0.42 REVISION 22 PAGE 18 OF 25
2007 Financial Report NEBRASKA PUBLIC POWER DISTRICT
-~ '-V - Vt>
Statistical Review I Management's Discussion and Analysis 2 Report of Independent Auditors I I Financial Statements 12 Notes to Financial Statements 16 20 7Y AR A A G ANC KILOWATT-HOUR SALES 18.8 BILLION OPERATING REVENUES 780.7 MILLION COST OF POWER PURCHASED AND GENERATED 432.0 MILLION OTHER OPERATING EXPENSES 283.0 MILLION INCREASE IN FUND EQUITY 46.2 MILLION DEBT SERVICE COVERAGE 1.71 NEBRASK PUBIC POE DITRC
2007 STATISTICAL REVIEW Revenues from Average Electric Energy Electric Sales Number of MWH Sales (000's) Revenue SALES Customers Amount % Amount % Per KWH Retail:
Residential 68,256 797,496 4.2 $ 73,018 9.3 9.16¢ Rural and Farm 3,049 73,072 0.4 5,706 0.7 7.81 ¢ Commercial 14,904 894,987 4.8 61,539 7.9 6.88¢ Industrial 52 1,265,886 6.7 48,430 6.2 3.83¢ Public Lighting 195 18,882 0.1 2,145 0.3 11.36¢ Municipal Power 181 29,409 0.2 1,973 0.3 6.71¢ Miscellaneous Municipal 1,953 129,243 0.7 6,500 0.8 5.03¢ Total Retail Sales 88,590 3,208,975 17.1 199,311 25.5 6.21 Wholesale:
52 Municipalities (Total Requirements) 1,999,000 10.7 81,631 10.5 4.08¢ 25 Public Power Districts and Cooperatives (Total Requirements) 6,399,129 34.1 248,487 31.8 3.88¢ Total Wholesale Sales (Excluding Sales to LES, MEC, and Other Utilities) 8,398,129 44.8 330,118 42.3 3.93¢ Total Retail and Wholesale Sales (Excluding Sales to LES, MEC, and Other Utilities) 11,607,104 61.9 529,429 67.8 4.56¢ Sales to LES and MEC(1) 3,403,803 18.1 87,302 11.2 2.56¢ Other Utilities (Nonfirm and Other Sales) 3,753,296 20.0 127,296 16.3 3.39¢ Total Electric Energy Sales 18,764,203 100.0 744,027 95.3 3.97¢ Other Operating Revenues (Net of Deferred) 36,666 4.7 Total Operating Revenues $780,693 100.0 Production MWH Costs (000's)
GENERATION Amount % Amount %
Production (Including Interchange) 17,956,331 91.6 $ 362,093 83.8 Power Purchased 1,649,718 8.4 69,944 16.2 Total Power Produced and Purchased 19,606,049 100.0 $432,037 100.0 (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 and Subtransmission Line in Service 5,031 Number of Employees 2,226 2007 Contractual and Tax Payments (000's):
Payments to Retail Communities $ 18,317 Payments in Lieu of Taxes $ 6,966 Hydro & Renewable Purchases SOURCES OF ENERGY - 2007 (3.6%) (10.9%)
For service to retail and total Gas & Oil Coal requirements to wholesale customers (4.2%) (57.0%)
(excludes sales to Other Utilities and Nuclear-Sales to LES and MEC). (24.3%)
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 11.
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 2,671 MW was established in July 2006 for the District's firm requirements customers. The District's all-time winter peak is 2,061 MW, which was established in January 2008. The District owns or has operating control over 37 generating plants, which had a combined accredited capacity during the summer of 2007 of 3,131.5 MW.
GENERATION PLANTS Number of Accredited Percent of Type: Plantst 1 ) Capability (MW) Total Coal - Gerald Gentleman Station 1 1,365.0 43.6 Coal - Sheldon Station 1 225.0 7.2 Gas - Beatrice Power Station 1 237.0 7.6 Gas/Oil - Canaday Station 1 118.0 3.7 Nuclear - Cooper Nuclear Station 1 758.4 24.2 Hydro 9 160.6 5.1 Diesel 19 105.4 3.4 Combustion Turbine 3 153.0 4.9 Wind 1 9.1 0.3 37 3,131.5 100.0 (1) Includes six hydro plants and 17 diesel plants under contract to the District.
In addition to the above generating plants, the District purchases 450.5 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 5,031 miles of transmission and subtransmission lines, encompassing the entire State of Nebraska.
The District's customer base for firm energy sales consists of approximately 88,600 retail customers plus 77 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 1500-6,772 7,189 7,066 7,156 7,157 10,000 5,000 10,799 10,763 11,134 11,265 11,607 0 _ , , , ,
2003 2004 2005 2006 2007 U Firm Energy Sales U Additional Energy Sales (1) All years include the sale of energy to MidAmerican Energy Company from Cooper Nuclear Station.
CONDENSED BALANCE SHEETS 2007 2006 2005 Condensed Balance Sheets (000's):
Utility Plant, Net $1,824,798 $1,739,161 $1,715,339 Special Purpose Funds 742,528 576,041 566,546 Current Assets 348,353 312,884 369,070 Deferred Charges and Other Assets 503,262 487,837 392,077 Total Assets $3,418,941 $3,115,923 $ 3,043,032 Fund Equity $ 857,617 $ 811,432 $ 786,042 Long-Term Debt 1,469,166 1,413,092 1,339,617 Current Liabilities 291,700 151,768 188,886 Deferred Credits and Other Liabilities 800,458 739,631 728,487 Total Fund Equity and Liabilities $3,418,941 $3,115,923 $ 3,043,032 RESULTS OF OPERATIONS 2007 2006 2005 Condensed Statements of Revenues, Expenses, and Changes in Fund Equity (000's):
Operating Revenues $ 780,693 $ 752,372 $ 726,783 Operating Expenses (715,051) (693,746) (643,255)
Operating Income 65,642 58,626 83,528 Investment and Other Income 53,190 34,467 21,416 Debt and Other Expenses (72,647) (67,703) (63,500)
Increase in Fund Equity $ 46,185 $ 25,390 $ 41,444 Total operating revenues were $780.7 million in 2007, $752.4 million in 2006, and $726.8 million in 2005. The sources of operating revenues were as follows (000's):
2007 2006 2005 Firm Sales - Wholesale and Retail $ 529,429 $ 493,477 $ 487,142 Participation Sales to LES and MEC 87,302 82,246 85,920 Sales to Other Utilities 127,296 131,674 135,163 Other Operating Revenue 28,037 25,818 45,982 Deferred Revenue 8,629 19,157 (27,424)
Total Operating Revenue $ 780,693 $ 752,372 $ 726,783 I NEBRA~SKA PBLI POWE DITRC
Revenues From Firm Sales - Wholesale and Retail Revenue from firm sales increased $35.9 million, or 7.3%, from $493.5 million in 2006 to $529.4 million in 2007.
This increase is due primarily to an increase in Kilowatt-hour energy sales of 3.0%, a 3.5% increase in the District's wholesale rates and an overall 2.0% retail rate increase both effective February 1, 2007, and a production cost adjustment charge effective April 1, 2007, to recover a portion of the replacement energy costs incurred by the District due to the December 2006 ice storm. Revenue from firm sales increased $6.4 million, or 1.3% from $487.1 million in 2005 to $493.5 million in 2006. This increase is due primarily to an increase in Kilowatt-hour energy sales of 1.1 %.
AVERAGE REVENUE PER KWh SOLD - RETAIL (Retail -All Classes)
Cents per KWh 6.21 6.20 6.00 601 6.05 6.05 6.03 6.00- 60 5.80 5.60 5.40 5.20 5.00 2003 2004 2005 2006 2007 AVERAGE REVENUE PER KWh SOLD - WHOLESALE (Firm Wholesale Customers Only)
Cents per KWh 4.00- 3.93 3.80-3.337/
3.66 3.64 3.74 3.60-3.40-3.20-3.00 I - -
2003 2004 2005 2006 2007 Revenues From Participation Sales to LES and MEC and Sales to Other Utilities During 2007, 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 increased from $82.2 million in 2006 to $87.3 million in 2007, an increase of $5.1 million. The increase was due primarily to billings for LES's share of capital costs related to Sheldon Station being greater in 2007 than in 2006. The remaining increase is related to the increase in energy sales from CNS to MEC in 2007 from 2006. Revenue from such participation sales to LES and MEC decreased from $85.9 million in 2005 to $82.2 million in 2006, a decrease of $3.7 million. The decrease was due primarily to billings for LES's share of capital costs related to Sheldon Station being less in 2006 than in 2005. The remaining decrease is related to the reduction in contracted demand charges from CNS participation sales to MEC in 2006 from 2005.
IERAK PBIC PO6 E DISRC
Sales to other utilities consist of 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 decreased from $131.7 million in 2006 to $127.3 million in 2007, a decrease of $4.4 million. This decrease is due primarily to restricted off-system sales during the first quarter of 2007 caused by damage to the District's transmission system from the December 2006 ice storms. Sales to other utilities decreased from $135.2 million in 2005 to $131.7 million in 2006, a decrease of $3.5 million. This decrease is due primarily to a reduction in revenues realized from non-firm off-system sales as the result of lower market prices at the time that the District had available excess generation to sell on the open market.
Other Operatincq Revenue Other operating revenue consists primarily of transmission wheeling revenues and revenue from work for other utilities. These revenues were $28.0 million, $25.8 million, and $46.0 million in 2007, 2006, and 2005, 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 Revenue Bond Resolution ("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 2007, 2006, and 2005, respectively, revenues from firm wholesale and retail sales exceeded actual revenue requirements in each such year.
The District recognized or increased revenues a net amount of $8.7 million in 2007. The District's revenues in 2007 from firm wholesale and retail electric sales resulted in a surplus, or over collection of costs, of $42.1 million, which surplus amount was deferred (decrease in revenues). In addition, the wholesale rates that were in place for 2007 included a refund of $50.8 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 2007 revenues from electric rates, which reflect the surplus being refunded, are offset by a revenue adjustment (increase in revenues) for such amount.
The District recognized or increased revenues a net amount of $19.1 million in 2006. The District's revenues in 2006 from firm wholesale and retail electric sales resulted in a surplus, or over collection of costs, of $6.6 million, which surplus amount was deferred (decrease in revenues). In addition, the wholesale and retail rates that were adopted for 2006 included a refund of $25.7 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 SNBRAKA UBIC POE DISTRICT
2006 revenues from electric rates, which reflect the surplus being refunded, are offset by the revenue adjustment (increase in revenues) for such amount.
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.
As of December 31, 2007, 2006, and 2005, the District had $65.9 million, $74.6 million, and $93.7 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 2008 include a refund of $16.8 million of surplus deferred revenues.
Operating Expenses Total operating expenses in 2007 were $715.1 million, an increase of $21.4 million from 2006. Total operating expenses in 2006 were $693.7 million, an increase of $50.4 million from 2005. The changes were due to the following:
Purchased power and production fuel expenses were $240.8 million, $209.9 million, and $186.9 million in 2007, 2006, and 2005, respectively. The increase of $30.9 million in 2007 compared to 2006 is due primarily to higher fuel costs as a result of continued price increases in both coal and nuclear fuel and related transportation costs.
These expenses increased $23.0 million in 2006 compared to 2005, due primarily to increased native load sales, increased average non-firm energy market prices, and higher fuel costs as a result of price increases in both coal and nuclear fuel and related transportation costs.
Production operation and maintenance expenses were $191.2 million, $213.0 million, and $192.7 million in 2007, 2006, and 2005, respectively. These costs decreased $21.8 million in 2007 compared to 2006 due primarily to the costs associated with a planned refueling and maintenance outage at CNS in 2006. No such refueling outage occurred in 2007. These costs increased $20.3 million in 2006 compared to 2005 due primarily to increases in materials and outside contractor costs associated with planned and unplanned outages at the District's major base load generation facilities.
Transmission and distribution operation and maintenance expenses were $42.6 million, $42.4 million, and
$39.1 million in 2007, 2006, and 2005, respectively. These costs remained consistent between 2007 and 2006.
These costs increased $3.3 million in 2006 as compared to 2005 due to increased contractor and material costs for maintenance work done in connection with the strategic asset management program.
Customer service and information expenses were $15.6 million, $14.5 million, and $14.7 million in 2007, 2006, and 2005, respectively. These expenses did not vary significantly from year to year.
Administrative and general expenses were $47.1 million, $55.4 million, and $49.3 million in 2007, 2006, and 2005,.
respectively. These expenses decreased $8.3 million in 2007 as compared to 2006 due primarily to an upgrade to the District's enterprise computer software system in 2006. No such upgrade occurred in 2007 or in 2005.
Decommissioning expenses were $35.9 million, $22.3 million, and $32.7 million in 2007, 2006, and 2005, respectively. Decommissioning expenses represent the net amount accrued each year for the future decommissioning of CNS. Decommissioning expenses increased by $13.6 million in 2007 as compared to 2006 due to increases in interest income and market fluctuations in the value of investments. Decommissioning expenses decreased by $10.4 million in 2006 as compared to 2005 due to the District designating an
$18.4 million refund from the Commission in 2005 to be used for the eventual decommissioning of CNS. This decrease is partially offset by a $6.4 million net increase in investment earnings from 2005 along with a final Commission refund of $1.6 million received in 2006.
NEBASK PBIC POE*ISRCp
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 investment 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 2007, 2006, and 2005 was $32.0 million,
$30.4 million, and $29.0 million, respectively, and decommissioning expense was $35.9 million, $22.3 million, and 32.7 million, respectively.
Depreciation and amortization expenses were $116.6 million, $112.2 million, and $103.5 million in 2007, 2006, and 2005, respectively. These expenses increased $4.4 million in 2007 as compared to 2006 and increased
$8.7 million in 2006 as compared to 2005 because of new plant additions. Also, through 2007, plant additions to CNS are being depreciated over its original operating license which ends in January 2014. In connection with the submission of the CNS license extension expected in 2008, the District will evaluate all assets associated with CNS and revise their remaining useful lives accordingly.
Increase in Fund Equity The increase in fund equity (net revenues) was $46.2 million in 2007, $25.4 million in 2006, and $41.4 million in 2005. The increase in fund equity of $20.8 million in 2007 as compared to 2006 reflects increases in revenue requirements used to establish rates in 2007 for the purpose of increased commercial paper payments and increased investment in facilities from current year revenues. The decrease in fund equity of $16.0 million in 2006 as compared to 2005 reflects an increase in depreciation expenses and a decrease in revenue requirements used to establish rates for 2006 for the purpose of commercial paper principal payments offset, in part, by an increase in investment in facilities from current year revenues.
CAPITAL REQUIREMENTS The District's Board of Directors ("Board") authorized capital projects totaling approximately $270.7 million in 2007, $142.2 million in 2006, and $91.2 million in 2005. The amount for 2007 included $57.0 million for the reconstruction of transmission and distribution lines as the result of the severe 2006 year-end ice, wind, and snow storms, $26.4 million for the purchase of several transformers, $25.0 million for Phase II of the installation of a dry cask fuel storage system at CNS, $22.9 million for additions to the Hoskins and Shell Creek substations as part of Phase I of the Electric Transmission Reliability Project, and $18.0 million for a reheater replacement at GGS. The amount for 2006 included $19.7 million for Phase I of the installation of a dry cask fuel storage system and
$11.2 million for a supplement to the generator refurbishment project, both at CNS. The amount for 2005 included
$16.1 million for the purchase of several transformers, $14.3 million for a low nitrous oxide coal burner equipment replacement project at GGS, and $14.0 million for costs associated with the license renewal for CNS. 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 remaining capital projects authorized in 2007, 2006, and 2005, which totaled $121.4 million, $111.3 million, and $46.8 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 2008 is $432.2 million, which includes $158.7 million for Phase II of the Electric Transmission Reliability Project, $38.9 million for the purchase of several transformers, $20.7 million for a new wastewater discharge elimination system at Sheldon Station, $19.8 million for the replacement of a high-pressure turbine at CNS, $12.7 million for a new all-purpose facility in Norfolk, Nebraska, and $11.3 million for replacement of the Unit 1 cooling towers at Sheldon Station. 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 $1.515 billion (par amount) of outstanding revenue bonds at December 31, 2007, as compared to
$1.397 billion (par amount) at December 31, 2006, and $1.354 billion (par amount) at December 31, 2005. The revenue bonds outstanding are at fixed interest rates, except for $53.1 million of 2004 and $93.7 million of 2007 Auction Rate Bonds with variable interest rates, and were issued at premiums or discounts. The District had outstanding $83.6 million of tax-exempt commercial paper ("TECP") notes at December 31, 2007, $60.0 million at 1 NEBRA~SKA PUBIC POE iSRC
December 31, 2006, and $70.0 million at December 31, 2005. Also, the District had outstanding $34.1 million of taxable commercial paper ("TCP") notes at December 31, 2007. Both the TECP notes and the TCP notes have a bank credit agreement, each expiring August 1, 2008, maintained to support the sale of the commercial paper notes. Accordingly, the TECP notes and the TCP notes are classified in Current Liabilities in the accompanying Balance Sheets as of December 31, 2007.
In February 2007, the District issued $93.7 million of taxable auction rate revenue bonds for the purpose of funding the cost of various capital projects at CNS. In September 2007, the District issued $31 1.8 million of tax-exempt revenue bonds at a net premium to advance refund $210.0 million of bonds, to provide $25.0 million for Phase I of the Electric Transmission Reliability Project, and to provide $76.5 million for certain generation and transmission capital additions. The refunded bonds represent a portion of the bonds issued in 1998 with maturities from January 1, 2010 through January 1, 2028. The refunding will result in debt service savings to the District of $10.8 million during the period September 2007 through December 2027.
In September 2006, the District issued $157.3 million of tax-exempt revenue bonds at a net premium to fund its
$93.4 million share of construction costs from 2007 through 2008 of the Omaha Public Power District ("OPPD")
Nebraska City Station Unit 2 ('NC2") coal-fired generating plant and associated transmission facilities, to advance refund $40.4 million of revenue bonds, and to provide $13.0 million for certain generation and transmission capital additions. The District's remaining share of the NC2 construction costs after application of these bond proceeds is currently estimated to be approximately $25.0 million which is expected to be incurred in 2008. The total plant construction costs are estimated to be $716.0 million. Under the terms of a power purchase agreement with OPPD, the District will receive 23.7% of the output of NC2, estimated to be 157 MWs when it commences operation, which is expected to be in May 2009. The refunded bonds represent a portion of the bonds issued in 2002 with a maturity of January 1, 2007.
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 net 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 will 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 will 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 net premium to fund its $78.4 million share of construction costs through December 2006 of the OPPD NC2 plant and to advance refund $44.3 million of bonds.
The refunded bonds represent a portion of the bonds issued in 1999 with maturities from January 1, 2017 through January 1, 2019. The refunding will result in total debt service savings to the District of $2.2 million during the period October 2005 through December 2018.
The District retired $78.1 million, $79.7 million, and $78.0 million of General System Revenue Bonds in 2007, 2006, and 2005, respectively.
The District's current credit ratings on its long-term debt are as follows:
Moody's Investors Service Al (stable outlook)
Standard & Poor's Ratings Services A (stable outlook)
Fitch Ratings A+ (stable outlook)
DEBT SERVICE COVERAGE The District's debt service coverage was 1.71 in 2007, 1.61 in 2006, and 1.68 in 2005. 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 I NER SKAPBI OE DISTRC 8
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. In August 2006, the Board approved a project to uprate station capacity by an amount up to 12 MWs. This additional capacity is scheduled to be available following the spring 2008 refueling and maintenance outage and after Nuclear Regulatory Commission ("NRC") approval expected in late May 2008. In November 2004, the Board approved a recommendation by management to proceed with the process to seek approval from the NRC to extend the operating license of CNS to 2034. The application is currently scheduled to be submitted to the NRC in September 2008.
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 can also earn additional incentive fees if CNS achieves identified safety and regulatory performance targets during each such year.
The District entered into a 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 1,2006, provides for delivery of capacity and energy beginning May 1, 2006, and terminating on April 30, 2014, of 100 MW, of which 60% will be provided from CNS and 40% from GGS. If CNS is removed from commercial operation or off-line continuously for six months, the associated energy will be supplied from GGS. If Whelan Energy Center 2, in which MEAN has an ownership interest, begins commercial operation prior to April 30, 2014, either the District or MEAN has the right to reduce delivery by up to 50 MW.
RISK MANAGEMENT PRACTICES The District has a structured Enterprise-wide Risk Management process to assist it in being proactive in managing its critical business risks and support meeting its strategic goals and objectives.
The District builds or acquires resources to serve its firm total requirement wholesale and retail customers and not the wholesale non-firm market. However, there are times during the year when the District's resources are greater than that required to serve its firm load and the District sells energy in the non-firm market as the case may be.
The District also buys energy in the non-firm market during periods of outages at its base load units or if it is more economical than generating energy from its own resources.
The exposure to volatility in electric energy and fuel prices, uncertainty in load and resource availability, the credit worthiness of counterparts and the operational risks associated with transacting in the wholesale energy markets are managed through the District's Energy Risk Management ("ERM") program and associated ERM Governing Policy (the "Policy").
The Policy, approved by the Board, establishes guidelines and objectives and delegation of authorities necessary to govern activities related to the District's energy risk management program. The District conducts its ERM activities in a manner that supports the objectives stated in the policy. The District has developed the ERM program to identify and measure energy risk exposure, develop and implement strategies to proactively manage those risks, and monitor and report on the effectiveness of those strategies.
The objective of the program is to increase fuel and energy price stability by hedging the risk of significant adverse impacts to cash flow. These adverse impacts could be caused by events such as natural gas or power NEBASK PUBLI POWE DITRC
price spikes or extended unplanned outages. The ERM program has been developed to provide assurance to the Board that the risks associated with the District's energy trading are being quantified and appropriately managed.
The District executes its ERM program in a non-speculative fashion with the objective of lowering the risk inherent in its physical production and trading activities. The District does not speculate in the energy markets, and any transaction designed to generate income based on expectations of market movements is prohibited.
The District also relies upon TEA to both transact on its behalf in the wholesale energy markets and to develop and recommend strategies to manage the District's exposure to risks in the wholesale energy markets. TEA combines a strong knowledge of the District's system, an in-depth understanding of the wholesale energy markets, experienced people, and state-of-the-art technology to deliver a broad range of standard and customized energy products and services to the District.
SUBSEQUENT EVENTS Auction Rate Bonds The District's taxable general revenue auction rate bonds issued for capital improvements at CNS are insured by "monoline" bond insurers. Monoline bond insurers guarantee the timely repayment of bond principal and interest when an issuer defaults; as a result, such securities typically receive the highest investment-grade ratings from the credit rating agencies, which reflect the credit ratings of the monoline bond insurers. At year-end, the District had an aggregate of $146.8 million principal amount of insured taxable auction rate bonds ($53.1 million insured by XL Capital Ltd. and $93.7 million insured by CIFG Assurance North America, Inc.). The District's insured taxable auction rate bonds bear interest at rates determined pursuant to auctions conducted every seven or 28 days, depending on the particular series of securities. As a result of developments in the capital markets with respect to residential mortgage-backed securities and collateralized debt obligations, the credit rating agencies have placed some of the monoline bond insurers on review for a possible downgrade or have actually downgraded their credit ratings due to their insuring of such securities. As a result, since December 2007, the insured taxable auction rate bonds that are guaranteed by the monoline bond insurers have similarly been placed on review for possible downgrade or have been downgraded. A credit rating is not a recommendation to buy, sell, or hold securities. It should be evaluated independently of any other rating. Ratings are subject to revision or withdrawal at any time by the rating organization.
As a result of these actions by the credit rating agencies with respect to monoline bond insurers and a lack of liquidity in the auction rate market, the District sent notices of refunding for all outstanding auction rate bonds in January and February of 2008. In March 2008, the District issued $137.8 million of taxable revenue bonds to advance refund all of the taxable auction rate revenue bonds.
Purchased Power Agreement In March 2008, the District entered in to a 20-year power purchase agreement with Midwest Wind Energy, LLC and its affiliate Elkhorn Ridge Wind, LLC for the construction of an 80 megawatt wind energy facility near Bloomfield, Nebraska. The Elkhorn Ridge wind energy project will cost approximately $140.0 million and be constructed by the end of 2008. Under the terms of the agreement, Elkhorn Ridge Wind, LLC will own and operate the facility, and the District will purchase all the output at a guaranteed price that escalates 2.5% each year to the end of the agreement. The price is expected to be comparable to the cost of the District owning and operating such a project or purchasing energy in the open market.
CNS License Extension In September 2008, the District plans to submit an application to the NRC for a 20-year license extension related to its Cooper Nuclear Station. CNS's original operating license is set to expire in January 2014, thus the 20-year license extension is necessary for CNS's future operations. In conjunction with the submission of this application, the District will evaluate all assets associated with CNS and revise their estimated remaining useful lives accordingly. Additionally, the District will also reassess its CNS asset retirement obligations in conjunction with the submission of the license extension application.
I ER SK PULI PO E ITIT1
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") as of December 31, 2007 and 2006, 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 General 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, 2007 and 2006, 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.
Management's discussion and analysis included on pages two through ten 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 Governmental Auditing Standards, we have also issued our report dated April 10, 2008, 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, 2007. 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 adcordance 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, 2007 and 2006," 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.
As discussed in Note 15 to the financial statements, on January 1, 2007, the District changed the method in which it accounts for its postemployment benefits other than pensions.
.St. Louis, Missouri April 10, 2008 NERAK PUBIC POWE DISRC
FINANCIAL STATEMENTS Balance Sheets - December 31, 2007 and 2006 (000's)20706 2007 2006-ASSETS Utility Plant, at Cost:
Utility plant in service $ 3,509,991 $ 3,408,375 Less reserve for depreciation 1,971,392 1,879,755 1,538,599 1,528,620 Construction work in progress 190,265 121,390 Nuclear fuel, at amortized cost 95,934 89,151 1,824,798 1,739,161 Special Purpose Funds:
Cash and cash equivalents:
Construction funds 1 1 Debt reserve fund 587 12,633 Employee benefit funds 2,556 2,005 Investments:
Construction funds 190,433 60,402 Debt reserve fund 88,980 72,322 Employee benefit funds 2,849 3,509 Decommissioning funds 457,122 425,169 742,528 576,041 Current Assets:
Cash and cash equivalents 74,601 35,894 Investments 65,6 11 97,993 Receivables, less allowance for doubtful accounts of $506 and $526, respectively 74,678 66,137 Fossil fuels, at average cost 28,421 24,869 Materials and supplies, at average cost 102,420 85,110 Prepayments and other current assets 2,622 . 2,881 348,353 312,884 Deferred Charges and Other Assets:
Deferred asset retirement obligation 243,141 223,063 Long-term capacity contracts 210,359 212,425 Deferred settlement charges 24,072 27,849 Unamortized financing costs 14,805 14,611 Investment in The Energy Authority 7,076 6,413 Other 3,809 3,476 503,262 487,837 TOTA ASETS $ 3,418,941 $ 3,115,923 FUND EQUITY AND LIABILITIES Fund Equity:
Invested in capital assets, net of related debt $ 596,899 $ 575,930 Restricted 37,882 34,378 Unrestricted 222,836 201,124 857,617 811,432 Long-Term Debt:
Revenue bonds, net 1,469,166 1,353,092 Commercial paper notes - 60,000 1,469,166 1,413,092 Current Liabilities:
Current maturities of revenue bonds 82,285 76,788 Current maturities of commercial paper notes 117,746 -
Accounts payable and accrued liabilities 62,315 47,619 Accrued in lieu of tax payments 6,926 6,543 Accrued payments to retail communities 4,161 3,930 Accrued compensated absences 12,314 11,957 Other 5,953 4,931 291,700 151,768.
Deferred Credits and Other Liabilities:
Asset retirement obligation . 687,287 654,580 Deferred revenues 65,948 74,577 Other 47,223 10,474 800,458 739,631 TOTAL -FUND EQUITY AND LIABILITIES $ 3,418,941 $ 3,115,923 The accompanying notes to financial statements are an integral part of these statements.
NEBRSKAPUBIC POE ITIT1
Statements of Revenues, Expenses, and Changes in Fund Equity for the years ended December 31, (000's) 2007 2006 Operating Revenues $ 780,693 $ 752,372 Operating Expenses:
Power purchased 69,944 72,142 Production -
Fuel 170,847 137,750 Operation and maintenance 191,246 212,985 Transmission and distribution operation and maintenance 42,589 42,375 Customer service and information 15,581 14,504 Administrative and general 47,095 55,375 Payments to retail communities 18,317 17,480 Decommissioning 35,899 22,343 Depreciation and amortization 116,567 112,203 Payments in lieu of taxes 6,966 6,589 715,051 693,746 Operating Income 65,642 58,626 Non-Operating Income:
Investment income 52,803 33,704 Other income 387 763 53,190 34,467 Increase in Fund Equity Before Debt and Other Expenses 118,832 93,093 Non-Operating Expenses:
Interest on long-term debt 74,041 67,903 Allowance for funds used during construction (2,807) (1,085)
Other expenses 1,413 885 72,647 67,703 Increase in Fund Equity 46,185 25,390 Fund Equity:
Beginning balance 811,432 786,042 Ending balance $ 857,617 $ 811,432 The accompanying notes to financial statements are an integral part of these statements.
1 13 NEBASKAPUBIC POE DISTRICT
Statements of Cash Flows for the years ended December 31, (000s 2007 2006 Cash Flows from Operating Activities:
Receipts from customers and others $ 797,619 $ 761,973 Receipts from FEMA 55,077 -
Receipt from legal settlement - 1,606 Payments to suppliers and vendors (422,607) (370,508)
Payments to employees (204,433) (194,498)
Net cash provided by operating activities 225,656 198,573 Cash Flows from Investing Activities:
Proceeds from sales and maturities of investments 850,742 597,056 Purchase of investments (953,098) (536,678)
Income received on investments 8,821 8,338 Net cash (used in) provided by investing activities (93,535) 68,716 Cash Flows from Capital and Related Financing Activities:
Proceeds from issuance of bonds 410,718 162,128 Proceeds from issuance of notes 103,997 90,000 Proceeds from repayment of notes receivable 90 117 Capital expenditures for utility plant (220,969) (151,549)
Purchase of capacity contract -(93,429)
Principal payments on long-term debt (288,145) (116,930)
Interest payments on long-term debt (72,,640) (65,367)
Principal payments on notes (46,400) (100,000)
Interest payments on notes (3,562) (2,639)
Funds advanced -Whelan Energy Center 2 11,754 -
Other non-operating revenues 248 (386)
Net cash use ncptladrltdfnnigatvte 1499 2805 Net increase (decrease) in cash and cash equivalents 27,212- (10,766)
Cash and cash equivalents, beginning of year 50,533 61,299 Cash and cash equivalents, end of year $ 77,745 $ 50,533 Reconciliation of Operating Income to Cash Provided By Operating Activities:
Operating income $ 65,642 $ 58,626 Adjustments toJreconcile operating income to net cash provided (used) by operating activities:
Depreciation and amortization 116,567 112,203 Undistributed net revenue - The Energy Authority (663) (557)
Decommissioning, net of customer contributions 35,899 22,342 Amortization of nuclear fuel 30,328 22,213 Changes in assets and liabilities which provided (used) cash:
Receivables, net (7,794) 6,208 Fossil fuels (3,552) (895)
Materials and supplies (17,310) (2,483)
Prepayments and other current assets 259 (489)
Deferred charges 222 160 Accounts payable and accrued payments to retail communities 12,916 313 Deferred revenues (8,629) (19,157)
Other liabilities 1,771 89 Net cash provided by operating activities $ 225,656 $ 198,573 The accompanying notes to financial statements are an integral part of these statements.
I NEBRA SK PULI PO E ITIT1
Supplemental Schedule - Calculation of Debt Service Ratios in accordance with the General Revenue Bond Resolution for the years ended December 31, (000's) 2007 2006 Operating revenues $ 780,693 $ 752,372 Operating expenses (715,051) (693,746)
Operating income 65,642 58,626 Investment and other income 53,190 34,467 Debt and other expenses (72,647) (67,703)
Increase in fund equity 46,185 25,390 Add:
Debt and related expenses 72,508 66,886 Depreciation and amortization 116,567 112,203 Payments to retail communities* 18,317 17,480 207,392 196,569 Deduct:
Gain on sale of property -332 Investment income retained in construction funds 6,134 3,003 Unrealized gain on investment securities 2,877 2,246 9,011 5,581 Fund equity available for debt service under the General Revenue Bond Resolution $ 244,566 $ 216,378 Amounts deposited in the General System Debt Service Account:
Principal $ 80,687 $ 80,370 Interest 62,173 54,376
$ 142,860 $ 134,746 Ratio of fund equity available for debt service to debt service deposits 1.71 1.61
- 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 accompanying notes to financial statements are an integral part of these statements.
1 15~ ~NERAK PBIC POE DITRC
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 Financial Reporting for ProprietaryFunds and Other Governmental Entities That Use Proprietary Fund 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 Certain Types 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 following year.
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, 2007 and 2006, the District deferred net costs of $8.7 million and $19.1 million, respectively. The cumulative surplus at December 31, 2007, to be reflected in future revenue requirements, is approximately $65.9 million. The District's electric rates for 2008 include a refund of $16.8 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 NERAK PULI POE DITRC 16
financial statements of the District. Under the methodology employed in establishing rates, the excess of accumulated depreciation expense calculated using the debt service principal approach over the amount calculated using the straight-line method is $33.2 million and $25.5 million for the years ended December 31, 2007 and 2006, r'espectively. Annual depreciation expense calculated under the debt service principal approach exceeded straight-line depreciation by $2.5 million and $0.9 million for the years ended December 31, 2007 and 2006, respectively. Depreciation expense recorded on a straight-line basis on utility plant was $100.2 million and
$97.1 million for the years ended December 31, 2007 and 2006, respectively. Depreciation on utility plant was approximately 3% in each of the years ended December 31, 2007 and 2006. The District has fully depreciated utility plant that is still in service of $642.3 million and $599.0 million at December 31, 2007 and 2006, respectively, primarily relating to Cooper Nuclear Station ("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, 2007 and 2006,
$456.9 million and $421.5 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 one of the 80 municipalities that it serves at retail. In addition, the District has long-term Professional Retail Operating ("PRO") Agreements with 79 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 $9.9 million in 2007 and $8.8 million in 2006 which is included in Depreciation and amortization expense. These plant additions, which are fully depreciated, totaled $126.0 million at December 31, 2007, and
$118.0 million at December 31, 2006.
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 No. 31").. GASB No. 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 accompanying Statements of Revenues, Expenses, and Changes in Fund Equity. Investments are recorded at market value as determined by quoted market prices. The District had an unrealized net gain of $2.9 million as of December 31, 2007, and an unrealized net gain of $2.2 million as of December 31, 2006.
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 were in unregistered U.S. Government securities and Federal Agency obligations held in the District's name by the custodial banks.
Cash and investments totaled $882.7 million and $709.9 million at December 31, 2007 and 2006, respectively.
The District considers highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
G. Fossil Fuel and Materialsand Supplies -
The District maintains inventories for fossil fuels, and materials and supplies which are valued at average cost. Due provision is made for slow moving or obsolete items.
H. Nuclear Fuel -
In December 2007, the District amended its existing contract for fuel bundle fabrication and related services to provide for long-term requirements. In March 2008, the District amended its existing agreement for uranium concentrates, conversion, and enrichment to provide for short-term enriched uranium product and long-term enrichment services. 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.
1 17~ ~~
NE3RSK ~ PUB ICPWRDSIT
I. Unamortized Financing Costs -
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, Accounting and 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 5.5%. For construction financed on a short-term basis with TECP, the rate charged was 4.0% in 2007 and 2006.
K. Fund Equity -
Fund equity is made up of three components: Invested in capital assets, net of related debt, Restricted, and Unrestricted.
Invested in capital assets, net of related debt consists of utility plant assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds or notes that are attributable to the acquisition, construction, or improvement of these assets. This component also includes long-term capacity contracts net of the outstanding balances of any bonds or notes attributable to these assets.
Restricted fund equity consists of the debt service reserve primary funds that are required deposits under the Bond Resolution and the External Decommissioning funds net of any related liabilities.
Unrestricted fund equity consists of any remaining fund equity that does not meet the definition of Invested in capital assets, net of related debt or Restricted, and are used to provide for working capital to fund non-nuclear fuel and inventory requirements, as well as other operating needs of the District.
L. Asset Retirement Obligations -
Asset retirement obligations represent the fair value of the District's legal liability associated with the retirement of CNS, various ash landfills at its two coal-fired power stations, and the removal of asbestos at its various generating facilities among other things.
M. Reclassifications -
Certain amounts in the prior year's financial statements have been reclassified to conform to the 2007 presentation. These reclassifications had no effect on Increase in Fund Equity or Total Fund Equity.
N. Recent Accounting Pronouncements-In June 2004, the GASB issued Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions ("GASB No. 45"). As allowed under previous accounting standards, the District had been recognizing other postemployment benefits ("OPEB") on a pay-as-you-go basis.
Beginning in 2007, the implementation of GASB No. 45 required the District to measure and recognize postemployment benefits other than pensions during the periods when employees render the service. An actuarial valuation of the District's OPEB obligation was completed. The adoption of GASB No. 45 resulted in additional expense and increased liability. However, there is no requirement under GASB No. 45 for cash outlays to fund OPEB expenses accrued in the current year for future year benefit payments. The District will continue to pay the current year costs for other postretirement benefits for retirees. The District has prepared a plan which addresses the future obligations while minimizing an adverse impact on electric rates. Components of the plan include deferring some of future years' expenses through a regulatory asset combined with a long-term funding strategy to address its OPEB obligations. See Note 15 for additional information.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS No. 157"), which defines fair value, establishes a framework for consistently measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS No. 157 will be effective for the District beginning January 1, 2008, and the provisions of SFAS No. 157 will be applied prospectively as of that date. Management does not NEBASK PULI POE DITRC 18
believe that adoption of this statement will have a material impact on the District's financial position or results of operations.
In December 2006, the GASB issued Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations("GASB No. 49"). This standard provides accounting and financial reporting guidance to governments for liabilities connected with obligations to clean up pollution or contamination. Specifically, GASB No. 49 explains when pollution remediation-related obligations should be reported, how those obligations' costs and liabilities should be determined, and the required footnote disclosures. GASB No. 49 is effective for financial statement periods beginning after December 15, 2007. The District is currently engaged in studies to assess the impact of this new accounting pronouncement.
- 2. UTILITY PLANT:
Utility plant activity for the year ended December 31, 2007, was as follows (000's):
December 31, December 31, 2006 Increases Decreases 2007 Nondepreciable utility plant:
Land and improvements $ 43,014 $ 83 $ (2) $ 43,095 Construction in progress 121,390 177,384 (108,509) 190,265 Total nondepreciable utility plant 164,404 177,467 (108,511) 233,360 Nuclear fuel* 89,151 37,111 (30,328) 95,934 Depreciable utility plant:
Generation - Fossil 1,340,060 28,051 (1,123) 1,366,988 Generation - Nuclear 1,010,207 27,949 (7,862) 1,030,294 Transmission 620,967 42,076 (1,457) 661,586 Distribution 149,782 11,538 (1,497) 159,823 General 244,346 9,086 (5,227) 248,205 Total depreciable utility plant 3,365,362 118,700 (17,166) 3,466,896 Less reserve for depreciation (1,879,756) (108,802) 17,166 (1,971,392)
Depreciable utility plant, net 1,485,606 9,898 1,495,504 Utility plant activity, net $ 1,739,161 $ 224,476 $ (138.839) $ 1,824.798
- Nuclear fuel decreases represent amortization of $30.3 million.
During 2007, the District received reimbursement of $55.1 million from the Federal Emergency Management Agency ("FEMA") for damages incurred to the District's transmission, subtransmission, and distribution facilities as the result of several severe storms. The largest of these storms occurred in late December 2006 and resulted in a net FEMA reimbursement of $54.3 million.
The 2008 construction plan includes authorization for future expenditures of $432.2 million. These expenditures will be funded from existing bond proceeds, revenues, other available funds, and additional financings as deemed appropriate.
- 3. SPECIAL PURPOSE FUNDS:
Special purpose funds of the District as of December 31 are as follows (000's):
The Construction funds are used for nuclear fuel and 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.
2007 2006 Construction funds - Cash and cash equivalents $ 1 $ 1 Construction funds - Investments 190,433 60,402
$ 190,434 $ 60,403 NERAK PB ICPOE DITRC 11
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 50% of the maximum amount of interest accrued in the current or any future year in the Primary account. Such amount totaled $37.9 million and
$34.4 million as of December 31, 2007 and 2006, 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 $51.7 million and $50.6 million as of December 31, 2007 and 2006, respectively.
2007 2006 Debt reserve fund - Cash and cash equivalents $ 587 $ 12,633 Debt reserve fund - Investments 88,980 72,322
$ 89,567 $ 84,955 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 $3.4 million and $3.7 million at December 31, 2007 and 2006, respectively. The District pays the total cost of the employee life insurance benefit once the employee retires. The plan had contributed funds of $2.0 million and $1.8 million at December 31, 2007 and 2006, respectively. Both funds are held by outside trustees in compliance with the funding plans approved by the District's Board of Directors.
2007 2006 Employee benefit fund - Cash and cash equivalents $ 2,556 $ 2,005 Employee benefit fund - Investments 2,849 3,509
$ 5,405 $ 5,514 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.
2007 2006 Decommissioning funds $ 457,122 $ 425,169
- 4. LONG-TERM CAPACITY CONTRACTS:
Long-term capacity contracts include the District's $171.8 million share of the estimated construction costs through December 2008 of Omaha Public Power District's ("OPPD") 663 MW Nebraska City Station Unit 2 ("NC2") coal-fired power plant and associated transmission facilities. 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 remaining share of the plant construction costs and associated transmission facilities is estimated to be $25.0 million which will be incurred over the next year. The District expects to begin amortizing this capacity contract in July 2009 on a straight-line basis through December 31, 2040.
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 $44.1 million in 2007 and $42.0 million in 2006. The unamortized amount of the Central capacity contract is $38.5 million and $40.6 million as of December 31, 2007 and 2006, 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 $1.4 million in 2007 and 2006 are included in Power purchased in the accompanying Statements of Revenues, Expenses, and Changes in Fund Equity.
I NERAK PB ICPOWE DITRC 20
- 5. 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 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 $27.8 million and $31.8 million as of December 31, 2007 and 2006, respectively, of which $4.1 million and $3.9 million was included in Receivables as of December 31, 2007 and 2006, respectively.
- 6. 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 25,000 megawatts of its members' and partners' generation located across the nation. 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.
In July 2006, TEA acquired substantially all of the assets of Power Resource Managers, a power resource management, trading, and risk management firm headquartered in Bellevue, Washington. This acquisition will facilitate the expansion of TEA's service offerings to public power organizations in the western United States.
The table below contains the condensed financial information for TEA as of December 31, (000's):
Condensed Balance Sheet 2007 2006 Current Assets $ 109,696 $ 131,467 Noncurrent and Restricted Assets 15,204 9,686 Total Assets $ 124,900 $ 141,153 Current Liabilities $ 86,613 $ 105,154 Noncurrent Liabilities 3,750 2,961 Net Assets 34,537 33,038 Total Liabilities and Net Assets $ 124,900 $ 141,153 Condensed Statement of Operations Revenues $ 1,651,747 $ 1,587,238 Energy Costs (1,486,398) (1,427,626)
Gross Profit 165,349 159,612 Operating Expenses (32,033) (27,427)
Operating Income 133,316 132,185 Non-Operating Income 2,317 2,363 Increase in Net Assets $ 135,633 $ 134,548 At December 31, 2007 and 2006, 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):
2007 2006 Beginning Balance $ 6,413 $ 5,856 Reductions to power costs and increase in electric revenues 33,758 46,314 Distributions from TEA (30,158) (42,714)
Other Expenses (2,937) (3,043)
Ending Balance $ 7,076 $ 6,413 1 21 EBRASAPUBIC 1 O 7- DISTRC I
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, 2007 and 2006, the District recorded Operating Revenues of $40.6 million and $53.6 million, respectively, and Power purchased expenses of $24.9 million and $30.3 million, respectively.
At December 31, 2007 and 2006, $3.4 million and $6.2 million due from TEA was included in Receivables and
$0.7 million and $1.9 million due to TEA was included in Accounts payable, respectively.
As of December 31, 2007, 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 the guaranty might incur and be entitled to recover under its contract with TEA. 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 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, 2007 and 2006, the District has not recorded a liability related to these guaranties.
- 7. REVENUE BONDS:
In February 2007, the District issued General Revenue Bonds, 2007 Series A, in the amount of $93.7 million to finance certain capital projects at CNS. In September 2007, the District issued General Revenue Bonds, 2007 Series B, in the amount of $311.8 million to advance refund a portion of the outstanding 1998 Series A and 1998 Series B Bonds, to provide $25.0 million for Phase I of the Electric Transmission Reliability Project, and to provide $76.5 million for certain generation and transmission capital additions. With respect to the refunded portion, net proceeds of $212.7 million (after payment of $1.8 million in underwriting fees, insurance, and other issuance cost) plus an additional $2.7 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 of the refunded portion of the 1998 Series A and 1998 Series B Bonds. As a result, a portion of the 2010-2027 maturities of the 1998 Series A and 1998 Series B Bonds are considered to be defeased and the liability for those bonds has been removed from the accompanying Balance Sheets as of December 31, 2007. The District advance refunded a portion of the 1998 Series A and 1998 Series B Bonds to reduce its anticipated total debt service payments over the next 20 years by $10.8 million.
In September 2006, the District issued General Revenue Bonds, 2006 Series A, in the amount of
$157.3 million to finance the District's share of the cost of construction of OPPD's NC2 coal-fired power plant and associated transmission facilities from 2007 through 2008, to advance refund the remaining General Revenue Bonds, 2002 Series A, and to finance certain generation and transmission capital additions.
I NERASKPUBICOE DISTRC 22
Revenue bonds consist of the following (000's):
December 31, Interest Rate 2007 2006 General Revenue Bonds:
1998 Series A:
Serial Bonds 2007-2016 4.55% 5.25% $ 9,725 $ 77,045 Term Bonds 2017-2027 5.00% 13,485 Capital Appreciation Bonds 2007 4.75%* 27,928 1998 Series B:
Serial Bonds 2007-2017 4.50% 5.25% 8,110 79,350 Term Bonds 1 2018-2027 5.00% 83,570 1999 Series A Serial Bonds 2007-2011 4.375% - 5.00% 20,135 29,210 2002 Series B:
Serial Bonds 2007-2025 5.00% 58,680 63,410 Term Bonds 2026-2032 5.00% 22,885 22,885 2003 Series A:
Serial Bonds 2007-2026 3.00% 5.00% 103,540 107,150 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 2007-2025 2.75% - 5.25% 96,505 100,110 2005 Series B-1 Serial Bonds 2010-2015 5.00% 75,335 75,335 2005 Series B-2 Serial Bonds 2008-2016 4.00% - 5.00% 140,610 140,610 2005 Series C:
Serial Bonds 2010-2025, 2040 3.50% - 5.125% 74,385 74,385 Term Bonds 2026-2029 5.00% 11,765 11,765 2030-2034 4.75% 18,240 18,240 2035-2040 5.00% 27,500 27,500 2006 Series A:
Serial Bonds 2007-2025 3.50% - 5.00% 81,265 83,505 Term Bonds 2026-2030 5.00% 18,680 18,680 2031-2035 5.00% 23,840 23,840 2036-2040 4.375% 400 400 2036-2040 5.00% 30,020 30,020 2007 Series A Auction Rate Bonds 2013 Variable 93,675 2007 Series B:
Serial Bonds 2008-2026 4.00% - 5.00% 256,425 Term Bonds 2027-2031 4.65% 36,140 2032-2036 5.00% 19,270 Total par amount of revenue bonds 1,515,330 1,396,623 Unamortized premium net of discount 36,121 33,257 1,551,451 1,429,880 Less - current maturities of revenue bonds (82,285) (76,788)
Total revenue bonds 1,469,166 $ 1,353,092
- Approximate yield to maturity.
23NERAK PULI POWE DISRC
Debt service payments and principal payments of the General Revenue Bonds as of December 31, 2007, are as follows (000's):
Debt Service Principal Year Payments* Payments 2008 $ 148,714 $ 82,285 2009 140,397 77,910 2010 146,598 87,890 2011 148,404 93,910 2012 146,829 96,885 2013-2017 642,663 449,015 2018-2022 330,146 198,565 2023-2027 262,329 174,840 2028-2032 184,659 134,385 2033-2037 104,269 85,240 2038-2040 37,881 34,405 Total Payments $ 2,292,889 $ 1,515,330
- 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, 2007, was 5.55%. Also, excludes interest on 2007 Series A Auction Rate Bonds which interest rate can change every 7 days on the Auction Date. The interest rate at issuance on February 21, 2007 was 5.17% and the interest rate on December 31, 2007, was 5.26%.
The fair value of outstanding revenue bonds is determined using currently published rates. The fair value is estimated to be $1,574.9 million and $1,457.3 million at December 31, 2007 and 2006, respectively.
- 8. COMMERCIAL PAPER NOTES:
The District is authorized to issue up to $100.0 million of taxable commercial paper ("TCP") notes and up to
$150.0 million of tax-exempt commercial paper ("TECP") notes. A $100.0 million credit agreement and a
$150.0 million credit agreement, each expiring August 1, 2008, is maintained with a bank to support the sale of the TCP notes and TECP notes, respectively. Accordingly, the TCP notes and the TECP notes have been classified in the Current Liabilities section of the accompanying Balance Sheets as of December 31, 2007. In November 2007, the District issued TCP notes in the face amount of $34.2 million, discounted to $34.0 million, to purchase nuclear fuel. The District had $83.6 million and $60.0 million of TECP notes outstanding at December 31, 2007 and 2006, 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 rate on outstanding TCP notes for 2007 was 4.8%. The effective interest rates on outstanding TECP notes for 2007 and 2006 were 3.6% and 3.2%, respectively.
The $34.1 million of TCP notes and the $83.6 million of TECP notes outstanding at December 31, 2007 are anticipated to be retired by future collections through electric rates and issuance of revenue bonds. The carrying value of the commercial paper notes approximates market due to the short-term nature of the notes.
- 9. LINE OF CREDIT ARRANGEMENTS:
The District has a $100.0 million and a $150.0 million bank line of credit agreements that support the payment of the principal outstanding of the TCP notes and TECP notes, respectively. See Note 8 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, 2007 and 2006, no amounts have been drawn on any of the lines of credit.
I NEBRAKA PUB IC POE 3TIT2
- 10. LONG-TERM DEBT:
Long-term debt activity, net of current activity for the year ended December 31, 2007, was as follows (000's):
Principal Amounts December 31, December 31, Due Within 2006 Increases Decreases 2007** One Year Revenue bonds $ 1,353,092 $ 423,050 $ 306,976 $ 1,469,166 $ 82,285 Commercial paper notes 60,000 104,146 46,400 117,746 117,746 Total long-term debt activity $ 1,413,092 $ 527,196 $ 353,376 $ 1,586,912 $ 200,031
- See Note 8 for additional information on the classification of Commercial paper notes in the Current Liabilities section of the accompanying Balance Sheets as of December 31, 2007.
- 11. ASSET RETIREMENT OBLIGATION:
The District has recorded an obligation for the fair value of its legal liability for asset retirement obligations associated with CNS, various ash landfills at its two coal-fired power stations, 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 total asset retirement obligation liability recorded by the District is $687.3 million and $654.6 million as of December 31, 2007 and 2006, respectively, and is included in the Deferred Credits and Other Liabilities section of the accompanying Balance Sheets.
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, (000's):
For the Year Ended December 31, 2007 2006 Balance, beginning of year $ 654,580 $ 623,432 Accretion expense 32,707 31,148 Balance, end of year $ 687,287 $ 654,580 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 of SFAS No. 143, 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.
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 $32.7 million and $31.2 million for 2007 and 2006, respectively.
- 12. 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. Such payments totaled $7.0 million and $6.6 million for the years ended December 31, 2007 and 2006, respectively.
- 13. 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 25 NEBRSKAPUBIC POE ISRC
utilizing the Energy Solutions 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 Energy Solutions facilities or whether the Barnwell and Energy Solutions facilities will remain open or available to the District.
- 14. 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, 2007, there were 2,196 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
$11.0 million for 2007 and $10.3 million for 2006 of which $1.1 million and $1.0 million was accrued and in Accounts payable at December 31, 2007 and 2006, respectively.
- 15. POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS:
A. Plan Description -
The District administers a single-employer defined benefit healthcare plan that provides lifetime healthcare insurance for eligible retirees and their spouses. Eligibility and benefit provisions are established by the District's Board of Directors. In addition, the District provides employees a $5,000 death benefit when they retire and substantially all of the District's retired and active employees are eligible for such benefit.
B. Funding Policy -
The eligibility and contributions of the plan members and the funding policy of the plan is established and may be amended by the District's Board of Directors. The District, for employees hired on or prior to December 31, 1992, pays all or part of the cost (determined by retirement age) of certain hospital-medical premiums when these employees retire. The District amended the plan effective January 1, 1993. Employees hired on or after January 1, 1993, are subject to a contribution cap that limits the District's portion of the cost of such coverage to the full premium the year the employee retired or the amount at the time the employee reaches age 65, or the year in which the employee retires if older than age 65. Any increases in the cost of such coverage in subsequent years would be paid by the retired employee. The District amended the plan effective January 1, 1999.
Employees hired on or after January 1, 1999, are not eligible for postretirement hospital-medical benefits once they reach age 65 or Medicare eligibility. The District amended the plan effective January 1, 2004, to provide that employees hired on or after that date will not be eligible for postretirement hospital-medical benefits once they retire. The District amended the plan effective July 1, 2007, to provide that any former employee who is rehired will receive credit for prior years of service. The District further amended the plan effective September 1, 2007, to provide that employees hired or rehired on or after that date must work five consecutive years.immediately prior to retirement to be eligible for postretirement hospital-medical benefits once they retire.
C. Annual OPEB Cost and Net OPEB Obligation-The District's annual other postemployment benefit ("OPEB") cost (expense) is calculated based on the annual required contribution ("ARC"), an amount actuarially determined in accordance with the parameters of GASB No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year (or benefits earned in the current year) and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. In 2007, the District's ARC and net OPEB cost was
$32.0 million and the net OPEB obligation recorded on the Balance Sheets at December 31, 2007 was
$23.1 million.
D. Funded Status and Funding Progress-The 2006 and 2007 contributions to the plan were based on projected pay-as-you-go financing. The total cost of postretirement hospital-medical and life insurance benefits was $8.3 million in 2006 and $8.9 million in 2007.
In 2008, the District will establish an OPEB trust and begin funding the unamortized obligation at a level of
$4.0 million above the projected pay-as-you-go amount. It is currently projected that funding will remain at this level through 2013 and increase from $4.0 million to $10.0 million above the annual pay-as-you-go amount in NERAK PUBLI POWE DISTIT2
2014. The final funding will be determined annually by the District's Board of Directors. The trust is currently projected to be fully funded by 2033.
As of January 1, 2007, the most recent actuarial valuation date, the District's actuarial accrued liability for benefits was $422.0 million and the assets in the fund were $1.8 million, resulting in an unfunded actuarial accrued liability ("UAAL") of $420.2 million. The covered payroll (annual payroll of active employees covered by the plan) was $163.4 million and the ratio of the UAAL to the covered payroll was 257%.
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future.
E. Actuarial Methods and Assumptions -
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
In the January 1, 2007, actuarial valuation, the Unit Credit Actuarial Cost method was used. The actuarial assumptions included a 5.75% discount rate and an annual healthcare cost trend rate of 10% initially, reduced by decrements to an ultimate rate of 5% after 13 years. An inflation rate of 3.5% was also assumed. The UAAL is being amortized as a level percentage of projected payroll over a 30-year amortization period.
- 16. COMMITMENTS AND CONTINGENCIES:
The District has coal supply and coal transportation contracts with minimum future payments of
$232.5 million. The various coal contracts expire at the end of 2013. The various coal transportation contracts expire at the end of 2011. These contracts are subject to price escalation adjustments.
The District has wholesale power purchase commitments with the Western Area Power Administration through 2020 with annual minimum future payments of approximately $26.9 million. This contract is subject to rate changes.
The District has a power sales contract with MEC for 250 MW for a term beginning January 1, 2005, and ending on December 31, 2009. The power sales contract is for the delivery of 250 MW of the accredited capacity and associated energy from CNS at prices as set forth in the contract.
The District has entered into participation power agreements with OPPD, Municipal Energy Agency of Nebraska ("MEAN"), JEA (formerly the Jacksonville Electric Authority), and Grand Island Utilities for the sale of power from the 60 MW Ainsworth Wind Energy Facility. The participation power agreements are each for a term of 20 years and in the following amounts: OPPD for 16.8%; MEAN for 11.8%; JEA for 16.8%; and Grand Island Utilities for 1.7%.
The District has entered into long-term PRO Agreements having initial terms of 15, 20, or 25 years with 79 municipalities for the operation of 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.agreement.
The District has 20-year wholesale power contracts, with a term that expires December 31, 2021, with the majority of its firm requirements wholesale customers to provide them with their total power and energy requirements through 2007, after which the wholesale customer could level-off its power and energy purchases through 2010 and thereafter could reduce its power and energy purchases up to 10.0% per year with at least three years advance notice. No such notices have been received.
The District entered into a Whelan Energy Center 2 ("WEC2") Transmission Facilities Agreement effective August 13, 2007, with the Public Power Generation Agency ("PPGA") and the City of Hastings, Nebraska. This agreement addresses the transmission facilities, construction, cost allocation, payment, and applicable cost recovery for the interconnection and delivery facilities required for the interconnection of WEC2 to the District's transmission system. Estimated cost of the project is $22.4 million and is to be paid by PPGA. As of December 31, 2007, PPGA had advanced payments to the District of $11.8 million. These advance payments are 27~ ~~i~ NERAK PULI POWE DISRC
prepaid transmission service on the District's transmission system for delivery of the Participant's Participation Power.
Effective January 2004, the District entered into a Participation Power Agreement (the "NC2 Agreement") with OPPD to receive 23.7% of the output of NC2, estimated to be 157 MW of the power from a 663 MW coal-fired power plant to be constructed by OPPD. The plant is expected to be in service in May 2009. OPPD will retain 50.0% of the output for its own use and has entered into similar participation power sales agreements with other power purchasers. The District's obligation under the NC2 Agreement to make payments is an unconditional "take-or-pay" obligation, obligating the District to make such payments whether or not NC2 or any part thereof is completed, delayed, terminated, available, operable, operating, or retired. The NC2 Agreement contains a step-up provision obligating the District to pay a share of the cost of any deficit in funds for operating expenses, debt service, other costs, and reserves related to NC2 as a result of a defaulting power purchaser. The District's obligation pursuant to such step-up provision is limited to 160.0% of its original participation share (23.7%).
Under the provisions of the Federal Price-Anderson Act, the District and all other licensed nuclear power plant operators could each be assessed for claims in amounts up to $100.6 million per unit owned in the event of any nuclear incident involving any licensed facility in the nation, with a maximum assessment of $15.0 million per year per incident per unit owned. To satisfy this potential obligation, the District has obtained a $15.0 million line of credit.
The Nuclear Regulatory Commission ("NRC") evaluates nuclear plant performance as part of its reactor oversight process. The NRC has five performance categories. CNS is currently in the Regulatory Response Column, which is the second highest rating of the five performance categories, and has been in this column since the first quarter of 2007 due to three failures of the emergency diesel generator system over a three-year period.
These failures resulted in a White Performance Indicator and a White Inspection Finding which prompted the movement from the first to the second column of the NRC's Action Matrix. As a result of this inspection finding, CNS will remain in the Regulatory Response Column of the NRC's Action Matrix until April 2008. The NRC is currently evaluating a procedure adequacy issue related to a June 2007 inspection of the CNS Fire Protection Program. Based on preliminary information provided by the NRC, there is a potential for up to a yellow inspection finding related to this issue. If a yellow finding is assessed, CNS would move to the Degraded Cornerstone Column (third column) of the NRC's Action Matrix. If the District is moved to such column, CNS would be subject to increased NRC inspections and would increase costs of operating CNS. A final determination on this issue by the NRC is expected in the near future.
As part of a 1989 settlement of various disputed matters between General Electric Company ("GE") and the District, GE has agreed to continue to store at the Morris Facility the spent nuclear fuel assemblies from the first two full core loadings at CNS at no additional cost to the District until the expiration of the current NRC license in May 2022 for the Morris Facility. After that date, storage would continue to be at no cost to the District as long as GE can maintain the NRC license for the Morris Facility on essentially the existing design and operating configuration.
On December 4, 2002, Region VII 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 provided the documents and information requested to the EPA. As a supplement to the 2002 and 2003 requests, EPA Region VII sent another letter to the District on November 8, 2007, requesting additional documents and information pertaining to Gerald Gentleman Station and Sheldon Station. The District will provide a response to the new request within the time allowed. In general, a finding by EPA of District noncompliance with Clean Air Act requirements, if upheld after court review, can result in the requirement to install expensive air pollution control equipment that is the best-available control technology and the imposition of monetary penalties.
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 NEBASK PBIC POWE DISTIT2
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 has reached an agreement in principal with the other PRPs to resolve its potential liability for the EE/CA by entering into a settlement agreement under which the District would contribute 10% of the costs of the EE/CA. The settlement agreement for the EE/CA has been signed by all parties and was ratified at the February 2007 Board of Directors meeting. Phase I of the EE/CA work began at the site in November 2007. The current schedule indicates that the EE/CA should be completed mid-2009. The District is unable to predict what future costs may be incurred with respect to MGP.
In October 2003, the District entered into an agreement (the "Entergy Agreement") for support services at CNS with Entergy Nuclear Nebraska, LLC ("Entergy"), 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 Entergy Agreement requires the District to reimburse Entergy's cost of providing services, and to pay Entergy annual management fees. These annual management fees were $14.0 million for 2006 and 2007 and all years thereafter. Beginning in 2007, Entergy can also earn additional annual incentive fees in an amount not to exceed $6.0 million annually if CNS achieved identified safety and regulatory performance targets.
- 17. 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 Entergy Agreement, enjoining the District from entering into similar contracts and seeking reimbursement of the monies paid to Entergy pursuant to the Entergy Agreement. Said complaint alleged that the Entergy Agreement violated Nebraska law since it is not at cost and improperly provides indemnification and the payment of certain additional fees. Both parties filed motions for summary judgment. On December 19, 2006, the Court issued an order finding that the District had authority to enter into the Entergy Agreement and that said Agreement is valid except for the indemnification agreement which the Court found to be a violation of the lending of credit prohibition in the Nebraska Constitution. The Court also found that insofar as the contract involves alteration, repair, or maintenance, that it violates a statutory prohibition regarding indemnification for negligence. On December 29, 2006, the District filed a motion to alter or amend and/or for new trial. On June 21, 2007, the court denied the District's motion to alter or amend the judgment. In July 2007, the District appealed the case to the Nebraska Court of Appeals. The Entergy Agreement provides that if any term or provision should be declared invalid or unenforceable, the parties will, to the extent practical, renegotiate said Agreement in good faith to permit said Agreement to be performed. However, if such renegotiation is unsuccessful, either party may terminate said Agreement with at least 180 days written notice prior to the date selected for termination. In March 2008, the District, the plaintiff, Entergy Nuclear Nebraska, LLC, and the Utility Workers of America signed a settlement agreement resolving the litigation and affirming the validity of the Entergy Agreement.
The settlement agreement requires the District to pay plaintiff's attorney fees, dismisses the appeal, requires amendment of the Entergy Agreement to increase Entergy's excess liability insurance coverage from
$50.0 million to $100.0 million, provides that the indemnification obligation of the District shall not apply to any insurance policy deductible required to be maintained by Entergy, provides that the Entergy Agreement is not a contract for "alteration, repair, or maintenance," and provides that the Entergy Agreement is valid and lawful in all respects. The parties also agreed to file a joint motion requesting the District Court of Lincoln County to vacate its order entered on December 19, 2006.
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, 2007.
- 18. SUBSEQUENT EVENTS:
The District's taxable general revenue auction rate bonds issued for capital improvements at CNS are insured by "monoline" bond insurers. Monoline bond insurers guarantee the timely repayment of bond principal and interest when an issuer defaults; as a result, such securities typically receive the highest investment-grade ratings 29 ~ ~NERAK
- PBIC POE ISRC
from the credit rating agencies, which reflect the credit ratings of the monoline bond insurers. At year-end, the District had an aggregate of $146.8 million principal amount of insured taxable auction rate bonds ($53.1 million insured by XL Capital Ltd., $93.7 million insured by CIFG Assurance North America, Inc.). The District's insured taxable auction rate bonds bear interest at rates determined pursuant to auctions conducted every seven or 35 days, depending on the particular series of securities. As a result of developments in the capital markets with respect to residential mortgage-backed securities and collateralized debt obligations, the credit rating agencies have placed some of the monoline bond insurers on review for a possible downgrade or have actually downgraded their credit ratings due to their insuring of such securities. As a result, since December 2007, the insured taxable auction rate bonds that are guaranteed by the monoline bond insurers have similarly been placed on review for possible downgrade or have been downgraded. A credit rating is not a recommendation to buy, sell, or hold securities. It should be evaluated independently of any other rating. Ratings are subject to revision or withdrawal at any time by the rating organization.
As a result of these actions by the credit rating agencies with respect to monoline bond insurers and a lack of liquidity in the auction rate market, the District sent notices of refunding for all outstanding auction rate bonds in January and February of 2008. In March 2008, the District issued $137.8 million of taxable revenue bonds to advance refund all of the taxable auction rate revenue bonds.
In March 2008, the District entered in to a 20-year power purchase agreement with Midwest Wind Energy, LLC and its affiliate Elkhorn Ridge Wind, LLC for the construction of an 80 megawatt wind energy facility near Bloomfield, Nebraska. The Elkhorn Ridge wind energy project will cost approximately $140.0 million and be constructed by the end of 2008. Under the terms of the agreement, Elkhorn Ridge Wind, LLC will own and operate the facility, and the District will purchase all the output at a guaranteed price that escalates 2.5% each year to the end of the agreement. The price is expected to be comparable to the cost of the District owning and operating such a project or purchasing energy in the open market.
In September 2008, the District plans to submit an application to the NRC for a 20-year license extension related to its Cooper Nuclear Station. CNS's original operating license is set to expire in January 2014, thus the 20-year license extension is necessary for CNS's future operations. In conjunction with the submission of this application, the District will evaluate all assets associated with CNS and revise their estimated remaining useful lives accordingly. Additionally, the District will also reassess its CNS asset retirement obligations in conjunction with the submission of the license extension application.
I ERAK PB ICPOE ISRC 30 1
01604