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AUTHOR AFFILIATIONBOUCHER,G,D, Washington Public Power Supply System
RECIP,NAMt RECIPIENT AFFILIATIONDENTONeH»R» Office of Nuclear Reactor Regulation Director
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Washington Public Power Supply SystemP.O. Box 968 3000George Washington Way Richland, Washington 99352 (509) 372-5000
Docket No: 50-39750-46050-50850-50950-513
February 9, 1983G02.-.,83-105
Mr. Harold R. Denton, DirectorOffice of Nuclear Reactor RegulationU. S. Nuclear Regulatory CommissionWashington, D. C. 20555
Dear Hr. Denton:
Subject: ANNUAL FINANCIAL REPORTWASHINGTON PUBLIC POWER SUPPLY SYSTEMNUCLEAR PROJECTS 1-5
Enclosed for your information, as required by 10CFR50.71 are three (3)copies of the Washington Public Power Supply System 1982 Annual Report.Included in the Annual Report are the certified financial statements.
Very truly yours,
G. D. Bouchey, anagerNuclear Safety 8 Regulatory Programs
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Enclosures
cc: R Auluck NRC
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DIVISION OF DOCUMENT CONTROL. THEY HAVE BEENCHARGED TO YOU FOR A LIMITED TIME PERIOD ANDMUST BE RETURNED TO THE RECORDS FACILITYBRANCH 016. PLEASE DO NOT SEND DOCUMENTSCHARGED OUT THROUGH THE MAIL. REMOVAl.OF ANYPAGE(S) FROM DOCUMENT FOR REPRODUCTION MUSTBE REFERRED TO FILE PERSONNEL.
DEADLINE RETURN DATE
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A n'gorous training program is underway to license all control room operatorsat Project 2in time for fuel loading inSeptember 1983.
1982:Financial Highlights
(8 in Millions)
Long-TermRevenue BondSales
Project Project Project Projects1 2 3 4/5 Total
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Par Values
. Number of Issues(Combined)
Number of Series
Bonowing Cost (%)
Total Long-TermRevenue BondsOutstanding
Outstandingas of June 30
AnnualizedInterest Expense
Bonowing Cost (%)
Interest EarnedInterest onInvestments
Annual Rateof Return (%)
$ 700 $ 885 $ 695 — $2,280
2 3 3 — 3
2 4 4 — 10
14.79 13.83 14A3 — 14.30
$2,151 $2,330 $1,600 $2,250 $8,331
$ 209 $ 218 $ 166 $ 188 $ 781
9.94 9.69 10.53 8A4 9.58
$ 53 $ 46 $ 48 $ 54 $ 201
14.77 14.02 14.83 12.59 13.96
% Complete
Construction Status, October 1982
Project1 Project 2 Project 3
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The Northwest:Redefining its energy needs
Our construction program was conceived between 1972 and1977 at the request of more than 100 Northwest utilities. It calledfor five nuclear power plants, each large enough to meet theneeds of a half million people.
The recession has temporarily changed that optimistic outlook.Recent power forecasts from some sources indicate that all ofour plants may not be needed as indicated in their original timeframe.
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Consequently, Projects 4 and 5 were terminated and Project 1
was delayed up to five years. We are making sure, however, thatthe projects'icenses are preserved so that construction canresume as quickly as possible. Otherwise, we might extend therecession because of our inability to meet our powerneeds —power essential for new industry and new jobs.
In the meantime, we must complete Projects 2 and 3 as quicklyand economically as possible. Our new Executive Board is keen-ly aware of its independent responsibility to oversee the SupplySystem's progress. For example, it demanded a rigorous andexacting budget review. It is apparent that the Supply System isnow a much leaner organization after curtailing its constructionprogram, reducing its staff and instituting tighter fiscal controls.These changes are reflected in the 1983 budget and in our futurefinancing requirements.
As yet, no one has a clear picture about the Northwest's powerneeds between now and the year 2000. Our job is to ensure thatthe region has a viable energy resource so that 8.5 million peo-ple who are depending on us for their power will not be literallyleft out in the cold.
Stanton H. 'Nl'ck" CainPresident, Supply System BoardChairman, Executive Board
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Executive Board:New law changes its role
A new Washington state law changed the role and makeup of theSupply System's Executive Board in 1982. Its membership isnow drawn not only from participating Washington utilities, butalso from across the nation. Six new members who are recog-nized experts in finance, construction or utilityoperations joinfive representatives of the participating utilities to form an11;member Board.
The new Executive Board is now responsible for all policy deci-siqns except those specifically reserved for the 23-member fullBoard. The full Board retains the final authority to purchase,acquire, build, terminate or decommission power plants. It also-elects five of its members to serve on the Executive Board aswell as appointing three outside members.
The Executive Board members elected from the full Board are:Stanton H. "Nick" Cain, an Okanogan County Public UtilityDistrict commissioner; Donald R. Clayhold, chief engineer andassistant manager of Benton County Public UtilityDistrict; Paul J.Nolan, director of utilities for the city of Tacoma; C. StanfordOlsen, a Snohomish County Public UtilityDistrict commissioner;and Howard B. Richman, commissioner and vice president ofCowlitz County Public UtilityDistrict.
The additional three outside members selected by the Board are:Carl M. Halvorson, a Northwest construction business owner with40 years experience building major energy projects; Durwood W.Hill, general manager of Nebraska Public Power District; andLouis H. Winnard, former general manager of the Los AngelesDepartment of Water and Power.
The final three members were appointed by Washington Gover-nor John Spellman. They are: C. Michael Berry, retired presidentof Seattle-First National Bank; Cornelius R. Duffie, vice chairmanof Willamette Industries and former chief executive officer ofWestern Kraft Corporation; and William E. Wall, chairman andchief executive officer of Kansas Power and Light. The gover-nor's appointees must be confirmed by the Washington StateSenate during the 1983 legislative session.
The new Executive Board draws on theexpertise of Northwest uti%'ty officials likeiVick Cain (standing) and nationalbusinessmen like Carl Halvorson.
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The Supply System:Making progress, facing problems
In a sense 1982 was two-dimensional for the Supply System.
On the internal level, where we had control, we set constructionrecords that were the envy of the nuclear power industry. Laborlosses due to strikes or walkouts were the lowest in the com-pany's history. And now Project 2 is so close to commercialoperation that employees say they can almost "smell themegawatts."
Success, in any endeavor, is based on solid performance day inand day out. Our efforts to responsibly manage our constructionand operation program have brought positive results. We'e hadaffirmation by the Nuclear Regulatory Commission about thequality of our work.
On the financial side, we'e maintained Standard and Poors AAArating on Projects 2 and 3 and have carefully managed the termi-nation of Projects 4 and 5 well within the budget established forthat purpose. Supply System borrowing requirements have beendecreased by 90 percent from a year ago and at the same timewe have found ways to greatly reduce corporate overhead ex-penses. And finally, in the past year, three independent studieshave supported the need and cost competitiveness of the projects.
But, on the external level, where we did not have control, theSupply System was impacted by: uncertainties in the financialmarkets, the highest interest rates ever experienced in theUnited States, inflation, changing federal regulations and confu-sion about how much energy the Northwest will need. Becauseof these issues, Project 1 has been delayed for up to five years.
These problems are not unique to the Supply System, the North-west or even to publicly owned utilities. Nationwide, other utilitiesthat began constructing electricity-producing power plants at thesame time we did are facing the same issues. Our situation hasbeen further compounded by our relationship with the federalgovernment. Much of Supply System policy is driven directly orindirectly by Bonneville's concerns with rates, financing and
Robert L. FergusonManaging Director
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The SUpply System:Making progress, facing problems(continued)
energy forecasting. Project 1 was delayed based upon theBonneville Power Administration's recomendation.
The Supply System went through some very traumatic changesin the past year—changes that could overwhelm an organizationnot as strong as this one. We'e gone from building five plants totwo. After the delay of Project 1 this year, a balanced analysiscalled, for another reduction in force. Management faced thisrealit) and the organization weathered a difficult21 percentreduction of the work force.
Following the reductions in force, the Institute of Nuclear PowerOperations (of which we are a member) and other industry ex-perts were consulted on how to best use the talents of our re-maining staff. After considering all recommendations, the upper-level management was realigned. Project work was consolidatedunder one director, as were most administrative functions.
It is a sign of the Supply System's underlying vigor that it hasfunctioned as well as it has under the circumstances of the pastyear. At Project 2, we'e maintained all key project milestonessince the restart in mid-1981. And, the teamwork at Project 3 hasput the project ahead of production goals for the past 13 months.
I will be the first to acknowledge that these are difficult times forall of us. Yet, I do not think we can afford to base future energyforecasts on a recession scenario. Rather, I think that we musthave the courage to plan for an era of economic recovery.
The current economic climate has been harsh on the Supply Sys-tem. But it also, ironically, has provided us with an important op-portunity. The electricity produced by Projects 2 and 3 will pro-vide the foundation for the revitalization of the Northwest. Whenthe power is needed, it will be there.
fThe Northwest became acquainted witha new brand oiirate ratepayer-the pro-nuclear kind-in April 1982.
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Project 2:Counting down to completion
The state's first commercial nuclear plant, Project 2 in EasternWashington, passed major licensing and construction tests withflying colors in 1982—staying on a challenging schedule to loadfuel by September 1983.
The Nuclear Regulatory Commission issued Project 2's finalSafety Evaluation Report in March 1982—only 10 months after astop.Work order was lifted at the plant. The report listed 28 itemsthat r'equired further investigation, a dramatic reduction from theNovefnber 1981 preliminary review which listed 215 unresolveditems. By July, the list was reduced to less than 20 items. Themost serious concerns have now been resolved.
In August 1982, the critical hydrostatic pressure test reaffirmedthe quality of work at the heart of the plant. The test verified theintegrity of the plant's reactor pressure vessel and the 4,000 feetof water and steam pipes connected to the vessel.
Project 2's journey from its hydro test to fuel loading is one ofthe most grueling in the nuclear industry—with 12 months forwork that normally averages 17. The emphasis is now on com-pleting other plant systems so that they can be tested for opera-tion. As of October, 24 of the plant's 101 systems had been of-ficially turned over to the Supply System and another 68 hadbeen provisionally accepted.
Completing operator training and emergency planning are alsonecessary steps in the drive to completion. Operator training wasabout 78 percent complete in October with 43 out of 46 traineespassing simulator tests (including 36 at the senior operator level).Emergency plans have been upgraded to comply with federalregulations stemming from the Three Mile Island incident. As aresult, a new emergency support building is being built and willbe finished in time for full-scale emergency drills beginning inFebruary 1983. A major exercise in June 1983 will test theemergency response capabilities of the Supply System andfederal, state and county agencies.
.C~~Major tests of piping and pumps at Pro-
ject 2 during 1982 reaffirmed the integri.ty of the plant's construction.
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Project 3:Breaking national records
Project 3, in Western Washington, was the scene of productivityand safety records that put it at the forefront of the nuclear con-struction industry in 1982.
Workers completed 24 percent of the plant's construction in 12months —4 percent more than their goal. To help set that record,they installed more than three miles of pipe per month (the na-tional,average is about one and a half miles per month). And Pro-
jects3,.'s
safety record was about 50 times, better than the natio'nalaverage for constructio'n work.
Not o'nly was the work done quickly and safely, but economically.Work normally costing a dollar was done for about 95 cents.Also, about $27.5 million was saved when such services asscaffolding and cranes were consolidated under specifiedcontractors.
By October 1982, Project 3 was 65 percent complete. The lastpiece of structural steel was placed in the reactor auxiliarybuilding in August, and in September the last major reactor com-ponents were lifted into the reactor building before it was en-closed with a permanent steel dome.
The Nuclear Regulatory Commission is now reviewing the pro-ject's 7,000-page Final Safety Analysis Report and 500-page en-vironmental assessment —an important step in Project 3's licens-ing process. Other activities required for operation are also underway. For example, 35 people are already training to become con-trol room operators. And the Supply System's recruiting effortsare focused on building a complete team of qualified operationspeople at Project 3 to run the plant when it begins commercialoperation in December 1986.
Workers at Project 3 are attempting topull 64 miles of electrical cable permonth-twice the national average.
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Project 1:Forecasts prompt schedu/e de/ay
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The Supply System's Board of Directors delayed construction ofProject 1 on May 1, 1982. The Board followed the recommenda-tion of the Bonneville Power Administration after Bonnevilleforecasted a far lower demand for electrical power in the North-west than was estimated in the 1970s. The delay at Project 1,located in Eastern Washington, will last up to five years—depending on the region's future power requirements.
Before the delay, the project was five months ahead of theschedule that was set in 1981. It stands at 63 percent completewith all major civil and structural work finished. Procurement ofservices and equipment is 98 percent complete. The acceptancereview for Project 1's Final Safety Analysis Report, which wassent to the Nuclear Regulatory Commission in November 1981,will.continue despite the construction delay so that it need not berepeated when construction resumes. The Supply System alsohas.received an American Society of Mechanical Engineers'N"Stamp for Project 1. It is an independent verification that the pro-ject's design, construction and quality control procedures meetstringent requirements for safe operation.
The goals of the delay plan are to: preserve the plant's assetsand licenses; stop construction activities in an orderly manner;close out contracts and pay commitments; and minimize cash ex-penditures. Staffing, which was about 6,400 contractor and Sup-ply System personnel before the delay, was reduced to 1,100 bySeptember 1, 1982, and will be reduced to 500 by July 1983.This plan preserves the option of restarting the project in lessthan five years.
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Nearly 63 percent complete, Project 1
awaits a signal for construction to restart.
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The 4i5 decision:Recession takes energy toll
The Supply System's primary purpose is to build and operatepower plants. However, when the region's need for power wasseriously questioned and financing for the last two plantsbecame impossible, the Supply System's Board of Directors ter-minated Project 4 in Eastern Washington and Project 5 inWestern Washington. Since January 22, 1982, the termination ofthose projects has been carefully managed.
A special termination program office within the Supply Systemhandles all activities on Projects 4 and 5: selling assets, closingcontiacts and resolving legal issues. The termination team workswith the Oversight Committee (representing the interests of theprojects'articipating public utilities) and with Pacific Power 8Light Co. (a private utility that owns 10 percent of Project 5).
The goal of the termination team is to get the maximum returnfor the projects'ssets'and settle outstanding obligations aseconomically as possible. The original estimate for a 24-monthtermination program was $343 million. The revised estimate for a30-month program is $335.3 million. The $7.7 million reduction isdue to the favorable settlement of fuel and fuel services contractsand tight fiscal control of all expenditures.
The best return on the projects will be realized if they can besold in their entirety. To do this, the Nuclear Regulatory Commis-sion construction licenses must be retained during the first phaseof the termination program. This requires preventive maintenancework at the projects and preservation of all nuclear safety-relatedequipment. An attempt by intervenors to have the licenses re-voked failed when the Nuclear Regulatory Commission foundtheir petitions to be without merit and formally rejected them. Anagreement was also reached with the Washington State EnergyFacility Site Evaluation Council to defer any changes in the sitecertification licenses for Projects 4 and 5.
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Why Project 4/5?When economic conditions forceda slowdown of two Supply Systemprojects in 1981, Projects 4 and 5were the obvious choices. Theywere the last scheduled for com-pletion, and with construction andfinancing costs at $6 billion each,were the most expensive of thefive Supply System projects underconstruction. A strategy for raisingthe funds to mothball the projectsuntil the Regional Power Councilcompletes its 20-year plan failed togain adequate support. The coun-cil's plan willbe complete in April1983.
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Operations:Generating power and revenue
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The U.S. Department of Energy agreed in July 1982 to continueselling steam to the Supply System while N Reactor is in opera-tion. The waste steam from the government's N Reactor is usedto power the Hanford Generating Project —a Supply Systemfacility that has generated more than 52 billion kilowatt hours ofelectricity since 1966.
Under the terms of the 10-year contract, the Supply System willpay f.6 cents per kilowatt hour of energy generated the first year.Costs in future years will be determined by labor and operatingexpenses. The contract goes into effect on July 1, 1983.
Once billed as an expensive white elephant, the HanfordGenerating Project has proved to be a dependable workhorseand the nation's second greatest producer of nuclear-generatedelectricity. Not only has the Hanford Generating Project used anenergy resource that otherwise would have been wasted, but ithas provided the federal government with $250 million of incomefrom steam sales. In fiscal year 1982, the Supply System'soperating receipts from the Hanford Generating Project were$40.2 million.
The 12 member utilities in the Supply System's Packwood LakeHydroelectric Project received $544,841 in surplus revenues fromthe operation of the plant between July 1980 and June 1982.Surplus revenues from the 27-megawatt dam, located in theGifford Pinchot National Forest near Mt. Rainier, are expected toincrease to $ 1.1 million in fiscal year 1983 due to efficient plantoperation, a good water year and increased Bonneville PowerAdministration rates.
Since it began operating in 1964, the Packwood project hasgenerated nearly 2 billion kilowatt hours of electricity which issold to Bonneville Power Administration on an exchange agree-ment. Power from the project is produced for less than one centper kilowatt hour but is sold at the Bonneville Power Administra-tion wholesale rate, which in October 1982 was 1.99 cents perkilowatt hour for firm power to preference customers.
The Packwood Lake Project near Mt.Rainier is almost totally automated andneeds only periodic surveillance.
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financing program:Record $2.28 billion raised
During fiscal year 1982, the Supply System raised a record$2.28 billion by completing three bond sales at an average in-terest cost of 13.93 percent. Two of the sales established recordsfor the largest, totally public offerings in the history of publicpower tax-exempt financing.
The success of the financing program is remarkable consideringthe eptensive changes requirdd due to the slowdown and even-tual termination of Projects 4 and 5, and the extended construc-tion )clay of Project 1. A major factor in the success of the pro-gram'was the use of the negotiated sale option granted by theWashington State Legislature in 1981. Use of this option allowedthe Supply System to negotiate optimum-size, multi-project salesat minimum current interest rates as shown below:
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The Supply System raised $2.28 billionfrom three bond sales in fiscal year1982.
'ate Project Value
AverageBorrowing
~ Cost
September 1981 1, 2 and 3 $750 million 13.46February 1982 1, 2 and 3 $850 million 14.53May 1982 2 and 3 $680 million 13.70
The sales were required to finance the continuing portion of theconstruction program and to provide cash coverage for com-mitments into the fourth quarter of fiscal year 1983 (Aprildune1983).
Also in fiscal year 1982, the Supply System earned $204 millionin investment income, most of which will help defray the. costs ofthe construction projects. The average balance of funds investedwas $ 1.5 billion, and the rate of return was 14 percent. The in-vestment income earned was the highest in the history of theSupply System, reflecting the record high interest rates ex-perienced in general during the year.
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Future outlook:Financing needs reduced
Construction Program Funding RequirementsCOG~
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The Supply System's financing program was significantly re-duced during the past year as a result of terminating Projects 4and 5 and delaying Project 1. On June 30, 1981, the Supply Sys-tem needed $13.2 billion in financing to complete its five pro-jects. By June 30, 1982—with three more bond sales completedand a curtailed construction program —the Supply System'sfinancing needs were reduced to $ 1 ~ 1 billion to complete Projects2 and 3.
To raise the funds needed to complete the projects, the SupplySystem intends to issue $500 million in bonds in May 1983 withthe remaining $600 million to be raised over the subsequent 28months. Of this, $149 million is needed to complete Project 2and $961 million to complete Project 3.
Project 2's total funding requirements from start of constructionto completion are now estimated at $3.258 billion, a $42 millionincrease over the previous estimate. Controllable constructionand fuel costs did not increase, but interest and financing costswere higher than previously estimated. The Supply System israising $2.519 billion of the total funding requirements throughthe sale of bonds. About 94 percent of those bonds (or$2.370 billion) have been sold.
Project 3's total funding requirements are now estimated at$4.963 billion, a $431 million increase over the previous estimate.While controllable construction and fuel costs decreased by$82 million, $ 186 million in costs that would have been sharedwith Project 5 were added to Project 3. The net increase in Pro-ject 3's construction cost is $ 104 million. Actual and projected in-terest rates were also higher—causing the estimated interest andfinancing costs to increase by $327 million. The Supply Systemis raising $2.561 billion of Project 3's total funding requirementsthrough the sale of bonds. About 62 percent (or $ 1.6 billion) ofthose bonds have been sold.
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Balance sheets
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Cash and Investments.Accounts Receivable .
Prepaid and Other ..Due from Other Projects and Internal Service Fund ..Due from Other FundsTOTALCURRENT ASSETS —OPERATING FUND ..
Special Funds (Primarily for Construction)Cash and Investments .
Receivable from Joint Owners and Other Assets.....Due from Other Projects and Internal Service Fund...Due from Other Funds —Net
Debt Service Funds Cash and InvestmentsTOTALRESTRICTED ASSETS
In Service.Improvements to U.S. Government FacilitiesLess Allowance for Depreciation and Amortization ..
Construction Work in ProgressCost Related to Construction and Termination of UtilityPlants ..Nuclear Fuel and Prepaid Enrichment Services.............Less Amount Charged to Joint Owners
HANFORrrGENERATING
PROJECT
$10,2/3245345
1,74112,544
3,492
3,4927,446
10,938
67,00714,411
~49,22032,198
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Unbilled Reimbursable Costs .
Unamortized Debt Expense.OtherTOTALOTHER ASSETS ANDDE+ERRED CHARGES ..
TOTALASSETS
Accounts Payable and Accrued ExpensesDue to Other Projects .
Due to Internal Service FundTOTALCURRENT LIABILITIES—OPERATING FUND ..
Special Funds (Primarily for Construction)Accounts Payable and Accrued Expenses.Amounts Withheld from ContractorsDue to Other Projects and Internal Service Fund ..Due to Other Funds —Net.
Debt Service FundsAccrued Bond Interest PayableDue to Other Funds —Net.
TOTAL LIABILITIES—PAYABLE FROMRESTRICTED ASSETS
Revenue Bonds PayableLess Unamortized Discount on Bonds —NetSubordinated Revenue NotesTOTALLONG-TERM DEBT.
Unearned RevenueDeferred Gain on Revenue BondsDue to Other ProjectsAdvancesandOthers .
TOTALOTHER LIABILITIESANDDEFERRED CREDITS
TOTALLIABILITIES
32,198
981146
4 427
$ 56,807
$ 6,3592,464
2229,045
992992
459749
1,208
2,200
43,130(800)
42,330
1,832
1,4003 232
$56,807
PACKWOOD LAKEHYDROELECTRIC
PROJECT
4 $ 627158
12
19816
NUCLEARPROJECT
NO. 1
$ 9,576532
2,46417,28629,858
NUCLEARPROJECT
NO. 2
$ 15,855
1577,609
23,621
NUCLEARPROJECT
NO. 3
$ 5,552
5,552
NUCLEARPROJECTNO.'S 4/5
($ in thousands)
INTERNALSERVICE
FUND
$18,408404
2,979
21 79'I
290
10
280673953
12,204
4,6137,591
7,591
3,02127
3 048
298,285935
5,689
304,909215,790520 699
1,767,577
266,860
2 D34 4372,034,437
3,807
3 807
555,101276
3,203
558,580119 058677 638
9,560
8998,661
2,056,556
68,761
2,125,3172,133,978
3,442
3,442
411,P2226,896
4,64517 130
460,593194 577655 170
1,484,095
44,886~422 76
I 106214I 106.214
2,514
2 514
106,71017,097
18,824142,631336,303478,934
2,343,467
101,9852 241,4822,241,482
2,019,178
8,402
1 6556,747
6,747
968968
$ 12,408 $ 2 588,801 $2 838,679 $ 1,769 450 $2,720,416 $29,506
$ 701
701
$ 26,857
26 857
$ 20,620
20 62D
$ 2,551
2 551
$ 11,8387,504
19 342
14110
151
151
11,545(102)
11 443
113
113
80,64152,602
9,894143 137
99,9057,392
107,297
250,434
2,151,305(57,510)
~2093 795
217,715
217,715
53,62034,689
617,230
95,600
8,510379
8,889
104 489
2,329,870(76,984)
2,252,886
417,436
43 248460 684
80,84844,023
39
124 910
66,88717,10183,988
2DB 898
1,600,000(41,999)
I 558001
$ 284,68952,198
440
337 327
98,25718,824
117 081
454 408
2,250,000(51,780)67,788
2 266 008
5,4274 737
1016427
$ 12,408, ~
$2,588,801 $2,838,679 $ 1.769 450 $2,720,416 $29 506
Statements of changes in financial pQggg+g - - o
IEoo 'tj - o
N~3SXiNCOO'NIGS
SMCOO|NQLES
Nonoperating Projects
Collected Under Net BillingBond ProceedsInterestlncomeChargedto JointOwnersNet Decrease in Restricted Funds .
Revaluation of InvestmentsOthe
TOTALSOURCE OF FUNDS
Construction CostsInterest Expense .
Nuclear Fuel .
Financing ExpenseBonds Redeemed .
Revaluation of Investments .
Net Increase in Restricted Funds.Increase in Amounts Due Participants.Increase in Operating Fund .
a0s(ers to theJ9aofotd~ojectTOTALUSEOFFUNDS .
NUCLEAR.PROJECT
NO. 1
$156,300671,072
53,326
2,464
$883,162
$511,126168,941'133,326
1,7213,695
18852,308
6,902
4 955
$883,162
Qg](jQoj+o QQQo0 ~ OOD 0
K2I'tKtCoO'NSKS
SMCoO'N8&3$
Operating Proje'cts
OperationsNet Revenue .
Items Not Affecting Working Capital:Depreciation and Amortization .
Decrease (Increase) in Costs Reimbursable fromPower Purchasers
Less Gain on Redemption of Revenue Bonds......Total from Operations .
Contributions for Improvements .
Advances~fo~arttcipaots/O~WOLking CapitalTOTALSOURCE OF FUNDS .
Net Improvements.Cost of Revenue Bonds Purchased and Retired ..Increase In Restricted Assets
Changes in Working CapitalCash and Investments.Receivables and Other .
Payables and Other.Net Increase in Working Capital .....TOTALUSE OF FUNDS
HANFOROQENERAT|NQ
PROJECT
$
2,613
431~1292,915
16-0-
$2,931
$ 162,915
-0-
2 931
(626)631~5
-0-
$2,931
28
ition ($ in thousands)
1'NUCLEARPROJECT
NO. 2
$ 135,725827,664
46,484
789
NUCLEARPROJECT
NO. 3
$ 2,365672,281
48,598162,588
NUCLEARPROJECTSNOUS 4 a S
$ 67,78953,81221,852
394,265
$ 1,010,662
$ 398,709147,05322,598
1,90914,130
423,9252,338
$885,832
$518,600111,29624,000
1,321
266224,984
2,3653,000
3537 718
$470,164192,209
(126,335)938
742
~ $ 1,010,662 $885,832 $537,718
PACKWOODPROJECT
$ -0-Statements of operations
260
11~123148
$148 I
CKNKXZ~)MB
o e e ~
4488I4888588
OOD 0
HANFORDOENERAme
PROJECT
$36,302
PACKWOODPROJECT
$ 905
1426
148
539(132)~40
Reactor AvailabilityDepreciation and AmortizationPower Production and Transmission ..Maintenance .
Administrative and General ..
Net Operating Revenue (Loss).
[email protected] @/goalQngggsmm
30,9192,5461,6921,089
543
36,789~48
256208241
68
132
$ 148 I
Interest and Other Income .
Interest Expense and Discount Amortization ..
NSPCCIIIlSN
2,135 303~1848 ~435487 ~132
$ $
Outstandi'ng long -term debt
CNQKoO-Da
IliIM7IIRevenue Bonds ($2,915,000 due within one year atJune 30, 1982)
SERLES
1963
IIIII7IIIIIIII'.M7NI
($ 155,'000 due within one year at June 30, 1982)Revenue BondsRevenue Bonds
19621965
gmm~g gpjQoggl'gQo, 0 Revenue Bonds ($1,000,000 due July 1, 1982) 1975
Revenue Bonds ($1,275,000 due July 1, 1982) 1976A
Revenue Bonds ($1,540,000 due July 1, 1982) 1976B
Revenue Bonds 1978A
Revenue Bonds 1978B,
Revenue Bonds 1979
Revenue Bonds 1980A
Revenue Bonds 1981A
Revenue Bonds
Revenue Bonds
Revenue Bonds
1981B
1981C
1981D
30
Revenue Bonds 1982A
NI)Ml5EBCMK9"
DATEOF SALE
EFFECTIVEINTEREST
RATEOFFERINQ
PRICESCOUPON
RATE
SERIALOF TERM
MATURITIES
(gin thousands)
JUNE 39 1982
5-8-63 3.26o/o (A)98
2.90 —3.10o%%d
3.259-1 882/1 9869-1-1996
$ 15,54527 585
9 43130
3-20-62114-65
9-18-75
2A-76
8-31-76
3-21-78
12-5-78
6-19-79
8-540
4-13-81
4-13-81
4-13-81
94-81
2-11-82
3.663.76
7.73
6.84
6.37
5.69
6.61
6.64
8.87
11.30
11.30
10.29
14.78
14.79
99.425100.5
(A)100100
(A)100100
(A)100
99.50
(A)100100
(A)100 .
10099.50
(A)100100100
(A)100100
99.00(A)
(A)100
(A)
100
10057.895
100
100100
99.25
3.6253.75
5.75 —7.407.707.75
6.00—6.256.907.00
5.00—5.906.506.50
5.00-5.505.80
5.875
5.50 —6.00o/o6.356.606.80
6.006.406.706.80
7.00 —10.009.009.209.257.75
11.30 —1 3.0011.625
10.00
10.25
14.3758.2515.00
10.50 —1 3.7514.5014.75
3-1-20123-1-2012
7-1 42/20007-1-20107-1-2017
7-1 42/1 9987-1-20107-1-2017
7-1 882/1 9987-1-20107-1-2017
7-1 44/20027-1-20107-1-2017
7-1 44/1 9987-1-20037-1-20097-1-2017
7-1 44/1 9987-1-20037-1-20097-1-2017
7-1 46/1 9957-1-20027-1-20057-1-20137-1-2017
7-1-96/20037-1-2012
7-1-2016
7-1-2015
7-1-20017-1-20037-1-2017
7-1 48/1 9967-1-20027-1-2017
$ 8,7502 795
$ 11,545
$ 41,00058,30074,700
174 DOO
35,80566,48576 495
178,78540,34566,94071,235
178 52D
64,27050,92064 81D
180,00038,35522,30538,19081 150
180 000
29,38518,56032,37069 685
150,000
55,50037,00016,95070,55030 000
210,000
28,58091,420
120 000
40 000
40 ODD
20,00030,000
265,000315 000
29,35550,645
305,000385,000
52 151 305
Outstanding long-term debt (continued)
gggggg ggQogmNPgQo, I Revenue Bonds
SERIES
1973
Revenue Bonds 1974
Revenue Bonds ($2,500,000 due July 1, 1982) 1974A
Revenue Bonds ($2,800,000 due July 1, 1982) 1975A
Revenue Bonds ($875,000 due July 1, 1982) 1976
Revenue Bonds ($2,585,000 due July 1 ~ 1982) 1976A
Revenue Bonds ($1,730,000 due July 1, 1982) 1978
Revenue Bonds ($2,100,000 due July 1, 1982) 1979
Revenue Bonds ($1,540,000 due July 1, 1982) 1979A
Revenue Bonds 1980
Revenue Bonds 1981A
Revenue Bonds 1982A
32 Revenue Bonds 1982B
gNakmQ8m
DATEOF SALE
: 6-26-73
7-23-74
EFFECTIVEINTEREST
RATE
5.66o/o
7.21
OFFERINGPRICES
(A)100
(A)100100
COUPONRATE
5 00 5 10o/o5.70
6.50—6.907.00
7.375
SERIALOF TERM
MATURITIES
7-1 47/19917-1-2012
7-1 47/19947-1-19997-1-2012
($'n thousands)
JUNE 30 198 ~
$ 13,600124 400138,000
18,00015,00037,00070 000
11-26-74
3-6-75
6-3-76
11-18-76
7-11-78
3-13-79
10-17-79
10-21-80
94-81
2-11-82
5-2042
7.67
6.71
6.63
5.87
6.71
6.49
7.69
9.36
12.44
14.76
13.82
(A)100100
(A)100100
(A)99.25
100
(A)100
99.50
(A)100100
(A)100100
(A)100100
(A)100100(A)(A)
10057.895
99100
100100
99.25
100100
7.207.407.75
6.606.60
6.875
5.40—6.256.6256.75
5.50—5.8756.006.00
5.50—6.606.80
6.875
5.50—6.006.406.75
6.40—7.307.607.75
8.90—10.909.309.609.258.25
14.3758.2514.5013.25
9.50—13.7514.5014.75
9.00—13.0013.875
7-1 42/1 9947-1-19997-1-2012
7-1 42/1 9947-1-19997-1-2012
7-142/1 9987-1-20067-1-2012
7-1 42/20027-1-20077-1-2012
7-1 42/20007-1-20067-1-2012
7-1 42/1 9997-1-20047-1-2012
7-1 42/19997-1-20047-1-2012
7-1 46/1 9977-1-20017-1-20067-1-20017-1-2012
7-1-20017-1-20037-1-20067-1-2012
7-1 46/19967-1-20027-1-2012
7-1 46/1 9967-1-2012
25,50015,00078,000
118,500
29,20015,000780DO
122 200
26,96542,30049 860
119,125
91,61044,81560,990
197 415
66,52045,52066 23D
178 270
60,80533,49083 605
177,900
43,41023,05057 000
123 460
35,23023,73546,07075,04519,920
200 000
30,000100,00030,00050,000
210,000
33,33551,665
215 ODO
300,000
39,400139,320178,720
33
Outstanding long -term debt (continued)
Revenue Bonds
SERIES
1982C
NNBMQ¹CMRPSDo Revenue Bonds 1975
Revenue Bonds 1976
Revenue Bonds 1977
Revenue Bonds 1978
Revenue Bonds 1981A
Revenue Bonds 1981B
Revenue Bonds 1982A
Revenue Bonds 1982B
Revenue Bonds 1982C
M58@C) NQMMQDo4M~3 $
Revenue Bonds 1977A
Revenue Bonds 1977B
Revenue Bonds 1977C
34
$5%x5eBWm
DATEOF SALE
'-20-82
124-75
4-13-76
9-12-77
9-12-78
2-11-81
9441
2-1 142
5-2042
5-20-82
24-77
5-24-77
9-13-77
EFFECTIVEINTEREST
RATE
13.890/0
7.87
6.48
5.71
6.27
10.80
14.80
14.83
13.95
13.63
5.93
6.32
5.96
OFFERINGPRICES
100100
(A)100100
(A)99.625
100
(A)99.5099.50
(A)10099
(A)100
99.5088.5088.50
57.89599100
100100
99.25
10099.50
100
(A)100100
(A)100
(A)100
COUPONRATE
13.50II/O13.875
5.40 —7.257.8757.875
5.50 —6.006.506.60
5.00 —5.305.705.80
5.90—6.006.3756.40
9.50—12.5011.12511.1259.759.75
8.2514.5015.00
10.50 —1 3.7514.5014.75
10.50 —1 3.0013.875
13.50
5.50—5.755.906.00
6.00 —6.206.40
5.20—5.706.00
SERIALOF TERM
MATURITIES
7-1-20027-1-2012
7-1 43/1 9987-1-20107-1-2018
7-1 43/1 9987-1-20107-1-2018
7-1 45/20007-1-20097-1-2018
7-1 45/20047-1-20107-1-2018
7-1 47/20017-1-20057-1-20107-1-20177-1-2018
7-1-20037-1-20067-1-2018
7-1 48/1 9967-1-20027-1-2018
7-1 48/1 9967-1-2018
7-1-2002
7-1 49/20017-1-20087-1-2015
7-1 49/20017-1-2012
7-1-89/20017-1-2018
($ /n thousands)
JUHE30 1982
56,960139 320196 280
82,329,870
$ 26,14552,69571,160
150,000
19,60535,10045 295
100,000
59,30563,535
107 160230 000
66,38542,98590,630
200 000
64,37540,53580,31018,95020,830
225 000
20,00020,000
185,000225 000
6,05510,445
148 50D165 OOD
9,195280 925290 120
14,88081 600,000
$ 42,10540,60562,290
145 ODO
33,4855651590 000
20,480109,520130 000
35
Outstanding long-term debt (continued
Revenue Bonds
SEAL<M
19'.SA
Revenue Bonds 1978B
Revenue Bonds 1978C
Revenue Bonds 1979A
Revenue Bonds 1979B
Revenue Bonds 1979C
Revenue Bonds 1980A
Revenue Bonds 1980B
Revenue Bonds 1980C
Revenue Bonds 1980D
Revenue Bonds
Revenue Bonds
1980E
1981A
Revenue Bonds 1981 B
INaatMWRB
($ /n thousands)
DATEOF SALE
~ 141-78
5-23-78
10-12-78
2-14-79
8-28-79
12-11-79
5-9-80
7-15-80
9-23-80
12-1940
12-19-80
3-17-81
3-17-81
EFFECTIVEINTEREST
RATE
6.07c/o
6.86
6.81
7.16
7.69
8.30
9.23
9.50
10.69
12.44
11.83
11.77
11.06
OFFERINOPRICES
(A)99.75100
(A)100100
(A)99.50100
(A)100100
(A)10010099
(A)100
99.5071.47
(A)100
99.2593.50
(A)99.50
(A)
(A)100
99.50(A)
(A)100100(A)
(A)
10099.50100(A)
(A)
COUPONRATE
5.50—5.750/o6.00
6.125
6.00 —6.606.806.90
6.00 —6.506.757.00
6.30 —6.907.1257.25
7.00—7.107.407.60
7.625
7.90—8.758.508.505.75
7.90 —8.709.30
9.3758.50
9.10—10.759.8757.75
10.00 —1 2.0010.80
10.8759.00
14.60 —1 5.2512.2512.509.50
11.75
10.50 —1 1.5011.7512.0010.25
11.00
SERIALOF TERM
MATURITIES
7-1 49/20007-1-2010 .
7-1-2018
7-1-89/20037-1-20107-1-2018
7-1 49/20037-1-20107-1-2018
7-1 49/20037-1-20107-1-2018
7-1 49/19997-1-20037-1-20107-1-2018
7-1 49/20027-1-20107-1-20177-1-2018
7-1-89/19957-1-20037-1-20107-1-2016
7-1 49/1 9997-1-20127-1-2018
7-149/1 9997-1-20077-1-20157-1-2017
7-1 49/1 9967-1-20007-1-20107-1-2013
7-1-2010
7-1 W9/1 9957-1-20007-1-20097-1-2011
7-1-2009
JUHE30 1982
$ 27,70043,90078,400
150,000
37,78532,96079,255
150,000
45,22542,97081,805
170,000
47,51543,14084,345
175,000
25,50514,60037,42572 470
150,000
39,14554,02089,18517,650
20D 000
7,00017,57575,42530,000
130,000
55,00095,00030,000
180,000
20,00033,550
102,45024,000
180,000
11,28018,145
109,57511,000
150 ODO
50,000
15,25527,105
102,64025,000
170,000
30 00032,250,000
Notes to financial statements
38
Note A—OrganizationThe Washington Public Power Supply Sys-tem was organized in 1957 as a municipalcorporation and joint operating agency ofthe State of Washington. Its membershipconsists of 19 public utilitydistricts and 4municipalities that own and operate electricsystems within the State of Washington. Itis empowered to acquire, construct andoperate facilities for the generation andtransmission of electric power and energy.
The Supply System has constructed and isnow operating the Packwood Lake Hydro-electric Project and the Hanford GeneratingProject and has two nuclear electricgenerating plants currently under construc-tion (Nuclear Projects No.'s 2 and 3). TheSupply System's Nuclear Project No. 1 is inthe first year of an extended constructiondelay of up to five years and Nuclear Pro-jects No.'s 4 and 5 were terminated onJanuary 22, 1982. In addition, the SupplySystem has an Internal Service Fund to ac-count for the central procurement of certaincommon goods and services for the pro-jects on a cost-reimbursement basis.
Nuclear Projects No.'s 1, 2, and 4 arewholly owned by the Supply System.Nuclear Project No. 3 is jointly owned bythe Supply System (700/0) and four investor-owned utilities (30o/0). Nuclear Project No. 5is also jointly owned by the Supply System(90o/0) and one investor-owned utility (10o/0).
Each joint owner is responsible for its ownfinancing costs, providing its share of thecosts of construction, operation and termi-nation and will be entitled to its ownershipshare of the projects'perating capability.
In accordance with the covenants of thebond resolutions, the Supply System isauthorized to recover its cost of operationand debt service over the life of the plant orbonds outstanding. Accordingly, the SupplySystem realizes no income or loss andequity is not accumulated.
Note B—Summary of SignificantAccounting PoliciesThe Supply System has adopted accountingpolicies and practices that are in accord-ance with generally accepted accounting "
principles applicable to the utility industry.Separate books of account are maintainedfor each project except for Nuclear ProjectsNo.'s 4 and 5, which are accounted for as asingle entity.
Restricted FundsIn accordance with project bond resolutionsand certain related agreements, separaterestricted funds are required to beestablished for each of the projects. Theassets held in these funds are restricted forspecific uses including construction, termi-nation, debt service and other specialreserve requirements. Restricted funds areidentified on the balance sheet as SpecialFunds and Debt Service Funds.
Cash and investments in Special Funds ofprojects under construction and in termina-tion include cash retainage amounts held inescrow for contractors of $144,472,664 atJune 30, 1982.
Current Assets and Current LiabilitiesAssets and liabilities shown as current inthe accompanying balance sheets excludecurrent maturities on revenue bonds andaccrued interest thereon because Debt Ser-vice Funds are provided for their payment.
InvestmentsInvestments include time certificates ofdeposit,.repurchase agreements (securedby U.S. Government securities) and UnitedStates Government and Government Agen-cies securities. Investments are stated atcost or amortized cost as appropriate andinclude acccrued interest.
Investments held in the Bond Fund ReserveAccounts (included in Debt Service Funds)and Reserve and Contingency Funds (in-cluded in Special Funds) are stated at thelower of amortized cost or market as pro-vided by their respective bond resolutions.
The market value of investments held inDebt Service and Special Funds and inCurrent Assets (Operating Fund) approx-imate the carrying value.
Income Earned on InvestmentsIncome earned on investments includesgains and losses from the sale of in-vestments. Income earned on investmentsheld by projects under construction isrecorded as a reduction in constructioncosts. Income earned on investments heldby operating projects accrues to the ap-plicable project's Operating Fund.
Capitalization of Construction Costs andOverhead ExpensesDuring the construction or construction-delay phase of a project, the Supply Sys-tem will capitalize all costs of the project in-cluding general, administrative, interest,certain depreciation and other overhead ex-penses. After termination, such costs areclassified as Costs Related to Constructionand Termination of UtilityPlants.
The overhead expenses of the Supply Sys-tem are allocated from the Internal ServiceFund to the various projects primarily onthe basis of direct salary cost or directusage.
UtilityPlant and Equipment —At CostProvisions for depreciation are computed bythe straight-line method based on theestimated useful lives of the projects, whichapproximate the term of the related revenuebonds.
Improvements to U.S. Government-ownedfacilities are being amortized over theperiod covered by the contract for dual-purpose operation of the Department ofEnergy's New Production Reactor.
Contributions Used for Purchase ofEquipment—Packwood and HanfordProjectsMonies provided by participants to acquireequipment since completion of the projectsare recorded and accounted for as a reduc-tion of the carrying value of such equipmentincluded in UtilityPlant and Equipment.
Debt Discount, Premium and ExpensesDebt discount or premium relating to the is-suance of revenue bonds is amortized bythe straight-line method over the terms ofthe respective issues.
For operating and construction projects, ex-penses relating to the issuance of revenuebonds are also amortized by the straight-line method over the terms of the respec-tive issues. For terminated projects suchcosts are combined with Costs Related toConstruction and Termination of UtilityPlants.
RevenuesMember purchasers of power are contrac-tually obligated to pay project annual costsincluding debt service (excluding deprecia-tion and amortization). The Supply Systemrecords these reimbursable annual costs asoperating revenues for the Hanford andPackwood Projects. In addition to recoveryof project annual costs, the Supply Systemrecords as revenue each year an amountequal to the provisions for depreciation andamortization, less the recorded gains onbond redemption. This accounting policy isused in order to spread such revenuesequally over the full term of the bonds.
Cumulative reimbursable annual costs, lesspayments by member purchasers for bondredemption, are reflected as Unbilled Reim-bursable Costs in the accompanyingbalance sheets.
For Projects No.'s 1 and 2, payments re-ceived from member purchasers for bondredemption and interest are shown asUnearned Revenue in the accompanyingbalance sheets. Such unearned revenuewill be recognized as revenue during theoperation period of the plants.
Cost Related to Construction and Termi-nation of UtilityPlantsFor Projects No.'s 4 and 5, the costs ofconstruction through January 22, 1982, thedate of termination, and the costs of termi-nation and other related costs subsequentto that date are shown as Cost Related to 39
Notes to financial statements (continuedl
40
Construction and Termination of UtilityPlants in the accompanying balance sheetsas of June 30, 1982.
Such costs will be reduced as funded byparticipants and the joint owner (terminationcosts) or by participants alone (debt service)or as offset by the proceeds of disposal ofthe plants.
Retirement PlanThe Supply System participates in theWashington State Public Employees'e-tirement System that provides retirementbenefits to eligible employees. The cost ofthe plan to the Supply System is deter-mined by the retirement system's Board.The actuarially computed value of pensionbenefits exceeds the fund assets for theretirement system. However, because theretirement system is a multi-employer sys-tem, the amount of such excess, if any, thatrelates to the Supply System is not avail-able. The Supply System's required con-tribution was $4,033,255 in 1982.
Note C—Long-Term DebtExcept for Nuclear Projects No.'s 4 and 5,which are. financed together as one utilitysystem, all Supply System projects arefinanced separately. The revenue bondsissued with respect to each project arepayable solely from the revenues of thatproject.
Outstanding revenue bonds of the variousprojects as of June 30, 1982 and 1981, arepresented on pages 30 through 37.
Security—Agreements and ContractsThe United States of America, Departmentof Energy (DOE), acting by and through theBonneville Power Administration (BPA) haspurchased the entire capability of the Han-ford Generating Project and the SupplySystem's ownership share of the
projects'apability
in Nuclear Projects No.'s 1, 2 and3 from its statutory preference customersand, in addition, with respect to Project No.1, five of its private utilitycustomers. Eachof these customers has, in turn, purchasedsuch capability from the Supply System, all
under the net-billing and exchange agree-ments. BPA is obligated to pay the partici-pants, and the participants are obligated topay the Supply System its pro rata share ofthe total annual costs of the projects in-cluding debt service on the bonds, whetheror not the projects are completed, operableor operating and notwithstanding thesuspension, reduction or curtailment of theprojects'utput.
The Supply System's Packwood Projectrevenue bonds are secured by power salescontracts between the Supply System andeach of its 12 member purchasers. Pur-suant to these agreements, member pur-chasers pay for their percentage allocationof power specified therein at rates sufficientto operate and maintain the project, andpay debt service on the bonds. Suchpayments continue until the bonds are paidor provision is made for their payment orretirement.
As security for the Generating Facilitiesrevenue bonds for Nuclear Projects No.'s 4and 5, the Supply System has entered intoParticipants'greements with 88 utilitiesoperating principally in the western UnitedStates. Pursuant to the Participants'gree-ments, the participants are obligated to paytheir respective share of annual terminationcosts, including debt service on the bonds.Payments from the participants for NuclearProjects No.'s 4 and 5 termination costsand debt service are due beginning onJanuary 25, 1983. See Note D for a discus-sion of the termination of Nuclear ProjectsNo.'s 4 and 5 and related challenges to theParticipants'greements.
As security for Nuclear Projects No.'s 4 and5 subordinated revenue notes, the SupplySystem has pledged to set aside funds forpayment of such obligations from fundsavailable in the revenue fund. Such repay-ments, to the degree not otherwise pro-vided for, will be included in the amountsdue under the Participants'greementsdescribed above.
Advances from Members andParticipants and Unearned RevenueAs of September 1, 1977, for Nuclear Pro-ject No. 2 and July 1, 1980, for NuclearProject No. 1, project participants were re-quired to fund debt service, working capitaland reserve requirements as provided inthe net-billing agreements.
The debt service portion of this funding hasbeen classified as Unearned Revenue, adeferred credit that will be recognized asrevenue during the operating period of theplant.
Note D—Commitments andContingenciesThe Supply System has entered intosubstantial contracts covering a portion ofthe total estimated costs for certain majorequipment and material, and for servicesrelating to financing, design and the supplyof nuclear fuel for the projects underconstruction.
Hanford Generating Project and ItsRelationship to Nuclear Project No. 1
The Department of Energy owns andoperates the New Production Reactor. Thisreactor provides by-product steam to theHanford Generating Project. The SupplySystem's current agreement with DOE pro-vides for the continuation of this dual-purpose operation of the reactor throughJune 1983.
On July 9, 1982, a new agreement betweenthe Supply System and the DOE was ap-proved. This agreement extends the dual-purpose operation of the New ProductionReactor through June 30, 1993, and callsfor a substantial increase in contract costs.In accordance with certain related agree-ments, the operating costs of the projectwill in turn be offset by payments from cer-tain public and private utilities in return forthe energy generated as a result of con-tinued operation.
It was initially intended that Nuclear ProjectNo. 1 would be constructed adjacent to theHanford Generating Project and would pro-
vide the energy source to operate the pro-ject when DOE ceased operation of theNew Production Reactor. Because studiesindicated that generating resources in thePacific Northwest would be inadequate inthe late 1970s and early 1980s, the SupplySystem determined that the HanfordGenerating Project should be kept availablefor power production. Therefore, theNuclear Project No. 1 net-billing, exchangeand project agreements were amended toprovide for the separation of Nuclear Pro-ject No. 1 from the Hanford Generating Pro-ject and to provide that Hanford GeneratingProject costs, to the extent not otherwiseprovided for, will be treated as Nuclear Pro-ject No. 1 costs having a first claim on therevenues of that project.
The amended agreements provide for thepayment by Nuclear Project No. 1 partici-pants of all debt service costs of the Han-ford Generating Project, commencing July1, 1980, regardless of continued operationof the reactor. If the plant ceases opera-tions, revenues to the Hanford GeneratingProject arising from the aforementionedpayments will nevertheless be recordedeach year thereafter in amounts that willresult in full realization of the carrying valueof the plant.
The U.S. Government has an option to ac-quire ownership of the Hanford GeneratingProject upon obtaining Congressional ap-proval. If the Government exercises its op-tions, it must assume all rights and obliga-tions of the project, including the obligationto pay all revenue bonds.
Nuclear Project No. 1—ConstructionDelayOn April 29, 1982, the Supply System, uponthe recommendation of Bonneville, ap-proved the implementation of an extendedconstruction delay of Nuclear Project No. 1
for up to five years. During the constructiondelay, plant assets will be preserved alongwith existing project licenses.
The Supply System's current estimate ofcosts to settle terminated and delayed con-
Notes to financial statements (continued)
42
tracts ($ 11,060,000) has been accrued asAccounts Payable and Accrued Expensesin the accompanying balance sheet.Although management of the Supply Sys-tem is satisfied that their estimates arereasonable, the settlement process is in itsearly stages and the final settlement costscannot be determined at this time.
The obligations of the participants of theProject and Bonneville under the net-billingagreements are not affected by the con-struction delay.
Initiative 394On November 3, 1982, Washington statevoters approved Initiative No. 394. Underthe new law, the Supply System must ob-tain the approval of the voters of its 23member government entities to issue bondsto finance the cost of each of its projectsafter July 1, 1982.
The bond fund trustees for Projects No.'s 1,2 and 3 have commenced a lawsuit againstthe State of Washington and certain of-ficials thereof alleging, in part, that InitiativeNo. 394 is unconstitutional, is pre-emptedby existing federal legislation, and is an im-proper exercise of the initiative processunder Washington law.
The Department of Justice has initiated asimilar lawsuit challenging Initiative No. 394on behalf of the United States of Americaasserting certain rights and interests ofBonneville. The Court has consolidated thetwo lawsuits.
In June 1982, the United States DistrictCourt, Western District of Washington,ruled that Initiative 394 is unconstitutional.However, to speed the appeal process, theCourt elected to stay the effective date of .
its order until April 15, 1983. The appeal iscurrently scheduled to be heard by theUnited States Court of Appeals on Novem-ber 10, 1982.
In the opinion of legal counsel, the Court'sruling will be affirmed by the appealprocess.
Should Initiative 394 be held to be constitu-tional and voters disapprove the issuance ofbonds to pay for continued construction ofthe projects, or should the Supply Systemfor any reason be unable to issue additionalbonds, BPA, subject to the provisions andprocedures specified in the net-billing andproject agreements, and the investor-ownedutilities, subject'o the provisions and pro-cedures specified in the Nuclear ProjectNo. 3 Ownership Agreement, may continuecurrent or reduced levels of construction oftheir respective ownership share of the pro-jects and provide funds to complete con-struction from revenues or other fundingsources which may be available to them.
The inability of the Supply System tofinance continued construction of any of theprojects through the issuance of bondscould result in a delay and increased costsof the projects or termination of the projectsunless other means of paying for the re-maining costs of construction are available.
Based on current cash-flow projections, theSupply System estimates that monies cur-rently available will be sufficient to meetcash-flow requirements on Nuclear ProjectsNo.'s 1, 2 and 3 until April 1985, August1983 and August 1983, respectively.
Termination of Projects No.'s 4 and 5On January 22, 1982, the Supply System'sNuclear Projects No.'s 4 and 5 were termi-nated. The construction licenses andphysical assets of Projects No.'s 4 and 5are being maintained for a period in orderto maximize the value of the projects in theevent of possible sale of the projects intheir entirety. The costs of construction forthe projects are reflected as utility plant andequipment related to terminated projects athistorical cost.
Under the terms of theParticipants'greements
(discussed below under Securi-ty) and the Ownership Agreement withPacific Power and Light Company (Pacific),the participants of the projects areobligated to pay debt service on the bondsand Pacific and the participants areobligated to fund their respective ownership
share of termination costs, beginningJanuary 25, 1983, and continuing until thebonds are funded completely and all costsof termination have been paid. Therecoverable value of the plant assets maybe less than their cost. Any funds receivedfrom the sale of plant assets reduce theproject participants'bligation for debt ser-vice and termination costs.
Pacific has stated to the Supply Systemthat it considers the failure of the SupplySystem to obtain necessary financing forProject No. 5 to be a breach of the ProjectNo. 5 Ownership Agreement and that itreserves its rights to pursue appropriateremedies with respect to such breach. It isthe position of the Supply System that thetermination of Project No. 5 does not con-stitute a breach of the Project No. 5 Owner-ship Agreement and that Pacific is respon-sible under the Project No. 5 OwnershipAgreement for payment of its 10o/o share ofthe costs of termination of such project. Inthe event Pacific fails to pay its share of ter-mination costs, an insufficiency of funds tomeet Pacific's share with respect to thecost of termination of Project No. 5 underthe Project No. 5 Ownership Agreementwould result. To date Pacific has made allpayments required under the Project No. 5Ownership Agreement, subject to a reserva-tion of its rights under such agreement.
The Supply System's estimate of the cur-rent liability for termination costs($274,588,000), including costs of contractsettlements and other termination costs,have been accrued as Accounts Payableand Accrued Expenses in the accompany-ing balance sheets. The portion of suchcosts which must be paid prior to com-mencement of the payments by the par-ticipants and by Pacific on January 25,1983, is not expected to exceed$35,068,000. Such costs will be fundedthrough amounts in special funds notneeded to fund other liabilities and throughtermination notes from participants. Out-standing unused commitments from par-ticipants for such termination notes total$62,673,000 at June 30, 1982.
Although management of the Supply Sys-tem is satisfied that their estimates arereasonable, the settlement process is in itsearly stages and the final settlement costscannot be determined at this time. The ac-crual of such costs and expenses causesthe Special Fund to reflect an excess ofliabilities over assets at June 30,1982. Inthe opinion of legal counsel, the existenceof a deficit balance in the Special Funds, asa result of recording liabilities that hadaccrued but were not yet due and payable,is not an event of default under the bondresolution for the projects.
During 1982 numerous lawsuits have beenfiled by participants and ratepayers of par-ticipants challenging the validity of the Par-ticipants'greements. Although the in-dividual actions make various specificclaims, they all seek to avoid, through onemeans or another, payments for terminationand debt service costs required by theseagreements.
As of October 29, 1982, a case involvingOregon public bodies, the Circuit Court forLane County, Oregon, has issued a rulingthat these public bodies did not haveauthority under Oregon law to enter into theParticipants'greements.
In addition, an action has been broughtagainst the Supply System and the partici-pants by Chemical Bank (Projects No.'s 4and 5 bond trustee) asking the court todeclare that there is no reason why thebonds should not be repaid on a timelybasis. On October 15, 1982, the Court ruledthat the Washington participants are re-quired to fund debt service and terminationcosts of the projects. It is likely that this rul-ing will be appealed, and the action is con-tinuing on other issues.
At the current stage of the matters dis-cussed above, it is impossible to predict theutlimate outcome and the related impact onthe projects.
43
Notes to financial statements (continued)
44
However, should the Participants'gree-ments be held to be invalid, the assets ofNuclear Projects No.'s 4 and 5, currentlyshown on the accompanying balancesheets at cost, would require restatement totheir realizable value. Such realizable valuehas not been determined and may be lessthan the amount shown in the accompany-ing balance sheets.
As discussed above, the Supply SystemNuclear Projects No.'s 4 and 5 are currentlyinvolved in several matters that may affecttheir ability to obtain funding for terminationcosts. Should the projects be unable to ob-tain such funding, their creditors may,through legal process, seek to reach fundsheld by other nonoperating projects of theSupply System or the revenues pledgedthereto, In a September 4, 1981, opinion,counsel to the Supply System stated thatthe revenues and the funds held by othernonoperating projects of the Supply Systemare not subject to the claims of suchcreditors and no liens thereon are availableto them, except as they might obtain rightsthrough a valid exercise of the sovereignpolice power of the State of Washington, orof the constitutional powers of the UnitedStates of America, or by a voluntarybankruptcy of the Supply System. Althoughcounsel has not updated their legal re-search, they have since confirmed thatnothing has come to their attention thatwould lead them to believe their September4, 1981, opinion was incorrect as of Oc-tober 29, 1982. Counsel has not undertakenan investigation of such issues with respectto the Packwood or Hanford GeneratingProjects; however, they believe that uponfull investigation the same opinion could berendered with respect thereto.
Shared CostsThe termination of Nuclear Projects No.'s 4and 5 creates an uncertainty as to how cer-tain common services and facilities are tobe shared with Nuclear Projects No.'s 1
and 3, respectively. The participants of
Nuclear Projects No.'s 4 and 5 havepresented a claim to Projects No.'s 1 and 3to reimburse Projects No.'s 4 and 5 for aportion of the costs of such shared servicesand facilities paid by the projects prior toJuly 1, 1981 ~ The claim includes a requestfor immediate payment of $75,000,000 and$86,000,000 plus interest from Nuclear Pro-jects No.'s 1 and 3, respectively, plus suchamounts as may be determined in thefuture.
In addition, three of the four investor-ownedutilities that comprise the joint owners ofNuclear Project No. 3 have filed a legal ac-tion against the Supply System asking for ajudicial determination of how costs shouldbe shared between Projects No.'s 3 and 5.On October 26, 1982, the Supply Systemfiled a legal action against BPA, the fourinvestor-owned utilities, and the partcipantsof Nuclear Projects No.'s 4 and 5, and theconstruction fund trustee for Nuclear Pro-ject No. 1 seeking a judicial determinationof past and future shared costs amongNuclear Projects No.'s 1 and 4 and NuclearProjects No.'s 3 and 5.
The Supply System cannot predict the out-come of these pending claims and litigations.
LitigationOn November 18, 1982, the city of Spring-field, Oregon, filed a complaint against theSupply System, BPA and the four investor-owned utilities in Nuclear Project No. 3.The defendants are all entities which haveexecuted net-billing agreements pertainingto one or more of the Supply Systemprojects.
The complaint alleges that the DeFazio v.Washington Public Power Supply Systemdecision raises issues relative to SupplySystem Projects No.'s 4 and 5 which addi-tionally apply to the net-billed projects. Itfurther alleges that members of Oregonpublic utility boards are exposed to per-sonal liability for payments of public moneynot authorized by law if the DeFazio deci-sion is applicable to the net-billingagreements.
It seeks a declaratory judgment declaring(1) that the Oregon public entities have fulllegal authority to enter into the net-billingagreements; or (2) that if they did not haveauthority to enter into the net-billingagreements, BPA is liable to make suchpayment and is estopped from denying itsobligation to do so.
Because of the recent filing of the case, no ~
discovery has taken place nor have thevarious parties'ositions been fully ascer-tained. Until defenses and counter positionsare set forth, it is not reasonable to attemptto analyze the likelihood of their success.
Counsel for BPA has been in contact withcounsel for the Supply System regardingthe issues raised by the DeFazio casewhich is the basis for this litigation. TheSupply System has been advised that it isBPA's position that if a participant does notpay the Supply System under the net-billingagreements but pays its full BPA power billrather than taking the credit provided forunder the net-billing agreements, BPAwould pay the Supply System the portion ofthe power bill payment which would havebeen paid directly to the Supply System onthe payment which had been misdirected.Thus, the Supply System would receive theamount required under the net-billingagreements directly from BPA. BPA furtheradvises that if a participant does not paythe Supply System but still took a deductionon its BPA power bill, BPA would treat thematter as a default under the default provi-sions and would pay the Supply Systemdirectly.
As noted above, BPA is a party to the caseand any ultimate decision will be bindingupon the BPA.
The Supply System is involved in variousclaims and legal actions not mentionedabove as both a plaintiff and a defendantand in certain claims arising in the normalcourse of business for a large constructionprogram. Although some suits and claims
are significant in amount, final disposition isnot determinable. In the opinion of manage-ment and legal counsel, the outcome of anysuch litigation or claims will not have amaterial effect on the financial positions ofthe projects. The estimated cost of the pro-jects may either be increased or decreasedas a result of the outcome of these matters.
Note E—Interproj ect TransactionIn order to meet their cash-flow needs,Nuclear Projects No.'s 4 and 5 sold nuclearfuel and related enrichment contract rightsto Nuclear Project No. 1 during 1982. Thesales price was approximately $61 million,which was $55 million less than the carry-ing value of these assets. The differencebetween carrying value and the proceeds ofthe sale has been included in CostsRelated to Construction and Termination ofUtilityPlants. The Supply System believesthat the terms of this transaction are notless favorable than Projects No.'s 4 and 5could have obtained from an unrelated party.
45
Statement of debt service requirements
YEAR
ANNUALDEBT
PRINCIPAL INTEREST REOUIREMENTS PRINCIPAL
00$0
0
INTEREST
ANNUALDEBT
REQUIREMENTSPRINCIPAL'NNUALDEBT
INTERESTRECUIREME'983
1984
1985
1986
1987
1988„
1989
1990
1991
1992
1993
1994
19951996
1997
1998
1999
2000
2001
200220032004
200520062007200820092010
2011
2012
20132014
2015
2016
20172018
$ 2,9153,0103,125
3,2403,2553,3603,4853,4555,0655,5855,835
800
$ 1,303
1,210
1,114
1,014913806693580425246
58
4
$ 4,2184,2204,2394,2544,1684,1664,1784,0355,4905,831
5,893804
$ 155
160
170
175
180
190
195
265
275290300315330340360380400465490515540565
590615640665690715410165
$ 424418413
406400393
386379
369359349338326314302289275260243225207187
166
145
122
9975
4923
4
$ 579578583
581
580583581
644644
649649653656654662
669675725733740
747752756760762764765764433169
4,0459,2459,785
14,85515,47018,05518,97021,46562,56023,75525,56026,98528,55030,74538,08041,56545,45549,46553,92058,88551,13555,43060,60066,32072,66579,70587,52596,220
105,855 .
116,610
118,635127,155
142,820175,395
194,005
208,940208,717208,211
207,674206,652205,729204,564203,320201,877196,226194,547192,684190,667188,480185,949182,462178,573
174,563170,104165,142
159,602155,305150,137144,415138,071
131,031
123,213114,518104,88394,12982,105
69,605
55,47639,441
20,831
21279
217,9
217,9222,5222,1
223,7223,5224,7
224,g219,9
220,1219,6219,2i
219,2l
224,0224,0224,0,
224,0,
224,0,
224,0,
210,7'10,7
210,7'10,7'10,7'10,7'10,7'10,7'10,7'10,7'00,7
196,7I
198,2'14,8'14,8',
$48,160 $8 866 $61 496 $ 14 646 $7 946 19 490 $2 147490 $6 467848 '$7 606
6.'Excludes
$3,815,000 ot bond principal retired on July 1, 1982
($ in thous8nds)
ANNUALDEBT
PRINCIPAL INTEREST REOUIREMENTB PRINCIPAL
ANNUALDEBT
INTEREST REDUIREMENTB
WANNUAL
DEBTPRINCIPAL INTEREST REQUIREMENTS
$ 15,010
15,940'16,925
23,29524,92526,64528,51030,55582,80035,26037,98040,95044,22547,82565,57571,95579,33085,79593,290
101,635
93,05597,375
106,765117,225
122,655134,755148,200163,170179,835198,410
$ 217,937217,020216,048215,015213,399211,686209,818207,778205,539196,455
193,758
190,820187,602184,053
180,144
173,774166,666
159,947152,468
144,141
134,854
127,046117,655107,196
95,57683,56670,21755,36538,82220,380
$ 232,947232,960232,973238,310238,324238,331
238,328238,333288,339231,715231,738231,770231,827231,878245,719245,729245,996245,742245,758245,776227,909224,421
224,420224,421
218,231
218,321
218,417218,535218,657218,790
1,680
1,785
6,175
6,5308,925
10,555
11,31512,145
13,05014,045
15,12516,31017,615
19,04522,59524,60526,81029,02031,47534,18037,09542,73045,99549,61549,67554,48559,81065,71072,26580,36589,49099,770
111,370
124,455139,2351$ 4 95$
$ 165,882
165,791
165,692165,357
165,001
164,368163,579162,761
161,901
160,961
159,932158,798157,546156,163
154,637152,628150,427148,218
145,773143,068
140,057136,746132,503127,908122,946118,136112,810106,909100,355
92,250,83,12672,84661,25248,16533,38217 $ 65
167,562167,576
171,867
171,887
173,926
174,923
174,894174,906174,951
175,006
175,057175,108
175,161
175,208177 232177,233
1 77$ 237
177,238
177,248
177,248177,152
179,476178,498177,523172,621
172,621
172,620172,619172,620172,615172,616
172,616172,622
172,620172,617172 $15
$ 7,78860,000
$ 24,06075,53057,12529,12531,26534,41536,16539,335421160
45,39049,00052,97555,16059,85565,01570,68576,94083,78091,28099,500
108,535116,820111,08092,740
110,945
107,595114,855118,485118,740131445
$ 188,903207,140187,904187,904
187,904
187,904
187,904185,991
178,083
173,144
170,437
167,991
165,243
162,338
159,097
155,643151,923
147,843143,349
138,657133,500
127,825
121,574114,729
107,23399,011
89,97980,06570,22660,95253,70244,61235,92626,65717,871
9 020
196,691
267,140187,904
187,904
187,904
187,904
211,964261,521
235,208202,269201,702202,406201,408201,673201,257201,033200,923200,818198,509
198,512198,515198,510
198,514198,509198,513198,511
198,514196,885181,306153,692164,647
152,207150,781
145,142136,611
140 4$ 5
$2 $29870 $4 $94 745 $7 024 $15 $ 1 60D 000 $4 675 539 $$ 275 539 $2 317 7$$ $4 630 1$ 4 $ $ $47 972
Report of independent accountants
48
Board of DirectorsWashington Public Power Supply SystemRichland, Washington
We have examined the individual financial statements, as listed in the financial statementssection of the table of contents, of Washington Public Power Supply System's HanfordGenerating Project, Packwood Lake Hydroelectric Project, Nuclear Project No. 1, NuclearProject No. 2, Nuclear Project No. 3, Nuclear Projects No.'s 4 and 5, and the Internal Ser-vice Fund for the year ended June 30, 1982. Our examinations were made in accordancewith generally accepted auditing standards and, accordingly, included such tests of the ac-counting records and such other auditing procedures as we considered necessary in the cir-cumstances.
As discussed in Note D to the financial statements, Washington Public Power Supply Sys-tem Project No. 1 is negotiating with its contractors and suppliers to settle contract claimsassociated with an extended construction delay of the project. Due to the preliminary statusof the settlement process, the ultimate amounts of such costs are not fully determinable'atthe present time.
As discussed in Note D to the financial statements, Washington Public Power Supply Sys--tem Projects No.'s 1 and 3 are involved in disputes concerning costs shared with Washing-ton Public Power Supply System Projects No.'s 4 and 5. Due to the preliminary status ofthese disputes, the ultimate amount of additional costs, if any, to be borne by Projects No.'s . '
and 3 are not determinable at the present time.
As discussed in Note D, a decision was made in January 1982 to terminate construction ofthe Supply System's Nuclear Projects No.'s 4 and 5. As a result of the termination of theprojects, numerous lawsuits have been filed by and against the Supply System to determinethe validity of the Participants'greements. Should these agreements utlimately be ruled in-valid, and the participants excused from payment of the costs of Projects No.'s 4 and 5,monies would not be available for repayment of revenue bonds and other liabilities of the,projects. In addition, as further discussed in Note D, amounts have been accrued forestimated contract settlement and termination costs. Due to the preliminary nature o'f the
set-'lementprocess, the ultimate amounts are not fully determinable at the present time.
In view of the significance of the matters discussed in the preceding paragraph, we are'nableto express, and we do not express, an opinion on the balance sheet or statement of
changes in financial position of Nuclear Projects No.'s 4 and 5 referred to above.
In our opinion, subject to the effects on the 1982 financial statements of Nuclear Project No.1 of such adjustments, if any, as might have been required had the'outcome of the uncer-tainty referred to in the second paragraph been known, and subject to the effects on the1982 financial statements of Nuclear Projects No.'s 1 and 3 of such adjustments, if any, asmight have been required had the outcome of the uncertainty referred to in the thirdparagraph been known, the financial statements listed in the aforementioned table of con-tents present fairly the respective individual financial positions of Washington Public PowerSupply System's Hanford Generating Project, Packwood Lake Hydroelectric Project, NuclearProject No.1, Nuclear Project No.2, Nuclear Project No.3, and the Internal Service Fund atJune 30, 1982, and the respective individual results of operations and changes in financialposition of the operating projects and changes in financial position of the nonoperating Pro-jects No.'s 1, 2, and 3 for the years then ended, in conformity with generally acceptedaccounting principles applied on a consistent basis.
Seattle, WashingtonSeptember 10, 1982, except as to
the 25th, 26th and 31st paragraphs ofNote D as to which the date isOctober 29, 1982