ML17289B123

Washington Public Power Supply Sys 1992 Annual Rept. W/930119 Ltr

ML17289B123
Person / Time
Site:	Columbia, Satsop
Issue date:	12/31/1992
From:	HALVORSON C M, MAZUR D W, SORENSEN G C WASHINGTON PUBLIC POWER SUPPLY SYSTEM
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
GO2-92-016, GO2-92-16, NUDOCS 9301270298
Download: ML17289B123 (41)

Text

, ACCEI ERAT DOCUMENT DIST" VTION'SYSTEM REGULA'NFORMATION DZSTRIBUTI ZSTEM (RIDE)DOCKET FACIL:50-397 WPPSS Nucleai Project, Unit 2, Washington Public Powe 05000397 50-460 WPPSS Nuclear Project, Unit 1, Washington Public~owe 05000460 STN-50-508 WPPSS Nuclear Project, Unit 3, Washington Public.05000508 AUTH.NAME AUTHOR AFFILIATION HALVORSON,C.M.

Washington Public Power Supply System MAZUR,D.W.

Washington Public Power Supply System SORENSEN,G.C.

Washington Public Power Supply System RECIP.NAME RECIPIENT AFFILIATION Public Power Supply Sys 1992 Annual Rept." tr.DISTRIBUTION CODE: M004D COPIES RECEIVED:LTR (ENCL 2 SIZE: TITLE: 50.71(b)Annual Financial Report D NOTES:Standardized Plant.App for permit renewal.Requested exp date 890701.O5OOO5O8 A D RECIPIENT ID CODE/NAME PD5 PD CLIFFORD,J COPIES LTTR ENCL 1 1 1 0 RECIPIENT ID CODE/NAME PDNP PD MENDONCAFM COPIES LTTR ENCL 1 1 1 0 D INTERNAL: AEOD/DOA EXTERNAL: NRC PDR 1 1 EG FILE 01 1 1 D A D NOTE TO ALL"RIDS" RECIPIENTS:

PLEASE HELP US TO REDUCE WASTEI CONTACT THE DOCUMENT CONTROL DESK, ROOM Pl-37 (EXT.504-2065)TO ELIMINATE YOUR NAME FROM DISTRIBUTION LISTS FOR DOCUMENTS YOU DON'T NEEDI D TOTAL NUMBER OF COPIES REQUIRED: LTTR 7 ENCL I~g5~

A WASHINGTON PUBLIC POWER SUPPLY SYSTEM P.O.Box 96'8~3000 George Wasbtngton Way~Rtdttand, Wasbtngton 993524968~t509)372-5000 January 19, 1993 G02-92-016 Docket Nos: 50-508 50-397 50-460 U.S.Nuclear Regulatory Commission Attn: Document Control Desk Mail Station P1-137 Washington, D.C.20555 Gentlemen:

Subject:

NUCLEAR PROJECTS NOS.1, 2,&: 3 ANNUAL FINANCIAL REPORT f Enclosed for your information, as required by 10 CFR 50.71, are three (3)copies of the Washington Public Power Supply System's 1992 Annual Report.Sincerely, G.C.S rensen, Manager Regulatory Programs (Mail Drop 280)GCS/bk Attachments CC;MM Mendonca, NRC DP Steinberg, PP&L WL Bryan, WWP RE Dyer, PGE JW Clifford, NRC JR Lauckhart, PP&L JB Martin, NRC RV NS Reynolds, W&S DL Williams, BPA (399)NRC Site Inspector, (901A)t-600$3 cy301270>~8 pg000397 cypgg,31,.PBR~PDR I V, li

, 1'l K i~~~~C I l l 8 li kf f'r d (Dollars in millions)OPERATING STATISTICS Power generation costs'et generation (millions of kWh)Total cost in mills/kWh*

Operating cost in mills/kWh Plant availability Plant capacity Excludes Iitlgat ton related costs and extraordinary items.NUCLEAR PROJECT NO.2$428.6 3799 112.8 43.3 43.3%39.9%FY 1992 PACKWOOO LAKE PROJECT$1.4 92 15.2 8.3 100.0%38.1%NUCLEAR PROJECT NO.2$416.5 5670 73.5 29.7 62.5%59.1%FY 1991 PACKWOOO LAKE PROJECT$1.2 112 10.7 5.0 100.0%46.5%FINANCIAL AND OPERATING HIGHLIGHTS For the year ended June 30, 1992 5,519 5,945 6,034 6,496 5,670 3,799 Plant 2 Net Generation Millions of kWh~~~~8%N N@Oi Packwood Net Generation Millions of kWh 78 74 91 102 112 92 page 1 everal years ago, the Supply System's Executive Haard adopted a strategic plan in which we defined criteria for Supply System success.Our major activity is production of electricity, with 98 per-cent of that energy coming from our nuclear power plant-Plant 2-situated near Richland, Washington State.One criterion far Supply System sucress is that we operate Plant 2 safely, reliably, and in such a manner that the price of the electricity it generatesiscom-petitive.And rompetition there is, in increasing variety and number of alternate resources.

The Executive Board's emphasis on keeping Plant 2's output competitively priced was reinfarred frequently during fiscal year 1992by representatives of the Bonneville Power Administration (BPA), the federal agency that purchases all of Plant 2's generation.

The unmistakable message we received from BPA is that our goal to generate reliable, rost-effec-tive power at Plant 2 is on target, and that it is very important to our future to arhieve this goal.Reflecting on the events of FY 1992, I would say that the Supply System's progress toward meeting our strategic plan goals, partirularly regarding rost of Plant 2eler tririty, was decidedly mixed.We had some large successes, and a large disappointment during the year.Successes included installation of replarement rotors in the three low-pressure sections of Plant 2's turbine-generator during the plant's spring and summer1992maintenanceandrefucling outage;Executive Hoard authorization of two major romponents of the Mega-watt Improvement Program that will increase Plant 2's electrical autput and efficiency of nuclear reactor operation; and the March 1992 settlement of the Supply System's litigation with General Elertric Company involving modifica-tions to the Plant 2reartorrontainment system.Thissettlementendssevenyears of litigation.

In general terms, it requires GE to pravide certain goods and services to Plant 2 at no charge to the Supply System.Additional designated goods and services will be provided at substan-tial discounts.

Heneflts of the settlement will include an increase of about 50 megawatts in Plant 2 power production.

New equipment and hardware also will significantly improve the plant's reliability.

Another Executive Hoard initiative that will help the Supply System achieve its strategic plan goals is the Organizational Efficiency Study that was conducted for us by Tenera L.P.during the first half of FY 1992.In its report to the Executive Board in December 1991, the rontractor made recommendations that, when implemented during the next three to five years, will result in an increas-ingly effirient organization.

The Supply System now is implementing recom-mended work process efficiencies, applying more discipline to prioritizing incoming wark, and planning resource changes.The Executive Board on April 23, 1992, approved a total of$773 million in Supply System budgets for I'Y 1993.The Plant 2 portion of this total reflects our arl M.Halvorson B ecutive Board Cha man strategy for reducing the rost of power from this plant by keeping costs rela-tively constant, while boasting the elertrical output through the Megawatt Improvement Program, and improving reliability of operation to boost plant capacity fartor.My biggest disappointment for FY 1992 is the nearly three months (july, August, and September) that Plant 2 did not operate because reactor operating rrews did natpass their operator requalification exams.Spreading our fixed costs over fewer kilowatt-hours sent our cost of power for the fiscal year in the wrong direction.

My expectation is that, with this situation behind us, we will con-tinue the downward trend toward our goal for cost of Plant 2 power.Another high priority in the Supply System's strategic plan is that we be prepared to meet new energy and other resourre needs of our member utilities and other utilities.

We took action to do that in June 1991 when we submitted a formal proposal to BPA to locate a new natural-gas fired rombustion turbine (CT)power plant on our Satsop site in western Washington State.This project was not selected for negotiation.

How-ever, in May 1992, we submitted a new, unsolicited proposal to BPA to plare a 160-average-megawatt natural-gas fired CT at the Satsop site.The proposal inrludes a firm gas-supply rontract that guarantees fuel prices for the life of the praposed operating agreement, and an option for a second CT at the same site.It was accepted in June by BPA for an in-depth review.Another of aur strategic plan priorities is efficient management of our assets and debt.In the latter rategory, in September 1991, we completed the seventh bond sale of the refinancing program that began two years earlier, selling$550 million in advance refunding bonds.This brought to$4.45 billion the amount of refunding bands sold ta refund$3.3 billion in outstanding bands far projects 1, 2, and 3.The tatal debt service savings to BPA to date are: gross nominal savings of$1.2 billion, and net present value savings of$1 billion.Finally, there were some changes in Executive Board members during FY 1992.Mark Crisson, superintendent of the City of Taroma's (WA)electrical utility, joined the Exerutive Board on Ort.11 to fill the unexpired term of former Seattle City Light Supt.Randy Hardy, who was appointed earlier in the year to be the BPA Administrator.

And Washingtan Gov.Booth Gardner in Marrh 1992 appointed Stephen Williams to the Hoard to replace Sydney Steinborn, whose term had expired.Williams is a project raordinator for the City of Seattle's Department of Adminis-trative Services, and a former Tacoma Utility Hoard member.Change is inherent in our business.We will rontinue to examine the changing needs of our customers and to be aware of changes in eronomics, technolo@, regulation, and other public concerns.We will respond to these changes in ways that will keep our product-elertririty

-competitively prired.

l 1 i I y primary focus during fiscal year 1992 was to ensure that the Supply System kept progressing toward its goal of becoming an electricity supplier of choice for the Pacific Northwest.

To meet our goal, the Supply System has established three main strategic initiatives:

reducing the cost of power from Plant 2;improving organizational performance; and improving regulatory performance.

The cornerstone of our plan is ensuring the cost of power from Plant 2 is competi-tive with alternative resources available to the Bonneville Power Administration.

I am disappointed to report that our progress toward that goal was hampered by our failure to meet critical Plant 2 production goals in FY 1992.Several unplanned interruptions in operation during the year kept Plant 2 generation at about 3.8 million megawatt-hours for FY 1992.Our commitment to achieve our stated goal is no less firm in the coming years as we focus harder on meeting productivity and regulatory goals as part of our plan.Costs are being controlled quite well at the Supply System as our emphasis on reliabilityof ourplantoperation increases.

Management made a painful decision to keep Plant 2 out of aperation most of the first three months of the fiscal year while operator emergency response procedures were revised and the plant's reactor operators underwent additional training.That decision was made after some of our highly skilled, licensed reac-tor operator crews had difficulty passing Nuclear Regulatory Commission (NRC)requalification exams.Supply System management accepts full responsibility for the crew failures.When faced with the choice of giving our operators a crash course to enable them to pass an exam, or sticl'ing to a conservative, safety-firs philosophy on which we'e based six years of safe Plant 2 operation, we chose the latter.The NRC, in its Systematic Assessment of Licensee Performance (SALP)report, noted the problems our operating crews encountered as reason to give Plant 2 operations the NRCs lowest acceptable rating.Iamconfident that the nextSALP report will reflect the improvements we have made that have put the Plant 2 licensed operator training program at the forefront of the nuclear industry.Organizational performance is continu-ing a transition that began several years ago.In FY 1992, several management changes were made, including hiring a new assistant managing director of Op-erations and a new director of Quality Assurance from two of the nation's best performing nuclear power plants.They have brought new ideas and methods to the Supply System.Further efficiencies are expected as we implement the recommendations of the Organizational Efficiency Study completed in December 1991.A team of Supply System managers was formed in the spring of 1992 to develop plans to implement specific efficiency recomendations in five major areas: integrated work schedules; sys-tems to prioritize work;simplified processes to reduce resource expendi-tures;cleaner lines of responsibility and accountability; and improved goals and Do W.azur Mana~lng rector performance indicators to manage processes.

The restructuring of processes will be completed in FY 1993.The Organizational Efficiency Study-complements several programs already in place.These include training em-ployees to use teamwork to increase the quality of their work;developing an integrated information management system;conducting cost-benefit analy-ses as part of our business practices; and using"structure trees," a planning and communication tool that uses logic dia-grams to relate key priorities to actions.These initiatives are paying off.The longest and most complexannual main-tenance and refueling outage ever con-ducted at Plant'was successfully completed in July 1992.The outage was scheduled to coincide with the spring runoff that increases water flow in the region's rivers, fills the reservoirs, and makes possible maximum generation at the region's numerous hydroelectric facilities.

Resumption of Plant 2 opera-tion in July was scheduled to help the Bonneville Power Administration cope with a year in which the water available for hydroelectric generation is expected to be less than 70 percent of normal.Although the outage extended into late July, I was pleased with the amount of worh accomplished.

The outage was completed within budget, and the most complex task of the outage, replacing Plant 2's three low-pressure turbine ro-tors, was completed ahead of schedule.The original Westinghouse turbine ro-tors were replaced with new fully integral rotors which will reduce turbine mainte-nance and downtime by requiring less frequent turbine inspections and settle our claim against Westinghouse for the design defect in the original equipment.

The new rotors have also boasted the plant's1,100-megawatt netelectricalout-put by an estimated 20-plus megawatts, which is in excess of the minimum Supply System/Westinghouse settlement value.That's enough additional generat-ing capacity to supply the annual needs of atleast 6,000 homes served by a typical Pacific Northwest public utility district, at about 10-15 mills/kilowatt-hour.

Further increases in Plant 2's generating capacity will be achieved in the coming years as our Megawatt Improvement Program is implemented and the plant reaps the benefits of the March 1992 legal settlement with the General Electric Company.These capacity and reliability improvements will supply the Bonneville Power Administration with much-needed, cost-effective power.The Supply System is also helping en-sure the region's future energy supply by continuing to responsibly preserve the assets of Nuclear Projects 1 and 3.These mostly completed projects represent a$5 billion investment by Pacific North-west ratepayers.

The total of$10.5 mil-lion spent each year for preservation ensures that these projects will be ready for resumption of construction and eventual generation of electricity when needed by Bonneville.

I believe that the initiatives we have put in place, both short-term and long-term, and the commitment of our orga-nization to improve, will ensure that the Supply System continues to have an im-portant role in the region's energy future.

EXECUTIVE BO WASH1XG TON PUBLIC POSER SUPPLY SYSTEM CARL M.HALVORSON (Chairman)

President Halvorson Mason Corp.Portland, OR VERA CLAUSSEN (Assistant Secretary)

Commissioner Grant County PUD Ephrata, WA RAY FOLEEN (Secretary)

Consultant Portland, OR PARKER L.KNIGHT Commissioner Skamania County PUD Carson, WA PAUL J.NOLAN (Vice Chairman)Attorney Tacoma, WA prie 4 JOHN I'.COCKBURN Investment/Consultant Seattle, WA MARK CRISSON Superintendent Tacoma City Light Tacoma, WA SAM J.I'ARMER Battclle Seattle Research Center Seattle, WA JAMES 6.ROWLAND Commissioner Okanogan County PUD Okanogan, WA WILLIAM D.SCO1T Commissioner Chelan County PUD Wenatchee, WA STEPHEN J.WILLIAMS City of Seattle Facilitics Div.Dept.of Admin.Services Seattle, WA page 5 Replacing the original Wcsfh Jghouse low-pressure turbine rotors with rotors of a~nore efficient rlesign was one o f several projects the Supply Systen>has undertaken to enhance the safety, reliability, atul power output of Plant 2.The turbine rotor replacen>ent cluring the April-July 1992 outage-the longest aurl ntost col nplex outage ever conducted at the 1,100-megawatt nuclear power plant-conspleted a three-year,$30 nullion project.The three new"ruggedized" rotors, in which the shaft and collars are a one-piece~na-chined forging, will require less frequent inspections, reducing turbine ntaintenance and downthne.The hnproved efficiency of the rotors will boost the plant's electrical output by an additional 20 plus megawatts, enough electricity to supply the annual needs of at least 6,000 hotnes served by a typical Pacific Northwest public utility rlistrict.

page 6 During its seven-and-a-half years of operation, the 1,100 net megawatts of power from the Supply System's Nuclear Plant 2 have been a significant source of electricity for the Bonneville Power Administration (BPA).The Supply System is committed to operating Plant 2 safely, reliably and economically.

The cornerstone of our strategy to generate competitively priced power at Plant 2 is to achieve an operat-ing cost of power of 21.8 mills per kilowatt-hour (in constant 1989 dollars).That includes operation, maintenance, and nuclear fuel expenses, and waste disposal fees.Not included are fixed costs such as net debt service, deprecia-tion and decommissioning.

Cost of power from Plant 2 averaged about 43 mills per kilowatt-hour in fiscal year 1992 (in 1992 dollars).This was due primarily to a three-month delay in getting Plant 2 into operation following the 1991 maintenance and refueling outage.The FY 1997 target of 21.8 mills per kilowatt-hour will be achieved by improving the plant's capacity factor (the ratio of how much power the plant produces in a year compared to how much it could generate if it operated continuously at full power), increasing the net generating capacity from 1,100 megawatts to 1,164 megawatts, and controlling costs.In February 1992, the federal regula-tory agency for Plant 2-the Nuclear Regulatory Commission-issued an evaluation of Plant 2 performance between Sept.1, 1990, and Dec.31, 1991.The NRC assigned its lowest rating of"3" to the Plant operations functional area, largely due to the inability of a number of licensed operators to properly implement the emergency operating procedures during requalification examinations and operational evaluations administered by the NRC in the spring and summer of 1991.The problems delayed restart from the Plant's refueling outage from June until the end of September 1991.Supply System management made significant changes in the Operator Requalification training program during the summer of 1991, including adding trainers with operations experience to the program staff, and expanding the review process that assures examination materials meet current nuclear industry standards.

As part of the effort to meet its cost of power goal, the Supply System, in conjunction with BPA, has implemented the Plant 2 Megawatt Improvement Program to increase the plant's power output and the amount of time it operates each year.The six-year pro-gram includes numerous projects in four general categories:

energy recovery projects designed to eliminate inefficien-cies in systems and equipment; conser-vation projects to reduce the amount of electricity used for"in-house" electric loads;new projects that produce additional power from the existing plant;and energy enhancement projects designed to improve the plant capacity factor.Although not a part of the Megawatt Improvement Program, the replacement of the low-pressure turbine rotors is expected to boost Plant 2's 1,100-megawatt net electrical output by an additional 20-plus megawatts.

page 7 The Snpply Syste>n's Local Area Network (LAN)provides the physical link allowing integration of computer hardware and sofhvare.A contbination of copper cable, fiber optics and electronics is being installed to transniit the information.

At the end of FY 1992, 500 LAN work stations were part of the connnunication systein linking nsore than 650 etnployees.

~4 I Xe h page 8 The combined efforts of more than 1,700 Supply System employees contrib-uted to the successful completion in FY 1992 of many projects that are improving the way work is done.These successes reflect employees'ommit-ment to the Quality Improvement Program, initiated at the Supply System in 1987.Quality Improvement at the Supply System is being furthered through a specialized training program and a formal problem-solving process.The training program includes Quality Management Skills for managers and The Quality Advantage for all employ-ees.The training is designed to set a foundation for educating every employee on the values of quality and the methods for incorporating quality improvement tools and techniques into the work place.Quality training is an ongoing process as new staff are hired and as strategic initiatives and new opportunities evolve.Quality Action Teams of employees from all levels have been formed to examine issues or problems which need explicit improve-ment or solutions.

In an effort to improve quality and enhance the Supply System's efficiency as an organization, Tenera L.P., a consultant with nuclear industry expertise, was hired last year.Tenera reviewed the organization and its major work processes and recommended improvements in an Organizational Efficiency Study published in December.The study noted five major themes that are incorporated in specific recom-mendations:

develop integrated work schedules; improve systems to prioritize work;simplify processes to reduce resource expenditures; assign clear responsibility and accountability; and improve goals and performance indica-tors to manage processes.

A team of Supply System managers was formed in January 1992 to develop plans to implement Tenera's recommen-dations.Restructuring of processes should be completed by 1993, with benefits being fully realized beginning in 1994.The Organizational Efficiency Study complements several programs already under way.These include the Quality Improvement Program;the Core Integration Project, which applies modern computer technology to an integrated information management system;Cost Effectiveness Analysis, which requires a cost-benefit analysis as part of business practices; and Structure Trees, a planning and communication tool that uses logic diagrams to relate key priorities to actions.Another project that has improved the organization's efficiency is the expansion of the Local Area Network (LAN)to nearly 400 more work stations during FY 1992.A LAN is a system that gives employees who connect to it access to a common communications network, enabling them to share information and quickly gain access to various resources such as mainframe computers, high speed printers and plotters, and external communications.

V/'ith the number of personal comput-ers at the Supply System having grown to more than 1,000, the LAN has become a vital communications link.page 9 Our ewployees are involved in their cow w unities through participation in local events, as>neinbers of service organi-zations, atul by volunteering thne to help others.A number serve as spokespersous for the Supply Systetn while participathtg in the organization's speakers'ureau and educational outreach progrants.

As an organization, the Supply Systemic's contntit>nent to the co(nw unity is reflected in its ntetnbershipin the Trl-City Iarhutrial Develop-went Council, Grays Harbor Econo>nic Develop>nent Council, and local Chatnbers o f Conunerce.

The Supply System is also an active participant in annual events such as the Products Itulnstrial Exposition in Pasco, Grays Harbor County 1'air, and Earth Day celebrations.

page 10 As the population of the Pacific Northwest continues to grow, the additional homes, schools, and busi-nesses add to the number of electric power customers.

As the operators of both a nuclear and a hydroelectric facility, the Supply System is looking toward the future and how it can continue to help fulfill regional power needs.Two options available to help meet the region's electrical needs are WNP-1 located near Richland and WNP-3 near Satsop in Grays Harbor County, Washington.

Construction of these two nuclear power plants, 65-percent-and 75-percent-complete, respectively, was suspended in the early 1980s because of a growing regional surplus of electric generating capacity at that time and difficulties in obtaining financing for further construction.

The Supply System is preserving the two plants using techniques that minimize deterioration of installed and ware-housed materials and equipment.

Other aspects of preservation include main-taining federal construction permits and access to national financial markets.The design and technology in place for both WNP-1 and WNP-3 are the most advanced for the respective types of plants.Another option the Supply System presented to the Bonneville Power Administration (BPA)this year was a proposal to locate and operate a 160-average-megawatt natural gas-fired combustion turbine (CT)power plant at the Supply System's Satsop site in western Washington.

The proposed CT power plant would be financed, designed and built by Westinghouse Electric Co.under a contract with the Supply System.It offers several advantages to BPA in meeting the region's growing need for electric resources:

the existing Satsop site is already dedicated to power generation; the site is located in western Washington where the need for additional generation is greatest;the site is connected to the BPA transmission system and does not require construc-tion of a new transmission corridor;and the plant would be equipped with state-of-the-art pollution controls.The proposed CT plant would be indepen-dent of, and would not impact, the completion of WNP-3.In addition to meeting the electrical needs of the region, the Supply System contributes in several ways to communi-ties near its plant sites.During FY 1992, Washington schools and taxing districts in the vicinity of Plant 2 shared a$1,547,878 annual tax payment.The state general fund received four percent of the total tax, as well as an excise tax based on a seven percent surcharge on the tax.Remaining funds were shared by the state general fund for schools and by counties, cities, fire protection districts and library districts within 35 miles of Plant 2.Since Plant 2 began operating in 1984, the Supply System has paid more than$13.8 million in generation taxes.These costs are paid from BPA's revenues from electricity sales in Washington, Oregon, Idaho, western Montana, and small portions of California, Nevada, Utah and Wyoming.Other types of contributions are made by our employees who belong to local service clubs;participate as coaches, managers, and referees in local sporting events;and generally function as involved citizens of the communities in which they live.~~., j!!Jg!1 i(li"Ml P, IMa It QQ l 3 4 4 l.k t prlge 12 BOAIU)OI'IRECTORS EXECUTIVE BOAIK)CO Roberta P.Bradley Superintendent

, Seattle City Light Don Carter Energy Services Director City of Richland Vera Claussen (Secretary)

Commissioner Grant County PUD Mark Crisson Superintendent Tacoma City Light Dan G.Gunkel Commissioner Klickitat County PUD Richard W.Hickman Commissioner Franklin County PUD Parker L.Knight (Vice President)

Commissioner Skamania County PUD William G.Kuehne Commissioner I Ferry County PUD Administrative and Public Responsibility Committee Vera Claussen, Chairman Sam J.Farmer Ray Foleen Paul J.Nolan James G.Rowland Carl M.Halvorson, Ex Officio Audit, Legal and Finance Committee Sam J.Farmer, Chairman Vera Claussen John F.Cockburn Paul J.Nolan William D.Scott Carl M.Halvorson, Ex Officio Operations

/Construction Committee Parker L.Knight, Chairman John F.Cockburn Mark Crisson Ray Foleen James G.Rowland William D.Scott Stephen J.Williams Carl M.Halvorson, Ex Officio James G.Rowland Commissioner Okanogan County PUD'ames W.Sanders Chief Engineer Benton County PUD William D.Scott Commissioner Chelan County PUD Roger C.Sparks (President)

Commissioner Kit titas County PUD Arne Torget (Assistant Secretary)

Commissioner Wahkiakum Cou'nty PUD

/'/ll/II\V y V y V I K l y I Y V V/I/fi 1 y V P/A,NI'49AI, REPORT'-gFINANCIAL INFORMATION

/=WASHINGTON/

PUBLIC POWER SUPPLYPYSTEM

/57I Management Report on Responsibjlity for Financial Repo~ting r~IPl Audit, Legal and Finance Committee Chairman's Letter/~Independent Auditors'eport'g y~Balance Sheets 111 I Statements

'o'f Operations HPe'y r gg Statements of Cash Flows/: Out'standing Long-Term Debt (Debt-Service Requirements I-H1 I, x-Notes.to Financial Statements h/y V I s r y y e'.'.MANAGEMENT REPORT ON-RESPONSIBILIZV FOR FINANCIAL-REPORTING The management of the Supply"System is responsible for, prepaiing the accompanying fiiiancial statements-and for their, integrity.

Theatatements were, prepared in accordance with generally accepted accountingprinciples applied on'a consistent basis, and include'amounts that a~e based on management's best=.estimates and judgments.

/8 s lw-The financial statements have been audited by Deloitte R Touche, the Supply System's independent, ,-auditors.Management has-made available to Deloitte R Touche all financial records and related data', and believes that all representations made to Peloitte R Touche during its,audit were valid and appropriate.,~//-Manageme'nt has established and maintains internal coritrol procedures that provide.reasonable assur-'nce as to the integrity and reliability of the financial statements,'the protection of assets from unauthorized use ordisposition, and the prevention and detection of fraudulent financial reporting.

>These control procedures provide for appiopriate division of responsibility and are documented by written policies and procedures.

'he Supply System'maintains an ongoing internal auditing program that provides for independent assessment, of the effectiveness of in)ernal.contr'ols, and for recommendations of possible improvements thereto.In'addition, Deloitte 0 Touche has considered the infernal control str'ucture in order to determine their auditing~procedures for the purpose of expressing an opinion on the fin'ancial statements.

Management has considered recommendations made by the internal auditor and Deloitte R Pouche concerning the control procedurWand

.has taken appropriate action'to respond to the re'commendations.

Management believes that, as of June 3P1992, internal control procedures are adequate/4 ir D.W.Ma ir"-J.D.Perko ManagingDirector

+-Chief FinancialOfficer~

f J i/AUDIT, LEGAL AND-FINANCE COMMITTEE'HAIRMAN S LETTER The Executive Board's Audit, Legal and Finance Committee is c'omposed of five independentdirectors.

Members of the Co6imittee are Shm J, Farmer, Chairman;Vera Claussen;Paul J.Nolan;William/3.

Scott;John F.Cockburn;and Carl M.Halvorson, Ex Officio".The Committee held 12 meetings during the fiscal year'ended June 30, 1992.>jr-.1/fhe Committee qversees t6e Supply System's financial reporting process on behalf of tge Executive Board;-In fulfilligg its responsibility, the Committee discussed with the internal auditor and-the independent auditors th&overall scope and specific plans for their respective audits, and review'e8 the Supply System's financial.statements,and the adequacy of the Supply SyptemIs irlternal controls.The Committee met regularly vgith the Supply System's internal auditor and independent auditors to discuss the results of their examinations, theirevaluations of the Supply 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./3'/Sam J.rmei E Chaiiman, Audit, Legal and Finance Committee (IL 14 INDEPENDENT A UDITORS'EPORT Executive Board Washington Public Power Supply System Richland, Washington We have audited the accompanying individual balance sheets 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, 1992, and the related statements of operations and cash flows for the year then ended.These financial statements are the responsibility of the Supply System's management.

Our responsibility is to express an opinion on the financial statements based on our audits.We conducted our audits in accordance with generally accepted auditing standards.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, An audit also includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall financialstatementpresentation.

We believe that our audits provide a reasonable basis for our opinion.In our opinion, such financial statements present fairly, in all material respects, the financial position of the Supply System's individual projects at June 30, 1992, 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, Nuclear Projects Nos.1 and 3 are involved in disputes concerning costs shared with Nuclear Projects Nos.4 and 5.The ultimate amount of additional costs, if any, to be borne by Nuclear Projects Nos.1 and 3 due to this matter is presently indeterminable.

As further discussed in Note F to the financial statements, creditors of Nuclear Projects Nos.4 and 5 are attempting to obtain payment from assets or funds held by other projects of the Supply System or the revenues pledged thereto.Supply System management is of the opinion that creditor claims can only be realized from the assets, funds, or revenues of the projects to which such claims relate.If it is found that creditors are not limited to payment of their claims from the project to which such claims relate, it may have an impact on the individual projects of the Supply System in amounts which are presently indeterminable.

As further discussed in Note F to the financial statements, the Department of Energy has announced the termination of the N-Reactor, eliminating the Hanford Generating Project's present energy source.The ultimate utilization of the Hanford Generating Project Facility in another energy production capacity is uncertain.

Seattle, Washington August 21, 1992 15 BAL4NCE$HEET$As of June 30, 1992 Dollars ln thousands NUCLEAR PROJECT NO.2 ASSETS PACKWOOD LAKE PROJECT HAN FORD GENERATING PROJECT NUCLEAR PROJECT NO.1 NUCLEAR PROJECT NO.3'UCLEAR PROJECTS NOS.4/SO%UTILITY PLANT (NOTE B)In service Allowance for depreciation

$3,240,545 (805,898)$12,487 (8,085)$86$12,803$1,356 (46)(4,278)(707)2 434p647 4~402 40 8,525 649 Nuclear fuel, net of accumulated amortizatIon Plant held for future use Construction work in progress 129,121 119,709 2,683,477 4,402 257,683 34,835 12,579 2,237,602 1,827,911 12,619 2,503,810 1,863,395 RESTRICTED ASSETS (NOTE B)Special funds Cash Investments Accounts receivable Due from other projects Prepayments and other Debt service funds Cash Investments 8 40,575 44 140,843 1 294 15 707 2 3,382 9 9,231 496 131 p150 3,288 33 30 187 221,071 1,174 18,692 6,142 13 29 82 175,055$262 14,607 210 19,001 1 2 66,872 181,470 1,017 12,624 356,255 201,187 100,955 LONG-TERM RECEIVABLE (NOTE B)56,361 CURRENT ASSETS Cash Investments Accounts receivable Due from participants Due from other projects Due from other funds Materials and supplies Prepayments and other 1,807 21,040 3,190 230 26,773 40,641 553 94 234 148 1,348 194 29 1 1 720 5 1,881 1,381 375 1 3,651 8 5,877 1 1,471 25,203 32 560 398 7,880 49 4,359 12 686 DEFERRED CHARGES Costs in excess of billings Unamortized regulatory studies Unamortized debt expense Other 8,965 19,264 3,367 13 21,805 749 21,965 757 28,229 3,380 22,554 22,722 TOTAL ASSETS$3,043,771$10,519$28,896$2,915,179$2,099,990$100,955*Supply System's ownership share (Note A)*'upply System's ownership share on a liquidation basis (Note A)See notes to financial statements 16 NUCLEAR PROJECT NO.2 PACKWOOD LAKE PROJECT HAN FORD NUCLEAR NUCLEAR NUCLEAR GENERATlNG PROJECT PROJECT PROJECTS pRoJEcr No.1 No.3'os.415" LIABILITIES DEFICIENCY IN ASSETS BILLINGS IN EXCESS OF COSTS$549,024$19,010$466,720$138,894$(4,092,820)

LONG-TERM DEBT (NOTE E)Revenue bonds payable Unamortized discount on bonds-net 8,502 2,391,927 2,502,995$8,551 (111,068)(49)5,663 2,382,000 2,237,310 (12)(45,510)(365,048)5,651 2,336,490 1,872,262 DEBT IN DEFAULT, CURRENTLY PAYABLE (NOTES E St F)Revenue bonds payable Subordinated revenue notes 2,250,000 65,384 2,315,384 LIABILITIES

-PAYABLE FROM RESTRICTED ASSETS (NOTE B)Special funds Accounts payable and accrued expenses Due to other projects Due to other funds Debt service funds Accrued interest payable Accounts payable Due to other funds 1S,815 21,368 5,405 107 15 883 72 498 1,947 178 20,178 82,875 5>025 3,084 18,838 1,128 58,738 3,231 28,448 8,140 1,834,043 7,760 42,588 136 1,453 110,203 85,019 1,878,391 OTHER NONCURRENT LIABILITIES 6,030 CURRENT LIABILITIES Current maturitles of long-term debt Accounts payable and accrued expenses Due to participants Due to other projects 8,18S 44,345 1,475 197 54,202 98 1,497 5 1,800 972 63 1,482 2,517 1,766 1,766 3,81S 3,815 DEFERRED CREDITS Deferred gain on redemption of revenue bonds 258 COMMITMENTS AND CONTINGENCIES (NOTE F)TOTAL LIABILITIES

$3,043,771$10,519$28,896$2,915,179$2,099,990$100,955 17 y h E I/'ZATEMEXTS OE OPEK4TIONS, For the year ended Junrr30, l992 Dollars In thousands r NUCLEAR PROJECI'O.

2'r r PACKWOOD HANFORD<<NUCLEAR NUCLEAR NUCLEAR LAKE GENERATING="PROJECF PROJECT PROJECrs'ROJECT'ROJECI'O.

I'NO.3'NOS,4/S")'I d/$--.303 4,476$132,540 10,283 (129,993)(3,"583)(203,704)~(4,870)(1,989)(1,876)7,714~I r/-7,371, (203r 795)(7,371)$(203/795)ft/I, j ry'I OPERATING REVENUES~, ($$38,232-$1,387 r OPERATING EXI'ENSES yNuclear fuel 14,851 Fuel disposal fee'r, 3,628=Pecommissionlng

.-/3,991 Depreciation and amortization

-,,-.100,714-435>.i f Operatjons and maintenance

'112,960645-Administrative R general*i,~38,264-<r 51L ,t Generationtax

'-r 1,385~'t Total operating.'expenses

<~275,793;1,197 NET OPEIVpTINGQVENUES;

>>>>~162,439 y 190/='x r.OTHER INCOME R EXPENSE/--Non-ope'rating revenues-net~'>>-<'~$(248)'$173,706=Investment income"r,<i9,70$140 I~i882>, 22,113 ,'nteiest expense and discount amortization

/',-(175,525$~<<(330)(276),(167,200) maintenance of projects in'extended construction delay---~'~.---'(5'597)5 ,Maintenance of plant held>for future use, q/-I>-,->>, I (358)/Termi'nation and asset r disposition expenses Other (15,308)NET REVENUES BEFORE EXTRAORDINARYJTEM

',, 5,532.-0=0 r EXTRAORDINARY ITEM,<<Loss on bond'refunding.(Nota%)

..-,, (5,532)(7,714)'ETREVENUES r~$0,$0 4, 0$>>0 ($0 1 r/y f r j'upply System's o&nersjtip share (Note.A)" Supply System's ownership share on a-liquidation basis (Note A)=~~=/See notes to flnanclal statements r I/r If"18 SXA.1XMENl'S QI'ASK I'I QRYS For the year'ended June 30, 1992 Domars ln thousands CASH FLOWS FROM OPERATING AND OTHER ACTIVITIES Operating revenue receipts Cash payments for operating expenses Non-operating revenue receipts Cash payments for maintenance of projects in extended construction delay Cash payments for other expenses Distributions of operating and non-operating surplus Net cash provided/(used) by operating and other activities

$370,388$2,907 (160,941)(728)$7,000$136,047$145,302$755 (3,864)(350)(5p265)(6,221)(7,680)(1,771)(3,347)(1,909)(1,855)205,583 270 4,795 1,844 124,946 137,310 (2,592)NUCLEAR PACKWOOD HANPORD NUCLEAR NUCLEAR NUCLEAR PROIECT LAKE GENERATING PROJECT PROJECT PROJECTS NO.2 PROJECT PROJECT NO.I NO.3'OS.4/S" CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from bond refundings Refunded bonds escrow requirement Bond issuance costs paid Bond issuance costs refund Capital and nuclear fuel acquisitions Cash payments for deferred programs Interest paid on revenue bonds Principal paid on revenue bond maturities Net cash used by capital and related financing activities 252,936 (232,645)(4,726)(98,423)(5,694)(169,227)146,545 (138,971)(1,935)1,491 (12)(749)(328)(283)(165,096)136,501 (129,506)(2,061)(42)(755)(116,806)(14,679)(258)(5,585)(24,455)(17,995)(272,458)(598)(5,868)(183,170)(130,664)CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investment securities Sales of investment securities Interest on investments Net cash provided/(used) by investing activities (1,494,838)

(7,010)(29,098)(957,803)(638p532)(529,579)1,541,192 7p 370 29,535 992,792 622,066 527,679 19p723 82 634 23pl84 9p968 4 481 66(077 442 1,071 58,173 (6,498)2,581 NET INCREASE/(DECREASE)

IN CASH CASH AT JUNE 30, 1991 CASH AT JUNE 30, 1992 (NOTE B)(798)114 (2)(51)148 2,657 50 18 742 1,506 275$1,859$164$16$691$1,654$264 Supply System's ownership share (Note A)" Supply System's ownership share on a liquidation basis (Note A)See notes to financial statements 19 STAlXMENX'S QJF CASH I'LAWS (continued)

For the year ended June 30, 1992 Dollars in thousands RECONCILIATION OP NET OPERATING REVENUES TO NET CASH PROVIDED BY OPERATING AND OTHER ACTIVITIES NUCLEAR PROJECT NO.2 PACKWOOD HANFORD NUCLEAR LAKE GENERATING PROJECr PROJECI'ROJECT NO.I NUCLEAR NUCLEAR PROJECT PROJECTS No.3'os.4/s" CASH KOWS FROM OPERATING AND OTHER ACTIVITIES Net operating revenues Adjustments to reconcile net operating revenues to cash provided by operating activities:

Amortized revenues Depreciation and amortization Decommissioning Other Change in operating assets and liabilities:

Accounts receivable Materials and supplies Prepaid and other assets Due from/to other projects, funds and participants Accounts payable Non-operating revenue receipts Cash payments for maintenance of projects in extended construction delay Cash payments for other expenses Distributions of nonwperating surplus Net cash provided/used by operating and other activities

$162,439$190 (67,844)(405)115,565 435 3,991 (1,089)(3,727)198 (4,507)486 1 (6,131)(189)6,400 40$7,000$136,047$145,302$755 (350)(1,855)(5,265)(7,680)1,844 (6,221)(1,771)(3,347)$205,583$270$4,795$124,946$137,310$(2,592)*'Supply System's ownership share (Note A)*'upply System's ownership share on a liquidation basis (Note A)See notes to flnanclal statements 20 OUTSTANBZVG X.ONG-'J(XRM JDEBX's of June 30, 1992 Do1lars in thousands SERIES DATE OF SALE TRUE INTEREST COST (A)INITIAL OFFERING PRICES COUPON RATE SERIAL OR TERM MATURITIES AMOUNT NUCLEAR PROJECT NO.2 REVENUE BONDS 1973 6-26-73 5.65%100 5.7(P/o 7-1-2012$121,200 121 200 1974 1974A 7-23-74 11-26-74 7.21 7.67 100 100 100 100 100 6.90 7.00 7375 7.20 7.40 7-1-1994 7-1-1999 7-1-2012 7-1-1994 7-1-1999 2,706 15,000 37,000 54,700 2,400 13,000 17 400 1975A 1976 3-6-75 6-3-76 6.88 6.63 103.32 100 100 100 99.25 1M 6.60 6.60 6.875 6.10-6.25 6.625 6.75 7-1-1994 7-1-1999 7-1-2012 7-1-94/1998 7-1-2006 7-1-2012 2,3M 1S,OM 78,000 95,300 11,610 42,300 49,860 103,770 1976A 11 18-76 5.86 (B)100 99.50 5.50-5.75 6.00 6.00 7-1-94(2MO 7-1-2067 7-1-2012 39,025 44,815 60,990 144 830 1978 7-11-78 6.71 100 1M 100 6.00-6.60 6.80 6.875 7-1-94(20M 7-1-2006 7-1-2012 35,635 45,520 66,230 147,385 1979 3-13-79 6.49 (B)100 5.75-6.M 6.75 7-1-94(1999 7-1-2012 28,285 83,605 111,890 (A)Based on original issue (B)Various prices (C)Compound Interest bonds stated at original Issue price (D)Excludes amounts due July 1,1992 (E)Includes amounts'due July I, 1992 21 QKll'SXAMMNG X,QNG-ZERM JOIEjalr As of June 30, 1992 Dollars in thousands SERIES DATE OF SALE TRUE INTEREST COST (A)INITIAL OFFERING PRICES COUPON RATE SERIAL OR TERM MATURITIES AMOUNT NUCLEAR PROJECT NO.2 REVENUE BONDS (Continued) 1979A 10-17-79 7.69%(B)100 7,00-7.307o 7.60 7-1-94/1999 5 19,945 7-1-2004 23,050 42,995 1981A 9-4-81 14.67 100 59.958 14.375 8.25 7-1-2001 7-1-2M3 30,000 100,000 130,000 1990A 3-15-90 7.77 99.75 98.50 97.125 98,75 96.125 7.25 7.50 7.25 7.625 7.375 7-1-2003 7-1-2004 7-1-2006 7-1-2008 7-1-2012 73,705 61,510 35,790 62,215 189,625 422,845 1990B 6-7-90 7.69 94.135 7.00 7-1-2012 200,840 200,840 1990C 11-1-90 7.84 (B)97.50 97.65 98.25 (B)6.60-7.50 7.625 7.375 7.875 (C)7-1-93/2003 7-1-2010 7-1-2011 7-1-2012 7-1-04/2MS 230,415 209,625 35,810 101,980 18,054 595,884 1991A 9-26-91 6.8'1 (B)90.375 (B)5.40-6.60 6.00 (C)7-1-94/2005 7-1-2012 7-1-06/2M 7 143,115 105,940 13,431 Adiastnrent for compound interest bonds accretion Revenue bonds payable PACKWOOD LAKE PRO ECT REVENUE BONDS 262,486 59,655$2,511,180 (D)1962 3-20-62 1965 11-4-65 Revenue bonds payable 3.66 3.76 99.425 100.5 3.625 3.75 3-1-2012 3-1-2012 6,641 2,110$8,751 (A)Based on original issue (B)Various prices (C)Compound interest bonds stated at original issue price (D)Excludes amounts due July 1, 1992 (E)Includes amounts due July 1, 1992 22 DATE OF SALE TRUE INTEREST COST (A)INITIAL OFFERING PRICES COUPON RATE SERIAL OR TERM MATURITIES AMOUNF HANFORD GENERATING PRO ECT REVENUE BONDS 1963 5-8-63 Revenue bonds payable 3.26%98 3.25%9-1-1996$6,635 5 6,635 NUCLEAR PROJECT NO.1 REVENUE BONDS 1975 9-18-75 7.73 (B)7.00-7.40 7-1-92/2000 26,300 26,300 1976A 2-4-76 6.84 (B)100 100 6.00-6.25 6.90 7.00 7-1-92/1998 7-1-2010 7-1-2017 19,320 66,485 76,495 162,300 1976B 8-31-76 6.37 100 100 99.50 5.40-5.90 6.50 6.50 7-1-92/1998 7-1-2010 7-1-2017 21,145 66,940 71,235 159,320 1978A 1978B 3-21-78 12-5-78 5.69 6.61 (B)100 100 (B)100 100 99.50 S.OO-S.SO 5.80 5.875 5.60-6.00 6.35 6.60 6.80 7-1-92/2002 7-1-2010 7-1-2017 7-1-92/1998 7-1-2003 7-1-2009 7-1-2017 44,060 50,920 64,810 159,79 21,925 22,305 38,190 81,150 163,570 1979 6-19-79 6,64 (B)100 100 100 6.00 6.40 6.70 6.80 7-1-92/1998 7-1-2003 7-1-2009 7-1-2017 17,390 18,560 32,370 69,685 138,005 1980A 8-5-80 9.1,5 7.50-8.25 7-1-92/1995 25,500 25,500 23 OKVSTANMNG LONG-TERM DEBT (continued)

As of June 30, 1992 Dollars ln thousands SERIES DATE OF SALE TRUE INTEREST COST (A)INITIAL OFFERING PRICES COUPON RATE SERIAL OR TERM MATURITIES AMOUNI'UCLEAR PROJECT NO.1 REVENUE BONDS (Continued)

'1989A 9-14-89 7.7696 1.00 98.185 99.017 97.759 82.083 6.60-7.30%

7.M 7.50 7.50 6.00 7-1-92/2002 7-1-2004 7-1-2007 7-1-2015 7-1-2017$31,695 27,385 62,105 295,575 95,110 511,870 1989B 1990A 1990B 1990C 1991A 12-7-89 3-15-90 6-7-90 9-27-90 9-26-91 7.44 7.73 7.75 7.85 7.02 100 98.375 100 97.25 98.533 (B)92.75 81.75 (B)97.979 98.913 98.50 (B)99.50 99.50 (B)98.375 6.70-7.25 7.M 7.40 7.25 7.125 6.30-7.60 7.00 6.00 7.00-7.20 7.25 7.25 7.75 6.60-7.75 7.75 8.00 5.10-6.80 6.875 7-1-96/2003 7-1-2005 7-1-2009 7-1-2015 7-1-2016 7-1-92/2005 7-1-2011 7-1-2017 7-1-99/2003 7-1-2009 7-1-2012 7-1-2017 7-1-92/2003 7-1-2008 7-1-2017 7-1-92/2M8 7-1-2017 31,095 2,100 S,180 50,040 41,070 129,485 72,705 56,770 55,635 185,110 24,495 72,770 56,000 164,735 318,MO 173,095 22,085 60,045 255,225 54,560 92,965 147,525 Revenue bonds payable$2,382,000 (E)NUCLEAR PROJECT NO.3 REVENUE BONDS 1975 12-3-75 7.87 6.70-7.25 7-1-92/1998 15,150 15,150 (A)Based on original issue (B)Various prices (C)Compound interest bonds stated at original issue price (D)Excludes amounts due July 1, 1992 (E)Includes amounts due July 1, 1992 24 DATE OF SALE TRUE INTEREST COST (A)INITIAL OFFERING PRICES COUPON RATE SFRIAL OR TERM MATURITIES AMOUNT NUCLEAR PROJECT NO.3 REVENUE BONDS (Continued) 1976 4-13-76 6.48%(B)99.625 160 5.60-6.00/a 7-1-92/1998 6.50 7-1-2010 6.60 7-1-2018 10,825 35)100 45,295 91,220 1977 7-12-77 5.71 (B)99.50 99.50 5.60-5.50 7-1-92/2000 5.70 7-1-2609 5,80 7-1-2618'38,590 63,535 107,160 209,285 1978 9-12-78 6.27 (B)100 99 5.90-6.00 7-1-92/2004 6375 7-1-2010 6,40 7-1-2018 51,950 42I985 90,636 185I565 1989A 9-14-89 7.43 160 (B)98.533 84.75 6.60-7.30 (C)7.25 6.60 7-1-92/2002 7-1-2003/2014 7-1-2016 7-1-2018 30,750 18,668 98,340 34,370 202,328 1989B 12-7-89 7.39 100 (B)98.375 100 97.25 98.533 79.755 79.525 6.40-7.15 (C)7.00 7.40 7.25 7:125 5.50 5.50 7-1-93/2001 7-1-2004/2014 7-1-2005 7-1-2609 7-1-2015 7-1-2016 7-1-2017 7-1-2018 84,480 71,321 85,690 29,235 226,230 76,145 62,560 65,905 701,566 1990B 6-7-90 7.57 (B)(B)98.923 98 6.40-7.25 (C)7.37S 7.50 7-1-92/2000 7-1-2001/2010 7-1-2004 7-1-2018 147,180 39,210 551920 107,885 350,195 1991A 9-26-91 6.97 (B)97.75 94.552 5.16-6.80 6.75 6.5 7-1-92/2068 7-1-2011 7-1-2018 53,210 20,790 66,065 Adjustment for compound interest bonds accretion Revenue bonds payable 140,065 341,936$2,237,310 (E)25 lPSBT-SERVICE REQUEREMENTS As of June 30, 1992 Dollars in thousands NUCLEAR PROJECT NO.2 PACKWOOD LAKE HANFORD GENERATING PROJECT PROJECT"*" FISCAL YEAR PRINCIPAL INTEREST TOTAL PRINCIPAL INTEREST TOTAL PRINCIPAL INFEREST TOTAL 6/30/92 Balance'5,574

$0$S,574$100$107$207$4,863$72$4,935 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015.2016 2017 2018 8,185 32,476 49)795 36,685 52,320 55,805 104,910 115,685 152,105 75,270 194,090 139,594 97,795 114,071 147,135 174,880 178,775 198,160 165,035 353,180 170,923 170'13 168,061 164,900 162,611 158,778 154,694 146,933 138,321 127,187 121,81,3 119,49S 121,858 104,760 97,801 75,249 62,943 50,493 36,637 2S,421 179,108 202,889 217,856 201,585 214,931 214,583 259,604 262,618 290,426 202,457 315,903 259,089 219,653 218,831 244,936 250,129 241,718 248,653 201,672 378,601 305 320 333 347 367 387 422 473 498 524 548 573 599 623 648 673 572 274 122 43 316 305 293 281 269 255 241 226 208 190 171 151 130'108 86 62 37 16 6 2 621 625 626 628 636 642 663 699 706 714 719 724 729 731 734 735 609 290 128 45 1,639'8 133 4 1,697 137 Ad/ustment*

59,655 (59,655)$2,511,180$2,319,636$4,830,816$8,751$3,460$12,211$6,635$134$6,769 Bond fund account balances less accrued investment income." Adjustment for compound interest bonds accretion.

Compound interest bonds are reflected at their face amount less discount on the balance sheet.***The Supply System intends to redeem all outstanding bonds for HGP effective September 1, 1992 (Note E}.26 NUCLEAR PROJECT NO.1 NUCLEAR PROJECT NO.3 NUCLEAR PROJECTS NOS.4/5 FISCAL YEAR PRINCIPAL INTEREST TOTAL PRINCIPAL INTEREST TOTAL PRINCIPAL TOTAL 6/30/92 Balance$30,950$83,528$114,478$28,385$58,738$87,123$0$1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2M8 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 34,520 36,323 38,280 41,740 46,035 48,360 63,585 67,795 72,695 71,435 62,120 73,840 66,155 83,595 89,460 95,735 99,475 106,415 130,810 140,150 152,980 163,895 175,825 188,505 201,320 163,170 161,582 159,174 156,610 153,882 150,810 147,559 143,137 138,438 133,347 1'28,303 124,009 118,896 114,249 108,386 102,109 95,391 88,415 80,929 71)631 61,782 50,860 38,935 26,255 13,446 197)690 197,907 197,454 198,350 199,917 199,170 211,144 210,932 211,133 204,782 190,423 197)849 185,051 197,844 197,846 197,844 194,866 194,830 211,739 211,781 214,762 214,7S5 214,760 214,760 214,766 31,245 33,245 35,430 41,090 30,015 27,965 61,910 66,600 64,950 68,922 70,917 54)496 S5,421 56,292 51,251 52,921 54,843 56,967 75)449 89,332 94,563 1M,200 133,980 143,310 153,195 162,480 115,759 113,807 111,683 109,386 106)682 104,719 102,886 98,656 1M)676 96,964 95,501 107,360 105,739 103,893 104,031 102,361 100,437 98,311 87,198 83,012 77,788 72,H1 38,368 29,041 19,156 9,863 147,004 147,052 147,113 150,476 136,697 132,684 164,796 165,256 165,626 165,886 166,418 161,856 161,160 160,185 155,282 155,282 15S,280 155,278 162,647 172,344 172,351 172)341 172,348 172,351 172,351 172,343 2,315,384 2,315,384 Refer to Note F under Nuclear Projects Nos.4 and S Termination, Bond Default, and Ltttgatlo)r and Nuclear Projects Nos.4 and 5 Bridge and Termination Loans Adj ustn)ent'*341,936 (341,936)$2)382 000$2 814 833$5)196 833$2 237 310$2 012 220$4 249 530$2 315 384$2 315)384 27

'~l P=NOTES TO FINANCIAL STATEMENTS

/, E/remote A~-General7/i*=-" I/g f.t/ORGANIZATION

/~--~->-~/, i r The Wasltington Pub)le Power Supply System (Supply Sy's tem), investor-owned utiiitiey are obligated by contract to pay Nuclear a inunicipal corporation'and joint dperatfng agency of the State of//Projht No.lasiiecIflcamount fo their pprtion ofproject capabllity-Washington, was oiganized in 19)7;It rs empowered to finance,,-throughJune 1996.Theremainlngulllities(participants), pursuant acquire, construct,and operate facilities for the geJieration and>tothetermsoftheirpurchaseagreements,areobllgatedtopaythe t transmlsslon of electric power.On June 30, 1992;itS membership

-annual costs of each project, including debt service, wjiether or not con)isted.of 10'public utilit)r districts and the cities'of Richland,~'heprhjectiscompleted,pperableoroperajlngandnotwithstartding

/l-Seattle, and Tacoma., All members own and operate electric, thesuspenslon,reductionorcurtallmentofprojectoutput.

These systems within the State of Washington.

The Supply System has project participants have resold such capability to the Bonneville.

no taxing authority.

/,.i-, Power Administration (BPA)and in return BPA is obligated to pay/annual costs of thee proiects, including debt service, by a procedure,'/, SUPPLY SYSTLM PROJECTS,,>

referred to as net-billing.

Under net-billing, project Participants pay the Supply System their?espective shares of annual costs and/-TheSupply System operates Nuclear, Project No.2, a 1,100 Mpe"'BPA pays projecti participants Identical<amounts by reducing//~r~generating plant completed In 1984, and.the Packwood'L'al e 7" amountsduetoBPAbyparticipantsunderpoweisalesagreements.

It Hydroelectric Project (Packwood), a 27.S MWe Plant comPleted in Flghty-eight project participants in Nuclear projects Noy.4 and 1964/'were originally'obligated.by contract to pay.annual costs of~/, r The Han(ord Generatlnq Project (HGP), an 860 MWe plant, was t'uclear Projects Nos.4 and 5, Including debt service, whether or/completed in 1966'and was in operatirin throlighg986,'sing by-not the projects were completed.

However, these contracts have/tt r product steam from the Department of Energy's dualqiurpbse New been declared invalid.BPA has no obligation with respect to Production Reactor(N-ReaCtor).

The N-Reactor was shut tIown'for annual costs of Nuclear Projects Nos.'4 and.S~safety lmProvements in 1987, Placed in dry lay uP status!n 1989,, m All ciectricai~energy.

produced by Supply,System proJects is'and in August 1991,/the Secretarj of Energy announced the=delivered to electricaldistribution facilitiesowried and operate by decision to j~lace the g-ReaCtor ln permanent shutdown.This'BPA,as part'of the Federal Columbia River power Sysfem.BpA in , action eliminated the N-'Reactor as'a Power source for HGP tsee'umd[strlbutestheeiediicitytoeiectricalutjittysystemsthroughout Note F under Hanford Generating Project);HGP is currently)eing the Northwest, including participants In/Supply4ystem projects/preserved'by the~Supply,/System'as a Potential future energy foruit[piatkdistributiontoconsumers."'BPAisobiigatedbyiawto establish rates for electric.power which will recover the cost of , Nuclear Project No.1, a1,250 M/e plant, is 65 percent complete p-acqtiisition (Including all payments under'Iiet-billing agreements), ("/ind is in the eleventh yearof a construction delay.Nuclear Project~and BPA's other costs./No.3, a.1,240MWeplanf, is 75 percent complete and is in the tentfi i.'!/=yearofao nstructiondei y N cieaiprojectNo' s holi(owned-Npte Q$11mmgjy pf gj~jfjea11t ACCp1111tb1 by the Supply Systerrt.Nuclear, Project No.3 is jointly-owned, 70'p]jejeS percent by the, Supply System and 30 pqrcent by'our Investor~oivned utilities'(PadfiCorp, Portland General, Electric Company,",-"BASIS OF ACCOUNTlhl'G Puget Sound power gr Light Company, and The Washington Water i , The, Supply System has adopted accounting policies and Power Com'pany).

practices'that.

are in 6ccordarice

'with geneially acceptedi ri Nuclear Proiects.Nos.

4 and 5 were'terminated on January 22,/i.accounting pripcipies applicable'.to governmental utilities.

1982andarelnllquldation.

Subpantiallyail of theutilifyplant;

-.Accounts are malntalned jn accoidance'with the uniform~assets havebeensoId.

Nuclear ProjectNo.4(s wholly-ownedby the'ystemof accounts of tlie Federal Energy RegulatoryCommfsston~

C Supply System.Nuclear Project No.5 is jointly-owned, 90 percent separate funds.an'd books of account are mairkained far each'I%/by, the Su'pply System and 10percent by PacifiCorp (see Note F'.utility-system.payment of obligations

'of one utility, system undei Nuclear projects Nos.4 and 5 Termination, Bond Default/g with funds of=another.utility system is proiilbited, and would-v~~and Litigation).

constitute violation of bond resolution covenants.

/~,n Each S(ipply System project Ik financed a pd accoutitdd for as a>/utility system separate from all other currentor future projects withthe exception-of Nuclear.ProJects Nos.4 and 5 which are treated as one utility system..i*.-, i Utility plant is stated at,original crjst.Plant-In service is More~than 100,Northwest utilities have purchased ail.of thh depreciated by the straight-line method.-over'the dtlmated//project capability ofNuclear'projects Nos.1 2 and the Supply-~useful livesof the various classesofp'lant.

<I//System's 70 percent ownership share of Nttclear Project No.3.Five'Effective July.1,.1991the Supply System ceased depreciatlng-

'h1,'I.'\/l, i II I'28 t//

<<29 1 r/<<," t t 1'tflityplantamountspertalnlngtotheHanfordGeneratlngPiroject.

Minimum guaranteed amounts.pertaining'to future discounts-The project continues to be preserved as a potential future en'ergy.have been recorded withfn Nuclear" Project No.2, Long-Term~<<',t rresource (See Note F-Hanford Generating Project)./,.Receivables, Construction Work in Progress, and Curren>Assets;D I h I co t tio hase of a proiect tiie Sup-ly...withacorrcspondingreductiontoUtilltyi'lantlnServfce.,Additlbyal

't System's poll'cy Is to'capitalize all costs relating to the project<<j'," a e/" b c-.c~'including interest expe/nsi (net of Inter@'st<income), and~upontliefeveloffuturePurcpasesfiomdeneraIElectrlcCoppany.

r-administrative and'general expense;i><<i I Cg<""Because of the extended delay of Nuclear Projects Nos.I~and 3,/RESTRICTED ASSETS h;the Supply System,discontinued capitalizing'interest expense,and preservation, cos'ts.jnlcrest expense,.teBlllnation expcllses and<<i t x f i biI hed fd I or state law, separate restricted un s, tave een esta'r asset disp'osltlon costs for Nuclear Projects Nos 4 and 5 are charged q<<'each project.Theyssets held ln these funds are restricted for to current oper'ations.

specific useslncludingconstruction, dcbtservice, capital<<idditions, extraordijtary operdtian>nd.ma)ntendnce, termination, c dQommissionlng, and workers~compensation

'cjhtms,=All expenditures-related to the purchase of'nuclear fuel are'-'<<<<<<capitalized and carried at cost.When the fuel Is placcu in fhe.DECOMMISSIONING

/reactor, the fuel cost is amortized to op~rating expense on the basis, of qbantlty'of jieat produced'for-generatiqn of electric, energy.'stimated Nuclear Project-No' dccomm'sslonlng cost~are cumulated nuclear fuel ainortizaflon as of June 30/1992 foj Nuclear Prospect No, 2 ls$74.4 mflflon.Current period operating-llnto a sinking fund whfcli, with accuinulated Ijiteresti,ls expected.expciise for Nuciear Project No.2 includes a chargefor futurespent to be adequate to funtl decommissioning costs at the end of the nuclear fuel storage and disposal tobe provldedby the Department 46-Year piantoperatlng life.Decommissfonlngcostsarecurrent'ly ofEnergyinaccordancewith'pteNuclcarWastePollcyActof1982.

estimated at$403-million (in 1987 dqljars').

Pgyme4ts to the No provision has been'made for additional storage and disposal'ecommlsslonlngfundfortheyearendedJune30,1992aggreyatcd d co'sts which may be incurred by the Supply System prfb<-to the r i$2;8millionandthebalanceofthefundatJune30,1992was$

15.5<htransfer of spent fuel'to jhe Department of Energy.'Under certain exchange agreemcnts, the'Supply System has.l transferred to third'parties ajiproximately 1.6'million pounds of<<MATERIALS ANDQUPPEIES Nuclear Project No.1 uranium ahnd.2 million pounds of Nuclear>Materials and supplies areyalued at cohst, using weighted-average-

• /Project No.2 uranium.In return, thctSupply.System will, receive methods.equivalent quantities of uranium in future ye'ars.Additionally, the-Supply System receives usage fees, for a poition of the transferred-uranium.These exchange agrcemen~have beLn secured hy bank'INANCING EXPENSE, BOND DISCOUNT/AND j'Iet(ers of credit a)'current market valise, adjusted semiannually.

" DEFERRED GAIN<<-/%)~r The cost of thfS uranium,$48;2 million and$3.1,njlfifon<<<<

is Financing,expense, bond discounts, and deferred gain on included in the carIying amount of Nuclear j'iojects Nos..l and 2~.redemption of reyenue bonds are amortized Oker the terms of the , respective bond issues.Prior to 1992'he Department of Energy,overcharged nuclear'h>~generating.facilities for future>pent nuclear fuel storage.I-To),recover past overpayments,'facilities are allowed credits/igairIst R GULATORIrSW, f)future quarterly Payments.Thc'refun'd,Process, will allow ifie, Expenses assoclatedwitjr,regulatory studies f9r Nuclear project SupplySysfemt9recover overpa+ents, Includlngaccrued Inte&t.No.gare defcrIcd and amortized by the straight-line method over/~by fiscal Year 1995.The refund has been reflected in other Income the'estimated opetrating life of-the plant.and principal and interest to be'receivcrj are reflected)n-Nuclear Pr6ject No.2 Long Term Receivables and Current Assets-Accounts CURRENT MArIVRITIES Orj>cHVENUE BONDS Receivable.

~Cuir9nt maturities of revenue,,bonds payable from restricted i assefs are reflecte in Long-Term Debt.Current maturities qfbonds-for wjitch funds have notyctbecn restricthiare reflected Incur'rent, InMarcli 1)92, the SupJilypystementeredintoasettlementwith

<<Llabllitles.

<<General Electric Company ending Iftigation pertalnlng,to.

modlficajions to the, containment system fo~Nuclear I'roject No.-'2 ri The settlement requires-Generalglectric Company to<<provider ccrtajn goods and services to Nuciear Project Np 2 at'itlitheexccptlqnofNuclearProjectsNos.4and5,thcSupply

=substantial<<discounts:

Thc parties-to the settlement have been*System recovers, through va'rious agreements,.

actual cash enjoined from disclosing terms of thc settlement by court order.requirements for operations and debt service for each project oyer,~<</<<t N I r<</h t/.'<<l n it.INVESTMENTS (Dollars ln thousands)

NUCLEAR PROJECT NO.2 Ain prtized cost I r Accrued, Carrying Interest Amnnnt.U.S.Gov't-U.S.Goy't'~ten rl tres~Ann etes'1'46,099"$52,470~148 548 52 541 Total I$'98,569 201 089 i$202,458$36889 ,Market value PACKWOOD LAKE PROJECI'Pmortized cost I 2,349,-0-2,349:-0-2,349" market value 2 351"-0-2 351 HANFORD GENERATING PILOJECI'mortized cost<~-1~1,418>~Market value't>-, 14 478-0-I-0-,-14,418 14 478 76~'14,494 NUCLEAR PROJECT NO).l Amortized cost" 189,465','161T960 Market value I.i-'193 683 162 502 I 351,425 6,673 t 358,098 356 185 NUCLEAR'PROJECT NO.3 Amortized cost"~-76,602-120,776~197 378 t Market value>', i~77 209 121 107,-~198'6 4,249 201,627.-'

'll.NUCLEAR PILOJECTS NOS.4 5 Amortized cost~Market value 58,169.22,743" 80,912 58,865 22,760'81,625 r 567 81,479 I(E rn the life of that project.Accordingly, the Supply System recognizes interest.The,combine/

carrying value of Investments for all revenuesequaltooperatingcostsforeachperiod.

No-net income-proJects at yearn'nd (including accrued interest), approximates or loss is rhcognized,.and no equity fs accumulated.",'market value.The Supply System's Investmerits are categorized,-

I The difference between cumulative revenues receiveII-and abovetoglveanindlcationofthetypesandamountsoflnvestments cumulative operating costs'Is r5ported on the balance sheet as held by each Project at Year-end.either billirigs In excess of costs (liability) or as costs in, excess of billings (deferred charge), as appropriate.

Such amounts will be NOte D-'etirement Bene6tS=.recognized as revenues, or costs, during future operating periods.Substantially all Supply System full-time employees participate I Ih the s'tatewide localtgovernrpent Public Employees'etlrem'ent

=.System (PERS).PERS is a contributory multi.employer cost-sharing 1 Other expense for Nuclear project No.1 includes a provision for retirement system estabLished by the Washington State Legislature an interproject receivable from Nuclear project No.4 and the net, and administered by the, State, of Washlngt'on

'through thei--T fi r',/loss bn disposal o)thecon trot room simula'tor LIue to obsolescence., Department of Retlremen't'S)stems.

For the year ended June 30, r ,I 1992, the'Supply System's payroll covered under~PERS was i'84.1 million, represeliting 99 percent f total payroll.=STATEMENTS OF GASH FLOWS-PERS contains two plans.Plan I members<(employed on, or For purposes of the statements of cash flows, the term"cash"-, before September 30, 1977)may retire with fulLJieneflts at age 60 includes unrestrIcted and restricted cash, balances.'hort-term,, with at least fivpyears of credited service, at age 55 with g years of highly-liquid investments are not considered cash equivalents~

service, or upon reaching 30 years ofservice regardless of age.-Plan II members (employed after September 30, 1977)may retire'with Not'e C-Cash'and Investments full benefit at age 65 with atleast five years of credited service, or I with actuarially reduced beneflts at'age 55 with 20 years of service., Cash and Inyestments for each utility system are'separately-Theannualpensionbenefitsaregenerallybasedonaliercentageof--

~maintained.

The Supply System's deposits are insured by federal final average salary'l dePosltory Insurance or through the WashlnSton Public DePosit Required employer contributions for both, plans, and pFRS ii Protection Commission.

SuPPIY System Investment Policies IŽem lo ee mntributlons are determined each.biennium b the II I emp oyee mntr ut ons, are e erm ne eac, ennium y t e investment authority toobllgatlpns

<<th<<nited States T<<asue<.Legislature.'mploy cpntnbutlpn rates fpr plan I arqestablished

'Federal National Mortgage gssociation, FederaIJIom~e Loan Banks, T)by legislative statute.Employer rates for plan I are not necessarily Farm CredttSystenf~'and Federal Home Loan Mort8age Corporation, I adequate to fully fund the system.The employer and employee as well as rePurchase agreements.

Collateral for'ePurchase mntributlon rates for plan II are developed by the Off'ice pf/tate agreements must be authorized Investments, under SuPPIY System)actuary to fully fund thg system.The methods used to determine investment Policies.During fiscal Year 1992," tlie SuP'Ply System thecontrlbutio'nrequlrhmentswereestabIIsheduniierstatestatute.

r l invested In repurchase agreements, however, none were'held atAs of December 31, 1990 (the latest actuarial valuation date}, the year-end.All Investments are held in the Supply System's name by safekeeping agents;custodians, or trustees.x pension benefit obligation o'f PERS,>whlcII Is the actuarlaLpresent value, of credited projectek benefits adjusted fo~the effects.of Investments are stated:at amortized cost and Include accrued>projected, salary Increases'-was

$7.993 billion and tile value of net I II st r r A I r 30!

assets available to satisfy present and future pension benefi obligations was$6.428 billion.The pension benefit obligation ls a standardized measure which enables readers of flnandal statements to assess the funding status of each system and progress made in accumulating sufficient assets to pay benefits when due, and to make comparisons with other retirementsystems.

The standardized disclosure method is independent of the actuarial funding method used to determine contributions.

Contributions for the year ended June 30, 1992, expressed both in dollar amounts and percentages of current-year covered payroll, were as follows: Plan I Rate Amount Employer Contributions Actuarially determined requirement 7.33%$1,037,691 Actual Supply System contributions 7.72%$1,115,602 Employee Contributions Actuarially determined requirement 6 00%*$849,711 Actual employee contributions 6.00%$849,711'ixed at 6.00%Plan II Rate Amount 7.33%$S,130,022 7.72%$5,520,644 4.85%$3,394p353 4.70%$3,345,146 The Supply System's actuarially determined employer contribution requirement represents approximately 2.1 percent of the total for all employers covered by PERS, Historical trend Information showing PERS'progress in accumulatlngsufficientassets topaybenefitswhendue is presented in the State of Washington's June 30, 1991 comprehensive annual financia report.In addition to the pension benefits available through PERS, the Supply System offers postemployment life insurance benefits to retirees who are eligible to receive pensions under PERS Plan I and Plan IL Currently, 148 retfrees are eligible to receive life insurance benefitsand107retireeshaveelectedtoparticlpatelnthlsinsurance.

'he life insurance benefit is equal to the employee's annual rate of, salary at retirement for non-bargalnfng unit employees and one-half of the einployee's annual rate of salary at retirement', with a minimum benefit of$22,000, for bargaining unit employees.

Retlrees contribute

$6.00 per$1,000 of coverage annually for life insurance, and the Supply System funds the death benefit claims on a pay-as-you-go basis.At'the time of retirement, the Supply System accrues a liability equal io the present value of estimated claims, net of retiree contributions.

The total expense recognized for the year ended June 30, 1992 was$.3 million, and the total liability at June 30, 1992 was$2.5 million for these benefits.During the year ended June 30, 1992, the Supply System issued$550.1 million in net-billed bonds for Nudear Projects Nos.1, 2 and 3 to advance refund$485.8 million of outstanding bonds with an average interest rate of 7.48 percent.The net proceeds of the new issues were deposited in separate irrevocable trusts under the control of escrow agents to provide for all future debt service payments on the refunded bonds.As a result, the refunded bonds are considered to be defeased and the liability for those bonds has been removed from long-term debt.Although the advance refundlngs resulted in the recognition of an accounting loss for the year ended June 30, 1992, the change in the aggregate debt service payments for Nuclear Projects Nos.1, 2 and 3 and changes to debt service reserve fund balances resulted in an economic gain of$5.7 million$9.4 million, and$7.8 million, respectively.

A summary of flscal year 1992 SerIes 1991A bond refundings by project is presented below: FISCAL YEAR 1992 BOND REF UNDINGS (Dollars ln Thousands).

Nuclear Project No.1 Nuclear Nuclear Project Project No.2 No.3 Size of issue Amount of bonds refunded Accounting loss Reduction (Increase)

In debt service payments Economic gain$147,525 133,000 7,714 1,611 5,747$262,486$140,065 228,900 123,855 5,532 7,371 (55p807)9,391 6,991 7,774 In prior fiscal years, the Supply System defeased certain revenue bonds by pladng the proceeds of new bonds fn irrevocable trusts to provide for all future debt service payments on thc old bonds.Accordingly, the trust account assets and the liability for the defeascd bonds are not included in the financial statements.

Including the fiscal year 1992 defeasements, approximately$

730.8 million,$820.5 million, and$690.1 million of bonds outstanding are considered defeased atJune 30, 1992 for Nuclear Projects Nos, I, 2 and 3, respectively.

The Supply System expects to continue the refunding of hlgh-jnterest bonds when economically feasible.Thc Supply System Intends to redeem all remaining HGP bonds in thc principal amount of$6.635 million effective September 1, 1992.Outstanding revenue bonds of the various projects as of June 30, 1992, are presented on pages 21 through 25, and debt service requirements for these bonds are presented on pages 26 through 27.Note E-Long-Term Debt Except for Nuclear Projects Nos.4 and 5, which were financed together as one utility system, each Supply System project ls finance separately.

The resolutions of the Supply System authorizing issuance of revenue bonds for each project provide that such bonds are payable solely from the revenues of that project.SLCURITY-NUCLEAR PROJECTS NOS.1, 2 AND 3'roject par tie!pants and five investor-owned utilitfes for Nuclear Project No.1 have purchased all of thc project capability of Nuclear Projects Nos.1 and 2 and the Supply System's 70percent ownership shareofprojectcapabllltyofNuclear ProjectNo.

3.BPAhasfnturn acquired the entire project capability from the project participants under contracts referred to as net-billing agreemcnts.

Under the 31 I/I, f r-'"'p ,1 I I het billing agreentcnts for ea'ch of the piojects, proJectpartfdpants SECURITY-PACKWOOD LAKEHYDROELECTRIC're.

obligated to pay the Supply System their pro ra)a share of total~PRO JECT annual costs of the respective projects, including debt service on Under power sales agrecmhnts, 12 member'purchasers have bonds relating to.each project, and BPA in turn Ip obligated to pay the participants,identical amounts by reducing amounts due to~purchasers are obligkted to pay annual'costs of the project,', BPA by participants under BPA, pqwei sales agreements.

The net-.includfng debt sepice, whether or not the project is operable, billing agreements prdvidc that project participants and BPA arq t until outstanding bonds are, paid or provisiprf is made for the obligated tp make sUclt payments whether ornottheprpjects'are.=

I I d I h 4 I f h 4 d I I J',retirement In accordance with provisions of thc'bond resolution.

~.completed,operable or operating,'and notwithstanding the suspension, interruption, interference, reduction oycurtallment of a theprojhcts"-output.

Thevalidltyofthenet-billfngagreedentswas rNOte,I'-COmmitmentS,and COntingenCieS challenged in&ovcmber1982.

In May1983, the U.S.District Court<of Oregon declared that the net-bf'llfng agreements w re binding, and thlsdecisiott was upheld on.appeal.'--.In January 1982, the-Supply System's Nuclear Projects~+os.

4, SECURITY-NUCLEAR PROJECTS NOS.'4 AND 5 r, and 5 were terminated when cons'truction was 24 percent and 16 percent complete, respectively.

Thesupply System had prk(lously In'connectfoq,with the Issuance of the'eneratjng facflff les-Issued$2.25 biflfon ofbondsto pay costs of the progects.~r revenue bonds for¹clear Projects Nos.4 and 5, the supply System Theparticlpants'agreements (discussed in Note Eunder Security-pledged tlie reveiiues to be derived under participants'greements Nuclear Projects Nos.4 and 5)provided that each par ticlpanf pay rl I ts respect ive share of (he debt servi ce on the bonds a n d termI n a I I o n'articipants"agrccments provided that each-participant pay its costs beginning January 25, 198$.However payments due luride'I'espective share of annual costs, including debt service on,tf>e'<

authority to enter into the participants'greements; termination costs and dept service werC due beginqlna on January 258'bhW=thus Invalidating the agreements.

When the'U.S.Supreme Couit 251983.As a r'esult of a ruling by the Washington Statq Supreme denied a wet of certiorari byxvhich the state court decision might Cou'rt declaring,the partidpantsagreemcnts" invalid, payment be revieWed, this suit was ended.due under tl)e participants'greements were not'made and,an event ofdefa'uft, asdeflnedln thh bond resoiution, occurred on Juiy r On July22, 1983, theSuPPIYSystemacknowledged that itcoufd 22, 1983 (see Note p under Nuclear Projects Nos.4 and 5 notpayNuclcarProje'ctsNos.4and5oblfgatfonsasthey6ecame t rmgnatfpn Bpnd Defauft and I ftfgatfpn)

uc.Thisadmfssfon represented an event'of.default undcj the.Nuclear Projects Nps.4 and 5 bond resolution, On Juty.25,3983, Chemical Bank, as bond funa trustee, demanded that all remafnfnq-

, pio Ject funds be transferred to It for holding in a special account.Itwaslnltlallylntendedthat Nuclear project No.1be constructed, On August 18, 1983, Chemical Bank declared the principal of all f'/next(to HGp to provide tive energy source to operate the project/Nuclear projects Nos'.4and5 revenuebontis and Interest-accrued U when the Department of Energy ceased operation of the N-Reactor.

/-=-thercrpn to be due"and payable immediately.

//To allow,forconstruct/on of Nucleagroject No.1, it.would have In earfy1983, a number of securities fraud suits-were flfed by been necessary to shut down pQP on Oktober 31, 1977.Because gnd op behalf of purchascisyf nuclear'projects Nos.4 and g*/~studied at thai,time indfcatcrj that generating resources in the bpnds Thpdcfendants named included the Suppfy ,5'Pacjflc North~vest would be'Inadequate In the late 1970s and carly.member,utilities, and Nuclear ProJects Nos.4 and S.pa~ticfpantS.

~";1980s, the SuPPIY System aQd BPA determined that HGP should be r The lawsuit's afleged violations'of federal and state securities faw, r" ri kePt available f6r Powcf Production.

Therefore, the Nuclear Project>fraud/misrepresentation, negligence and breach of contract, hand=No.1 net-billing, exchange and Project agreements were a(ncndcd...sought monetaiy damages, rcsds~ion and restitution.

The federal to Provide for thc scParation of Nuclear Project No.1 from HGP.'i actions w'ere consoiidated f*a singie;muitidfstrfct proceeding fn'The amended agreements provide for the pay ent of~Ill.HGP

..r'hc United Stat~Dlstilct Co urt for,-the/Western District-pf debt service costs, net of investment income, by Nuclear ProJect<Wasbdngtori under the caption In re Wppss Secrrrittes Litigatiort

"" NP.1 participants", beginning July 1, 1980, regardless of continued operation of the N-Reactor, and theo(hcrcostsfto t jfe extent not In August 1983, Chemical Bank filed a lawsuit In United States otherwise prov'idcd for;-be treated as Nuclear Projecj pro.1 costs District Court for the Western District of Washington, on behalf ,q with~HGp having a firs claim on tlie revenues of that project.of all Nuclear Projects Nos, 4 and S-bondholders, against the'--Supply Sysfem alfNuclear.

Projects Nps.g and 5 participants, and-Supply System niember utilities.

The lawsuit alleg'ed claims and I r/r 32 I r r A II f I I r r~>>Ir Pf/r x/" v//, I r, soughtrelicfslmllar totiiatallcged and soughtinMDL551=;

z<would<<-provide for the release bf.'qlalms asserted in the Hafter/, Another lawsuit,'Habe'nnan v.WPPSS, et at.(Habennan),"its flfed~tig I pn., againsttheSupplySystemandothcrslnaWashlngtonStatecourf

', If approval of the settlements is modified or reversed, the by a number of Nuclear Prp1ectsNos.

4 and 5 bondholdqrs alleging Supply System is unable to predict the outcome of MDL 551>the,',~l substantial<<)the same allegations as were made in<<he federal cases.,Chemical Bank litigation, Habennan or goffer.,>-

vr The lawsuits'descriped above sot(ght toSecovcr thebondholders' investmentin thePrindpalamountof$

2.25billion,Plusunspedfied

'IABILITI/INSURANCE LITIGATION

~damages, interest, costgand attorneys"fees.-

/>.The excess carrier of directors'nd officers'iabIII)y insurance,~~Pp Y y~'F~-h.Ppro~Natipna<<I)nfpn(AIQ)"fl<<cdaiawsu<<tlnSeptember1985 seek,ng anag ement tosettleclalmsagafnst theSupply SysteminMDL 551,~a declar)tlon thatlt has no obligation under the Inpurgncepoliq,~<<he Chemical Bank litigation>

and related litigation including tfie>r" because of the alleged failure of the Supply System to dedare facts y'Habennan actlop>Tlie agreement calls for the Supply Systeni to I consent to entry of a judgment on the contract claim on th'eI D Nuclear Projects Nps.4and 5 bonds broughtlbg MDL551 class tl tb t tl'I 5 t dl t dth lalntlffs plaintiffs and Chemical Bank'.Qll other claims against the Supply./System are to be dismissed with prejudice.

The amount of tpe judgment shall be equal to the aggregate unnpald prindpal amo'unt-of the Nuclear Projects Nos;4 and"5 bonds and accrue'd intereSt J thereon at the time the judgment ls entered.'s of June 30, 1992>modified or reverse'd, the Supply System is unable to predict the, the amount of such accrued lqterest was approximate)y

'>/-h j,/<'$1.691 billion.That'judgment shall be'entered oilly.upon a final-~judgment or final settlement of all claims in MDL 551 and tlie ChemicalBanklitigation.

Recourscforsatisfactionofthejudgment r NUCLEAR PROJECTS NOS.4 AND 5 BRIDGE AND is expressly limited to the funds and assets'of the>>Supply System'TERMINA'/ION LOANS pledged to secure the Nuclcai PfoJects Nos.4 an>5'nds..

r In late 1981 68 Nu'clear.Projects Nos.4 and 5 partlc<<pants and.In an~>ther lawsuit entitled chaffer v.State of Waslyington (Hoper),~" others loaned tfie Suppiy System$60 mIIIIon to pay prpJect costs,>>C ccrtainpurctiasersofNuclearpto)ectsNos>4$

n05bondshaveflleo untflanalternatlvcsourceofflnancingcouldbefound.

Nonewas.C r y-r ,claimsonbehalfofallbondholdcrsagainst theStatcof V(ashfngtoni found, and after the projects were)ermli)atcd in January'1982,42 I thesfatea'udlfotandotherelected'officials',assertlngthatthcstate

>i,Nuclear,prpjects Nos.4" and 5 participants loaned the Supply r is 1<<able to the plaintiffs for damages.TheStatc o'f Wa'shlngton has'"'ystem>ddltionat amounts of/approximately

$8 million to pay, r's=/>>i advised the SupplySystcm that, if the Iitig'at<<pi>

against theState of'cfmina'lion costs.Thc flrst set of loans were called bridge loans," r Washlngtongi not resolved/It may'file'cross-dalms against the~I'and flie second termination loans.All of these loans'ivere>Supply System and the+ther MDL 551 defendants.""~subprdlnate to, the'$2.25'billion of bonds payable,'nd were i 1 All other defendants in Habennan, Hoffer, MDL 551 and thc>>payablhsolelyfromtherevcnuesof Nuclear ProjectsNos.4and5.

1 h/C/emical Bank litigation also have reached agree>I>ents to settle-,.The Supply System defaulted on all of thc loans at thk same tipe claimsagalnst them.The total,amount to be",palrI under these't defaulted on'Nuclear Projects Nos'.4/and 5 bqnds In-1983.settlements in MDL 5'xceeds$I<<50 milli6n.',,/'Interest on these loans in,the'amount of ap'proximately

$14IJ.1*,, All of the settlements were approved by the District-Court on':,'illi>>>n also remkins unPald at Ju~ne 30;1992.>>>'-" r September5,1989.

ThecourgtoundthatChemicalBankrcprescnted

/'ost, of the lenders have sued the Supply System and all but all;Nuclear ProjectsNys.4and,5boitdholderslntjielitigation.

If/~,three of the suits (those,brpuglit by ceita<<nyinvestor-4wqed

=it becomes flnal, the court's ruling will permanently bar Chemical gati jities)have been~educed to'Judgment.

The Washington State'ank" and all Nuclear Projects Nos.4 and 5 bong purchasers from Supreme Court has held that the terms'of the loans limited the t.1 commencing, prosecuting, or continuing any action against the'., source oFrccovery to funds and.assets of Nuclear Projects Nos/4 Supply System arising out of or relating to the allegations or sub Ject-and 5.t matter of the'itigation.

The ruling/IIowever>

will not preclude~i Chcrhical Bank from continuing with<<he cost-sharing-litigation'NTER PROJEQT CLAIMS A'GAINST REI/ENUES--described below.-.','I 07~HER ASSETS/r/On February 5, 1992, the Court of Appeals affirmed,-ln its,.entirety the setfleincnt pf all claims in MDLI551 Mptipns-fpr-Somcc+Ito+bfNucicarpiojectsNos'4and5h~

e ttcmPtcd reconsid era ji'on and re/earing cn banc were denied., The pia<<ntiffs

-and others have threa<<cned 19 attemPt, to obtain,Pa Yment from in Hoper pctitioned for r view by the United States Supreme Court the Phys<<cal assets of other Projects of the SuPPIY'System or from.-'>>r on August'18, 1992.In the opinion of supply System Speciaj>--the revenues Pledged as securitygpr thc SuPPIY System bonds Counsel and Chief gunsel, the trial cpu~ruling, as affirmed by issued in connection with, and revenues Pledged for the Payment the Court of Appeals, unless modifie~or revepcd'hy the United ofcostsofÃuchotlferprojects.

SuchcrcdltorSlncludepreseqtand r rmcr<<ipldcrs pf the Nuclear'Projects Nps.4 and r l y/y;33 r t I I l~l others.who.may assert clafms In the'future.against the Supply billed project.In any given suit or proceeding, however, the<System and)or its projects..-

>>s-'==question of whether a particular activity does or does not?clat'e to r Bond Counsel andChicf Counsel to theSuppiy System are of the,-a net-billed project isa factual matter to be determined by the Judge foflowing opinions.with respect to tire ability.of various classes of<or Jury, as.the case may be.No assurance can'-be given that in any claimants, creditors, and future creditors.to reaflze upon the" such.suit or Proceeding there will not be a-flndlng that the-revenues or physical assets~of Nudcar Projects Nos.1, 2 and 3.-<complained.of activity relates to one or more of the netPIIled.

First, with respect to the revenues', Income, rccelpts, proflts, and-prolects.

If-sucha findin-is made, the claimant ma be able to<<'ther moneys geld under each of the net-billed resolutions and pledged thereby for the payment of the relaterI net-bijlcd bonds r'fitsveredctermlnedthataclalmlsanobligatlon'ofoneormore gnd for.the payment"of afl other costs of the reiated nct-bifled of the nct~bllICd Projects, the claim would be Paid tn the same<-'roject (collectively, the"Pledged Revenues"), Bond Counsel and-manner as other obligations of those Projects.r Chief Counsel to the Supply'System ardof the 6pin&n thatholders>>

Bond Counsel and Chief Counsel to'the SupplySystem have not*r~of'Nuclear iirojects Nos.4 and 5 bonds, creditors of the Supply,-undertaken an investigation of the.issues discussed above with fd r r Systemwhoseclalmsarosefromthcfurnlshfngofgoodsorservices

'l~respect.to the Packwood Lake Hydroelectric Project or Hanford E.I i with respect to Nuclear Projects Nos.4 and 5, and creditorsp hose Generating Project.However, they believe tiiat upon full judgments derived from other co)itract claims against the Supply investigation thesameoplnlonscouldberendered with'respect to System that do not arise from actions or failures to act relating assets of the Packwood Lake AydroelecŽtric Project and Hanford v-I II directly or indlrcctjy tosuch net-billed project, will not be able to-<Generating Project'and revenues or funds held In trust or for the/reallzeupon the Pledged Revenues...

i>>-'l==holders of'bondS Issued 4y the Supply System to finance the Second, with, respect to the Pledced Rei(enues>>relating to a-constructionofsuch Projects..

particular net;billed project, while the specifi issue has not been~,If it is found that creditors are nest limited (o payment of their decided'by the Supreme Court of the State of Washington, Bond claims from the project to which such claims relate, it will have a r h)Counscland ChiefCouhscltotheS0pplySysthmareoftheoplnlon materldI adverse impact on the Supply'System.

that creditors of the Supply System whose judgments derive from, tort claims against the Supply System that do not arise from actions or failures to actirelating directly.or indlrectiypo such ne't-billet)

",,, r'project will not be able to realize upon the pledged Revenues;and>>.Nuclear proJcctsNos.

1and4areofyubstantiallythesamedeslgn Bond Counsel and Chief Counsel to the Supply System'believe

'nd are referred to aS"twin.units." Nuclear.PrpJects Nos.3 and 5 that, if presented witlhhe question, a court would so hold.i,,>>,are also twij ultits of substqntially the same design.Architect-, Third, with respect to the, physical assets o'f'tpe~et.billed

'nglneerserviccs,constructionmanagemeht>andcertaincommon--projects that are necessary for the purposes of such proiectsequipmentusedintheconstruction.oftwinunltSbenefitedbo)h l~,-(Physical Assets), while the specific'issue has'not been decpded by., units, and costs are sharable bY the twin jinits.The Suppl/System

'he Suprcnte Court of the State of Washington, Bond Counsel and'allocated such" shared costs on the basis of respective.benefit to jhe Chief Coun)el to the Supply System are of the opinion that holders of Nuclear ProJects Nos.4 and 5 bonds, creditors of the Supply InAugust1982,theParticipants'CommltteeforNuclear pro]ects System whose clalmk arose from the furnishing of goods or services&os.4 and 5, on behalf of tlie projectpartlclpants, demanded that with respect topluclear projects Nos.4 and 5, and creditors whose the Supply System reallocate 5161 million, plus Interest, in sIiared., judgments derive from othe'ontract or tort claims against the'<costs previously paid by Nucleai projects Nos.4 and S, based on a i'upply Sy'tem that IIo not arise from~actions or failures to act revisedformulafdrsharingofcosts.

Thedemandlndlcatedthiswas relating directly or Indirectly to the net-billed projec(s, will not be pot the total extent of claims which could be made by t'he Nuclear able to realize fipon the Physical Assets,"and Bond Counsel an6 projects Nos.4 and 5 participants.

Thd investor-owned-utllltics Cliief Counsel to the Supply System believe that, If presented with I~(IOUs)owning 30 percent of Nuclear project No.,3'have asserted'the question, a couit should so iiold.The above opinion as to the.that they are.entitled to set,off the amounts owed by the Supply/q'bility of bondholders'r other creditors po realizeupon the System on bridge and termination loans made for Nuclear ProjectS J Physical Assets of the net-bjlled projects is limited to those Ppysical Nos.4 and 5 In 1981', totaling$1+million pius interest, agafnst'any"Assets located within the State of Washington; or as t'q which a r,'cost-sharinj obligation.,~'court ivould apply th'c law of IheStatc of gashington.

-;i'+>>ln October 1982 the Suppiy~ystcm filed a complaint for Theabovcopinionsexcludeclalmsagalnst theSupplySyptcm"'-

declaratory Judgment in Federal District Court for Western a(Ising from a valid exercise of the sovepelgn police,power of thc Washington, naming thc participants in Nuclear projects Nos.I<State of Washington or of the constitutional powers of the United'2, 3~4 and 5, BPA, the four IOUs owning shares of Nuclear Project States of America.r,-'No.3, and the bond fun'd trustees for Nuclea'r1'rojccts Nos.1 and inor8ertoexpresstheicgaikonciusionssetforthinthcforegoing

"" 3 as defendant>s,and asking the court fo declare the ilgltts and)opinions, Bond Counsel and Chief Counsel to the Suppiv System'bligations of the parties'with regard to the'allocation of costs r have assumed that thc activities giving rise to the claims described-among the Projects In such opjnlons were.not directly'or indirectly related to anypet-*t~>>t i" 34>>f i

)I'C F f%P/IP a~~l In May 1983, the court designated BPA as the plaintiff and all NUCLE4'R PROJECTS NOS"4 AND 5 other parties as defendants.

The case is captioned BPA v.Supply,~SITE RESTORATION r Systenl.et nl.Certain other claims llave been filed as part of,this=No v s 0 s llav bee~n ma~de fo site restoration of hroclear Projects Nos.4 and5, which is.governed by the site certificatlon

" In June1983, Chemical Bank intervened as bond fund trustee on'greementbiitween thy Supply System and theStateof

~ashfngtrjn r behalf 6f the Nuclear Pio Jects Nos.4 and 5bondholders.

Chemical and reguiatfonspdopted by the V(ashfn~gton Energy Facility Site 4-Banft has alleged that the Supply System's allocations of costs.Fvaluation Council (EFSEC)and, with respect to Nuclear Project I among the twinned proJects were imliroyer and'that repayment to.yNo.4, the lease agreement with the Department of Energy.It is not the Nuclear Projects Nos~4 and 5 bond fund is required for-such known at this time ghat actions will be necessary,to comply with'osts allegedly improperly allocated.

-,~these requirements.

Because the-site certification agreement for-." ln May 1989;,the District Court ruled that Chemical Bank has a Nuclear Project No.1 also covers Nuclear Project'o.

4, and the=lien ln an amount of any funds w~fch may be determined fn the agreement for Nuclear ProJect No.3 also covers Nuclear Project future to liave been improperly expended as a result of-costs NR.5,'EFSECmfghtassertthatNuclearprojectsNiqs.

land3are 7 I p t N s 4 d 5 b t the c t st ted obligated to pay tlke Cost ofslte restoration for Nuclear Projects Nos;that any enforcement of the lien must await resolution of the'issue 4 and 5.Such costs are estimated to bein the range of$49 to$82 of whether there wa5-airy Imprdper allocation.

million.On October 5, 1990, the District Court ruled that the Nuclear Projects Nos.4 and 5 Bond Resoluffqri's required the application of*'UCI.EAR.PROJECTS NOS.1 AND 3, principles"akin to those espoused" by Chemical Bank.The court CONSTRUCTION DELAY~stated that because suchPifncfPles'were not-aPPlied, Nucjear gn April 1982, the'Supply'System commenced a construction Projects Nos.4 and 5"apparently bore more titan their fair and delay of Nuclear project No.1, and in Julv 1983tit commenced a~equltabfephare of construction costs." const'ruction delay oi;Nuclear Project No3..Tliese projects are-The court granted Chemical Bank's motfon for seeldng an-currently.fn an extended delay mode.Plant assets are'being', accountfngofalftheusesofboridproeeedsofNuclearProjectsNos...preserved and project licenses>are being~aintained during the 4and5.TheSupplySystemaJtdotherpartiesfnthecaseappealed

=delay period In.order to enable tlie SupplySystem to resume--this'order,to.theU.S.CourtofAppealsfortlieNfnthCfrcuft.

'construction of the projects at such time as>that action Is/defermined a ro rial" On-February, 25, 199?, the Court of Appeals reversed both the, determined app May l989, and October 4990 rullngi creating a lien on after-In the-1986 Northwest C6nservation'and Electric Power Plan,=-acquired-assets and requiring the application of cost sliaring issued by the northwest Power.Planning Council (Council)In~iprfncfpies"akin to those espousejf" by Chemical Bank.The Court January 1/86, the Gotincil indicated that Nuclear Projectd Nos.1~Of Appeals upheld-'the concept of a,proliortfonal basis of<st and 3 can be cost-effective for>he regionpnd should be preserved' sharfngbetweeneacho'fthetwlnnedpiojectsa'nd remanded the-as potential iesource optfoqs.sHowever, the Council did not case to the District Court for resolution of the remaining Issues ln-includeNuclear projectsNos.1anii3injtsresourceportfolloat that accprdance~jth the Cpurt pf Appeals'eclsfpn

->>'" time due to legaband other uncerfaint)es.

In April 1991, the Council released its 1991 Power Plan, which Includes an objective r.," Counsel for Chemical Bank has estimated the potential recovery,~r to determine the dost and availability of resources to the region in, fnterest.Ifa Judgmentwereat'ar edlnfavorofChemicalBankand P'i 1~d 3 A ctT n Ifn~tern'su ortln that~allocated to other Supply System projects, such'amounts would be.constmctfon costs of such projects.~=-resolvaMeso that the Coun(If,can make an Informed judgment fn~iThe Supply-System-is unable to predict the outcome of'this the next Power Plan's whether to: 17 continue preserving the litigation.,'"=,~projects, 2)construct either or both of the projects if,needed, or 3)terminate the projects.BPA and the Supply System have initiated NUCLEAR-PRO JECTNO;5 TERMINATION CLAIM In iS 1987 Resource Strategy, BPA found that there was nq August 1983, PacfkiCorpr owner of--10 pe'cent of Nuclear'compefilng case either for or against continued preservation"of Project No.5, filed a counterclaim>fn)IPA ir SnpPly'System, et ak Nuciear projects Nos.1 and 3 ona net presentvajue basis, and that I'asserting thaVerminatfonofNuclear ProJect No.5,wasabreachof

'ryservation of both piojects was somewhat'avorable from an the,ownership agreement between kacfffCorq and'<the Supply"-.economic risk management standpoint.

BpA concluded that-,, System.PaciflCorpseeksdamageslnanunspeclfledamount.

Such~~preservation of Nuclear ProJects Nps.1 and 3-was fiie prudent r amount would presumably be approxlmateiy

$/50 million, and-course of action at that time.These findings and conclusions could be a general-claim against assets of the SupplJfSystem.

=reinained unchanged in BPA's 1988 Resource Program.and 1990~Actions on that claim have been stayed since 1983.The Supply-,Resource program".No new decisIon-regardjng completion or 4 System is unable toyredict the outcome of this litigation.

='ermination of the proJects Is expected tobe reflected in BPA's 1592 r.Resource Program.'I,l.*35

/>>II ei, 4~%(P/*preservation of each project is expected to continue until a I clajmschajlengjngtheNuclearprpjectNo.3setjlementAgreemehts.'I phcjsjon is made whether to complete construction or terminate,lf the settlement agreements between BPA and the IOUs aieone or both projects, Continued funding of Nuclear projecttNo.

1=.determine'd to be invaljd or unenforceable, the.IOUs might renew preservation costs is, provided by the Nuclear project go.1/theirclaimthattheyareentitledtorescisslonoftheNuclearproject I construction fund,~Continued funding of Nuclear Project No.3.No.3 ownership agreement.

However,/he Io()s have agi(ed in./r preservation costs Is provided by project participants (70 Iiercent their settlement agreements with thepuppjy System not to assert pursuant.to net-billing ayeements) and by the four investor-~anycjajmagainsttheSupplySystemformpneydamages,restjtutjbn~

owned utility owners (30 percerit pursuanttto a settlement' or'Injunctive.reljef;--

>>'~The Supply-Sgstenj ls unable Io predict what results.wijj be" reached with respect to these claims.,NUCLEAR PROJECT NO.3 DPLAY LITIGATION<<

In July and August 1983', the foui IOUs owning 30 percent of>>/Nuclear project Nq.'3 filed claims against BpA, the Supply System,Gp was<ompleted ln 1966 and operated through 1986, using and'the Nuclear pioject No.3 participants asserting that'giey, (-by;produkt steam from, the Department of Enerm s (DOE)N-I (, I suffered damages as,a result of the extended construction.

delay of Reactor.In January 1987, DOEshut down the N-Reactor for safety/Nuclear project.No.

3.-',.improvements,and inoctober1989plac'ed itin adrylayrupstatus," The Supply SyStein executed agreeinents p~n Septeniber 17,,1985 while maintaining the capability to restart within-a two-'to.three jo settle the construhjon delay claims with BPA and'with eacli of=year period.In August 1991;the Secretary of Energy announced the Iops owning'shares of Nuclear pioject Nb.3 A number of the,, the decjsjori to place the N-Reactor in permanent shutdown.This rr Nuclear Project No.3partlclpantshaveoIiposed thesettlement and<,,.action elimjijated the N Reactor as a power source for HGP.JI djSmjssajofclajms.

Inoctober198)/thepaitjcjpantsfijedpleadings Certain preservafion costs of HGp have been funded bv DOE>>">>In theUS.District Courtassertingchallenges tothe Nuclear project---since 1989 under a supplemental agreement between tb/e Supply, ,No.3settlementagreementsbetween BPAandtheJIOUs.

Non'eof, SystemandDOE.

ThlsagreementexpiredJune30,1992 andDOE , theagreements executedbytheSupplySystem has been cY(allenged.

indicated that they will not require HGPsupport servicessubsequent However, the pleadings flied by some paitjcjpants ahp include>>-tp thaf date with the, exception of major fir protection backup claims against the Supply'System, the IOU)and BPiIi unrelated to,<<service,.

Continuing preservatj6n costs, or, proJect,termination the validity of the settlement.

In July 1986, th'e District Court>costs, will"be funded by BPA.<<i=dismissed the claims challenging BPA's autliorlty to enter Into the'n inde dent e rod I rre ti arjn f as'bjjj Nuclear-ProjectNO 3settlemerit,agreements"wlththe'IOUsand

"-stud of le pi e n HGP 1th t I I th i.~it f study of repowering HGP with natural gas, using the project site for stayed ajjiother claims relating to or arising out of the construction

'ew gas.fiied co~bustjon)urbjnes, or developji)g a<cogenera~tjon

" facility ghneratjng'electr jcjty and providing steam to nearby DOF An original proceeding also was filed in the.Uqjted States Court of APPeals for tjie,Njn'th Circuit, challenging BPA's settlements Options for tjie disposjtjori of HGp indude the Supply System with the IOUs.In January1989, the Court ofAPPealsrejected all/or BPA re werin the o'ect de I ntn inde nd nt'claims against the IOUs and the SuPply System, for lack of o tl nsare'currentl

'ein'evaj ated itl tl utcome nkn'" n-J jurisdiction.

~at this time.A final decision is expected ln late 1992.In May 1989, the District Court dismissed the~claims of all but-nine of the-Nuclear ProjectNo.

3 participants against the Supply-System, BPAandtheIOUsrelatlngtoorarisingoutoftheconstructlon J>>delay of Nuclear'roject No.3 or,tlie settlement';pursuant to a<<The Price Anderson Act currently pro'vldes for ntjclearljabjjjty i stipulation 6f the parties.No action has been tiken by these nine-jniurance up to$7.8jbjjljon per incident, which is coveied by a non-stipulating participants since.the May 1989 Distrjcf Courts r combination,,of commercial nuclear insurance,and mandatory ruling.+'>>(industry self-insurance.

'The Supply System has,purchased the'.The four IOUs owning 30 percent of Nuclear project No.3 also--maximum commercial insurance available of$200 million;which I r filed complaints instate courts in King County, pashjngton, and is the firs layer of Pro/ection.

The second layer of Protection Is>>'=Mujtnomah C;unty,.Oregon, jn May 1983seekjngd~laratjveand

~/I rpvjdM throughamandatoryjndm~~lf jnsuranceplanwherejn--

equitabie relief and damages'because pf the N ciea prpject Np, 3 eacli licensed n clear Ifacjjjty iequj ed to Pajtjcjpate I ti e Plan cqnstru>>ct ion delay as claimed by them jn Ijp/I v Supply System, etak,-(currently 11S)maybe assessed uP'to$66.IPmjjljon Per incident,,'These cases were fijed as a precaution against any determination

/subject to a m<<axlmum annual assessment of$10 million Per year.that t jie Federal'District Court lacked jurisdictidn to try the Nuclear Nuclear propertydamagelnsurance requirements aremet through Project No.3 construct jon delay claims.The Washjr)gtqn case was a combination ofcommercla1 nuclear insurance policiespurchasejj (dismissed without prejudice in March 1992.proceedings in the~--by the Supply-System and BpA.The total amount of insurance Oregon case are sta'yed by stipulation'of the, parties.Tlie parties.purchased.ls currently$1.62S billion.The deductible for this have agreed to dismiss'the'Oregoncase after flnakdismissal of the~coverage is$10 million per occurrence.

r<<parallel claims in the Federaj Court and the fina dismissal of any--/l E>>-36=p l.'