Public Power Generation AgencyPublic Power Generation Agency Balance Sheets December 31, 2013 and 2012 See Notes to Financial Statements 6 2013 2012 Assets Current Assets Cash and

Public Power Generation Agency

Auditor’s Report and Financial Statements

December 31, 2013 and 2012

Public Power Generation Agency December 31, 2013 and 2012

Contents

Independent Auditor’s Report ............................................................................................... 1

Management’s Discussion and Analysis ............................................................................. 3

Financial Statements

Balance Sheets .................................................................................................................................... 6

Statements of Revenues and Expenses ............................................................................................... 7

Statements of Cash Flows .................................................................................................................. 8

Notes to Financial Statements .......................................................................................................... 10

Supplementary Information

Schedule of Billings to Members ..................................................................................................... 23

Independent Auditor’s Report

Board of Directors Public Power Generation Agency Hastings, Nebraska We have audited the accompanying basic financial statements of Public Power Generation Agency (the Agency), which are comprised of balance sheets as of December 31, 2013 and 2012, and the related statements of revenues and expenses and of cash flows for the years then ended, and the related notes to the basic financial statements, as listed in the table of contents.

Management’s Responsibility for the Financial Statements 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 to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. 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 misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and 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 considers internal control relevant to the entity’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 entity’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 accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Public Power Generation Agency as of December 31, 2013 and 2012, and the changes in its financial position and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not 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 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 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 audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Supplementary Information Our audit was conducted for the purpose of forming an opinion of the basic financial statements. The accompanying schedule of billings to members is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.

Lincoln, Nebraska May 29, 2014

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MANAGEMENT’S DISCUSSION AND ANALYSIS

This discussion and analysis of Public Power Generation Agency’s (the Agency or PPGA) financial statements provides the reader an overview of the financial activities for 2013, 2012, and 2011. The Agency’s financial statements are comprised of three components: (1) Management’s Discussion and Analysis, (2) financial statements, and (3) notes to the financial statements. Please read this in conjunction with the audited financial statements and footnotes contained herein. Nature of Operations PPGA was created in 2005 as a joint entity pursuant to the Interlocal Cooperation Act of the State of Nebraska. Its members are Municipal Energy Agency of Nebraska, Heartland Consumers Power District, Hastings Utilities, Grand Island Utilities and Nebraska City Utilities. PPGA was created solely for the purpose of owning, financing, acquiring, constructing and operating Whelan Energy Center Unit 2 (WEC 2). The plant is intended to provide long-term, baseload electric power supply for its members. WEC 2 is a nominally rated 220 MW pulverized coal-fired sub-critical generating unit built at Whelan Energy Center near Hastings, Nebraska. WEC 2 began commercial operation on May 1, 2011. PPGA is the sole owner of the plant. Financial Analysis The following comparative condensed financial statements (in thousands) summarize PPGA’s financial position and operating results for the years ended December 31, 2013, 2012 and 2011. Condensed Balance Sheets (in thousands)

From 2012 From 20112013 2012 2011 to 2013 to 2012

Current assets 99,920$ 81,373$ 109,030$ 18,547$ (27,657)$ Capital assets, net 572,084 591,718 616,287 (19,634) (24,569) Net costs to be recovered from

billings to members 40,379 31,970 16,026 8,409 15,944 Other noncurrent assets 39,859 59,788 38,301 (19,929) 21,487

Total assets 752,242$ 764,849$ 779,644$ (12,607)$ (14,795)$

Current liabilities 43,488$ 42,996$ 45,219$ 492$ (2,223)$ Noncurrent liabilities 708,754 721,853 734,425 (13,099) (12,572)

Total liabilities 752,242$ 764,849$ 779,644$ (12,607)$ (14,795)$

December 31,Change

The Agency’s current assets increased in 2013 by approximately $18.5 million and decreased in 2012 by approximately $27.7 million, respectively. The increase and decrease in current assets in 2013 and 2012, respectively, was primarily due to maturities of restricted investments to be used for debt service and other capital purposes. Capital assets decreased by approximately $19.6 million and $24.6 million in 2013 and 2012, respectively. The main component of capital assets for the Agency is the WEC 2 plant which began operations in 2011. The decrease was due to the depreciation expense for the capital assets being higher than the capital additions in each year.

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The net costs to be recovered from billings to members increased approximately $8.4 million and $15.9 million in 2013 and 2012, respectively. This asset represents the net deferred expenses that will be recovered in future periods as they become power costs and are included in the members’ future billings. See footnote 1 and 4 for further explanation and details of the components making up this asset. The increase in 2013 and 2012 was primarily due to depreciation and amortization expense, that is not currently billable to the members, exceeding debt service billings. Other noncurrent assets decreased in 2013 by approximately $19.9 million and increased in 2012 by approximately $21.5 million. The decrease and increase in other noncurrent assets in 2013 and 2012, respectively, was primarily due to maturities of restricted investments. Current liabilities decreased in 2012 by approximately $2.2 million. The decrease in current liabilities in 2012 was due to a decrease in accounts and retainages payable as a result of the substantial completion of the plant in 2011. Long-term liabilities decreased in 2013 and 2012 by approximately $13.1 million and $12.6 million, respectively, primarily due to scheduled debt service payments. Condensed Statements of Revenues and Expenses (in thousands)

From 2012 From 20112013 2012 2011* to 2013 to 2012

Power sales (MWh) 1,353,486 1,011,079 808,319 342,407 202,760

Operating revenues 80,068$ 67,078$ 48,484$ 12,990$ 18,594$

Operating expensesProduction expenses 33,068 27,229 20,805 5,839 6,424 Administration and general 1,195 1,302 1,116 (107) 186 Depreciation and amortization 21,483 21,484 10,666 (1) 10,818

Total operating expenses 55,746 50,015 32,587 5,731 17,428

Operating income 24,322 17,063 15,897 7,259 1,166

Total nonoperating expenses, net (32,731) (33,007) (22,072) 276 (10,935)

Net costs to be recovered from billings to members (8,409)$ (15,944)$ (6,175)$ 7,535$ (9,769)$

*WEC 2 went operational on May 1, 2011. Therefore, the statement only contains eight months of data for 2011.

ChangeDecember 31,

Operating revenues increased by approximately $13.0 million and $18.6 million in 2013 and 2012, respectively. The increase each year is due to the increased billings to members which is partially due to the increase in MWh generated by the WEC 2 facility, and also due to billings for scheduled debt service requirements. Operating expenses increased by approximately $5.7 million and $17.4 million in 2013 and 2012, respectively. The increase in 2013 is primarily due to increased production expenses due to increased generation. The increase in 2012 is due to two primary factors: (1) increased production expenses due to increased generation and (2) an increase in depreciation expense as the WEC 2 facility was in service a full year in 2012 compared to only a portion of 2011.

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General Trends and Significant Events The plant went operational on May 1, 2011. As expected, production was up and down the first few months of operation as minor problems typically associated with a new plant were corrected. A major outage was completed during the Spring of 2012. The primary purpose of the outage was to dismantle, inspect, and reassemble the turbine, as is recommended after one year of operation. The outage lasted from February 10, 2012 to April 24, 2012. In addition, the power market was weak for most of the year. These two factors limited the overall generation of the plant for 2012. During the Fall of 2013, a turbine valve inspection was completed. The outage lasted from October 18, 2013 to November 4, 2013. On June 1, 2013, PPGA began participating in the Southwest Power Pool Energy Imbalance Market. Report of Management The Agency has prepared and is responsible for the financial statements and related information included in this report. Management believes that its policies and procedures provide guidance and reasonable assurance that PPGA’s operations are conducted according to the participants’ intentions and to a high standard of business ethics. In management’s opinion, the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of PPGA in conformity with accounting principles generally accepted in the United States of America. If you have questions about this report or need additional information, contact Al Meyer, Project Operating Agent, via the contact information shown below.

Public Power Generation Agency of Nebraska 1228 N. Denver Avenue

P.O. Box 398 Hastings, Nebraska 68902-0398

(402) 462-3508

Public Power Generation Agency Balance Sheets


See Notes to Financial Statements 6

2013 2012

Assets

Current AssetsCash and cash equivalents 23,705,295$ 23,052,224$ Restricted cash and cash equivalents 36,411,279 35,243,459 Restricted investments 30,356,205 12,985,595 Accounts receivable 6,723,045 6,067,743 Inventories 2,503,210 3,803,751 Interest receivable 58,932 69,078 Prepaid expenses 162,498 150,989

Total current assets 99,920,464 81,372,839

Utility PlantUtility plant in service 624,299,203 622,809,032Construction in progress 651,257 532,529

Total utility plant 624,950,460 623,341,561 Less: accumulated depreciation (52,866,474) (31,623,425)

Net utility plant 572,083,986 591,718,136

Investments and Other Noncurrent AssetsInvestments 4,008,857 3,942,023 Restricted investments 33,878,087 53,419,078 Net costs to be recovered from billings to members 40,379,584 31,970,334 Other 1,970,897 2,426,880

Total investments and other noncurrent assets 80,237,425 91,758,315

Total assets 752,241,875$ 764,849,290$

Liabilities

Current LiabilitiesCurrent maturities of long-term debt 12,315,000$ 11,745,000$ Accounts and retainage payable 11,493,103 11,320,455Accrued expenses 133,613 102,879 Accrued interest payable 19,257,330 19,538,568 Unearned revenue 288,784 288,805

Total current liabilities 43,487,830 42,995,707

Noncurrent LiabilitiesLong-term debt, net 708,276,437 721,558,157 Other 477,608 295,426

Total noncurrent liabilities 708,754,045 721,853,583

Total liabilities 752,241,875$ 764,849,290$

Public Power Generation Agency Statements of Revenues and Expenses

Years Ended December 31, 2013 and 2012


2013 2012Operating Revenues

Billings to members, net 80,067,883$ 67,077,929$

Total operating revenues 80,067,883 67,077,929

Operating ExpensesFuel and other variable production 27,353,215 22,456,458 Other production 5,714,711 4,772,669 Administrative and general 1,194,569 1,302,072 Depreciation and amortization 21,483,434 21,483,601

Total operating expenses 55,745,929 50,014,800

Operating Income 24,321,954 17,063,129

Nonoperating Revenues (Expenses)Interest expense (37,547,940) (38,110,415) Investment income 459,426 409,774 Federal subsidy - Build America Bonds 4,320,720 4,693,884 Other 36,590 -

Total nonoperating expenses (32,731,204) (33,006,757)

Net Costs to be Recovered from Billings to Members (8,409,250)$ (15,943,628)$

Public Power Generation Agency Statements of Cash Flows



2013 2012Operating Activities

Receipts from members $ 79,412,560 64,808,349$ Payments to suppliers (32,372,301) (29,235,788)

Net cash provided by operating activities 47,040,259 35,572,561

Noncapital Financing ActivitiesCharges for Spring 2012 outage and other - (1,583,738) Other 36,590 -

Net cash provided by (used in) noncapital financialactivities 36,590 (1,583,738)

Capital and Related Financing ActivitiesPrincipal payments on revenue bonds (11,745,000) (11,325,000) Interest paid (38,795,898) (39,288,791) Interest subsidy received 4,320,720 4,693,884 Capital expenditures for utility plant, net of reimbursements (1,608,899) 1,637,857

Net cash used in capital and related financing activities (47,829,077) (44,282,050)

Investing ActivitiesInterest received on investment securities 957,411 568,050 Purchases of investment securities (109,049,540) (111,920,520) Proceeds from sale of investment securities 110,665,248 119,041,373

Net cash provided by investing activities 2,573,119 7,688,903

Increase (Decrease) in Cash and Cash Equivalents 1,820,891 (2,604,324)

Cash and Cash Equivalents, Beginning of Year 58,295,683 60,900,007

Cash and Cash Equivalents, End of Year 60,116,574$ 58,295,683$

Reconciliation of Cash and Cash Equivalents to theBalance Sheets

Cash and cash equivalents 23,705,295$ 23,052,224$ Restricted cash and cash equivalents 36,411,279 35,243,459

Total cash and cash equivalents 60,116,574$ 58,295,683$

Public Power Generation Agency Statements of Cash Flows - Continued



2013Reconciliation of Operating Income to Net Cash

Provided By Operating ActivitiesOperating income 24,321,954$ 17,063,129$ Adjustment to reconcile operating income to net cash

provided by operating activitiesDepreciation and amortization 21,483,434 21,483,601

Changes in operating assets and liabilitiesAccounts receivable (655,302) (2,269,623) Inventories 1,300,541 (750,616) Prepaid expenses (11,509) (13,990) Other noncurrent assets 215,598 - Accounts payable 172,648 (50,295) Accrued expenses 212,916 110,312 Unearned revenue (21) 43

Net Cash Provided By Operating Activities 47,040,259$ 35,572,561$

Supplemental Cash Flows InformationAccounts and retainage payable incurred for utility plant -$ (2,309,752)$

2012

Public Power Generation Agency Notes to Financial Statements


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Note 1: Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Public Power Generation Agency (PPGA) was created in 2005 as a joint entity pursuant to the Interlocal Cooperation Act of the State of Nebraska.

The Members of PPGA are:

Megawatt (MW)

Allocation Participation Percentage

Municipal Energy Agency of Nebraska (MEAN) 80 MW 36.36% Heartland Consumers Power District (HCPD) 80 MW 36.36% Hastings Utilities (HU) 35 MW 15.91% Grand Island Utilities (GIU) 15 MW 6.82% Nebraska City Utilities (NCU) 10 MW 4.55%

PPGA was created solely for the purpose of owning, financing, acquiring, constructing and operating the Whelan Energy Center Unit 2 (WEC 2) Plant (the “Plant”). The Plant is intended to provide long-term, baseload electric power supply for the Members.

WEC 2 is a nominally rated 220 MW pulverized coal-fired sub-critical generating unit built at the existing Whelan Energy Center near Hastings, Nebraska. WEC 2 began commercial operation in May 2011. PPGA is the sole owner of the Plant.

Reporting Entity

In evaluating how to define the Agency, for financial reporting purposes, management has considered all potential component units for which financial accountability may exist. The determination of financial accountability includes consideration of a number of criteria, including: (1) the Agency’s ability to appoint a voting majority of another entity’s governing body and to impose its will on that entity, (2) the potential for that entity to provide specific financial benefits to or impose specific financial burdens on the Agency, and (3) the entity’s fiscal dependency on the Agency. Based on the above criteria, PPGA has determined that it has no reportable component units.

Basis of Accounting and Presentation

The financial statements of PPGA have been prepared on the accrual basis of accounting using the economic resources measurement focus. The Agency’s accounting records are maintained in accordance with accounting principles generally accepted in the United States of America for regulated utilities and generally follow the Uniform System of Accounts for Public Utilities and Licenses prescribed by the Federal Energy Regulatory Commission (FERC). PPGA prepares its financial statements as a business-type activity in conformity with applicable pronouncements of the Governmental Accounting Standards Board (GASB).



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Note 1: Nature of Operations and Summary of Significant Accounting Policies - Continued

Basis of Accounting and Presentation - Continued

PPGA’s accounting policies also follow the regulated operations provisions of GASB Statement No. 62, which permits an entity with cost-based rates to defer certain costs or income that would otherwise be recognized when incurred to the extent that the rate-regulated entity is recovering or expects to recover such amounts in rates charged to its customers. This method includes the philosophy that debt service requirements, as opposed to depreciation or amortization, are a cost for rate making purposes.

Use of Estimates

The preparation of financial statements in conformity with accounting 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash Equivalents

PPGA considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2013 and 2012, cash equivalents consisted of money market funds and repurchase agreements.

Investments and Investment Income

Investments are held in various debt service, construction and reserve accounts that are prescribed by bond indenture. These accounts are invested in money market mutual funds, U.S. Treasury securities, U.S. Agency obligations, commercial paper and repurchase agreements. Fair value is determined using quoted market prices. All investments are carried at fair value except repurchase agreements which are carried at cost.

Investment income consists of interest income, realized gains and losses on investments and the net change for the year in the fair value of investments carried at fair value.

Accounts Receivable

Accounts receivable are stated at the amount billed to Members. Accounts receivable are ordinarily due 60 days after the issuance of the invoice. Delinquent receivables are charged off as they are deemed uncollectible. Management does not believe an allowance for doubtful accounts is necessary at December 31, 2013 or 2012, as there were no delinquent accounts.



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Inventories

Inventories consist of coal and diesel fuel. Inventories are stated at the lower of average cost or market.

Utility Plant

Utility plant is stated at cost which represents the actual direct cost of labor, materials, and indirect costs, including construction period interest and other overhead expenses. Depreciation of utility plant is computed using the straight-line method over the estimated useful life of the different categories of the Plant, which is generally 30 years. Included within the Plant are some minor equipment and furniture categories with estimated useful lives ranging from 3 to 15 years.

Net Costs to be Recovered from Billings to Members

Billings to Members are designed to recover power costs as set forth by the PPGA Participation Agreement, which principally include current operating expenses and scheduled debt principal and interest. Pursuant to the regulated operations provisions of GASB 62, expenses determined in accordance with accounting principles generally accepted in the United States of America (GAAP) that are not currently billable as power costs are recorded as other assets in the accompanying balance sheets. These costs will be recovered in future periods as they become power costs and are included in future Member billings (see Note 4). Over the life of the PPGA Participation Agreement, aggregate expenses are expected to equal aggregate billable power costs.

Classification of Revenues

Operating revenues and expenses generally result from providing energy in connection with PPGA’s ongoing operations. The principal operating revenues are charges to Members for energy. Operating expenses include fuel, purchased power, other production expenses, administrative and general expenses, and depreciation and amortization. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

Income Taxes

In accordance with certain provisions of the Interlocal Cooperation Act and non-profit corporation statutes of Nebraska and related governing laws and regulations, PPGA is exempt from federal and state income taxes.



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Implementation of New Accounting Pronouncements

In 2013, the Agency implemented the provisions of the following accounting principles:

GASB Statement No. 61, The Financial Reporting Entity-Omnibus – An Amendment of GASB Statements No. 14 and No. 34. The requirements of GASB Statements No. 14 and No. 34 were amended to better meet user needs and to address reporting entity issues that have arisen since the issuance of those Statements. The implementation of this standard did not have a significant impact on the Agency’s financial statements.

GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, which established accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources and inflows of resources, certain items that were previously reported as assets and liabilities. In addition, the statement changes the method of reporting debt issuance costs. Prior to implementation of GASB Statement No. 65, PPGA reported debt issuances costs as deferred charges which were capitalized and amortized over the life of the related debt. Under GASB Statement No. 65, debt issuance costs for unregulated operations are to be recognized as an expense in the period incurred. However, GASB 65 provides an exception for regulated operations to allow certain incurred costs related to regulated activities, such as debt issuance costs, to be reported as a regulatory asset. Accordingly, implementation of this standard resulted in a reporting reclassification of the Agency’s bond issuance costs from a deferred charge in the period of the debt issuance to inclusion in the Agency’s net costs to be recovered from billings to members.

Note 2: Deposits and Investments

Deposits

State statutes require banks either to give bond or to pledge government securities to the Agency in the amount of the Agency’s deposits. The Agency’s cash deposits, including certificates of deposit, are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). Any cash deposits or certificates of deposit in excess of the $250,000 FDIC limits are covered by collateral held in a Federal Reserve Bank pledge account or by an agent for the Agency and thus, no custodial risk exists. No legal opinion has been obtained regarding the enforceability of any collateral arrangements.



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Note 2: Deposits and Investments - Continued

Investments

PPGA’s qualified investments are defined in the bond indentures for the revenue bond issuances described in Note 5. The bond indentures identify qualified investments as direct obligations of the United States government or any of its agencies, obligations guaranteed by the United States government or any of its agencies, money market mutual funds, repurchase agreements and commercial paper.

At December 31, 2013 and 2012, PPGA had the following investments, maturities and credit ratings:

Fair Less Credit Rating Value Than 1 1 - 5 Moody's/S&P

December 31, 2013Money market mutual funds 35,941,033$ 35,941,033$ -$ Aaa / AAACommercial paper 1,999,440 1,999,440 - P-1 / A-1+U.S. Treasury securities 21,973,174 21,973,174 - Aaa / AAAU.S. Agency obligations 44,270,535 6,383,591 37,886,944 Aaa / AAA

104,184,182 66,297,238 37,886,944

Repurchase agreements (at cost) 24,172,541 24,172,541 - Not Rated

128,356,723$ 90,469,779$ 37,886,944$

December 31, 2012Money market mutual funds 35,018,013$ 35,018,013$ -$ Aaa / AAACommercial paper 12,985,595 12,985,595 - P-1 / A-1+U.S. Treasury securities 12,540,129 - 12,540,129 Aaa / AAAU.S. Agency obligations 44,820,971 44,820,971 - Aaa / AAA

105,364,708 92,824,579 12,540,129

Repurchase agreements (at cost) 23,274,671 23,274,671 - Not Rated

128,639,379$ 116,099,250$ 12,540,129$

Maturities in Years

Summary of Carrying Values

The carrying values of deposits and investments shown above are included in the balance sheets at December 31, 2013 and 2012 as follows:

2013 2012Carrying Value Deposits 3,000$ 3,000$ Investments 128,356,723 128,639,379

128,359,723$ 128,642,379$



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Included in the following balance sheet captions:

2013 2012Current Assets

Cash and cash equivalents 23,705,295$ 23,052,224$ Restricted cash and cash equivalents 36,411,279 35,243,459 Restricted investments 30,356,205 12,985,595

Noncurrent AssetsInvestments 4,008,857 3,942,023 Restricted investments 33,878,087 53,419,078

128,359,723$ 128,642,379$

Interest Rate Risk

Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The money market mutual funds, commercial paper and repurchase agreements are presented as an investment with a maturity of less than one year because they are redeemable in full immediately.

Credit Risk

Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The bond indenture requires all debt securities not explicitly guaranteed by the U.S. Government to have credit ratings of Aaa from Moody’s and AAA from S&P and commercial paper to have credit ratings of P-1 from Moody’s and A-1+ from S&P.

Custodial Credit Risk

For an investment, custodial credit risk is the risk that, in the event of a failure of the counterparty, PPGA would not be able to recover the value of its investment securities that are in the possession of an outside party.

The repurchase agreements require cash or securities to be pledged as collateral. Cash is pledged at 100% of the repurchase agreement carrying value while the fair value of securities are required to be maintained at a minimum of 104% of the carrying value.



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Concentration of Credit Risk

Concentration of credit is the risk associated with the amount of investments PPGA has with any one issuer that exceeds 5% or more of its total investments. Investments issued or explicitly guaranteed by the U.S. Government are excluded from this requirement. PPGA and the bond indenture place no limit on the amount that may be invested in any one issuer. At December 31, 2013 and 2012, PPGA had the following investment concentrations:

Federal National Mortgage Association 29.52 % ** %Wells Fargo Government Money Market 28.00 27.22 Repurchase agreement - Heritage Bank 18.83 18.09 Federal Home Loan Bank ** 28.59 Federal Home Loan Mortgage Corporation ** 6.25 Toyota Motor Credit ** 6.21

2013December 31,

Portfolio Composition

2012

** Issuer did not exceed 5% of PPGA’s total investments.

Investment Return

Investment return for the years ended December 31, 2013 and 2012 consisted of interest income, realized gains and losses on the sale of investments and the net increase in fair value of investments carried at fair value of $459,426 and $409,774, respectively.



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Note 3: Utility Plant

Utility plant activity for the years ended December 31, 2013 and 2012 was:

Beginning Balance Additions Reductions Transfers

Ending Balance

Electric plant in service 583,289,355$ -$ -$ 1,120,593$ 584,409,948$ Transmission 22,559,026 - - (2,797) 22,556,229 Shared facilities 16,960,651 - - 372,375 17,333,026 Construction in progress 532,529 1,608,899 - (1,490,171) 651,257

Total utility plant 623,341,561 1,608,899 - - 624,950,460

Less accumulated depreciation (31,623,425) (21,243,049) - - (52,866,474)

Utility plant, net 591,718,136$ (19,634,150)$ -$ -$ 572,083,986$

Beginning Balance Additions Reductions Transfers

Ending Balance

Electric plant in service 586,542,578$ -$ (5,640,824)$ 2,387,601$ 583,289,355$ Transmission 22,746,511 - (187,485) - 22,559,026 Shared facilities 17,066,892 45,674 (151,915) - 16,960,651 Construction in progress 597,114 2,323,016 - (2,387,601) 532,529

Total utility plant 626,953,095 2,368,690 (5,980,224) - 623,341,561

Less accumulated depreciation (10,666,069) (21,363,408) 406,052 - (31,623,425)

Utility plant, net 616,287,026$ (18,994,718)$ (5,574,172)$ -$ 591,718,136$

2013

2012

Under the terms of the Facility Sharing and Lease Agreement entered into between PPGA and Hastings Utilities (HU), as Operating Agent, ownership of certain PPGA assets were conveyed to HU to allow for the utilization of these assets for the benefit of the Plant. In addition, PPGA financed the construction of transmission facilities and equipment to facilitate the distribution of power to the Members. Although ownership of these facilities and equipment rests with other governmental entities responsible for the transmission and distribution of energy, PPGA has elected to defer these costs and amortize them over a period of 30 years, as a component of utility plant.



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Note 4: Net Costs to be Recovered from Billings to Members

Net costs to be recovered from billings to Members for the years ended December 31, 2013 and 2012, and the accumulated totals as of December 31, 2013 and 2012, consisted of the following:

2013 2012 2013 2012

Items in accordance with GAAP not billable tomembers under the participation agreement:

Depreciation and amortization expense (21,243,049)$ (21,363,408)$ (53,272,526)$ (32,029,477)$

Amortization of Spring 2012 outage charges (240,385) (120,193) (360,578) (120,193)

Bond issuance costs - - (8,446,110) (8,446,110)

Accretion of bond premium 966,720 966,720 2,577,920 1,611,200

SO2 emissions expense (50,862) (22,121) (118,255) (67,393)

Unrealized gain (loss) on investments 150,150 (88,677) 189,148 38,998

Portion of federal subsidy not credited on memberbillings - - 1,291,488 1,291,488

Administrative costs incurred prior to commercial operation - - (1,566,261) (1,566,261)

Restricted interest income not credited to members 215,931 - 215,931 - Other (229,204) - (229,204) -

Amounts billed to participants under the bondresolution and participation agreementBond principal less credits received for principal 12,021,449 7,317,414 19,338,863 7,317,414

Debt service billings in excess of required amounts - (2,633,363) - -

Net costs to be recovered from billings to members (8,409,250)$ (15,943,628)$ (40,379,584)$ (31,970,334)$

For the Years Ended December 31

Accumulated Totals as of December 31



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Note 5: Long-term Debt

Long-term debt at December 31, 2013 and 2012 consisted of the following:

2013 2012Revenue bonds

Whelan Energy Center Unit 2 Revenue Bonds

488,780,000$ 496,895,000$


20,525,000 24,155,000


185,185,000 185,185,000

Total revenue bonds outstanding 694,490,000 706,235,000

Issuance premium 26,101,437 27,068,157

Current maturities of long-term debt (12,315,000) (11,745,000)

Long-term debt, net 708,276,437$ 721,558,157$

2007 Series A (tax-exempt), 3.75 - 5.00%, due annuallybeginning on January 1, 2012 with a final payment dueJanuary 1, 2041, callable beginning in 2017

2009 Series A (tax-exempt), 2.25 - 5.00%, due annuallybeginning on January 1, 2012 with a final payment dueJanuary 1, 2018, noncallable

2009 Series B (taxable), 7.242% with sinking fundinstallments beginning January 1, 2019 and a lump sumpayment due January 1, 2041, callable at anytime

Long term debt activity for 2013 and 2012 is summarized below:

TotalSeries Series Series Revenue Issuance

2007A 2009A 2009B Bonds Premiums Total

Balance, January 1, 2012 504,720,000$ 27,655,000$ 185,185,000$ 717,560,000$ 28,034,877$ 745,594,877$ Less scheduled principal payments on bonds (7,825,000) (3,500,000) - (11,325,000) - (11,325,000) Amortization of issuance premium - - - - (966,720) (966,720)

Balance, January 1, 2013 496,895,000 24,155,000 185,185,000 706,235,000 27,068,157 733,303,157 Less scheduled principal payments on bonds (8,115,000) (3,630,000) - (11,745,000) - (11,745,000) Amortization of issuance premium - - - - (966,720) (966,720)

Balance, December 31, 2013 488,780,000$ 20,525,000$ 185,185,000$ 694,490,000$ 26,101,437$ 720,591,437$



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Note 5: Long-term Debt - Continued

The 2009 Series B bonds were issued as bonds designated as “Build America Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009, which allows the Agency to receive a U.S. Treasury subsidy equal to 35% of the amount of interest payable on those bonds. Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, refund payments to certain state and local government filers claiming refundable credits under section 6341 of the Internal Revenue Code applicable to certain qualified bonds are subject to sequestration. The refund payments processed on or after March 1, 2013 and on or before September 30, 2013 were reduced by the 2013 sequestration rate of 8.7%. The refund payments processed on or after October 1, 2013 and on or before September 30, 2014 will be reduced by the fiscal year 2014 sequestration rate of 7.2%. Any future subsidy payments are contingent on federal regulations and are subject to change. The subsidy is not reflected in the table on the following page.

The Series 2007 and Series 2009 bonds are equally and ratably secured under the Bond Resolution and are payable on a parity with one another. The bonds are special obligations of PPGA, payable from and secured by a pledge of the revenues, PPGA’s rights, title and interest under the Participation Agreements and certain funds established under the Resolution.

Future principal and interest payments required to be made in accordance with the bond documents at December 31, 2013, are as follows:

Year Ending December 31, Principal Interest Principal Interest Total

2014 12,315,000$ 24,866,738$ -$ 13,411,098$ 50,592,836$ 2015 12,785,000 24,317,513 - 13,411,098 50,513,611 2016 13,415,000 23,690,263 - 13,411,098 50,516,361 2017 14,040,000 23,089,788 - 13,411,098 50,540,886 2018 14,610,000 22,455,581 - 13,411,098 50,476,679

2019-2023 58,965,000 103,451,875 25,460,000 62,615,056 250,491,931 2024-2028 75,255,000 86,753,625 32,055,000 52,246,504 246,310,129 2029-2033 96,060,000 65,440,500 40,340,000 39,193,704 241,034,204 2034-2038 122,595,000 38,238,625 50,765,000 22,769,753 234,368,378 2039-2042 89,265,000 6,840,125 36,565,000 4,053,528 136,723,653

509,305,000$ 419,144,633$ 185,185,000$ 247,934,035$ 1,361,568,668$

Revenue Bonds, 2009B (sinking fund installments)

Revenue Bonds Series 2007A & 2009A



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Note 6: Closure and Post-Closure Care Costs

As a result of coal ash produced at the WEC 2 plant site, the Agency has created an ash disposal area, including an ash pond. In accordance with regulations promulgated by the Nebraska Department of Environmental Quality (NDEQ), the Agency has calculated an estimate of the costs of closing the site, at the end of the plant’s useful life, and properly disposing of the ash, and also of post-closure monitoring of the ash disposal area. These costs are currently estimated at $2,683,500 and $2,644,200 at December 31, 2013 and 2012, respectively. The estimated costs of closure and post-closure care are subject to changes including the effects of inflation, revision of laws, changes in technology, actual sequence of landfill development and closure, and other variables.

The Agency has established a Closure/Post-Closure Care Account to accumulate sufficient funds for the costs of closure and post-closure of the ash disposal area. Funds are deposited into this account at a rate of $2.50 per ton of ash placed into the disposal area. The funds in this account equal the Agency’s recorded closure/post-closure liability at December 31, 2013 and 2012, which was $477,608 and $295,426, respectively. The use of these funds is restricted to the costs of closure and post-closure of the ash disposal area by NDEQ regulations.

Note 7: Related Party Transactions

PPGA has an executed agreement for MEAN to serve as the Managing Agent of PPGA. In connection with this agreement, PPGA shall pay MEAN a monthly administrative fee for time and expense reimbursement. MEAN was paid $50,320 and $68,602 during 2013 and 2012, respectively, and amounts of $5,514 and $9,508 owed to MEAN were included in accounts payable at December 31, 2013 and 2012, respectively, in relation to this agreement.

In accordance with the PPGA Participation Agreement, effective October 5, 2006, Hastings Utilities (HU) is to serve as the Project Construction Manager and Project Operating Agent of PPGA. In connection with this agreement, HU incurs certain administrative, general and other expenses on PPGA’s behalf and PPGA shall reimburse HU for these expenses, including an allocation of indirect expenses as determined in accordance with the memorandum of understanding entered into between PPGA and HU. HU was paid $6,186,401 and $6,256,374 during 2013 and 2012, respectively, and amounts of $1,291,396 and $1,000,316 owed to HU were included in accounts payable at December 31, 2013 and 2012, respectively, in relation to the participation agreement.

PPGA also entered into a Facility Sharing and Lease Agreement with HU, effective January 1, 2008, for the lease of real estate and sharing of facilities for the construction and operation of WEC 2. In connection with this agreement, PPGA shall pay HU lease payments for real estate and shared facilities reimbursement until the end of the operational life of WEC 2, but in no event later than 100 years following the effective date of the agreement. Additionally, under this agreement, HU is to pay PPGA for certain shared facilities owned by PPGA. Payments under this agreement are included in the payments discussed above and are included in operating expenses on the statement of revenues and expenses, net of amounts received from HU under the agreement.

Additionally, all of the coal acquired by PPGA during 2013 and 2012 was obtained under a contract entered into between HU and a sole coal provider.



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Note 8: Risk Management and Contingencies

PPGA is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; business interruption; errors and omissions; employee injuries and illnesses; natural disasters and employee health and accident benefits. Commercial insurance coverage is purchased for claims arising from such matters. Claims have not exceeded this commercial coverage in any of the three preceding years.

PPGA is subject to claims that arise primarily in the ordinary course of the operation of the plant. It is the opinion of management that the disposition or ultimate resolution of such claims will not have a material effect on the financial position, results of operations and cash flows of PPGA.

Proposed Environmental Standards

Any changes in the environmental regulatory requirements imposed by Federal or state law, which are applicable to generating stations, could result in increased capital and operating costs being incurred by PPGA. Until such changes are finalized and implemented, management is unable to predict when pending changes will be made to current environmental regulatory requirements and how the changes may impact PPGA.

Note 9: Subsequent Events

In April 2014, PPGA entered into a settlement agreement with Toshiba International Corporation (TIC) to settle all claims related to alleged performance failure, schedule delay, backcharges and technical advisor fees under the contract where TIC agreed to provide a steam turbine generator to PPGA for the WEC 2 Plant. A settlement value of approximately $7,700,000 was reached in which approximately $3,200,000 of contract and retainage payables due from PPGA to TIC as of December 31, 2013 were waived and an additional payment from TIC to PPGA of approximately $4,500,000 was made.

Supplementary Information

Public Power Generation Agency Schedule of Billings to Members

December 31, 2013

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MEAN HCPD HU GIU NCU Total

Operating expenses - variable 11,566,556$ 11,594,058$ 1,003,511$ 1,895,173$ 1,243,055$ 27,302,353$ Station power expenses 57,924 58,406 5,536 9,374 6,249 137,489 Operating expenses - other 2,739,683 2,761,661 257,551 442,992 295,328 6,497,215 Indirect overhead expenses 170,905 172,170 15,522 27,584 18,390 404,571 Less: credit from investment income (39,711) (39,910) (3,117) (6,364) (4,243) (93,345) Less: credit from excess debt service reserve funds (122,758) (124,092) (13,343) (20,015) (13,343) (293,551) Less: credit from federal subsidy receipts (1,826,512) (1,839,596) (163,621) (294,595) (196,396) (4,320,720) Less: credit from shared facilities revenue from HU (151,843) (152,932) (13,606) (24,491) (16,327) (359,199) Less: credit from dry flyash revenue (12,385) (12,417) (871) (1,998) (1,318) (28,989) Less: credit from equipment use revenue from HU (3,213) (3,236) (288) (518) (346) (7,601)

Net operation and maintenance billings 12,378,646 12,414,112 1,087,274 2,027,142 1,331,049 29,238,223

Debt service billings, net 21,487,084 21,641,113 1,925,365 3,465,659 2,310,439 50,829,660

Total participant billings 33,865,730$ 34,055,225$ 3,012,639$ 5,492,801$ 3,641,488$ 80,067,883$

Public Power Generation Agency Schedule of Billings to Members

December 31, 2012

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MEAN HCPD HU GIU NCU Total

Operating expenses - variable 9,744,693$ 9,615,090$ 512,879$ 1,535,913$ 1,025,758$ 22,434,333$ Station power expenses 96,037 96,037 5,054 15,164 10,109 222,401 Operating expenses - other 2,677,520 2,677,520 140,922 422,766 281,844 6,200,572 Indirect overhead expenses 18,817 18,788 991 2,923 1,982 43,501 Less: credit from investment income (215,098) (215,098) (11,321) (33,963) (22,642) (498,122) Less: credit from federal subsidy receipts (2,026,904) (2,026,904) (106,679) (320,038) (213,359) (4,693,884) Less: credit from shared facilities revenue from HU (169,298) (169,298) (8,910) (26,731) (17,821) (392,058)

Net operation and maintenance billings 10,125,767 9,996,135 532,936 1,596,034 1,065,871 23,316,743

Debt service billings, net 18,896,876 18,896,876 994,573 2,983,716 1,989,145 43,761,186

Total participant billings 29,022,643$ 28,893,011$ 1,527,509$ 4,579,750$ 3,055,016$ 67,077,929$

Documents

Public Power Generation AgencyPublic Power Generation Agency Balance Sheets December 31, 2013 and 2012 See Notes to Financial Statements 6 2013 2012 Assets Current Assets Cash and