LIC-18-0008, Decommissioning External Trust Fund Audit

Decommissioning External Trust Fund Audit

ML18087A043
Person / Time
Site:	Fort Calhoun
Issue date:	03/08/2018
From:	Blome B Omaha Public Power District
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
LIC-18-0008
Download: ML18087A043 (18)

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Omaha Public Power District March 8, 2018 10 CFR 50.75 LIC-18-0008

-U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555 Fort Calhoun Station, Unit No. 1 Renewed Facility Operating License No. DPR-40 NRC Docket No. 50-285

Subject:

Omaha Public Power District (OPPD) Fort Calhoun Station Decommissioning External Trust Fund Audit

Reference:

Letter from OPPD (C. P. Moriarty) to NRC (R. S. Wood) dated June 29, 1990 Enclosed please find a copy of the subject audit dated February 23, 2018. The audit is of the statements of net assets available for decommissioning costs of OPPD's Fort Calhoun Station Decommissioning External Trust Fund as of June 30, 2017 and 2016, and the related statements of changes in net assets available for decommissioning costs for the years then ended. The Decommissioning Funding Plan Trust Agreement requires that the NRC be notified of audit results.

No commitments are made in this letter.

If you have any questions regarding the enclosed changes, please contact Mr. Bradley H. Blome at (402) 533-6041.

Respectfully, 0ra~

Director - Licensing and Regulatory Assurance BHB/epm Enclosure c: K. M. Kennedy, NRC Regional Administrator, Region IV (w/o enclosure)

M. C. Layton, NRC Director, Division of Spent Fuel Management (w/o enclosure)

J. S. Kim, NRC Project Manager (w/o enclosure)

R. S. Browder, NRC Senior Health Physicist, Region IV (w/o enclosure)

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I I Omaha Public Power District Fort Cal-houn I

Station Decommissioning I External Trust Fund I Financial Statements as of and for the Years Ended June 30, 2017 and 2016, and Independent Auditors' Report I

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I I OMAHA PUBLIC POWER DISTRICT FORT CALHOUN STATION I DECOMMISSIONING EXTERNAL TRUST FUND TABLE OF CONTENTS I

I Page INDEPE.NDENT AUDITORS' REPORT 1-2 I MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED)

FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 3-5 I FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 I Statements of Net Position 6 Statements of Revenues, Expenses and Changes in Net Position 7 I Notes to Financial Statements 8-12 I OTHER SUPPLEMENTARY INFORMATION 13 Certification of Payments from the Fund Pursuant to Sections 5 and 6 I of the Fort Calhoun Station Decommissioning Funding Plan for the Years Ended June 30, 2017 and 2016 14 I

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'I Deloitte & Touche LLP I -Deloitteo First National Tower 1601 Dodge Street Suite 3100 Omaha, NE 68102-1640 USA I Tel: +1402 346 7788 www.deloitte.com I

INDEPENDENT AUDITORS' REPORT I Board of Directors Omaha Public Power District Omaha, Nebraska I

We have audited the accompanying financial statements of the Omaha Public Power District Fort Calhoun Station Decommissioning External Trust Fund (the "Fund"), which comprise the I statements of net position as of June 30, 2017 and 2016, and the related statements of revenues, expenses and changes in net position for the years then ended, and the related notes to the financial statements.

I Mana_gement"'s Responsibility for the Financial Statements I Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant I to the preparation and fair presentation of financial statement~ that are free from material misstatement, whether due to fraud or error.

I Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audits.

11 We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material I misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and I disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor

'I considers internal control relevant to the Fund's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the I Fund's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant I accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

I We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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• Opinion I In our opinion, such financial statements referred to above present fairly, in all material respects, the net position of the Omaha Public Power District Fort Calhoun Station Decommissioning External Trust Fund as of June 30, 2017 and 2016, and the revenues, I expenses and changes in net position for the years then ended in conformity with accounting principles generally accepted in the United States of America.

I Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 3-5 be presented to supplement the basic I financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate I operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods I of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audits of the basic financial statements. We do not express an opinion or provide I any assurance on the information because the limited procedures do not provide us w,ith sufficient evidence to express an opinion or provide any assurance.

I Report on Other Supplementary Information Our audits were conducted for the purpose of forming an opinion on the financial statements as I a whole. The certification of payments from the Fund pursuant to Sections 5 and 6 of the Fort Calhoun Station Decommissioning Funding Plan on page 14 is presented for the purpose of additional analysis and is not a required part of the financial statements. This supplementary information is the responsibility of management and was derived from and directly relates to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in our audits of the financial statements and certain additional procedures, including comparing and- reconciling such information directly to the underlying accounting and other records used to prepare the financial statements themselves, and other additional procedures in accordance with auditing I standards generally accepted in the United States of America. In our opinion, such information is fairly stated in all material respects in relation to the financial statements as a whole.

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-I February 23, 2018 I

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I OMAHA PUBLIC POWER DISTRICT FORT CALHOUN STATION I DECOMMISSIONING EXTERNAL TRUST FUND MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED)

I FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 I Overview The Fort Calhoun Station (the "Station" or "FCS") is a pressurized water reactor nuclear plant.

I The Station is owned by the Omaha Public Power District ("OPPD") and was placed in commercial operation in September 1973. It is located on the west bank of the Missouri River approximately 20 miles north of the City of Omaha in the vicinity of Fort Calhoun, Nebraska.

I The Nuclear Regulatory Commission ("NRC") issued a renewed operating license for the Station in November 2003 that would have enabled the plant to continue operating until 2033.

I In February 1983, OPPD's Board of Directors authorized a plan for the decommissioning of the Station at the end of its operating license. The plan calls for the allocation of the cost of decommissioning during the Station's life to the customers receiving the benefits. Accordingly, I in July 1983 OPPD began making funding contributions for the future decommissioning of the Station.

I In 1990, pursuant to NRC regulations, OPPD established an external trust fund based upon the NRC's minimum funding requirements: To ensure that additional funds are available to pay decommissioning costs, a supplemental trust fund was established in 1992 ("1992 Fund"). The I funds in the 1992 Fund are in excess of the NRC's minimum funding requirements and are not included in these financial statements.

1* In June 2016, OPPD's Board of Directors approved a recommendation by management to cease operations at FCS by December 31, 2016, and begin the decommissioning process using the safe storage ("SAFSTOR") methodology. The decision was made after a review of OPPD's I generation resource portfolio. As a result of the Board decision, the FCS assets were impaired as of June 30, 2016. OPPD notified the NRC and the State of Nebraska on August 24, 2016, and permanently ceased operations at the nuclear station on October 24, 2016.

I In February 2017, OPPD contracted with EnergySolutions, LLC, for decommissioning consulting services. EnergySolutions, LLC is a Utah limited liability company with expertise and experience I in decommissioning and site restoration of licensed commercial nuclear units.

FCS will utilize the SAFSTOR method of decommissioning, as described by the NRC, which allows a period of up to 60 years to fully decommission the-facility. Annually, a site specific cost I study is performed to determine the total estimated cost to decommission FCS using the SAFSTOR methodology. Based on the most recent third-party, site specific cost study as of December 31, 2016, the total estimated cost in 2016 dollars was $1,348.9 million, including the I NRC-required obligation of $1,249.6 million as of December 31, 2016. The estimated current cost to decommission the plant for the NRC-required obligations was recorded at $1,239.3 million as of June 30, 2017, or $10.3 million lower as a result of decommissioning activities that I have been completed. Decommissioning activities for the years ended June 30, 2017 and 2016, have been paid from OPPD's general corporate assets. The 1992 Fund reimbursed OPPD for decommissioning expenditures incurred for the period January 1, 2017 through June 30, 2017.

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I I The Fund has not paid any expenditures for decommissioning activities for the years ended June 30, 2017 and 2016.

I Use of the Fund is restricted to expenses related to license termination activities for the radiated portions of FCS, as defined by the NRC. OPPD has elected to use the 1992 Fund for I reimbursements at this time.

The unaudited Management's Discussion and Analysis should be read in conjunction with the I financial statements and related notes. This document contains forward-looking statements based on OPPD's current plans.

I Financial Position and Results of Operations The following were the Net Positions of the Omaha Public Power District Fort Calhoun Station Decommissioning External Trust Fund (the "Fund';) at June 30 (dollar amounts in thousands):

I 2017 2016 I Net position - restricted for decommissioning costs $ 291",247 $ 289;296 The following were the revenues of the Fund for the years ended June 30 (dollar amounts in I thousands):

2017 2016 I

Investment income $ 6,893 $ 6,718 Increase/(decrease) in fair value of investments (4,942) 5,336 I

Total revenues $ 1,951 $ 12,054 I 2017 Compared to 2016 I Total revenues were $2.0 million for the year ended June 30, 2017, with $6.9 million from investment income partially offset by a $4.9 million decrease in the fair value of investments due to unfavorable market conditions. Total revenues were $12.0 million for the year ended June 30, 2016, with $6. 7 million from investment income and $5.3 million from an overall

• I increase in the fair value of investments due to favorable market conditions.

Funding Policy I

OPPD annually reviews the funding requirements for the estimated costs for decommissioning activities. The estimated costs are based upon a third-party, site specific cost study as of I December 31, 2016. Earnings rate projections are based on the forecasted yield on 5-year Treasury Notes. Inflation rate projections are based on forecasts of the consumer price index and employment cost index. All investment income earned is reinvested in the I decommissioning fund. No funding was required for the years ended June 30, 2016 and 2017 for this fund. OPPD will continue to increase funding to the Fund as necessary, over the next several years to ensure the funding level is adequate to pay for the costs to decommission the I Station.

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I I Summary of the Financial Statements I The financial statements, related notes, and Management's Discussion and Analysis provide information about the Fort Calhoun Station Decommissioning External Trust Fund's net position and changes in net position. The Statements of Net Position present the Fund's net assets as of June 30, 2017 and 2016. The Statements of Revenues, Expenses and Changes in Net Position present ~he Fund's revenues and expenditures for the years ended June 30, 2017 and 2016.

The Notes to Financial Statements provide additional detailed information.

The basic financial statements, notes, and Management's Discussion and Analysis are designed to provide a general overview of the Fund's finances. Questions concerning any of the information provided in this report should be directed to Investor Relations, 402-636-3286.

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I I OMAHA PUBLIC POWER DISTRICT FORT CALHOUN STATION I DECOMMISSIONING EXTERNAL TRUST FUND I STATEMENTS OF NET POSITION AS OF JUNE 30, 2017 AND 2016 (Dollar amounts in thousands)

I 2017 2016 I ASSETS Investments, at fair value (Note 2) $290,800 $288,773 I Accrued interest receivable 447 523 NET POSITION - Restricted For Decommissioning Costs $291,247 $289,296 I

The accompanying notes are an integral part of the financial statements.

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I I OMAHA PUBLIC POWER DISTRICT FORT CALHOUN STATION I DECOMMISSIONING EXTERNAL TRUST FUND I STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 (Dollar amounts in thousands)

I 2017 2016 I REVENUES Investment income $ 6,893 $ 6,718 Increase (decrease) in fair value of investments (4,942) 5,336 I

Total revenues 1,951 12,054 I EXPENSES (Note 3)

EXCESS OF REVENUES OVER EXPENSES 1,951 12,054 I

NET POSITION - Restricted For Decommissioning Costs I Beginning of year 289,296 277,242 End of year $291,247 $289,296 I

The accompanying notes are an integral part of the financial statements.

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I I OMAHA PUBLIC POWER DISTRICT FORT CALHOUN STATION

I DECOMMISSIONING EXTERNAL TRUST FUND NOTES TO FINANCIAL STATEMENTS I AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 I 1. ORGANIZATION OF FUND AND

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES I Organization of Fund-The Omaha Public Power District Fort Calhoun Station Decommissioning External Trust Fund (the "Fund" or the "1990 Fund") was established in accordance with Nuclear Regulatory Commission ("NRC") regulations, for the purpose of I discharging the Omaha Public Power District's ("OPPD") obligation to decommission, as defined by the NRC, its Fort Calhoun Station (the "Station" or "FCS"). For 1990 and subsequent years, OPPD's Board of"'Directors approved the collection of nuclear I decommissioning costs based upon the NRC's external minimum funding requirements.

The NRC's requirements are based on a general estimate of the cost to decommission radioactive portions of a nuclear unit based on the size and type of reactor.

I Beginning in 1993, OPPD commenced funding on the basis of new decommissioning estimates which resulted from a 1992 independent engineering study and which exceeded I NRC external minimum funding requirements. The resultant Fort Calhoun Station Decommissioning Supplemental External Trust Fund (the "1992 Fund") was established to retain funds in excess*of the NRC's minimum funding requirements (not included within I these financial statements). In 2003, the NRC granted an extension of the operating license which would have allowed the Station to operate until 2033. In August 2016, OPPD

• notified the NRC and the State of Nebraska to permanently cease operations on I October 24, 2016 (Note 4).

The accompanying financial statements are only for the 1990 Fund.

I Investments:--Investment purchases and sales are recorded on a trade date basis.

I Investment Income-Investment income is recorded, as earned, on an accrual basis.

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

Risks and Uncertainties-The Fund utilizes various investment instruments. Investment I securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that those changes could materially affect the amounts I reported in the financial statements.

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I 2. INVESTMENTS I The Fund's investments are held by the Fund's trustee, the First National Bank of Omaha, in the Fund's name in accordance with the trust agreement. The Fund categorizes its fair value measurements within the fair value hierarchy established by generally accepted I accounting principles. Fair values were determined based on quotes received from the trustee's market valuation service.

The three levels of fair value hierarchy defined in GASB 72 are as follows:

I Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability I occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

I Level 2: Pricing inputs are other than quoted market prices in the active markets included in Level 1, which are either directly or indirectly observable for the asset or liability as of the reporting date. Level 2 inputs include the following:

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• Quoted prices for similar assets or liabilities in active markets; I

• Quoted prices for identical assets or liabilities in inactive markets;

• Inputs other than quoted prices that are observable for the asset o'r liability, such as I interest rates and yield curves observable for the asset or liability, implied volatilities, or credit spreads; I

• Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

I Level 3: Pricing inputs include significant inputs that are unobservable and cannot be corroborated by market data. Level 3 assets and liabilities are valued based on internally developed models and assumptions or methodologies using significant unobservable I inputs.

The following tables set forth in accordance with the fair value hierarchy, the Fund's recurring fair value measurements as of June 30 (dollar amounts in thousands).

2017 Total Levell Level2 Level3 Money market funds $ 53 $ $ 53 $

I U.S. government securities Corporate bonds 88,807 41,375 88,807 41,375 Mutual funds 84,869 84,869 I Total i_nvestments by fair value level* $ 215,104 $ 84,869 $ 130,235 $

Investment measured at net asset value (NAV)

Mutual funds 75,696 Total investments measured at fair value $ 290,800 I

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I 2016 Total Level 1 Level2 Level3 I Money market funds $ 15,276 $ $ 15,276 $

U.S. government securities 100,997 100,997 I Corporate bonds Mutual funds 13,395 83,693 83,693 13,395 I Total investments by fair value level $ 213,361 $ 83,693 $ 129,668 $

Investment measured at NAV I Mutual funds 75,412 Total investments measured at fair value $ iBB,773 I VALUATION METHODOLOGIES I Money Market Funds-The fair value of shares in money market funds are valued with a NAV of $1, which approximates fair value. They are priced based on inputs obtained from Bloomberg, a pricing service whose prices .are obtained from direct feeds from exchanges that are either directly or indirectly observable. The Fund's investment in money markets I are included as Level 2 assets.

U.S. Government Securities-The fair value of U.S. government securities is derived I from quoted prices on similar assets in active or inactive markets, from other observable inputs such as interest rates, yield curves, or credit spreads, and inputs that are derived from or corroborated by observable market data. U.S. Treasury and other federal agency I securities held in the Fund are included as Level 2 assets.

Corporate Bonds-For fixed-income securities, multiple prices and price types are I obtained from pricing vendors whenever possible, which enables cross-provider validation in addition to checks for unusual daily movements. The fair values of fixed-income securities are based on evaluated prices that reflect observable market information, such I as actual trade information of similar securities, adjusted for observable differences.

Corporate bonds held in the Fund are included as Level 2 assets.

I Mutual Funds-Mutual funds are priced using active market exchanges, and sources include Interactive Data Pricing and Reference Data LLC. The fair values of shares in mutual funds are based on inputs that are quoted prices in active markets for identical I assets and, therefore have been categorized as Level 1 assets.

Investments Calculated at NAV-The following tables summarize the fair value I measurement of investments calculated at net asset value per share (or its equivalent) as of June 30 (dollar amounts in thousands).

I Fair Unfunded 2017 Redemption Redemption Value Commitments Frequency Notice Period I

Mutual funds $ 75,696 None Daily N/A I Total investment, measured at NAV $ 75,696 I

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I I 2016 Fair Unfunded Redemption Redemption I Value Commitments Frequency Notice Period I Mutual funds $ 75,412 None Daily N/A Total investment, I measured at NAV $ 75,412 Mutual Funds-This investment includes one mutual fund that invests in fixed income I securities, including treasuries, agencies, corporate debt, mortgage-backed securities and some non-U.S. debt. The fair value of this investment has been determined using NAV per share (or its equivalent) of the investment.

I Weighted Average Maturity-The weighted average maturity was based on the fair value of individual investments and investment type. As of June 30, 2017 and 2016, the Fund's investments were as follows (dollar amounts in thousands):

I 2017 2016 Weighted Weighted I Average Average Fair Maturity Fair Maturity Investment Type Value (Years) Value (Years)

I Money market funds $ 53 $ 15,276 I U.S. government securities Corporate bonds 88,807 41,375 1.4 3.5 100,997 13,395 4.2 3.8 Mutual funds 160,565 159,105 I Total 290,800 288,773 I Portfolio weighted average maturity 2.1 4.1 Interest Rate Risk-The Fund's investments in relatively short-term securities reduce I interest rate risk, as evidenced by its portfolio weighted average maturity of 2.1 and 4.1 years at June 30, 2017 and 2016, respectively.

I Credit Risk-The Fund's investment policy is to comply with the Nebraska state statutes for governmental entities, which limit investments to investment grade fixed income obligations. The majority of the investments held by the Fund at June 30, 2017 and 2016 I were rated AA+ and AAA by Standard & Poor's Ratings Services, respectively and Aaa by Moody's Investors Service.

I 3. EXPENSES ON BEHALF OF THE FUND Trustee fees of $34,560 were paid on behalf of the Fund by OPPD for each of the years I ended June 30, 20i7 and 2016. The 1992 Fund began reimbursing OPPD for the quarterly trustee fees beginning January 1, 2017.

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I I 4. FCS CEASING OPERATIONS

I In June 2016, OPPD's Board of Directors approved a recommendation by management to cease operations at FCS by December 31, 2016, and begin the decommissioning process using the safe storage ("SAFSTOR") methodology. The decision was made after a review of I OPPD's generation resource portfolio. OPPD notified the NRC and the State of Nebraska on August 24, 2016, and permanently ceased operations at the nuclear station on October 24, 2016.

I In February 2017, OPPD contracted with EnergySolutions, LLC, for decommissioning consulting services. EnergySolutions, LLC is a Utah limited liability company with expertise and experience in decommissioning and site restoration of licensed commercial nuclear I units.

Utilizing the SAFSTOR method of decommissioning, as described by the NRC, allows a I period of up to 60 years to fully decommission the facility. Annually, a site specific cost study is performed to determine the total estimated cost to decommission FCS using the SAFSTOR methodology. Based on the most recent cost study as of December 31, 2016, I the total estimated cost in 2016 dollars was $1,348.9 million, including the NRC-required obligation of $1,249.6 million as of December 31, 2016. The estimated current cost to decommission the plant for the NRC-required obligations was recorded at $1,239.3 million I as of June 30, 2017, or $10.3 million lower as a result of decommissioning activities that have been completed. Decommissioning activities for the years ended June 30, 2017 and 2016, have been paid from OPPD's general corporate assets. The *1992 Fund reimbursed I OPPD for decommissioning expenditures incurred for the period January 1, 2017 to June 30, 2017. The Fund has not paid any expenditures for decommissioning activities for the years ended June 30, 2017 and 2016. *

,I Use of the Fund is restricted to expenses related to license termination activities for the radiated portions of FCS, as defined by the NRC. OPPD has elected to use the 1992 Fund I for reimbursements at this time.

All of the OPPD's cost estimates are based on information currently available to OPPD, but I all of such estimates remain subject to change.

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I OTHER SUPPLEMENTARY INFORMATION I

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OTHER SUPPLEMENTARY INFORMATION I CERTIFICATION OF PAYMENTS FROM THE FUND PURSUANT TO SECTIONS 5 AND 6 OF THE FORT CALHOUN STATION DECOMMISSIONING FUNDING PLAN I FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 I No such payments were made during the years ended June 30, 2017 and 2016.

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