ML17291B150

Washington Public Power Supply Sys Annual Rept 1995. W/ 951201 Ltr

ML17291B150
Person / Time
Site:	Columbia, Washington Public Power Supply System, Satsop
Issue date:	12/31/1995
From:	Counsil W, Kucera G, Parrish J WASHINGTON PUBLIC POWER SUPPLY SYSTEM
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
GO2-95-254, NUDOCS 9512080011
Download: ML17291B150 (40)

Text

P R.ICBM.IM'Y (ACCELERATED RIDS PROCESS )

REGULATORY XNFORMATION DISTRIBUTION SYSTEM (RIDS)

ACCESSION NBR:9512080011 DOC.DATE: 95/06/30 NOTARIZED: NO DOCKET FACIL:50-397 WPPSS Nuclear Project, Unit 2, Washington Public Powe 05000397 50-460 WPPSS Nuclear Prospect, Unit 1, Washington Public Powe 05000460 STN-50-508 WPPSS Nuclear Project, Unit 3, Washington Public 05000508 AUTH. NAME AUTHOR AFFILIATION p COUNSIL,W.G. Washington Public Power Supply System KUCERA,G.J. Washington Public Power Supply System PARRISH,J.V. Washington Public Power Supply System RECIP.NAME RECXPIENT AFFILIATION

SUBJECT:

"Washington Public Power Supply Sys Annual Rept 1995." W/

951201 ltr.

DISTRIBUTION CODE: M004D COPIES RECEIVED:LTR ENCL SIZE R TITLE: 50.71(b) Annual Financial Report NOTES:Standardized Plant. 05000508 App for permit renewal. Requested exp date 890701.

RECIPIENT COPIES RECIPIENT COPXES ID CODE/NAME LTTR ENCL ID CODE/NAME LTTR ENCL PD4-2 LA 1 1 DRPM/PDND LA 1 1 PD4-2 PD 1 1 DRPM/PDND 1 1 CLIFFORD,J 1 1 MICHAELS,T 1 1 MENDONCA,M 1 1 INTERN NZ-'ER 1 1 EXTERNAL: NRC PDR 1 1 D U

N NOTE TO ALL"RIDS" RECIPIENTS:

PLEASE HELP US TO RFDUCE 4VKSTE! CONTACI"I'HE DOC!.'MENT CONTROL DESk, ROOhf PI -37 I EXT. 504-2083 ) TO ELI hfl.'PATE YOUR NAifL F ROif DISTRIBUTION LIS'I'S FOR DOCK'NfEN'I'S YOI.'ON"I'L'ED!

TOTAL NUMBER OF COPIES REQUIRED: LTTR 9 ENCL 9

WASHINGTON PUBLIC POWER SUPPLY SYSTEM PO. Box 968 ~ 3000 George Washington Way ~ Richland, Washington 99352-0968 ~ (509) 372-5000 December 1, 1995 G02-95-254 Docket Nos: 50-460 50-397 50-508 U.S. Nuclear Regulatory Commission Attn: Document Control Desk Mail Station P1-37 Washington, D.C. 20555 Gentlemen:

Subject:

NUCLEAR PROJECTS 1, 2, & 3 ANNUALFINANCIALREPORT Enclosed for your information, as required by 10 CFR 50.71(b), are three copies of the Washington Public Power Supply System Annual Report 1995.

Should you have any questions or desire additional information regarding this matter, please call me or P. R. Bemis at (509) 377-4027.

Sincerely,

. V. Parrish (Mail Drop 1023)

Vice President, Nuclear Operations AGC/lm

Enclosure:

Washington Public Power Supply System Annual Report 1995 CC: LJ Callan - NRC RIV JW Clifford - NRC w/o MM Mendonca - NRC w/o NS Reynolds - Winston & Strawn w/o DL Williams - BPA/399 w/o NRC Site Inspector - 927N wAPl

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0 financial Qperating gigklig4s Qn tbe venr ended June 5o, lt7t75 (Dollnnr ln millions)

BONDS OUTSTANDING FY 1995 FY 1994 CHANGE Amount'/Weighted Average oupon Rate WNP-1 amount 9 2,208.8 8 2,246.3 -1.7%

weighted average 6.3% 6.2% 1.6%

variable 8 149 9 153.3 -2.2%

average rate 3.5% 2.4% 45.8%

WNP-2 amount 82,603.7 $ 2,612.2 -0.3%

wcightetl average 6.1% 6.1% 0 WNP-3 amount 8 1,701.5 5 1,738.4 -2.1%

wcightcd avcragc 6.0% 60% 0 variable 198.3 202.1 -1.9%

avcragc rate 3.5% 2.4% 45 8o/o

'Excludre Compounded Intercrt Bond Accretion INVCSTNGNT PGWORNANCG FY 1995 FY 199> CHANGE Income 48.5 50.1 -3.2%

Average Balance 8 899.4 894.2 0.6%

Rate of Rctum 5.4% 5.6% -3.6%

NUCLEAR PRO ECP NO. 2 PACKWOOD LAKE PRO ECT OPGMTING STATISTICS FY 1995 FY 199~ CttANGE FY 1995 FY 199~ CttANGE Total production 139.9 8 155.9 -10.3% 8 1.0 8 04 1500%

-Z.5%

costs'et generation (millions of LWh) 6,462.7 7,288.8 11.3% 60.7 65.6 Cost in mills/4 21.7 21.4 1.4% 16.3 6.7 143.3%

avatlabtlt ty h'lant 75.0% 79.5% -5.7% 60.0% 900% 433%

Plant ca acity 67.9% Z6.6% -11 4% 22.9% 27 3% -16. 1%

)nclv Jes operation anJ maintenance costs per I-/PC repent 7,289 6,465 5,67O 6,ao

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a~ . a vox son This was my last year as a member of the Supply System's Executive Board. I leave this hoard after 13 years with the conviction that thc organization as a whole is much morc focused now than it was when I began my association Wl'th it'n 1982, WNP-2 arul -3 were still un Jer construction, although questions were being asLed about how long construction could continue at WNP-3. WNP-1 was prepar-ing for preservation. WNP-4 and -5 had been terininated and were embroilcd in lawsuits. The need to stay informed on Jevclopments in all these areas and to make decisions affecting multi-billion Jollar projects maJe BoarJ membership a hectic proposition.

In the intervening years, WNP-4 and -5 litigation has been settle J, the last of thc large lawsuits in that collection cost-sharing in February 1995. It involved a Jispute over the method allocating certain common and shared costs bctwecn the Supply System's "twinned" nuclear power projects WNP-1/4 and WNP-3/5. The Supply Systems unique Hanford Generating Project, situated deep within the feJeral government's Hanford Site in southeastern Washington, was shut down for good in January 1987. At its startup in 1966, this plant that generated electricity using surplus steam from a fcJcral nuclear reactor was the largest nuclear power plant in the world. Termination of WNP-1 and WNP-3 became a certainty in January of 1995 following a seven-month period during which we looLed in vain for parties that would come forward with a legitimate proposal for use of either of those projects. The next steps for thcsc plants will involve taLing biJs for Jemolition and site restoration, in anticipation of awarding a contract in calen Jar year 1996 at the WNP-3 and -5 site, and possibly three years later at the WNP-1 and -4 site.

Thcsc occurrences have allowed the Supply System to conccntratc more and more on Plant 2, our reinaining large nuclear power plant. Un Jer Managing Director Bill Counsil's lea Jcrship, we have improved the operating record for this important regional generating resource. This improvement gaineJ significance during FY95 as continued change in the regional electricity supply picture prcscntcd the customer for Plant 2's power the feJeral Honncvillc Power Administration with the challcngc of escalating price competition. Beginning in fiscal year 1996, the BPA will begin to reap the benefits of a Megawatt Iinprovernent Program that was approvcJ by the Executive Board in 1991 and completed during this fiscal year's annual maintenance anJ refueling outage. The program is expected to result in as much as 60 megawatts of increased electrical output.

The Supply System also continued its effort to provi Je ncw electrical generation options for BPA. In August 1994, wc asLed the state Energy Facility Site Evaluation Council for permits for the WNP-3 and -5 site to allow for construction of the propose<1 Satsop Combustion Turbine Project.

One of the two CTs is dedicated to BPA, anJ we arc actively marketing the second.

The PacLwood I'lydroelectric Project celebrated its 31st year of operation. Extensive worL ronducteJ on thc plant's generator during this year's maintenance outage should heep PacLwood operating well into the 21st century.

One of thc programs I am most proud to be associated with is the refinancing of the Supply System's high-interest debt. Although no bonJs werc refinanced during this fiscal year because rising interest rates ma Je it uneconomical, a gross debt service savings over thc life of thc bonds of about gl.Z billion has been passcJ on to BPA, and ultimately to thc electric consumers in the Pacific Northwest.

I came to the Supply System with morc than 40 years of cxpericncc as a private sector contrac-tor. While on the Supply System's Executive Board, I had the satisfaction of putting this experience to worlz for ratepayers throughout the Pacific Northwest. I also haJ the satisfaction of worLing on the Hoard with many talented and Jedicated Board members, as well as a great staff.

j i iam . Ounsi Tire Pacific Northwest is experiencing a buyer's market for electricity, in which utilities have an

~t increasing number of power supply choices. Iwr example, independent power producers arc active in the region, offering significant quantities of electricity at very competitive prices. During this year, tire Supply System took actions, and planned otllcls< that will allow us to provide compctitivcly priced power for our customer.

Tire Bonneville Power Administratiorrr crlstorllcr for tllc power wc gcncrater s'truggled this year in the intensely compctitivc environment. It is faced witlr rising costs arrd clranges in lrydro system operation to protect endangered salmon. At thc same time, utility dcrcgulation lras encouraged growth of indeperulent power pro<luccrs, wlrich <lo not share BPA's rcsponsibilitics for fislr enhancement, energy conservation, arul transmission system construction arul maintenance.

To lrelp BPA respond to these pressures, we improve<1 production at Plant 2 and controlled costs...but we are not stopping tlrcre. Wc are aiming to reduce our cost of power to 2.Z cents per kilowatt-lrour by July 1996, down from the 3.2 cents per kilowatt-hour originally budgeted for the coming fiscal year.

To mcct this goal, we arc continuing to look for ways to be more efficient. Tlris past year we reduced our number of contractor employccs to tire minimum ncc<lcd to support long-range improvements. We also reduced our staffing level frolll aborlt 1g850 to lr550r lllainly tlrrough attrition and organizational rcaligmncnts. We werc also able to eliminate "unncccssary worL," worL not essential to tlrc success of Plant 2 arul the Supply System. This lrclpe<l us to reduce overtime costs. Tlresc efforts reduced our fiscal year 1995 operating budget by $ 9 million from the previous frscal year.

Plant 2's improved pcrfornrance has been and will continue to be thc most significant factor in reducing thc cost of our power. During fiscal year 1995r tlrc plarlt operated for 204 continuous days, tlrc second-longest period of continuous operation in its 10-year history, and tire longest period of operation following an anmral outage. Thc operating cycle was interrupted by a few short outages, but even so the plant provide<1 more than 6.4 billion kilowatt-lrours of electricity to Bonneville.

During this year's annual maintcnancc and refueling outager colllpletcd in 49 days (the short-est in Plant 2's history), modifications were made arid equipment was installed to increase'the lr112 megawatt electrical output by as much as 60 megawatts. Increase<1 output combined with reduced operating costs will result in lowered kilowatt-hour cost.

Anotlrer major effort, to be completed during next year's anmral outage, will be to install adjustable speed drives on thc plant's recirculation system punrp motors, wlrich will save wear <llld tear oil equipment and aid in smoother startups.

Taking such steps to improve our performance and cut our costs, witlra continued commitmerrt to safety, will help us Leep our cost of power competitive and we will remain a stable baseload resource for the region.

page 5

e u sem II

~aining Competitive ~age

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'g4 ~JvceJ costs an J ineveaseJ e ficiencg, Plant 2 wil amain a strong, mac $ etaLle vesov~e, one of BPA's (avgest sources of thermally generate J elechicitg in 4e Paci fic No&he est.

CAKIER e Or.-'> Competition has never been more intense in the Pacific Northwest's electric utilitybusiness. Changes in federal laws and the entry of independent power producers offering I

I--, low-cost power from natural gas-fired combustion turbines have given utilityand industrial power purchasers new choices.

Attracted by the lower costs, customers who have traditionally relied on power from hydroelectric and large thermal plants marketed by the Bonneville Power Administration are meeting some of their power needs elsewhere. One of BPA's largest sources of thermally generated electricity is the Supply System's Plant 2.

In a year during which Plant 2 reached it's 10th anniversary of commercial operation, Supply System employees faced the competition head-on. The number of contractor employees, overtime costs, and nuclear fuel expense were reduced. Planned capital projects were deferred pdgo 6

v or canceled. Organizational realignments brought increased efficiency that supported a nine-percent reduction in staffing level by June 1995.

Such actions were part of the ongoing drive to reduce the cost of Plant 2 power. While this fiscal year's cost of 3.5 cents per kilowatt-hour (regional perspective) continues a downward trend, it must go lower. Our plan is to reduce the cost to about 2.7 cents per kilowatt-hour by June 1996, with further reductions being considered. With reduced costs and increased efficiency, Plant 2 will remain a strong, marketable resource.

Increased efficiency was demonstrated this year by Plant 2's 204 days of continuous operation between July 1994 and February 1995, the longest period of continuous operation coming out of an outage. Although there were three short, unplanned outages in February and Aprili 1995 Plant 2 still generated more than 6.4 billion kilowatt-hours of electricity for the Bonneville Power Administration.

k go JiI'ications ma Je luring the jiscal I

gear s outage  ;>>I i mern I

inn easeexpected'o lant 2 s elecb ical generating capacity Lg about 60 megawatts.

pago 7

This year's annual Plant 2 maintenance and refueling outage was another illustration of the Supply System's focus on continuous improvement. It was completed in a record 49 days beating Plant 2's previous-best outage in 1993 by three days.

During that time, more than 3,800 taslzs were completed, includ-ing replacement of 152 of the plant's 764 fuel assemblies; replace-ment of 12 local power range monitors which are used to measure reactor operating conditions; a remote camera inspection of reactor vessel welds, nozzles, and jet pumps; and inspection of the high-pressure turbine.

There also were a series of component tests and verifications to ensure the equipment was in prime condition for another year of operation. For the fifth straight year, random sample tests of Plant 2's snubbers produced zero failures, resulting in a United States nuclear industry record. Snubbers are mechanical devices that permit piping to move freely during thermal expansion and contraction, but also act as rigid restraints to minimize damage during sharp movements, such as earthquakes or other severe shoclzs.

if 11 gfanstotal ofveplaceJ weve 36 cooling towev Juving 4is 4jvL - 0 70 g geav I

s maintenance an J ve fueling c

outage to impvove 4e veliabilitg o 4e six cooling towevs at lant 2. The new 3O.foot-Jiametev fans each have lo (la Jes, va4ev than eig4, an J can move move aiv with 4e same Lovsepowev vesultinq in move efficient cooling in the con Jensevs. The new LlaJes ave maJe witI a fibevglass vesin composite as opposeJ to The snubbers are installed throughout the plant between pipes, pumps, 4e olJ fan [la Jes that emplogeJ motors, floors, walls, and ceilings. As in past years) Plant 2 came metal in tie Jesign.

out of the annual outage fine-tuned and prepared to operate for another cycle. In addition, modifications made during the outage were expected to increase the electrical generating capacity of the plant by about 60 megawatts, enough to provide for more than 30,000 all-electric homes.

pago 8

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~aining a Corrlpetitiye ~ Jge I

P tant 2 s annual maintenance anJ refueling outage, PIO, was completeJ in a v'ecov J 49 Jags. QnJ 4e ewest numb'f vecce Ja le injuries in plant history~ among all

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1 veccn JeJ Jvving j tt 4e supp' of 4is gem's vecov J.setting outage.

~N+ 4 A return to more normal water flow in the Columbia and Snalze Rivers in June 1995 allowed BPA to meet its system demand for electricity with power from the federal hydroelectric system.

Plant 2 was placed in "economic dispatch," and although the outage was completed on June 9, the plant had only a half-day of operation until July 3, when at BPA's request, the plant began extended operation.

Other worh completed during the fiscal year included installation of a new simulator in the Support Facility near Plant 2.

Reactor operators who use it get hands-on training in an environment that duplicates the appearance and operation of the actual Plant 2 control room. The simulator replaces the plant's original simulator, which in 1988 was determined to need significant improvement to meet increasing high standards of performance required for training and examining reactor operators throughout the nuclear industry.

page 9

IC e U sem

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In Map Igg5, the supply gqstem completeJ the sale of V'NP.>'s Four 5oo lsv electrical transformers to Pacific ~s Q electric Co. of S an francisco for use at the Diablo Canyon power plant situateJ near +vila peach, Calif. This incluJes three main transformers (one for each electrical phase) anJ a spare.

Q4* 1 II The first major sale of +NP-5 assets was ma Je prior to selection of an asset sales/Jemolition contractor at gatsop to accommoJate outage sche Jules at Diablo Qanqon.

The 50D-ton transformers ~ere transports from the site Lg trailer to a Large slip on the ( hehalis While Plant 2 remained the focus of our power produc-giver'hen Lq Large to Diablo tion, we continued efforts to market competitively priced power

( anqon.XX//4ProceeJs IM from the sale go from a proposed combustion turbine. In late January 1995, Power into ~ J g P3 s construction trust Resource Managers, Inc., of Bellevue, Washington, selected the account to offset project termination costs. Supply System's proposed combined cycle combustion turbine power plant for a short list of future power resources for the firm's customers. PRM represents several Northwest utilities.

Note: In July 2ggS, the Supply System received a 1etter from PRM stating their plans not to move fonoard roith negotiating a memorandu>>> of understanding on the proposed CT.

The Satsop Combustion Turbine Project would be located on a portion of the Supply System's Satsop power plant site near the town of Elma, about 30 miles west of Olympia in Grays I-Iarbor County.

The Project consists of two Westinghouse combustion turbines, with a capacity of 245 megawatts each. Unit 1 is committed to Bonneville under an exclusive option agreement beginning in 1993. Unit 2 was offered to PRM in response to a rec{uest for proposals issued in September 1994.

page IO

lect'citrI fmm 4e ac/woo J La)e I-IrIJ~elecb ic Project,

.cateJ n 4. 9 fI'o J P -I ot gational I:oust near gt. Qainie~ is Jisbit uteJ LrI tIre bonneville Power QJministvation for use LrI IQ Public UtilitiIDish icts in washington state. Tie plant supplies enough elect~icit to meet 4e annual neeJs o neavlrI 4,000 vesiJences. Pac wooJ Le an opeiating in June I96i4.

itL extensive wc'onJucteJ I

on the plants generator I

Juving 4is rIear s outage, P choo J is expecte J to January 1995 was also the month that the Supply System's continue operation well past Executive Board determined to proceed with demolition activities tire gear '2000.

at our terminated sites, WNP-3/5 and WNP-1/4. A comhined asset sales/demolition program is expected to begin at WNP-5 in 1996. Plans are to rlemolish the projects in tire following order:

WNP 5i WNP 3i WNP 4 and WNP- 1 .

The major decisions made and significant actions taken during fiscal year 1995 have moved the Supply System well along the road leading to lower, competitively priced power from Plant 2. The Supply System's progress in tlris direction will henefit tire customer for this power BPA and the more tlran 100 utilities ansi industrial customers BPA serves.

page II

EXECUTANT BOARD OF DJRECTORS BOARD ComnTTEES Darrcl Bunch Arlministrativc and Public Responsibility Commissioner Conunittce Okanogan County PUD Vera Claussen, Cliainnan Don Carter Toin Casey Dan G. Gunkcl Comniissioner Paul J. Nolan Grays Harbor County PUD Bob Royer Carl M. Halvorson, Ex Officio Don Carter Deputy City Manager A,u, r g.l. 1F ~ -C.nu.ittcc City of Richlantl Paul J. Nolan, Chairman Rutlolph L. Bertschi Vera Clausscn (Secretary) Vera Clausscn Commissioner Bob Royer Grant County PUD Roger C. Sparks Carl M. Halvorson, Ex Officio Mark Crisson Superintcntlent Operations / Construction Commit tcc Tacoma Public Utilities Parker L. Knight, Chairman Bcvcrly Cochranc Fitzgerald Rudolph L. Bertschi Don Carter (Vice Prcsirlcnt) Dan G. Gunkel Coimnissioncr Roger C. Sparks Franklin County PUD Carl M. Halvorson, Ex Officio Robert Graves (Prcsirlent) 'J.P" rg -,

Commissioner Benton County PUD Pl Dan G. Gunlecl Conunissioner Klickitat County PUD u 7I Parker L. Knight Commissioner Skamania County PUD William G. Kuclmc Commissioner Ferry County PUD Dave Pflugrath Commissioner Chelan County PUD Roger C. Sparks Commissioner 'r Kittitas County PUD o Arne Torgct (Assistant Secretary)

Commissioner Walikiakum County PUD In July 1995, the Board of Directors toured the Pachwood Labe Hydroelectric Project, located in the Cascade Mountains near Gary Zarkcr Mt. Rainier. Pictured here in front of the power station are:

Vera Claussen (sitting) and from leftr Don Carter, %i)jism Kuehne, Supcrintentlent Darrel Bunch, Arne Torget, Psrbvr Knight, Robert Graves, Tom Carey, Seattle City Light Dennis Psrrish (alternate for Seattle City Light) and Roger Spsrhs.

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<KI gotos to Pinancta1 statements I',h 13

MANAGEMENTREPORT ON RESPONSIBILITY FOR FINANCIALREPORTING S

I f .(e The management of the Supply System is responsible'or preparing the accompanying Qnancial.

statements and for'their integrity.>The statements were prepared in accordance with generally-accepted accounting principles applied on,a consistent basis, and include amounts that are based on management's best estimates and judgments.

. The financial statements have been audited by Deloitte R Touche LLP, the Supply System's indepen-dent auditors. Management has made'availab/e to Deloitte R Touche LLP all financial records and related data, and believes that all representation/made to Deloitte R Touche LLP during its audit were valid'and appropriate. '

~Management has established and maintains internal control procedures that provide reasonable assurance as to the 'integrity and reliability of the financial statements, the protection of assets:from unauthorized use or disposition, and the,.prevention and detection of fraudulent fina'ncial reporting. These control procedures provide for appropriate division of-responsibility-and are documented by written policies

'and procedures.

C li The Supply System piaintains an ongoing internal auditing program that provides for independent-assessment of the effectiveness of internal controls, and for recommendations of possible improvements .

thereto. In addition, Deloitte R Touche LLP has considered the internal contr'ol structure in order to determine th'eir au8itingprocedures for thepurpose of expressing an opinion-on the financial statements.-Management has considered recommendations made by the internal au'ditor,and Deloitte R Touche LLP concerning the control procedures and has taken appropriate action.to respond to-the recommendatiops. Management believes that, as of June 30, 1995, internal control procedures. are adequate.

e W. G. Counsil Managing Director

'.J. Kucera~

Chief Financial'Officer j' I

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A UDI1', LEGAL AND FINANCE COMMIT(TEE CHAIRMA¹$'LETTER

/

Th'e Executive'Board's Audit, Legal and-Finance Committee is composed of five independent

, directors. Members of the Committee pre Paul J. Nolan, Chairman; Rudi Bertschl; Vera Claussen; Bob Royer;.

'oger Sparks; and Carl M. Halvorson, Ex Officio.The Committee held U meetings duiing the fiscal year ended 30, 1995. 'une The Committee oversees the Supply System's financial reporting process "on behalf of the Executive

'oard. In fulfillingits responsibility, the Committee discussed with the internal auditor and the independent auditors the overall scope and specific plans for their respective audits, and reviewed the Supply System's finhncial,statements and.the adequacy of the Supply System's internal controls.

e I r

, The Coinmittee met regularly with the Supply System's internal auditor and independent auditors to discuss the results of their examinations, their evaluations of the Sup'ply System's internal controls, and the overall quality of the Supply System's financial reporting. The meetings were designed to facilitate any "

,private communication with the Committee desired by the internal auditor or independent auditors.

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Paul J. Nolan Ch'airman, Audit, Legal and Finance Committee e

14

I' INDEPENDENT. A UDITORS'EPOg T i

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1 Executive Board Washington Public T'ower.Supply System //

Richland, Washington .

We-have audited the accompanying individual balance sh'eets of Washington Public Power Supply System's,(the'Supply System). Nuclear Project No. 2, Packwood Lake Hydroelectric Project, Hanford Generating Project, Nuclear'Project No. 1, Nuclear Project No;-3, and Nuclear. Projects Nos. 4,and 5 as of .

- June 30, 1995, and the related statements'of operations and cash flows for the year theri ended. These, financial statements are the responsibility of'the, Supply System's management. Our responsibility is to expressI an opinion on the financial statements based on.our-audits'.

Vfe conducted our audits inaccordance with generally accepted auditing stand'ards. 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 ll'n 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 present'ation. We believe that our audits provide a reasonable basis for our opinion. ~

our opinion,.such financial statements present fairly, in all material respects, the financial position of the Supply System's individual projects at June 30, 1995, and the results of their operations and cash flows for the year then ended in conformity with generally accepted accounting principles..

/

As discussed in Note F to the financial statements, the Supply System's Board of Directors has

'erminated Nuclear Projects Nos. 1 and p-and the projects',Utility Plants have been written down tq their net realizable valu'es, and are held for sale;

/

,(

L i/ ~ *

] 'J y h

)sh&" lDDdcf. c.eP"

,,'eattle, Washington September 1, 1995 /

i h

k

)

/

15

0

'AL4NCE SHEETS-As ofJune+0, 1995 ~

Dollars ln thousands.

/

NUCLEAR PACKWOOD HANFORD NUCLEAR NUCLEAR ,NUCLEAR

/ PROJECT - LAKE GENERATING PRQJECT PROJECT 3'¹ PROJECTS NO. 2 " PROJECT PROJECT¹ NO. 1¹ NO 'NOS 4/s'¹

< ASSETS-UTILITYPLANT (NOTE B)

= -

'12,559-In service $ 3,383,894.

Allowance for depreciation 1 1 114 713 9,336,

/ > .2,269'181- 3 223 N'uclear fuel, net of accumulated amortization 152,997 j Construction work in progress / 63,656

/

2,485',834 ~ 3223 rI t

RESTRICTED ASSETS (NOTE B),

Special funds Cash, 22 .=12 $ 61 $ 1,185 $ /'140

/ Investments l . '5/771 279 ,$ 1 140,487,, 31 127 10,069

'ccounts receivable 740'1,308 7,139 2,000 Due from other projects 95 53,105-

< Due from other funds 28,251 Prepayments and other I 117 79 1 Debt service funds /'

I Cash 49 '1 293 / I, 93

-- Investments - 157,258 723 21'6,761 176,930 42,583 l 213,100 1,015, &

-1 399,767 244,899 '07,899 r I I

LONG-TERM, (NOTE B)

'ECEIVABLE 50 297 CURRENT ASSETS Cash 8,058 ' '

- . 652 3,397 Investments ' .

~ 35,028

- 712 9

',431 '

9,138 10,370 Accounts receivable - 2,223 2//

'ue.from other projects ~ 939 7 ' 25. ~

~

Due from other'funds, ~ 21,263 17 r . / =

41,680 Materials and supplies 55,030 2 other, Prepayments and 873 ' 1

'fuel held for sale 'uclear 15,608 Plant gr equipment. held for sale; / 3,900 10,611 7,657 122,614 1,190 12,338 77,715 21,426 I

DEFERRED CHARGES Costs in excess of billings 3,593 2,018,21'" 1,793,157/

Unamortized regulatory studies 1,7,360 Unamortized debt expense, 17 534 ~ 9 / ~ . / 23 050 18 889 34,894 3,602 '- 2,041. 267 - 1,812,046 I

r t TOTAL ASSETS $ 2,906,739 r $ 9,030, $ 12,339 r$ 2,518/749" $ 2,078,371 =$ 107,899

'I t II / /

• Supply System's ownership share (Note A)

Project recorded on a llquldatlon basis gr r *r

/S, ll ee notes to financ a statements V

1 /

16 r/

a

/

/ "l, NUCLEAR PACKWOOD HANPORD' NUCLEAR NUCLEAR NtjCLEAR PROJECT LAKE GENERATING PROJECT PROJECT PRdJEcrs No. 2 PROJECT PROJECT<<I NO. 1N No 3e NOS. 4/5'II L'IABILITIES

<</

DEFICIENCY IN ASSETS />> r" $ (4,295,488) x r/

BILLINGS IN EXCESS OF-COSTS $ -168,100 $ 5,267, LONG-'TERM DEBT (NOTE E)

IRevenue bonds payable . 2,638,'174 -

$ 7,579 $ 2,358;710 $ 2,306,385 Unamortized discount r '1 on bonds - net 103 792 2;534,382 7,544 35 5, [, 4 705 2,327;005 371 787 1,934,598 DEBT IN DEFAULT, CURRENTLY, I x PAYABLE (NOTES E R F)

Revenue bonds, payable Subordinated revenue notens

'6 2,155,755 113

<< 2 171 868

=

(

) LIABILITIES- PAYABLE FROM RESTRICTED ASSETS (NOTE B)

/ Special. funds"'ccounts payable and accrued'xpenses 33,923 8 -52,017 38,370 ',433

<<Due to other projects 26,575 26,500 Due to other funds, -18,456 ~ 2 18,780 Debt service funds /

Accrued interest payable 95 70,561. ,47,007 2,217;618-Accounts payable

~l 10,468-Due to other funds 2 807 15 22 900 17 211 55 186 120 ~ 1 190 833 129 088 2 231 519 OTHER NONCURRENT LIABILITIES, Due to other projects 30,059 Other noncurient liabilities 12 58 42 648 CURRENT LIABILITIES Current maturities of long-term debt 51,721'27 i

/

Accounts payable and accrued expenses 40,334 / 437 =

';071 I l 911 3p620 Due to participants 3,119 361 Due to other funds

'1,040 Due to other projects 11 249 271 25 /

106,423 -1,296 7,071. 911 14,685 DEFERRED CREDITS Deferred<<gain on redemption of revenue 64 bonds'OMMITMENTS AND:

CONTINGENCIES (NOTE F)

/

/OTAL LIABILITIES, $ 2,906,739 $ 9,030 '$12,339 $ 2,5188'49 $ 2,078,3/ 1 $ 107,899

/

17

/

/ I "I

- ~ k STATEMENTS OE OPERATIONS For the year ended June 30, 199S, Dollars ln thousands r

1-NUCLEAR PACKWOOD HANFORD NUCLEAR NUCLEAR 'UCLEAR y i PROJECT LAKE 'GENERATING PROJECT 'ROJECT > PROJECTS

\ ~ NO! 2 PROJECT- pRQJEcr¹ 'No. I¹ NO. 3'¹ Il NOS. 4/S ¹

'PERATING REVENUES I

t'462,967, $ 1,658 OPERATING EXPENSES Nuclear fuel - - 24,642 Fuel disposal fee -'- .6,145 r i i

Dhcommissioning ~

5,080 Depreciation and amortization 107,299 365 and maintenance ~ 127,275;

'<= 702 'perations

~

Admfnistiative 6r general 141,023 136, "

i' Generation tax' Total operating expenses ', < 2,758r, 314,192 r ~

1,204-

<<1 NETr OPERATING REVENUES 148,775<<x 454" i i II OTHER INCOME St EXPENSE Non-operating revenues - net' $ (34) $ 2,459,775 $ 1,979,447 $ 65 Inves(ment inco'me '8,410 . 99 A35 :17,305 9y268 2,457 expense.and, :, '<<,Irit'crest

'dl/count amortizatjon; (165,225) (295) (150,334) (117,873) (187,731)

= Plant preservation and termination costs -(37) - I'" (5,382) (6,443), (4,646)r Settlement gain/(loss) (26,500) (7,219) .44,045-Loss on write-down of utility pla'nt r (2,249,140) (2,438,753) I, h

Site restoration a , (46,000) (36,000)

Joint owners'hare of allocable costs 615,968 I

,Other (1,960) i (258) (364) 276 1,605 f

i NET REVENUES'BEFORE r ITEM 'XTRAORDINARY 0 0 0 0 1 0 '145,810)

/.

EXTRAORDINARYITEM ~<<

/

Gain on write-off of liabilities (Note F)

NETREVENUES 1

", It

$ ~

'i 1

0 $

q 0 $i 0 $ .0 $

11,427 i

(134,383) i I.

I y Supply System's ownership-sha're (Note A)

¹ Project recorded on a liquidation basis r See notes to flnanclal statements

<<t

-18

/

4 t

Y t

/

STATEMENTS OF CASH FLOWS For the year ended June 30,'1995 Dollars ln thonsands I I

.Y CASH FLOWS FRY,OPERATJNG I

NUCf.EAR No. 2-PROJECTS I 'PACKWOOD

<LAKE PROJECT Y, HANFORD GENERATING PROJECTS .,

NUCLEAR j'ROJECT NO. 1/I NUCLEAR .

PROJECf NO,3'>>"

NUCLEAR PROJECTS NOS. 4/S'//

AND OTHER ACTIVITIES Operating reve'nue receipts -

$ 403,529 $ 1,774~

/

Cash payments for op'crating expenses '193,723) (563)

Non-operating revenue receipts $ 178,898 $ 140,642 i s$ 66

- "- I / 'I Cash payments. for preservation and I'ermination costs ~

(5,702) (8,201) (5,685)

Cash payments/reimbursements for ' r other expenses ', ~ ~ 435 $ ~ (56) (992) /

Distributions)receipts of operating Y Y

and non-operating surplus Net cash provided/(used) by

,(1,012) (163) ~

/

I" 163 I

Y operating and other activ1ties, 210,241 I 199 (219) 172,367 +32,441, i (5,619)

J I

CASH FLOWS FROM CAPITAL'ND /

/

RELATED FINANCING ACTIVITIES'ayment for bond. issuance and financing costs -~ (447) (334)

. ~

(11) ii,'Escrow restructuring receipts 344 1,816 2,747 and nuclear fuel acquisitions

'I'apital

'47,600)

Cash paymentpfor deferred programs, (1;253) I

,,Interest paid op revenue bonds, (155,993) ~/ (293)

I Y.

IL (146,916) (100,502)

Principal paid on revenue bond, y matuiities <

I (8,515) (307) I ~ (57,830) (40,735)

~

Net'cash.used by'capital, Y and related financing "activities (213,028) (600) 0 (203,377) (138,824) v '

I CASH'FLOWS FROM INVESTING ACTIVITIES I, Purchases of Investment securities ~

(1,120,081) / (10,970) (16,693) (911/962) (610,205) (316,097)

Sales of investment, securities ~ ',108,859, 11,304 16,510 916,228 597~190 318,629 5'628'I Interest on investments -'

18,902 76. '38) )

16,658 8,639-Receipts from sales of plant assets and fuel 10336 .

13 415 3,091'97 Net'ash provided by investing activities 7 680 410 31 260  !'

039 NET INCREASE/(DECREASE) IN CASH 4,893 9 (22) 250 2,656 ~ 4 I \ Y CASH AT JUNE 30,,1994 .3,236 '13 22 756 . 2,019 137 l

IC CASH ATJUNE30, 1995 (NOTE 8) " $ 8,129 $ 22 , $ ,0 $ 1,006 - $ 4,675 $ 141 I

I Supply System's ownership share (Note A) tt Project recorded on a liquidation basis See notes to financia statements IY 19

/

t,

'.;0 II g

STATEMENTS OF CASH FLOWERS '(coy'Jtinued)

For the year ended June 30, 1995 "y Dollars in thousands .

(

4 NUCLEAR PACKWOOD HANFORD NUCLEAR ) NUCLEAR NUCLEAR

~ PROIECT LAKE GENERATING PROJECT"'ROJECT PROJECTS NO. z PROJECT PROJECT¹ NO. I¹ No. 3'¹ NOS. 4/S'¹ RECONCILIATIONOP NET OPERATING" REVENUES-TO NET CASH'PROVIDED BY.

OPER'ATING AND OTHER ACTIVITIES E

/

CASH FLOWS FROM OPERATING AND'OTHER'S ACTIVITIES Net.operating revenues << '

148,775'454 x Adjustments to reconcile net operating revenues to cash provided by operating activities:

Amortized revenues (59,464) (333)-

Depreciation and a'mortization (

127,371~ '54 Decommissioning 5,080.

Other (2,304) '258) '

Change in operating assets and 1iabilitles: I

= Accounts receivable (225) 3,918'4,178)

Materials and,supplies (?)

r Prepaid and other assets. . 932 Due from/to other projects,

, funds and participants l

(1,107) (86).

=

Accounts payable Non-operating revenue receipts t, ,'(8,7,82) 295 140,642

$ 178,898 $ $ 66 Cash payments for preservation n and termination expenses (5,702) '(8p201)' (5,685)

Cash payments for other. expenses (56) (992)

Distributions/receipts of non-operating surplus 163

'et cash provided/(used) by (163)

If operating and other activities $ 210,241 $ 199 i$ (219) $ 'f72,367 '$132,441 $ (5,619)

I SupplySystem's ownership share (Note A)

It Project recorded on a liquidation basis See notes to'flnancial statements r

4

'20 P

I i =:.

I OUTSTANDING LONG-TERM DEBT I As ofJunc 30, 199S 6'Dollars fn thousands I

r' ~ INITIAL TRUE, SERIAL'R.

W/

DATE' INTERFSI' r OFFERING COUPON TERM.

SERIES OF S/ILE COST (A)" . PRICES RATE 'ATURITIES AMOUNT/

NUCLEAR PROJECT NO. 2 REVENUE BONDS 1973 6-2'-73 t 5.6sx '100 5.7596. 7-1-'2012, $ 110,450' I 450

'.10 4

1976A 11"-18-76 5.86 (B) ,

5.60-5.75 7-1-96/2000 29,400 100 , 6.00

~

7-1-2007 '

/ 44,815

/ 99.50 6.00 7-1-'2012, 60,990 135;205 r

1981A 9-4-81 14.67-j 100, 14.375 30,000 '-1-2001 59.958 8.25 ~ 7-1-2003 100,000,

.130 000 '

1990A I 3-15-90 7.77 99.75 7.25 --7-1-2003 " 73,705

'00,840 97.125 7.25 7-1-2006 -'- 35,790

- '09,495

/

~

r

'990B ~ 7;69 -

94.135 7.00 7-1-2012 200,840

'-1-97/2003 637-90'1-1-90, 1990C, -,i 7.84 (B) 7.00-7.50 2044870 5

(B) , (C) 7-1-2004/05 18,054'22 924

/ 4 /~

1991A 9=26-91 -

6.81 ,(B) 5.80-6.60 6.00' 7;1;96/2005, i 135,260 90.375 I 7-1-2012 103,940

/ (B) (C)- 7/1-2006/07,, '3,431 254 631 I

1992A 'B5) 4.6S-6.30 1/,r 7-1-96/2009 193,360 6.19'10-2-92 7-1-2012 66,780

/

97.230 98.875 6.30, 6.25 7-1-2012 ,

50,000 F

j (B) (C) r q7-1-2010/11 ,

319,224 9,084

'x 1

1993A 5-20-93 5.76 4.20-6.00 7-'1-96/2010 207,205 96.404 (B)

, 5.75 I <<9 7-1-2012 42;105 249 310

'1993B 7-15-93 '.54 (B) '; 4;10-'5.65 7-1-96/2008 121,505 100 ,S.ss ~

~ 7-1-2010 51;000 97.775 5.625 9 7 2012 43,455,

~15 96 (A) Based on original ls'sue (B) Various prices (C) Compound interest bonds /'D)

Excludes amounts due July 1,1995 ,/

(E) Includes amounts due July 1, 1995.

(F) The estimated fair value shown has been reported to meet the disclosure requirements of SFAS'107 and does not purport tot represent the amounts at which these obligations would be settled.

J 21

I

. OUTSTA'NDINGLONG-TERMDEB1.'contiri ued)

As ofJune 30, 199$ Dollars ln thousands ) <<

r I TRUE . 'NITIAL /SERIAL DATE INTEREST 'FFERING- COUPON OR TERM, SERIES h

/ OF WALE r COST A () 'RICES" RATE MATURITIES AMOUNT

/ I

'I

/ ', NUCLEAR PROJECT NO. 2 REVENUE BONDS'Continued) 1994 A "'-

1-27 5.31%- ,(B); 3.'50-6.000r() 7-1-96/2011 $ '550,685 100 5.40 >'7-1-2012 100,200 100 ,(C) .. 7-1-2009 4,776

-655,661

/

Compound interest borids accretion '86 195 - '

I

$ 2,689,895 Revenue bonds payable (D)

Estimated fair value at J<me 30, 1995= $ 3,646,005 (F)

A P/CKWOOD LAKE PROJECT REVENUE BONDS 1962, '

3-20-62 ) 3.66 ,99;425 3.625 3-1-2012 5,921

=

. 1965 . 11-4-65, . 3.76 100,'5 3.75 3-1-2012. 1,885 I

r ~

Revenue bonds payable~'P $' 7,806 Estimated fa/ryalue'at June 30, 199S

'I

-$ 6,773 (F) i>>>>

, NUCLEAR PRO ECT NO. 1 REVENUE BONDS =-

1989AI <<

/ 9-14-8P 7.76 "100 6.90;7:30'.00 7-1;95/2002 257230 98.185 7-1-2004 27,385 199.017 7.50 7-1-2007 62,105 97.759 7.50 7-'1-2011- 116,195 82.083 600 7=1-2017 95,110 326,025 ih I I 1989B . =12-7-89 ,7.44 100 6.70-7.25 '-1-96/2003 31,095 I

.98,375 7.00 7-1'-2005 2,'100

'100 7.40 7-1-2009>>r 75,180'41,070 98.533 7i125 7-1-2016 79,445 3-15-90 '

. P990A r 7.73 <<(B)

'92.75,'1.75

-6.80-7.60 7.OO 7;1-95/2005 7:1-2011 69,095

<<. "56,770

'6.oo 7-1-2017 55,635, A '81,500.

/1 (A) Based on original issue (B) Vari6us.prices I,'

(C) Compound interest bonds

,(D) Excludes amounts due July 1, 1995

~,(E) Includes amounts due July I, 1995 (F) The estimated fair value, shown has been reported to meet the disclosure requirements of SFAS 107 and does not purport to represent >he amounts at which these obligations would be settled.' I

'22 r ( I

/

lh

7) il

/ /

h I

TRUE INITIAL SERIAL I COUPON OR TERM DATE INTEREST

• iOFFERING >>'h 7 SERIES 'h OF SALE COST. (A) PRICES ~ RATE MATURITIES ,AMOUNT f

6 NUCLEAR PRO ECT NO. 1 REVENUE BONDS Continued r I 1990B 6-7-90 '-.75%" - (B) < / 7.00-7 2096 7-1-99/2003 $ 24,495

'2,770

~

"97.979 7/25 7-1-2009 h 98.913 - 7>>25 7-1-2012 56,000 P>>

153 265

) /

1990C . 9-27-90 '.85 - (B),7.00-7.75 7-1-95/2003 7-1-2008 150,795 I 22,085 i

99.50 7.75 ~

'1

>> 172'880 1991A /. "9-26-91 7.02 (B) '.60-6.80 / 7-1-95/2008>>

50,925 98.375 6.875 7;,1-2017 =

92,965 q/

143,890 r

~

1992A i I 10-2-92, 6.51 '>

(B) 4.20-6.40 7-1-95/2011 46,085 99.375 6.50 9 7-1-2015 r 137,820

/h. 98 6.25 '7-1-2017 78,815 262 720

>> /

1993A 20293 . -5.86 (B) 3.75-7.00 7-1-95/2008, 207,290 1

=.100 5.75 7-1-2011, 80,000 ~ ".

99.75 ,. 6'.05, '7-1-2012 35,705 96.306 5.75;, 7-1-2013 37,970 I

96.5 6 5.70 7-1-2017 /

176,180'37,145 1993B 7-15-93. 5.64 (B), 3.60-7.00 7-1-95/2010 r 90,340' 98.138 5.60 7-1;2015 94,885<<

/ r '185 225 1

7' 1993C- 9-'10-93= 5.47 (B) 3.50-'5.30, '-1-95/2010 '

24,655

,100- ~ 7 5.40>> '7-1-2012 66,400 98.166: 5.375 1-2015 / 75,650 i 166,705

/1993-1A- 12-15-93 NA NAhg~ Variable 7-1:95/2017 149 910 7 $ 49,910 I I

'evenue bonds payable $ 2,358,710 (E) 1993A 5-20-93 4'975 , ~100 =$ .70 r ~ 7-1-199S 0

'NOTES 0 (D) u Revenue bonds/notes payable ~  ; 52,358,710 Estimated fatr value at june 30, 1995 $ 2,368,203 (F),

23 1

(- I[

(

OUTSTANDING J.ONG-TERM-DEBT- (continued) f As o June 30, 1995 Ir

'Dollars ln thousands TRUE INITIAL "SERIAL-DATE ~ INTRRFSP OFFERING COUPON OR TERM.

SERIES OF SALE g COSI"(A) PRICES RATE MATURITIES AMOUNT NUCLEAR>PROJECT NO. 3 REVENUE BONDS 4

1989A 9-14-89 "~ '4 7.43% $ 00 ,6.90-'7.309o 7-1-95/2002 $ 24,480 (B) = (C) 7-1-2003/14 18 668 84.75 6.00 7-1-2018 54 570 r/ '97 718 4

1989B '. 12-7-89 7.39 . 100 6.60-7.15 7-1-95/2001 '

77,'465

'B),,

(C) 7-1-2004/'14 71,321 98.375 7.00 / P-1-2005 =- ~ >> 85,690' 100 . 7.40 7-1-2009 -

29,235 98.533 7.125 ' ,7-1-2016 76,145 h>>

79.755 =- 5.50 7-1-2017 62,560 r>>

jrI.525 5.50' 7-1-2018, 65,905 4'68 321

.1 II1990B 6'-7-90 7.57- 6.8077.25 7-1-95/2000 100,455 (B)

(B) .(C) '7-1-2001/10. '9,211 98:923 '.375 7-1-2004 I 55,920

'195,586

-1991A 9-26-91 6.97 (B) 5.60-6.80 ~ '-1-'95/2008 ~ 49(515 97.75 6.75'4.552 7-1-2011 20,790, 6.50 7-1-2018 66,065 136,870

, 1992A 10-'2-92 4.86 100, 4.20-5.10 7-1-95/1998 7

10,090-10,090

. 1993B 7-15-93 5.64- (B),', 3.60-7.00 7-1-95/2010 139,670

/ 97.775" 5:625 7-1-2012 28,295 98.138 5760 7-1-2015 49,095 98.058., ""=

5.60 '-1-2017 37,795 97.719 ' 5.70 7-1-2018 20,605 t

'75460 1993C, 9-10-93 -5.47 (B), 3.50-7.50 7-1-95/2010 178,540 1()0 '.40 7/1-2012 105,000 (B) 7 (C) I7-172013/18 25,248 98.166 5.375 7-1-201'5 188,355 99.5 5.50 7-1-2018 20 805

(

517 948

/

) Based on original, issue B) Various prices (G) Compound interest bonds (D) Excludes amounts due July 1, 1995 .

(E) Includes amounts due July I< 1995 (F) The estimated fair value shown has been reported to meet the disclosure requirements of SFAS 107 and does>>not purport-to represent the"amounts at which these obligations would be settled.. I II h

24

a 5

7 /

/ 9 r {

7

'TRUE. INITIAL SERIAL DATE i INTERM'OST OFFERING COUION OR TERM I AMOUNT

, SERIES OF SALE (A) PRICES RATE MATURITIES I

/ (

NUCLEAR PROJECT NO. 3 REVENUE BONDS (Continued)

'1993-3A 12-'15-93 / ~ / Variable 1-95/2018 '198 310.

r 198,310 Compoi md interest, bonds accretion 406,582

/

/

bonds payable

'evenue

$ 2,306,385 (8)

Estimated fair value at June 30, 1995 $ 1,951,787 (9)'

2

DEBT-SERVICE REQUIREMENTS. / /

As ofJune 30, 1995 Dollars in thousands l r NUCLEAR PROJECT NO.'2,, PACKWGOD !LAKE I< 'ROJECT"

' /

r FISCAL ~ - PRINCIPAL INTEREST-, ~ TOTAL ~ = PRINCIPAL,. INTEREST -

TOTAL YEAR h

il 6/30/95 Balance* 976 $ x,0 ~ $ 976 $ '113 $ $5 $ 208

'I (

~1996 51,639 155;722 /= 207,361 347 281 628 367268 1997 68,390 153,297 " 221,687 y 635 1998 72,050 =149,283 a ( 221,333 387" -2 -, 255- 642 1999 120(375 144,981 . 265,356 422 241 663 2000 131,390 136,979 -268,369, 473 226 .699 127,944 ' 296,179 499 208 707 2001 168,235 2002 116,371, '09,206 523 ,  ; ~ 190 713 2003 2004 2005 2006 212,190 158,249 115,395 131,896 110r 467 107,591 111,007 93r 685 '25,581 322,657 265r 840 226,402 r

548 573 598 623,

'30

-=

'51 171

'09

~719 724 728 732 2007r 165,470 86,217 == 251;687 648 . 86 ,734 2008 192,780 256,881" '4,101 1 674 62 736-,

(.2009 / 189,086 59r365 2$ 8r451 -572 .= 37 r "- 609 2010 202,629 52,719 255,348 274 .16 290.

,2011 166/ 750 41,674 208,424 =-122 "

6 128

~ '2012 363,365 21,904 ...385,269 43 2 45 2013

'014

, 2015 2016 2017 2018 Adjustment"- 86 195 = 86195

$ 2,689,895 $ 1,647,112, $ 4,337,007 $ 7,806 $ 2,534 $ 10,340

/ I

/

Bond fund accourit.balances less accrued investment Income. /j,

• Adjustment for compound interest bonds, accretion; compound inteiest bonds are reflected at their face amount less discount on the balance sheet V y V JII II

/ <) m 26 I I, g l

vv 0: v v

vv

, I S

1 v/

-NUCLEAR PROJECT NO. 1 NUCLEAR PROJECT NO: 3 NUCLEAR PROJECTS NOS. 4/5

/

FISCAL PRINCIPAL INTEREST TOTAL/ / PRINCIPAL v'NTEREST, 'TOTAL~ PRINCIPAL, TOTAL YEAR /

r 6/30/95 Balance* $ 43,500 $ 70,561 $ -

114,061 $ 41,762 $ . 47,007 $- 88,769 $ 0 $ 0 1996 )

46,565 144,701" < 191,266 47,473, 99,327 146,800 2,171,868 2,17-1,868 1997, 50,770 142/092/ r 192/862 '36,490 96,563 I; 133,053 1998 53/020 139,117 192,137 i 34,555 '4,524 '129,079 I,

1999 / 67 275 '35 965 203 240 68 15p 92 615 16p,765 Refer to Note F ttttder Ntlciearv 2000 ~

71,325 / 131,737 '03,062,73,025 "

88,247 /161,272 2001 76,105 127,203 r 203,308, 71/585, 90/107 161/692 and Litigation and Nuclear 2002 75,705 122,205 197,910, << t 76,257

~ <<.86/234 162/491 Projects Nos. 4 and 5 Bridge and 7'enntn"ttott Loans 2003, '-p, 66 375 117 220, 183,595 I 78 522 84,568 1'63,p90 2004 78,065 . 113,019 191,084 / 62,396 - 96,206 158,602 2005 ., 70,345 108,016' '78,361, = 63,'621 94,365 w 157,986 2006 - '7,770 - 103,463 191;233 64,457, 92,640,157,097 2007, 93,630 97,693. ~191/323 59,381, 92,903 152,284 2008- = 100,135 91,265 '91,400 61,196 91,181 152,377 e v

-2009: - 100,070 84)282 188,352 63,648 < 88,827, Il 152/475 2010 .1.11,285 77,352/<<~ 188,637-- 66,117 8',461 +52,578 I 2011 135 355 70 067, *-205 422-' 84,464 75,450 159,914 2012 144,565 61,213 '05,778 98,062 71,717 169,779

'013, 156,210 52,609 $ 08,819 95,410 74,630 .170,040 2014 ~ <<165/535, 43,397 208/932 98~355 71,817- 170/172 2015 1 75 530 33 534 209 064 129 220 "~ 4 1/ 108 1 70/328 v v 2016 .. '186,925 23,424 210,349 133,834 36,663 170,497 2017 198,650 '/ 11,848 210/498 142,027 28,643 170,670 2018 $ 49/796 21/047 170/843

~ .k F Jl vl t r' jus nett / 406 582 406 582

/ jl

$ 2,358,710, $ 2,101,983 $ 4,460,693, $ 2,306,385 $ 1,436,268 $ 3,742,653', $ .2,171,868 $ 2,171,868 r

/

(

v' rvv - v Iv 27

NOTES TO FINANCIALSTATEMENTS r

II iA .

)

Note A - General Nuclear Projects Nos. 4 and 5 were terminated in January 1982;,

'and substantially all of the utility plant assets have been sold. '

"- ORGANIZATION Eighty-eight project participants in Nuclear Projects Nos. 4 and 5

=

weie originally obligated by contract to pay annual costs of-

- The Washington Public Power Supply System (Supply System), a T>> Nuclear'Projects Nos. 4 and 5, including deb't service, whether or municipal corporation arid joint operating agency of the State of not-the projects were completed. However, these contracts were Washington, was organized in 1957. It is empowered to financ, declared invalid. Nuclear Project!No. 4 Is wholly-owned'by the acquire, construct and operate facilities for the generation and Supply System. Nuclear Project No. 5 IS jointly oWned, 90 percent tiansmission of electric power.,On June 30, 1995,.its membership by the Supply System and 10 percent, by PaciflCorp.'(see Note consisted of 11 public utilitydistricts and the cities of. Richland, i F - Nuclear Projects Nos, 4 and'5 Termination, Bond Default, Seattle," and Tacoma. Grays Harbor Countv PUD rejoined the and Litigation).

Supply System in April 1995. All'embers own and operate '

electric systems svitllin the State pf Washirigton. The-Supply. ch SuPPly System Project is financed and accounted for hs a as no stern has ystem np tax '~uthpri~

taxlnnaut or '~'.

utility system separate from all other current or future pgojects with the exception of Nuclear Projects Nos. 4 and 5 which are SUPPLY SYSTLilf+Rf)JPCTS z .'. treated as one utilitysystem.

All electrical energy produced by Supply System projects is I

The Supply System operates Nuclear Pioject No. 2, a 1,153 MWe, delivered to electrical distribution facilities owned and operated ~

(Design Electric Rating net) generating p1ant completed in 1984, "by the Bonneyille Power Administration (BPA) as part of the

'n/the Packwood Lake Hydroelectric Project (Packwood), a 27.5 Federal Columbia River Power System. BPA in turn distributes the

'MWc plant-completed ln 1964. i. h electricity to electrical utilitysystems throughout the Northwest, The'Hanford Geneiatlng Project (HGP), an 860 MVA'lant, including participants in Supply System projects for ultimate previously used by-Product steam'rom the DePartment of distribution to consumers. BpA is obligated by,law to establish

'h Energy (DOE) dual-purpose New Production Re~actor (N-Reactor) rates for electric power which wifl recover the cost o f acquisition

) andhasnotoperatedsincetheshutdownoftheN-Reactorln1987. and BpA's other costs. See Note E,I Security - Nuclear projects,/

As a.result of the Seer'etary of Energy's decision to place thc r

Nos.'~1 2 and 3, for discussion of BpA's objlgations with respect N-Reactor In permanent shutdown, the Supply'ystem has ',, tp Nuclear prpjects Nos, 1~ 2 and 3. BpA has rio obligations

- evaluated alternative energy. uses for the plant and anticipates I with respect,to Nuclear projects Nos. 4 and 5.

eventual termination of HGP and subsequent removal and site

.'restoration (see Note F -sanford Generating Project).

i '>> Note 8 - Summa .of Si niTicant Accountin Nuclear Project No. 1, a 1,250 MWc plant, was placed in extended ppiieies

/

.construction delay status in 1982, h when it was 65 percent com-

'iete. Nuclear Project No. 3, a 1,240 MWe plant, was placed ln BASIS OP ACCOUNTING extended constructioii delay'status In 1983, when it was 75 The Supply System has adopted accounting policies and percent coynplete.'n May 13, 1994, the Supply System's Board practices that are inaccordance with generatliy accepted of Directorsadopted resolutions terminating Nuclear Projects

~ ~ .. accounting principles applicable to governmental utilities.

Nos. 1 and'. (see Note F-- Nucleai Projects Nos. 1 and 3 r Accounts are maintained in,accordance with the tinlform system Termination).= The Supply System has- explored alternative h off7accounts of the Federal Energy Regulatory Commission. q< /

uses for Nuclear Projects'os. 1 and 3. Howeverno viable ~-

Separate 5 ffunds b ks off account. are maintained for each d andd books alternatives have been Identified. Asse~ dlsposltlon plans and tlllt system.

utility I Payment P t off obligations,of bll I till system f one utility amended'budge(s, which included asset disposition activities, ~

with funds, of another utility system Is prohibited,'nd would were adoPted bV the-Executive Board on January126, 1995. s constitutcviolationofbbndresolutioncovcnants Nuclear. project No. 1.is wholly-owned, by the Supply Systeml Nuclear Project .Np.i3 is jointly-owned, 70 percent by the UTILITYI'LANT Supply System and 30=percent by four Investor-ownediutilities (pacifICprp, portland General Electric Company,,Puget Sound, Utility Plant is stated at original cost. Plant ln se'rvice.is power 8r Light Company, and The Washington Water power depreciated by the straight-line method over the estimated useful lives of the vario'us classes of plant.

'28

E r

I During the-normal constructlontphase-.of a project,i the supply System took action'to~foreclose on c'ollateral/securing Supply System's policy is to capitalize all costs relating to the. > Nuexco's obligations for the fuel on loan. The~collateral i project, including Interest expense (net of interest Income), and included a letter of credit ($ 10.3 million) and uranium held in administrative and general expense.q i = 'torage at Siemens Polver Co'rporation in Richland, Washington.

~ HGP has been reduced'to its net realizable value in anticipation The collateral consists of uranium valued at $ 2.7 million for-~

' . Nuclear Project No. 1 and $ 18.7 million for Nuclear -Project off project J

termination I I (see

( N P~

Note H f d Generating p Hanford G I Project'.

P I N

Nuclear I

realizable Projectsgos.

P I bl values J

I g 1 and d 3 h d to.termination.

due i i have b Plant Pl for sale, includes management's best estimate for d

been reduced I'h d tto th their andd equipment held f the.net th I ~

id t

~

No. 2 (see Note F - Fuel Contracts',,Nuexco Bankruptcy). The Supply System has recorded I'opes of $ 2.3 mllllon for Nuclear ProjectNo..l and $ 2.3 million for Nuclear ProJect No. 2

/

for the loaned uranium transactions in addition.to reserving realizable value of the remaining inventories, buildings,.equlp-

$ 11.9 million (includes loan fees) for Nuclear Project No. 1 and"

'ment, tools, materials and 'consumables, common and

$ 155,000 for Nuclear Project No. 2 for recelvabTes from Nuexco.

operational spares, moveable equipment and land. Interest expense, termination expenses and asset disposition~costs for . The Supply System.has entered into an agreeiJient with Nuclear.'projects Nos. 4 and 5'are charged to current operations. Gerieral Electric Company to transfer enriched uranium in

/[ exchange for equivalent amounts-of uranium at reload enrich-NUCLEAR FULL ments in future years h

and usage/loan fees. The Supply System has tiansferred approximately 630,000 pounds of'UF6 and All expenditures related to the purchase of-nuclear fuel are 113,503 SWU of Nuclear, Project No,. 2 uranium. The exchange capitalized and carried at cost. Wheri the fuel. is placed in the agreement has.been secured by an irrevocable letter of'credit=,

reactorthe fuel, cost is amortized to operating expense on'the issued in.",the amount of the replacement value, adjusted basis of quantity of heat produced for generation of electric

'emiannually, The Cost of this uranium, $ 18.3 million, ls energy. Accumulated nuclear fuel amortization (the amortization Included in the carrying amount~of'nuclear Project No. 2 of the cost, of nuclear fuel assemblies used~in the production of Nuclear Fuef. The estimated fair value is $ 19.2 million.

energy) Is $ 91 million as of June 30, 1995, for Nuclear Project No. 2: Current per/od operating expense for Nuclear Project Qo. 2 Includes a charge for future spent; nuclear fuel storage and disposal to be provided by DOE in~accordance with the In ac'cordance with project bond resolutions, related Nuclear Waste Policy Act of 1982, and a charge by DOE for agreements, or state law, separate restricted funds have been clean-up of its nuclear enrichment facilities, in accordance established for each project. The assets held In-tlfese funds with th Energy Policy Act of1992. No provision has been made are restricteJI for specific uses including construction, debt',, ~-

foraddltionalstorageanddisposalcostswhichmaybeincurred -'ervice, capital additions, extraordinary operation and by the Supply System prior to the transfer of spent fuel to DOE. maintenance, termination, decommissioning, and workers'~

corn ensation claims.

The Supply System executed p memorandum of understanding In December 1994 which provided for the sale of the initial core LONG-TERhI,RECLIVABLES of enriched uranium product of Nuclear Project No.l to,Nuclear projectNo.2for $ 41.4 million. Thlssales transaction isreflecte Long-term receivables Include minimum guaranteed amounts lntheaccompanying'financialstatementsofbothprojec(s.

Th'eSupplySystemexecutedacontractinNovember1994toseil

/

'o pertalnlng to future discounts for certain goods and services

(

be provided to Nuclear*Project No. 2 as the result of a

'the remaining.one million pounds of uranium for, Nuclear litigationsettlem "

Project No.' for $ 11.6 million. This sale is reflecte In thei, accomphnylng flnancjal statements. DECOMMISSIONING In December 1993, the Stipply System and Nuexco Trading" ~ Estimated Nuclear project No, 2 decommissioning costs are Corporation (Nuexco) en'tered Into a contract for the sale of accrued based on current funding requirements. Monthly r

i nuclear project No. 1's uianium to N'uexco. The uranium to be payments 'are made into a sinking fund which, with purchased by Nuexco had been previoitsly loaned to Nuex'co accumulated Interest, is expected.to be adequate to fund and pursuant to the terms of the contract, Nuexco,agreed to decommissioningcosts,at the end of'the 40-year plant operating periodically purchase'incremental amounts of the fuel. In < life. Decommlssionihg costs are currently estimated at August 1994, Nuexco agreed~ to purchase approximately $ 357mllllon(in1987dollars).Paymentstothedecommlsslonlng one million pounds of'UF6 for $ 11.7 million and subsequently =fund forithe year ended June 30, 1995, aggregated $ 3.2 million defaulted on the payment. As \a<result of the guexco default, the and the balance of the fund at June 30, 1995, was $ 30.7 million.

ri I'

' 'i

> 29

c' aa

.)

tr t M/TERIALSAlVDSUPPLIES am6unt approximates fair value. Investments and revenue bonds r payable: the fair value is based on quoted market prices for such instruments or'similar instruments. Tlie fair value of methods.'

revenue bonds payable currently In default is not determinable ~

J FINANCIIt/GEXPLNSL, BolyD DISCOUNT A'ND DEFLRRED GAIN I REVENUES Financing expense, bond discounts, and deferred gain on res+ective bond 1,

issues,,

redemption of revenue bonds are amortized over the terms of

'upply With the exception of Nuclear Projects Nos. 4 and System recovers, through various agreements, cash requirements S, the actual for operations and debt service for each

~

= REGULATORYSTUDIES project over the life of. that-proJect. Accordingly~ the Supply 'System recognizes revenues equal to operating costs ExPenses associated with regulatory studies, for Nuclea'r Project for each period. No net Incom'c or loss is recognized, and no No. 2 arq deferred and amortized by the straight-line method equity ls am,'muiatcd over the estimated operating life of the plant.

j The difference between cumulative revenues=received and CURRENTMATURITIESOI"'REVENUEBONDS i 'cumulative operating costs is rcc<<ded as elth<<,billings in excess of costs 0!ability) or as costs in excess of billings (assct);

Current-maturitles of revenue bonds payable from restricted j

as appropriate.Such amounts will be recognized as revenues~or assets are reflected in Long-Term Debt. Current maturltles,of costs, during future operating periods.

bonds for which funds have not yet been, restricted are reflecte >'

In Current'Liabilities. STATEMENTS OF CASII FLOIVS f r e ,t~ = For purposes of =the statements of'cash flows, cash includesi FAIR VALUEOFFINANCIALINSTRUMENTS unrestricted and restricted cash balances. SAort-term, hlghly-The fair value of financial instruments has been estimated liquid investments'are notconsideredcashequivalents.

using available, market information and appropriate valuatlon .

r

,, ~ methodologies. Considerable Judgment fs required in lnterpret-market data fo develop fair value estimates and such estimates J'ng Cash and investments for each utility-system. are. separately are not necessarily. indicative of-the amounts that could be maintained. 'The Supply System's deposits are insured by realized in a cuirent market exchange.@he following methods ra federal depository Insurance or through the,Washington and assumptions were used to estimate the fair value of each of P4blic Deposit Protection Commission. Supply System Invest-,

the following financial instruments. rt ment policid limit investment authority to obligations of the,

'ash, t, accounts receivable, accounts payable and accrued ex United States Treasury, Federal National Mortgage Association, .

r penses', other noncurrent liabilities and due to and from andFederalHome.LoanIIanks,aswellasrepurchaseagreements.

t i i participants, other projects and other>funds; tIIe.carrying ~ Collateral for repurchase agreements must'be authorized.

I INVESTMENTS i U.S. U.S. Gov't ' Accrued '

Carrying Gov!t'ecurities (Dollars in, thousands) .At,eoeies Total Intcrcst -. Amount~

/ t NUCLEAR PROJECT NO.,2 a i

3,204,. 248'57 Amortized, cost Fair value

$ 138,623 141 480

- $ 106,230 106 543= " $ 244,853 248 023

-Amortized Fair value cost,"

PACKWOOD LAKE PROJECT 1,444 1 444 -

'70

=270 1,714; 1 714

> r 1,714 HANFORD GENERA'I'ING PROJECT Amortized;cost Fair value ~

',432( 8 438r 8,432~

8 438

-0~ ~ 8,432 NUCLEAR PROJECT NO. 1 Amortized cost 125,517 237,958 ( ~ 363,$ 75 2,911 366,386

.Fair value . 125 254 237866 363 120 NUCLEAR PROJECT NO. 3 Amortize cost .' 66,226, '50,677 216t903 ( le 524 218t427 Fair value ~ i ~65 414 i, 150 750 216 164 NUCLEAR PROJECTS NOS. 4/5 Amortized cost-,

Fair value (, '

- '51 896 r 51,861,,5 ',14 14 V

51 910 51,875 742 521652 30

/ I

/

i ">> r

>>J ~V I investments urtder Supply System. investment policies. Supply.Systein contributions for the year ended June 30, 1995,,

The Supply-'ystem did not invest in repurchase agreemeqts . expressed both in dollar amounts and percentages of currerit-year during fiscal year 1995. All Investments arc held-ln the~

Supply System's name byaafekeepingagents,

'trustees. i' custodians,"oi -

coveredpayroll,wereasfollows:

~ Rate, Amount Plan'I Rate Plan II Amount Investments are. stated at amortized cost and include accrued P Y

- Actuarially determined /

interest. The Supply System's investments are categorized,, requirement, 7.21% $ 960,080 p

.7.21% $ 6,179,130 (sce chai) on page 30), to give-aii liidication of the types arid PP

->> b I 758% $ 1009349 758% 6496228 ainounts of investments held by. each project at, year-end.

NOte D - Retirement BenefIIS

/

~

r Actuarially determined requirement,>>

Actual,employee mp oycc ontr ut ons ~

6.00%'798,958

(

'.08% $ 4,353,672 contributions 6.00% $ 798,958 5.00% $ 4,285,111 Substantially all Supply System full-time employees participate in the statewide local government Public Employees'etirement I The Supply System's actuarially determ'ined employer System (PERS).<PERS,ls a contributory multi-employer cost-contribution pequirement represents approximalely 2.1 percent sharing retirement.system established by the Washington State>>

of. the total for all.employers covered edbby PERS.

PERS Legislature and administered by the State of Washington through the Department. of Retirement Systems. For the year ~ Historical. trend information'howing PERS'rogress In ended June 30, 1995, the Supply System~5 payroll covered under ~ accumulat/ng" sufficient assets to PaY ben'efits when, due pFRS was'99 mlII'Ion, representing 94 percent of total payroih is Presented In 'the State of Washington's June 30, 1994, pFRS contains two plans. plan I members (employed onor before comPrehensive annual financial report. >

/

September 30, 1977) may retlie with full bene(its at age 60 with -Jn addition to the-pension benefits available through PERS<" the at least five years of credited service, at age 55'itli 25 years of -Supply System>>offers.postemploymenf life Insurance benefits to service, or upori reaching 30 years of service regardless of age. retlrees wgo are eligible to'receive pensions under PERS Plan I and r

Plan II members (employed after, September 30, 1977) may retire Plan II. Currently, 203 retlrees are eligible to receive, life insurance

//

with full.benefits at age'6k with at least five years of credited benefits and 147 retireesPave elected to participate In>this service, or with actuarially reduce/ benefits; at agc 55 with 'nsurance..The life insurance benefit'is equal to thc employee's i

20 years, of service. The annual pension ben'efits are generally 'biannual rate of salary at retirement for non-bargaining employees

/

based on a percentage of final average safary,. retiring-prior to January 1, 1995. For non.bargaining employees 4

~equired employer contributions for both plans, and pERS II r retiringafterDccember31,1994,thebenefitisilmitedto$ 50,000.

empioyce contrIbutions, are determined each biennium by the The life Insurarice beneflt is based on one-half of the emPloyee's

- annual rate-of salary at retlrhment with 'a $ 22000 maximum Legislature/'EmployeecontrtbutionratesforPlan lar'eestablished benefit for bargaining erhPloyees. EmPloyees who retire Prior to-by legislative statute.,pmployer rates for plan pare notnecessarily adequate tb fully fund the system. The employer and employee January 1, 1995, contnbutc $ 6.60 Per $ 1,000 of coverage while contribution rates for~plan II are developed by the~offim'of emPIoyeeswhoretlrcafteru'ecember31/1994.contr lbute$ 2652 ry to (ufly- fund the system Thc methods yr determine the contribution requirements were established 'under state statute.

As D e cc i nb e r 31, off December 3I 1993

~

]a I t actuarial Ih c latest 1 9 9 3 tthe c t I I valuation I tI d I per date

", At the time each employee retires, the Supply S)jstem accrues a IIa b I IIty fo r t h e a c tu a rIa I p re s e n t va Iu e o f e s tIm a t e d c Ia Im s, n e t o f.

'etiree contr ibutio(is. The total liabilityrecorded at June 30, 1995,"

the Department of Retirement Systems)< the pension benefit was $ 2.8 million for these benefits.

obligation of PERS, which is the actuarial present value of credited projected benefits adjusted for the effects ofprojected, During fiscal year 1995, pension costs forSupplySystem-salary Increases, was $ 10.752billlonznd the-vajue of nht assets ",,employees'nd pgstemployment life Insurance benefit costs available tosatisfyli'resentandfuturcpensionbenefttobllgattons for retlrees were calculated and allocated to each project based'as

$ 9.621 billion. The pension benefit obligation ls a standard- on direct labor dollars. Approximately>>94.percent of all such

- /

ized measure wjiich,enables-readers of financial statements to costs were'allocated to Nuclear project No,.2 during fiscal assess the funding status of each system and progress made lnear 1995 P accumulating sufficient assets to pay benefits when due, and to make comparison's with other retirement systems. The'standard- Note E - Long- Term Debt ized'disclosure method is independent of'the actuarial funding < Except p for Nuclear Projects oj Nos.' 4 and 5, which were flnanced.

me o use o eterm necon ri ut ons.

~

z .together as one utility system, each Supply System project ls financed sepaiately. The resolutions of the Supply System

/ /

7 L.

/

31

/'

Il E

/>>

authorizing issuance of revenue bonds for each project provide among the SupplySystem, Puget Sound Power R Light Company, that such'bonds are payable solely from the revenues of~tpat PacifiCorp, Portland General Electric Company and The

(

project. Washington Water Power Company remains in effect following In prior fiscal years, the Supply System defeased certain revenue ~ termination (bonds by placing the proceeds of new bonds in irrevocable trusts'ECURITY

- NUCLEAR PROJECTS NOS. 4 AND 5 to provide for all future debt service payments on the old I- f trustIaccount assets and the liability

( bonds. Accordingly, the In conncctlon with the issuance of the'generating facilities for the defeased bonds are not.included ln the. financial revenue bonds for iNuclear-projects Nos. 4 and 5, the

<statements. Inclu'ding the fiscal year 1995.defeasements, 'upply I

System pjedged the revenues to be derived under-approxlmately$ 704.7milllon,$ 853.9 million,"and$ 684.8mlllon participants'greements with 88 utilities operating principally .

of bonds outstanding are considered dcfeased at June 30, 1995, ln the Northwest. The participants', agreements provided that for Nuclear Projects Nos. 1,2and 3, respectively. each'participant pay its respective share of annual costs, E The Supply System expects-to continue the refunding. of including debt service on the bonds, whether or not.the high-interest bonds when economically feasible. ( "

projects were 'completed," operable, or operating and notwith-the suspension, interruption, Interference, reduction or

'tanding Outstanding revenue bonds of the various projects as of June 30,

/- II 1995, are presented on pages 21 through 25, and debt service" curtailment o'f the projects'utput. payments from the partici-

- requirements for these bonds are presented on pages 26/md 27.

pants for Nuclear Projects Nos. 4 and 5 termination costs and debt service were due beginning on January 25, 1983. As a

'result of a ruling by: the, Washington State SuPreme Court SECUpII/ r - UCILEA EAR PRO pROJECTSECT NOS 2+ND 3

~

f ~

I 'eclaring

/

the participants'greements invalid/,.payments due project participants and five .Investor-owned. utilities for under the participants'greements were not'made and an event

NuclearprdjectNo. lhavepurchasedalloftheprojectcapability lt 'I of default, as defined. in the bond resolution, occuired on <

of Nuclear Projects'Nos. 1 and 2 and+he.Supply'System's 70 - July'2, 1983/(scetNote F - Nuclear Projects ~Nos. 4 and 5 ownership share of project capability of Nuclear project Termination, Bond Default, and Litigation). 'ercent No.3. BPA has in turn acquired the entire I project capability I

/from the project participants under contracts referred. toI as

'I SECURITY-IIANPORDGENLRATINGPROJECT I ~ t I

net-billing agreements. Under the net-billing agreements for The Supply System redeemed the remaining HGP bonds in the each of the projects, project participants are obligated to pay principal amount of $ 6.635 million on September 1, 1992.

the Supply System jhelr pro rata share of total annual costs of >

the resPective Projects, including debt service on bonds relating 'LCURITY-PACKIVOOD LAKEHYDROELECTRIC to each pr'oject, and'BPA in turn is obligated to pay the t PROJECT paiticipants identical amounts by reducing amounts'due to BPA by participants under BPA power sales Iagreements. The net-'nder power. sales agreements, 12 public utility districts have bniing agreements provide that project paitldpants and BPA are purchased all of the project capability of Packwood. The obBgated to make such payynents whether or not the projects purchasers are obligated to pay annual costs of the project, are completed, operable or operating and notwithstanding including debt service, whether or not the Project is oPerable, f f until outstanding bogds are paid or Provision is. made foi the the suspension, interruption, interference, reduction or curtail-ment of the projects'utput. The vaildity of the net/billing 'etirementinaccordancewlthprovlsionsofthe'bondrcsolution~--

I agreements was challenged in November 1982. In May 1983, the U.S. District Court of Oregon declared that the net-biilfng>> 'OteF- COmmitmentS and COntingenCieS agreements were binding, and this decision was upheld'on appeal.

On May 13, 1994, the Supply System's Board of Directors NUCLEAR PROJECTS NOS. I AND 3 TERMINATION adopted resolutions'terminating Nuclear projects Nos. 1 and 3. InApril1982,theSupplySystemcommencedaconstructlondelay The Nuclear projects Nos. 1 and 3 project agreements and the of Nuclear project No. 1, and in July 1983, it commenced a

/ II net-billing agreements, except for certain sections which relate construction delay of Nuclear Project No. 3. On'May 13, 1994, only to billing processes,and accrued liabilities and obligations the Su'ppiy System's Board of Directors adopted a resolu'tion

'erminating /

Nuc'lear Projects Nos. 1 and 3. Additionally, the

. under the net-billing agreements, ended upon termination of the projects. The Supply System entered,lrito an agreement Board of Directors recommended to the Executive Board that

'I with BPA to provide continued funding for ithe kxistl'ng the Supply System'enter Intoin agreement with BPA to provide preservation program until January 1994, and for contlnuatlon .

continued funding for the exlsnng preservation programs, I

of the present budget approval, billing.and payment processes. 'ncluding 'I the maintenance of all federal and state licenses With respect to Nuclear project No. 3, tlie ownership agreement and-permits until January 13, 1995, or suchother date as may 32

/i-'i f

\

.I

'tw f

/ ', r I I

/

be mutually-agreed upon by'BpA'and the Supply Sys/em.. The The settlement agreement further provides that Nuclear projects Nos. 4 and 5 assets and properties may, at some time In the-J Supply System and BPA executed post termination agreements ~

'N

'or Nuclear projects Nos.Q and 3 on June 14, 1994<in which future; be-transferred to Nuclear piojects Nos. 1 and.3 at the JipA agreed to continue funding for preservation of the projects- direction of BpA an'd the supplygystem, and chemical~Bank, .

/

to evaluate. alternative uses for ahd to fadlita'te the marketing assigned all rights to proceeds frog sales of such assets and of the projects until January 13, '1995; >" -(properties to BPA; On July'26, 1995, an order was entered in the Sl th t'd t th 5 I 5 st m has be n lann'n for, District Court aPProving the se'ttlement. The SuPPly System h0s accrued for. the $ 55 million payment.

demolition of the projects and restoration of the sites in light of.

the fact th'at there is,no market for the sale of the projects in'their

/ t -paciflCorp, a 10-peicent owner in both Nuclear projects Nos. 3 entirety,andnoviablealternatiyeuseshavebeenfound.Funding and/5, was not-a party (o the, above-described settlement fortheprojectshascontlnuedforadmlnlstratlveeffortsassoclated agreement. As set forth below in 'Nuclear project No. 5 with termination and planning of demolition activities for the ~ rTermlnation'laim,"'acifiCorp has outstandliig 'claims

. projects. pieservatlon activitieshavebeen continued for certain against the Supply System for breach of contract for failing a

high-valueassetsto~axlmizetheretumontheirexpected>esale.., to-compjete Nuclear project, No. 5, a 'Bridge'oan claim ~

. Atthistime,theeventualdisposltionoftheprojectslsunknown. against Nuclear Project No. 5, a claim for equipment and TheSupplySystemhas'reduced.theassetstotheirestlmatednet

. material transfers by'Nuclear'Project No. 5 against Nuclear

,r realizable value and has accrued for the estimated co'st of removal Project No. 3, and other dalms ag'alnst'he Supply System./

andslte restoration (see Note B- Utilityplants). ~ The Supply, System is unable to predict the outcome of this litigation. j The project agreements ended upon termination of the projects, as did the net-billing agreements, except for certain sect1ons which relate only to billing processes and accrued liabilities and .

/ HGP,completed ln1966,prevlouslyusedby-productsteamfrom obligations. The=post te~mlnatlon agreements provide fOr an t

assured period of funding for asset preservation and for -DOE'sN-Reactor,andhasnotoperatedsincetheshutdownofthe continuation of the present budget approval, billing and N-Reactorln1987.Thefederalgovernment'sdecislontopfacethe payment proce'sses. The ownership agreement among the N-ReactorinpermanentshutdowneliminatedtheN-Reactorasan SupplySystem, Puget Sound Power gr Light Company, paclfiCorp,'energy source for HGP. The Supply System has evaluated alterna-Portland General Electric Company an/The Washington Water tive energy uses for the plaqt to no avail. Current options include .-

PowerCompany remains in effect following termination., a transfer toBOE for removal and site restoration, or removal and site restoration by the Supply System. At this time, It is unknown

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I COST. SHARING I7IGA77ON ~ what the eventual disPosltlon of HGP will'be. The SuPPly System

/has reduced the assets of HGP to their net realizable value and has ~

--In 1982, litigation was commenced by Nuclear Projects Nos. 4

,and 5 bondholders against the Supply System, BPA, and.all of >

tlC accrued for thy estimated cost ogremoval and site restoration~

", i-

-.the utilities ParticlPatlng in Nuclear Projects Nos. 1, 2, 3, 4 and 5 'UCLEAR pROJ+CT$ NO@ 4 AND 5 TBRMI'NATION alleging costs shared between Nuclear Projects Nos. 1 and 4 and, BOND DEFAULT;AND LITIGATION ltl Nuclear Projects Nos. 3 and=5 had-been misallocated to>he In, January 1982, the, Supply Systettt's N<<lear Projects Nos.

detriment off N Nuclear I Projects Nos. N 4 andd 5.5 In 1 83 Chemical I 1983, Ch I

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4 and 5 were terminated prior to completion. The Supply System.

Bank, as trustee for the Nuclear Projects Nos. 4 and 5 bondholders, had previously-issued $ 2.25 billion of bonds to f>ay/ costs of intervened on behalf of the bondholders.

the projects. The participants'greements (discussed ln

-OnJuly6,1995,asettlementagreementwasexecutedbetweenthh Note F - Securityyuclear projects Nos. 4 and 5) provided that I r Supply System, Chemical Bank, BPA, and all public and private- each participant pay its respective share of thedebt service on utilities Involved-ln'Nuclear projects-Nos.-l, 2, and 3/ except

'aclfiCorp. The terms of the settlement provided for payments

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$ 55 million to Chemical Bank lor the beneflt of Nuclear projects of, the bonds and termlnatlon costs beginning January 25, 1983.

In 1983, and again in 1984, the Washington State Supreme Court ruled that "Washington, r

municipal utilities did not have I ll Nos. 4 and 5 bondholders. Allparties to the settlement agreement < statutory, authority to enter into the'articipants'greements, agreed to release all claims against the Supply System relating'to thus invalidating the agreements. This decision became final' Nuclear'projects',Nos. 4 and.5, except'tho'se utilities which made when the KS. Supreme Court denied a writ of certiorari.--

"Bridge and Termination'oans'to Nuclear Projects Nos. 4 and 5, On July 22, 1983, thekupply System acknowledged that it could (Page 34). Chemical Bank further agreed to extinguish its $ 2.25 not pay~uciear projects Nos. 4 and 5 obligations as they became 6illion judgment obtained against the Supply-System in the due. This bras an event of default under the Nuclear,projects MDL-551 litigation in ~change for 'the Issuance of a warrant Nos. 4 and 5 bond resolution. On'July 25, 1983, Chemical Bank, payableonlyagainsttheNuclearprojectsNos.4andSbondfund; as bond fund. trustee, demanded that all remaining, project II f t- \,

33 S V

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funds be transferred to it for holding in a special account. On .described above which, as between Chemical Bank, Nuclear August 18, 1983, Chemical Bank declared the principal of all Project's Nos. 4 and 5 bondholders and the Supply System has

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Nuclear Projects NosI4 and 5 revenue bonds and Interest been settled as described above.

accrued thereon to be due and payable immediately. II

- ~ Beginning Ih 1983, a'number of lawsuits, were flie by and on NUCLEARPROJECTS NOS. 4ANDI5 IIRIDGEAND TERhflNATION LOANS behalf of purchasers and holders of Nuclear Projects Nos. 4and 5 II tl bonds ("the securities litigation"). The defendants named In rthe In late 1981, 68 Nuclear Projects Nos. 4 and,5 participants and

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lawsuits Included the Supply System, its member utilities, Nuclear

/ r others loaned the Supply System $ 60 million to payproject costs Projects Nos. 4 and 5 participants, BPA;=the architect/engineers i until an alternative source of flnandng could be found. None was and the lead underwriters for Nuclear Projects Nos.4 and 5 and the found, and after the projects were terminated in January f982, X)

Supply System's former bond counsel, special counsel and 42 Nuclear. Projects, Nos. 4 and 5 participants loaned-the, flnancial advisor. The lawsuits alleged violations of federal and Supply System additional amounts of approximately $ 8 million I

state securities law, fraud, misrepresentation, negligence and to pay, termination costs The first set of loans were called bridge breach of contract, and sought monetaiy damages, rescission and' ,loans, and the'second termination loans. All of these loans were restitution. The lawsuits sought to recover the suboidinate to the $ 2.25 billion of bonds payable, and were bondholders'nvestment In the principal amount of $ 2.'25'illion, plus 'payable solely from the revenites of Nuclear Projects NoS. 4 and 5.

- unspecified damages, interest, costs and attorneys'ees. The Supply System defaulted ori all of the loans at the same time r /

In September.1988, the Supply System's Executive Board It defaulted. on Nuclear Projects Nos. 4 and 5 bonds in 1983.

4 approved an agreement to settle the securities litigation. The Most of the lenders have sued the Supply System and all but three agreement called for t]ie Supply System to consent to entry of -

of the suits (those'brought by certain Investor-owned utilities) r + h a judgment on the contract claim'on.the Nuclear J'rojects Nos. ~ have been reduced to Judgment.-The Washington State

.4 and 5 bonds brought on behalf of bondholders,'All other Supreme Court has held that the terms of;the loans limited .

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claims against th0 Supply System were to be dismissed, with the source of recovery to fu'nds and assets of Nuclear Projects II

, prejudice. The amount of the judgment was to,equal ,Nos. 4 and R Dud to the explratio'n of the statute of limitations, i unpaid, principal ambunt of the Nuclear projects the Supply System wrote'ff $ 3.1 million of principal and the'ggregate Nos. 4 and 5 bonds and accrued Interest thereon at the time>> $ 8.3 million.of accrued interest/or bridge/termination loans the judgment was en'tered. Recourse for satisfaction.of the t

during the year ended Jupe 30, 1995. Interest on, the remaining judgment was expiessly limited to the funds and'assets,of loans in the amount of approximately'$60.9 million remalns

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the Supply System~pledged to secure the Nuclear Projects accrual and unpaid at June 30, 1995. Pursuant to the terms of ~

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Nos, 4 and 5 bonds.,The settlement agreement provldetI that the settlement agreement in the Cost Sharing litigation, the judgment would 'be entered upon final judgment or final parties thereto agreed to-the entry of Judgments against

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settlement of all suits covered by the settlement. Nuclear Projects Nos/,4.and 5 litfavor of Puget Sound Power 6r J.

All other defendants In the securities litigation and the State  ; Light and The Washington Water Power for bridge loans made of Washington, a nonparty, settled all of the claims against .to the Supply System by those utilities. Additionally,'all settling

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rjefendants released each other and agieed JIIII~si not,to assert them for aggregate payments of,more than $ 850 million. All of the settlements were approved'by the District Court on ~, said bridge orperm(nation loans against any of the other settling September 5, 1989. The court foimd that the settlements were defendants, except for purposes of an offset against claims made binding on all Nuclear Projects Nos. 4.and 5 bondholders in with respect to Nuclear Project Nos.'4 and 5.

the litigation.,Oii February 4, 1992, theCourt of Appeals Since the ate of the settlement agreements, discussions have affirmed, in its entirety, the settlement of those claims; and,a been held between the Supply System and the bridge and petition for certiorari was denied by the U.S. Supreme Court termination'oan judgment holders'(o effect the dismissal or on November-2, 1992. satisfaction of said judgments. The Supply System is unable to

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the District Court's ruling now,permanently bars predict such effortswili be successful.

I'ccordingly, r '

Chemical Bank and all,Nuclear Projects Nos. 4 and 5 Jiond I [II

\ INTER-PROJECT CLAlhISAGAINSTRLVENUES AND purchasers and bondholders from r commencing, pr'osecutlng, or OTHER ASSETS .I continuing any action against the Supply System arising out of or relating to the allegations or subJect matter of-the securities Some creditors of Nuclear Projects'Nos. 4.and 5'ave attempted, litigation.. However, based on the terms of the Supply System's and.others have threatehed to attempt, to obtain paymeng from

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settlement with Chemical, Bank,,the ruling did not preclude ~ the physical assets of other proJects of the Supply System or fro'm-Chemical Bank from continuing with the Cost4haring litigation the revenues pledged as security for the Supply System bonds 34

1 4

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issued In connectIon with, and revenues pledged for the payment to fund Nuclear Projects 4 and 5, it is p6sslble that claims may

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be asserted against Nuclear Projects Nos. 1 and 3 to pay the costs of costs ofsuch other projectsi Such creditors include present and former holders of the Nuclear Projects Nos. 4 and 5 bonds of, site restoration for Nuclear P/ojects'Nos. 4 "and 5 which are and others who ma( assert claims-in the, future against the, estimated to be in the range of $ 26 to $ 43 million (in March System and/or its projects. 'Supply 19+5 dollars).

i r The Supply System's m'anagement and legal counsel are of, I: ULL CONTRACTS - NUEACO BANKRUPTCY the opinion that such creditors will only be able to realize upon I the,netI assets of Nuclear Projects Nos. 4 and 5 and will not be The Supply System has for several years engaged ln uranium

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able to realize upon'ny net assets or future revenues of the, purchase, safe and loan transactions with Nuexco Trading i (

Supply System and/or its other projects. Corporation (Nuexco), a corporation owned by Oren L. Benton

('enton'. On-February 23, 1995 (the 'Petition Date',Wuexco, NUCLEAR PROJECT NO. 5 TERMINATIOQ.CLAIM Benton and several related entities filed chapter 11 bankruptcy r

i cases In the U.S. Bankruptcy Court for the Distrjct of Colorado In August 1983>PacifiCorp, owner of 10 percent of Nuclear (the 'Bankruptcy Case'. Prior to commencement of the.

Project No. 5, filed a counterclaim in v I l

Bankruptcy Case, the Supply-System had outstaiidlng three ura-(also known as "Cost Sharing Litigation') asserting that nium loan or salecontracts (two contracts relating to Nuclear owner-i' Nuclear Project,No. 5 was a breachofr the termlnatlott of Project No. 1 and one contiact relating to Nuclear Project No. 2):

ship agreement between PaclfiCqrp and the Supply System>> .

Nuexco had seCured these contracts with a letter of credit'and a PacifiCorp s'eeks damages in-an unspecified amount. Such pledge of uranium in various forms.

amount would presumably be approximately $ 150 million, plus interest. Prosecution of that<claim had been stayed since A few months before the'Bankruptcy Case. commenced, Nuexco r

1983. However, on July 26, 199S, following appro'val of the had defaulted to the'Supply System on a significan payment for settlement of all other claims In the Cost Sharing litigation, an, 'the purchase of uranium>relating to Nuclear Project No. 1. The

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Supply. System drew on Its letter of credit in partial satisfaction r

order was'entered effectively removing the stay and reinstating PacifiCorp's,claims. The Supply System is unable to predict the

- of such payment and, pursuant to'the terms of a subsequent outcome of this litigation, but counsel is of the opinibn that a settlement-agreement (the 'Settlement Agreement" ), Nuexco l

successful claim against assets of other than Nuclear Projects transferred'to the Supply System all ofPluexco's right, title/and Nos. 4 and 5 Is remote. interest in the uranium pledged to the Supply System. In r l addition, Nuexco,= together wIth'certain guarantors-of.Nuexco's NUCLEAR'PROJECTS A/OS. I/4 AND 3IS SITE RESTORA- obligations, including Benton, agreed to pay a deflciency daim TION I in the amount of $ 14,500,000. The Supply System anticipates'ollecting I

from the Bankruptcy Case only a.small percentage Nuclear'Projects Nos. 1/4 and 3/5 slterestoration requirements, of this deficiency amount. As such, the Supply System, has fully are governed by separate-site certification agreements between reserved'against the $ 11.$ million receivable from Nuexco.'

the Supply System and the state of Washington and regulations adopted by Energy Facility Site Evaluation Coundl;(EFSEC) Approylmately $ 21.'4 million of uranium 'collateral (approxi-II and, with respect to Nuclear Projects, Nos. 1 and 4, a lease ,

~ mately $ 2.7'million of Nuclear Project'No. 1 materials and agreement with DOE.-The Supply System submitted a -site million of Nuclear Project No. 2 materials) turned'over '18.7 restoratldn plan to EFSEC"on March 8, 1995'hich'complied to the Supply, System under the Settlemen( Agreement is

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with EFSEC requirements to remove the assets and restore the located at Siemens Pqwer=Corporation's (Siemens) storage and sites by demolition, burial, entombment, or other. techniques fabrication facility in Richland, Washington.,Several utilities C

"'uch that tlie sites pose -minimal hazard- to the>public.

c witft'similar accounts at Siemens, together with other parties

'EFSEC approved the Supply, System's site restoration plan on in interest in'the Banlauptcy Case, are seeking to establish

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June 12, 1995. In- approval, 'EFSEC recognized that there Is -entitlement to the, fuel in their various accounts transferred I uncertainty associated'with the Supply System,'s proposed plan. to them by Nuexco. Siemeris has indicated it will not make'any Accordingly, EFSECs conditional approval provided for addi- of the material available to the-Supply System or these other tional reviews once the details of the plan are-flnalized. The parties until 'th'e disputes between-the parties are settled or Supply System has recorded an accrued'liability of $ 46 million the bankruptcy court orders otherwise. Although the parties )

and $ 36 mUIIon (based on currer)t estimates for site restoration) are asserting conflicting claims to this material at. Siemens', the for Nuclear Projects Nos. l.and 3, respectively. Funding for this Supply System believes that Its entitlement to the material

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liabilitywill be provided by BPA. No source of funding has been at Siemens will be. upheld. Nuclear. Project No. '1's uranium identlfied for site restoration, on Nuclear Projects Nos 4 and-5. collateral materials are InCluded in Nuclear Fuel Held for Sale.

Although Nuclear Projects Nos. l.and 3 have no legal obligation Nuclear Project No.,2's uranium collateral materials are Included

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1n Nuclear Fuel. (See note A) 35 c

4 4

.1 OTHLR LITIGATIONAND COMMITMLNTS penalties in the event of violations of various regulatory

/" r 4 l and license requlrements.

The Supply System is involved in various"claims< legal~ctions I

and contractual commitments'ot mentioned aboveras both The price Anderson Act currently provides for nuclear liability 1

plaintiff and k defendant and In certain claims and contracts insurance over $ 8.7 billion per Inddentwhich is covered by a arising in the normal course of business. Although s'ome I suits, 'ombination/ of commerdal nuclear-insurance altd mandatory claims and commitments are significant In amount, final dlspo- >

industry self-insuranceTIie Supply-System has purchased' 1

sition is not determinable. In the opinion of management, the the maximum commercial,insurance available of $ 200 million, outcome'of such litigation; claims or. commitments will not which is the first layer of protection. The second layer

I I, ha've a material adverse effect on the financial positions of the of protection is provided through a mandatoryiindustry self-projects or the Supply System as a whole. The estimated cost'of insurance plan wherein each licensed r nuclear-facility required

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the projects, however, may either be increased or decreased as a . to participate In the plan (currently 110)'may 6e asse'ssed up rto-r i*1, result of the outcome of these matters. $ 75.5 million per Incirjent< subject to a-maximum annual

)8 assessment of $ 10 millionper year.

NUCLEARLICI."NSINGAND INSURANCLF property damage and decontamtnation liability'nsur-

'uclear

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The Supply-System-is a licensee of th6 Nuclear Regulatory ance rerlulrements are met through a combination of commercial .

Commission and is subject to routine licensing and user fees, nuclear insurance policies purchased by the Supply System and I

to,retrospective premiums for nudear liability Insurance, and BPA. The total amountofinsurancepurchased Iscunently$ 1.2bIIIIon.

to. license modification, suspension, or reyocatlon or civilt 'he deductible for this coverage ls $ 10 million per occurrence. "

4q 4I 1

For the, year ended 4Iune 30, 1995 (unaudited) 4

. BOND RATINGS - SUPPLY SYSTEM FY 1995 ~FY19 4

- Fitch Investors Service LP JAA*>> ..; AA-~

-'Moody's Investors Service, Inc. (Moody's) Aa = ~ Aa Standard and Poor's Corporation (S R P), AA, '~ .AA VARIABLE,RATE LETlER OF CREDIT BANKS Long Term' SRP MOODY-'S

. Series 1993-1A/3A-1,,: A+ Aa3 Series 1993-1A/3A-2 A+ A1

-Series 1993-1A/3A AA " Aa2 Short Term 4 Series 1993-1AJ3A-1 A-1 VMIG1 Series 1993-1A/3A-2 A-1 VMIG1 r

-Series 1993-1A/3A-3 A-1+ 'MI61

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'ating changed to AA- op August 17, 1995 r

4 f,

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4 36