ML070170375

2006 Annual Financial Report, the Shift to a Global Economy and Embracing New Technology

ML070170375
Person / Time
Site:	Columbia
Issue date:	12/31/2006
From:	Coates E, Parrish J Energy Northwest
To:	Office of Nuclear Reactor Regulation
References
Download: ML070170375 (22)

Text

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, 7"Y Front row, from left to right-Tom Casey, Dave Remington, Sid Morrison, Kathy Vaughn, Edward (Ted) Coates, and Bill Gordon.

Back row, from left to right-Dan Gunkel, Tim Sheldon, Jack Janda, and Larry Kenney.

22 Not pictured-K.C. Golden.

" Columbia Generating Station surpasses longest continuous run record (July 30, 2006).

" Columbia Generating Station marks significant improvement in three areas of primary focus: Equipment Reliability, Human Performance and Training Excellence.

" National Nuclear Accrediting Board renews Energy Northwest Operations and Engineering Support Personnel training accreditations.

" Nuclear fuel procurement team announces agreements netting a total market value of over $500 million in savings to regional ratepayers for the period extending from 2003 to 2015.

" At Columbia Generating Station, the Operations Aggregate Impact Index, an indicator of how much plant conditions challenge Control Room staff, significantly improves due to reductions in maintenance backlog.

• Engineering drives improvement in equipment reliability through the establishment of a Columbia Generating Station Plant Health Committee. System Engineering, using a Top Ten Equipment Issues list, tackles equipment vulnerabilities in a planned and focused manner.

• The move to online repair of systems, such as Diesel Generator 2, 125-volt batteries, condenser tubes, and service water pumps, allows Columbia Generating Station to continue producing needed power for the region.

• Columbia Generating Station fuel procurement team announces the Uranium Tailings Pilot Project, expected to save ratepayers an estimated $50 million over the next decade.

• State and local governments receive $2.64 million in Energy Northwest privilege taxes.

" Alternative procurement legislation is signed into law, allowing Energy Northwest the authority to use a competitive negotiated procurement process on renewable projects.

" Energy Northwest returns to the bond market for an unprecedented, 100 percent uninsured $907,475,000 bond sale, constituting one of the largest in agency history.

• BPA and Energy Northwest announce a change in the debt repayment method that is expected to save Northwest consumers five percent on wholesale power rates in fiscal years 2007-2009.

• Board of Directors approves Nine Canyon Phase III and Reardan Twin Buttes Wind Projects.

• Board of Directors approves the Pacific Mountain Energy Center project, and signs 50-year lease on a proposed site at Kalama, Washington.

The management of Energy Northwest is responsible for preparing the accompanying financial statements and for their integrity. The statements were prepared in accordance with generally accepted accounting principles applied on a consistent basis, and include amounts that are based on management's best estimates and judgments.

The financial statements have been audited by PricewaterhouseCoopers LLP, Energy Northwest's independent accountants.

Management has made available to PricewaterhouseCoopers LLP all financial records and related data, and believes that all representations made to PricewaterhouseCoopers LLP during its audit were valid and appropriate.

Energy Northwest maintains an ongoing internal auditing program that provides for independent assessment of the effectiveness of internal controls, and for recommendations of possible improvements thereto. In addition, PricewaterhouseCoopers LLP has considered the internal control structure in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. Management has considered recommendations made by the internal auditor and PricewaterhouseCoopers LLP concerning the control procedures and has taken appropriate action to respond to the recommendations. Management believes that, as of June 30, 2006, internal control procedures are adequate.

J.V Parrish A.E. Mouncer Chief Executive Officer Vice President, Corporate Services/General Counsel/CFO

/ of Independent Auditors To the Executive Board of Energy Northwest We have audited the accompanying balance sheet of Energy Northwest and the related individual balance sheets of Energy Northwest's business units and internal service fund as of June 30, 2006, and the related statements of operations and fund equity and of cash flows for the year then ended. Energy Northwest's business units include the Columbia Generating Station, Packwood Lake Hydroelectric Project, Nuclear Project No. 1, Nuclear Project No. 3, the Business Development Fund, and the Nine Canyon Wind Project. These basic financial statements are the responsibility of Energy Northwest's management. Our responsibility is to express an opinion on these basic financial statements based on our audits.

Iand Analysis Energy Northwest is a municipal corporation and joint pronouncements, accounting principles prescribed by the operating agency of the state of Washington. Each Energy Financial Accounting Standards Board (FASB). (See Note B to Northwest Business Unit is financed and accounted for the Financial Statements).

separately from all other current or future business assets.

The following discussion and analysis is organized by Because each Business Unit is financed and accounted for Business Unit. The management discussion and analysis separately, the following section on financial performance of the financial performance and activity is provided as an is discussed by Business Unit to aid in analysis of assessing introduction and to aid in comparing the basic financial the financial position of each individual Business Unit. For statements for the Fiscal Year ended June 30, 2006 with comparative purposes only, the following table represents a the basic financial statements for the Fiscal Year ended memorandum total only for Energy Northwest, as a whole, June 30, 2005. Energy Northwest has adopted accounting for FY 2005 and FY 2006 in accordance with GASB No. 34, policies and principles that are in accordance with Generally "Basic Financial Statements-and Management' Discussion Accepted Accounting Principles (GAAP) in the United States and Analysis-for State and Local Governments".

of America. Energy Northwest's records are maintained as Certain reclassifications have been made prescribed by the Governmental Accounting Standards financial statements to conform to the 2(

Board (GASB) and, when not in conflict with GASB

The financial statements for Energy Northwest include the financing and investment activities. The statements provide Balance Sheets; Statements of Operations and Fund Equity; insight into what generates cash, where the cash comes and the Statements of Cash Flows for each of the Business from, and what it was used for.

Units; and Notes to Financial Statements.

The Notes to Financial Statements present disclosures that The Balance Sheets present the financial position of each contribute to the understandina of the material Dresented Business Unit based on an accrual basis. The Balance Sheets report information about construction work in proqress, II FY 200 FY

-il I I I "I II 0.504 20021IJ 0.00 0 1000 2000 4 000 4000 5NON nrN 70nN RN.A QNNNinNNN

Energy Northwest's performance is measured in several and manages a trust fund for the purpose of funding ways, including cost of power at CGS. The cost of power decommissioning and site restoration (see Note B to for FY 2006 was 2.12 cents per KwH as compared with the financial statements, Decommissioning and Site 3.34 cents per Kwh in FY 2005. The industry cost of power Restoration). The balances in these external trust funds are fluctuates year to year depending on various factors such as not reflected on Energy Northwest's Balance Sheet.

refueling outages and other planned activities. The bi-annual Long-Term Debt increased $77.4 million in FY 2006 from maintenance and refueling outage (R-17) occurred in FY

$2.27 billion to $2.35 billion, which was a result of the 2005 resulting in the increased cost of power compared with FY 2006 Bond Issue. In FY 2006, new debt was issued for FY 2006.

various CGS construction projects, as well as being issued Balance Sheet Analysis as part of the Debt Optimization Plan Debt (see Note Eto the financial statements).

Increase to Plant in Service and Construction Work In Progress (CWIP) from FY 2005 to FY 2006 (excluding Through June 30, 2006 Energy Northwest was being paid nuclear fuel) was $14.4 million. The majority of the by the Participants for Net Billings. The payments were increase was related to CGS pump, battery and monitoring based on a percentage of ownership in CGS and Nuclear improvements. The additions to Plant were offset by an Projects No. 1 and 3 and reflected budgeted costs for increase to Accumulated Depreciation of $73.0 million operations of the fiscal year. Beginning in FY 2007, Energy resulting in a net decrease to Plant of $58.7 million. Northwest will bill Bonneville Power Administration on a monthly basis for estimated expenses, not to exceed the Nuclear fuel, net of accumulated amortization, increased approved budgeted value instead of billing and receiving

$64.3 million from FY 2005 to $190.5 million for FY 2006. the participants' legal obligations. The change in billing During FY 2006, CGS purchased $100.0 million of nuclear fuel, which was offset by current year amortization of for CGS

$35.7 million. There was a bi-annual write-off of fuel and amortization for the removal of fuel assemblies related to the maintenance and refueling outage (R-17). The write-rvff rnf t 1nQ 9 mi~llinn roirncnnitc thei rrininnI rncvt r~f tho SZUUVuu

$150,000

$100,000

$50,000 rV W =Q Other Income/Expenses U Operating Expenses

Other Income and Expenses remained relatively constant million increase) netted an increase of $4.1 million as a from FY 2005 to FY 2006 at $116.4 million. The slight result of the Bond Refunding issues. The remaining $0.6 increase of $3.5 million was generally related to the net million decrease was related to CGS general services and effects of CGS Debt activity (see Note E to the financial lease activity.

statements) and investment activity. Higher interest earnings on investments of $5.1 million were offset by the CGS total revenue dropped from $430.6 million in FY higher interest expense for FY 2006 of the same amount. 2005 to $397.9 million in FY 2006. The decrease of $32.7 Amortization of Bond Discount Expense ($0.9 million million is due to lower expenses and the related effect of decrease) and Amortization of Bond Refunding ($5.0 the net billing agreements on revenue recognition.

Packwood Lake Hydroelectric Project I

4 1I 1 1 1 1 1 1 1 1 I i I

FY2003 $500 J

FY 200]A I IJ I II II I I

$250 LUUZ "

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.. -11 be included as part of the power purchase agreements last 6 years. Recent FERC litigation, not associated with with the participants of the Packwood Project, (see Note E, Energy Northwest, resulted in their ability to now bill for Long Term Debt, Security - Packwood Lake Hydroelectric those costs.

Project). Other income and expenses decreased from $64k in FY The FERC billing represents a billing for charges of $59k 2005 to $8k in FY 2006 mainly due to increased interest that represent administrative costs accrued by FERC for the earnings of $34k and decreased bond interest expenses of

$22k.

Nuclear Project No. 1 Nuclear Project No. 1, a 1,250 MWe plant, was placed $1.971 billion in FY 2006, due to debt restructuring to in extended construction delay status in 1982, when take advantage of lower interest rates.

it was 65 percent complete. On May 13, 1994, Energy Northwest's Board of Directors adopted a resolution terminating Nuclear Project No. 1. All funding requirements are net-billed obligations of Nuclear Project No. 1. Energy Northwest wholly owns Nuclear Project No. 1. Termination expenses and debt service costs comorise the activitv on

but is offset by the increase in Due From Other Business on a "synthesis gas" with regulated emissions similar to Units of $0.6 million. a natural gas plant. The clean-burning synthesis gas can be produced by gasifying rather than burning a variety of Statement of OperationsAnalysis carbon-based feed stocks including petroleum coke and coal. Initial operation of the completed plant could be as Operating Revenues in FY 2006 totaled $7.8 million as early as 2011. In FY 2006, $1.5 million was expended on compared to FY 2005 revenues of $8.1 million, a decrease developing this project.

of $0.3 million; however, net revenues for FY 2006 showed a $2.3 million loss as compared to a $0.7 million Wind Mining efforts continued in FY 2006 with loss for FY 2005. approximately $0.5 million being expended. These efforts are to explore, site, and demonstrate wind resources for Three of Energy Northwest's Research and Investigation potential new wind sites.

business projects, Integrated Gasification Combined Cycle (renamed Pacific Mountain Energy Center (PMEC) in FY line of Enerav 2006), Wind Mining and BioEnergy Solutions, accounted n for $2.3 million in expenditures with no revenue, with the 4r FY 2

$2,0001 -71 FY U Other Income/Expenses 0 Operating Expenses

The Nine Canyon Wind Project produced 158.34 GWh of netted an increase to costs of $5.6 million, an increase of electricity in FY 2006 versus 154.52 GWh in FY 2005. $0.3 million from FY 2005. This trend is reflected in the declining Fund Equity balance.

Balance Sheet Analysis Energy Northwest has accrued, as income (contribution) from the DOE, REPI payments that enable the Nine Canyon Receivables decreased by $1.1 million which corresponds Wind Project to receive funds based on generation as it to the decrease in amount of the Renewable Energy applies to the REPI bill. The REPI was created as part of Performance Incentive (REPI) payment accrued. The FY the Energy Policy Act of 1992 to promote increases in the 2005 accrual was $2.3 million compared to $1.2 million generation and utilization of electricity from renewable accrued for FY 2006. Net change in assets was negligible, energy sources and to further the advances of renewable though there was a reclassification of a contributed energy technologies. This program, authorized under substation asset from Benton PUD to plant from a deferred section 1212 of the Energy Policy Act of 1992, provides charge. The decrease in Fund Equity was $4.1 million in financial incentive payments for electricity produced and FY 2006 as compared to a $2.7 million decrease in FY sold by new qualifying renewable energy generation 2005. The continued decline in Fund Equity is because facilities. The Nine Canyon Wind Project recorded a the original plan anticipated operating at a loss in the receivable of $1.2 million which represented forty-four early years and gradually increasing the rate charged to percent of the $2.7 million applied for REPI funding in the purchasers to avoid a large rate increase after the FY 2006. The payment stream and the REPI receipts REPI expires in ten years. Reserves that were established were projected to cover the total costs over the life of are used to facilitate this plan. Revenue Bonds Payable the purchase agreement. Permanent shortfalls in REPI decreased by $3.2 million as the current portion was moved to Current Debt Maturities.

ENERGY NORTHWEST BALANCE SHEETS As of June 30, 2006 (Dollars in Thousands) w 0 0 U1I a

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In service $ 3,529,544 $ 12,991 $ $ - $ 1,039 $ 74,066 $ 3,617,640 $ 46,631 $ 3,664,271 Not in service 25,253 25,253 25,253 Accumulated depreciation (2,102,609) (12,466) (25,253) (422) (12,392) (2,153,142) (33,708) (2,186,850) 1,426,935 525 617 61,674 1,489,751 12,923 1,502,674 Nuclear fuel, net of accumulated amortization 190,483 190,483 190,483 Construction work in progress

ENERGY NORTHWEST BALANCE SHEETS (continued)

As of June 30, 2006 (Dollars in Thousands) ri zt a z

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FUND EQUITY AND LIABILmES FUND EQUITY Invested in capital assets, net of related debt $ $ $ $ 617 $ (25,728) $ (25,111) $ 12,923 $ (12,188)

Restricted, net 11,877 11,877 1,205 13,082 Unrestricted, net 1,593 1,514 3,107 (4,030) (923)

- -- -- 2,210 (12,337) (10,127) 10,098 (29)

LONG-TERM DEBT (NOTE E)

Revenue bonds payable 2,292 ,555 1,906 1,961,960 1,919,315 86,720 6,262,456 6,262,456 Unamortized discount on bonds - net 88,507 (3) 64,813 (64,635) 3,424 92,106 92,106 Unamortized gain/(Ioss) on bond refundings (31,683) 2,349,379 1 SI

ENERGY NORTHWEST STATEMENTS OF OPERATIONS AND FUND EQUITY For the year ended June 30, 2006 (Dollars in Thousands) z Z-

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UjUj cc Za Z U L .U %A 00O NC4I-OPERATING REVENUES $ 397,857 $ 1,439 $ $ $ 7,813 $ 6,303 $ 413,412 $ - $ 413,919 OPERATING EXPENSES Services to other business units Nuclear fuel 37,812 37,812 37,812 Spent fuel disposal fee 9,106 9,106 9,106 Decommissioning 6,127 59 6,186 6,186 Depreciation and amortization 73,734 35 210 3,739 77,718 77,718 Operations and maintenance 132,452 950 11,678 1,907 146,987 146,987 Other power supply expense 223 223 223 Administrative &

general Generation tax

ENERGY NORTHWEST STATEMENTS OF CASH FLOWS For the year ended June 30, 2006 (Dollars in Thousands) 0 0 LU

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'joE OLLJ N U zLu "> z z~ toI CL I CASH FLOWS FROM OPERATING AND OTHER ACTIVITIES Operating revenue receipts $ 302,036 $ 2,258 $ - $ - $ 4,990 $ 6,192 $ -$ 315,476 Cash payments for operating expenses (167,710) (1,899) (4,108) (27) (173,744)

Non-operating revenue receipts 109,705 78,388 188,093 Cash payments for preservation, termination expense (6,288) (1,616) (7,904)

Cash payments for services (5,161) (5,161)

Net cash provided/(used) by operating and other activities 134,326 359 103,417 76,772 882 6,165 (5,161) 316,760 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from bond refundings 532,082 366,920 Refunded bond escrow requirer (466,138)

Payment for bond issuance and financinn costs

ENERGY NORTHWEST STATEMENTS OF CASH FLOWS (continued)

For the year ended June 30, 2006 (Dollars in Thousands)

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V1 UO Q. I RECONCIUATION OF OPERATING INCOME TO NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES Net operating revenues $ 116,367 $ 8 $ -S - $ (4,075) $ 530 $ - $ 112,830 Adjustments to reconcile net operating revenues to cash provided by operating activities Depreciation and amortization 109,417 25 79 3,728 113,249 Decommissioning Other

( :;,e Notes to Financial Statements Note A-General Organization fifty-year license from the Federal Energy Regulatory Commission (FERC) that expires on February 28, 2010. The Energy Northwest, a municipal corporation and joint electric power produced by Packwood is sold to 12 Project operating agency of the state of Washington, was Participant utilities which pay the costs of Packwood, organized in 1957. It is empowered to finance, acquire, including the debt service on the Packwood Lake construct and operate facilities for the generation and Hydroelectric revenue bonds. The Packwood Participants transmission of electric power. On June 30, 2006, its are obligated to pay annual costs of the Project including membership consisted of 16 public utility districts and debt service, whether or not the Project is operable, until three cities, Richland, Seattle and Tacoma. All members the outstandinq bonds are paid or provisions are made for own and operate electric systems within the State of Washington. Energy Northwest is exempt from federal income tax. Energy Northwest has no taxing authority.