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2006 ANNUAL REPORT
2006
ANNUAL
REPORT
Discovering Solutions
W E S T E R N A R E A P O W E R A D M I N I S T R A T I O N About the cover Discovering solutions
Securing reliable energy for the nations future requires a daily commitment
from Western employees. There are challenges at every turnequipment
reaching the end of its service life, a continued stream of new industry
regulations and shrinking budgetsyet employees are able to meet the
Departments goals of promoting reliable, clean and affordable energy by finding
innovative solutions to these challenges.
In FY 2006, Western employees worked to solve transmission capacity
issues on the eastern plains of Colorado and Kansas, accommodate additional
generation in the Desert Southwest, upgrade our communication systems and
help our customers ensure reliable service to their consumers.
These and other challenges we encounter often require the resolve to
make tough choices, sometimes under tight deadlines. But we know that the
discoveries we make today to ensure reliability of the bulk
interconnected power grid will improve the quality of life for
generations to come. 1
Contents
Western at a glance
3
Administrators letter
4
Western profile
7
Customer service regions / Project marketing areas
8
Discovering solutions
9
2006 highlights
17
FY 2006 IRP summary
22
Financial data
25
Management discussion and analysis
25
Performance perspective
27
Independent auditors report
30
Combined financial statements and footnotes
31
Organizational chart
43
Contact Information
44 2
The foundation
of reliable service,
effective project
management and
continued process
improvement is at
the core of every
job we undertake. 3
WHERE OUR ENERGY GOES (kWh)
WHERE OUR REVENUE COMES FROM ($)
Municipalities
23.6%
Cooperatives
18.5%
State agencies
22.5%
Public utility districts
16.2%
Power
marketers
4.0%
Investor-owned
utilities
2.0%
Federal
agencies
3.8%
Project use (Reclamation)
4.4%
Interproject
0.6%
Irrigation districts
1.7%
Native American
tribes
2.7%
CUSTOMER MIX
Municipalities
39.9%
Cooperatives
8.8%
State
agencies
6.8%
Public utility districts
2.5%
Power
marketers
3.9%
Investor-
owned
utilities
3.3%
Federal
agencies
4.8%
Project use (Reclamation)
10.8%
Interproject
0.5%
Irrigation districts
7.1%
Native American
tribes
11.6%
Municipalities
23.5%
Cooperatives
18.7%
Public utility
districts
16.1%
State agencies
19.2%
Federal agencies
4.4%
Project use
(Reclamation)
2.6%
Power
marketers
7.4%
Native
American tribes
2.2%
Interproject
0.9%
Irrigation
districts
1.1%
Investor-owned
utilities
3.9%
Western at a glance
Marketing profile
FY 2006
Firm energy sales
35.3 billion kWh
Nonfirm energy sales
3.7 billion kWh
Total
39.0 billion kWh
Customer profile
Number
Total
670
Repayment profile
Change in cumulative principal repaid in FY 2006
$42.3 million
Total repaid
$3.0 billion
Financial profile
Gross operating revenues
$1.2 billion
Sales of electric power
$879.5 million
Operating expenses
$1.0 billion
Purchased power and transmission expense
$553.8 million
Assets
Substations
296
Transmission lines
17,008 miles
TO CONTENTS 4
Administrators letter
The Honorable Samuel W. Bodman
Secretary of Energy
Washington, DC 20585
Dear Secretary Bodman:
In FY 2006, we at Western continued to discover solutions to ensure system reliability. From ground-
breaking designs on our Mead Substation Upgrade to innovative upgrades to our communication systems,
we owe much of our foresight to the leadership of my predecessor, Mike Hacskaylo, who kept us focused on
providing exemplary service to our customers.
I am proud to have the opportunity to lead this great organization and will build upon the strong
foundation that previous Western administrators have established. That foundation of reliable service,
effective project management and continued process improvement is at the core of every job we undertake.
Because of our collaborative work with customers and industry partners, we continued to find creative ways
to manage our Federal hydropower program in FY 2006 while ensuring Western repays the U.S. Treasury.
With our alternative financing programs and our receipt funding authoritywhich allows us to fund purchase
power expenses from power sales receiptswe manage our $1 billion program budget with increased self-
sufficiency. In fact, appropriations of $234 million made up only 23 percent of our budget in FY 2006.
Other funding sources include 27 percent from power sale receipts, 16 percent from the revolving fund and
34 percent from customer advances for reimbursable work. In FY 2007, we will look for more ways to reduce
our appropriation requirements by continuing to pursue receipt financing that will allow us to use our receipts
for annual operating costs.
Revenues from power sales totaled more than $879.5 million in FY 2006 from delivering almost
39 billion kWh of reliable energy to our customers. While the prolonged drought required us to continue to
purchase power to meet long-term firm power contracts, the banner water year that Central Valley Project
reservoirs experienced helped ease the impact. Despite continuing pressure from the seven-year drought, we
repaid more than $42.3 million in FY 2006.
While low reservoir levels, aging equipment, tight budgets and increased purchase power costs challenged
us in FY 2006, we discovered new ways to ensure system reliability for our 670 wholesale customers, such
as establishing partnerships on several proposed transmission upgrade projects. By providing non-Federal
funding for new transmission line construction, such partnerships could help us find solutions to constrained
paths identified in the Energy Policy Act of 2005.
The proposed Eastern Plains Transmission Project, which involves a partnership with Tri-State Generation
and Transmission, Association Inc., may prove to be another example of how diverse sources of funding can
enhance the regional bulk transmission system in the West. This project, which includes about 1,000 miles of
TO CONTENTS new high-voltage transmission lines, as well as eight new and four expanded substations in eastern Colorado
and Kansas, could be one of the nations largest transmission additions in the past five years.
Western proposes to participate in exchange for 275 MW of capacity rights on the new lines, which Tri-
State would own and operate. If all goes well with the environmental work, well begin construction in 2009.
Another major project we turned our attention to in FY 2006 was the Mead Substation Upgrade, one of
Westerns largest projects. We are applying the successes from the California-Oregon Transmission Project
and Path 15 to revise 1,700 control system design drawings, replace more than 48 power circuit breakers,
add two new 230-kV circuit breakers and install five new 500-kV circuit breakers and four new 500/230-kV
autotransformers to the substation by July 2007.
In FY 2007, I anticipate we will continue many of the same initiatives that were priorities last year, such as
helping our tribal customers achieve economic self-sufficiency, assisting other Federal agencies in purchasing
renewable energy, complying with industry regulations and ensuring a viable, skilled workforce to lead us into
the future.
In fulfilling my new role as Westerns Administrator, I plan to look for more ways that Western can connect
more closely with our customers. I would like us to renew our partnerships and to find out
which services we provide that our customers value most. Other priorities I see for
Western in the future are expanding our transmission and operations services,
integrating wind into our existing transmission system and applying new
technologies to make our operations more efficient. And, as always, we will
keep our focus on safety in all projects we undertake.
As we look ahead, I know that Western employees will continue
to work effectively and efficiently to support the Departments
mission to discover solutions and secure Americas future with
reliable energy.
Timothy J. Meeks
Administrator
5 6
Employees work around
the clock to sell power,
operate transmission and
provide maintenance
and engineering services. 7
Our customers include municipalities,
cooperatives, public utility and irrigation districts,
Federal and state agencies, Native American
tribes, investor-owned utilities (only one of which
has an allocation of Fe