GO2-03-007, 2002 Annual Financial Report for Columbia Generating Station

2002 Annual Financial Report for Columbia Generating Station

ML030290009
Person / Time
Site:	Columbia
Issue date:	01/14/2003
From:	Coleman D Energy Northwest
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
GO2-03-007
Download: ML030290009 (56)

Text

ENERGY NORTH WEST PO. Box 968 E Richland, Washington 99352-0968 January 14, 2003 G02-03-007 U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555-0001

Subject:

COLUMBIA GENERATING STATION, DOCKET NO. 50-397 2002 ANNUAL FINANCIAL REPORT

Dear Sir or Madam:

In accordance with 10 CFR 50.71(b), enclosed is a copy of the Energy Northwest 2002 annual financial report for the subject facility.

Should you have any questions, please call RA Bresnahan at (509) 372-5730.

Respectfully, DW Coleman, Manager Performance Assessment and Regulatory Programs Mail Drop PE20

Enclosure:

As stated cc: EW Merschoff- NRC RIV BJ Benney - NRC - NRR w/o MM Mendonca - NRC w/o NRC Sr. Resident Inspector - 988C RN Sherman - BPA/1399 w/o TC Poindexter - Winston & Strawn w/o

ENERGY NORTHWEST 2002 ANNUAL REPORT GENERATING Solutions

""Mm f

OPERATING HIGHLIGHTS - COLUMBIA GENERATING STATION Radiation Exposure, During operation, person-reins Net Generation Gigawatt-hours 98 99 009 01 02 98ý 99 00 01 02 7,502' 6,975 8,260 7,996 9,262 Operating & Capital Costs,

$ in millions Cost of Power.

Cents/Kilowatt 98 99 00 01 02 I

772.8 165.8 176.6 208.5 191.0 98 99 00 01 02 2.30 2.38 2.14 2.61 2.06

As Fiscal Year 2002 comes to an end, electricity. The full project will be on-line the highest generation and lowest dose we at Energy Northwest reflect on what and harnessing the power of wind by early performance to date. Our excellent staff has been an outstanding 12 months and fall. continues to strive for even better look forward to a bright future. Adjacent to Nine Canyon is Zintel performance.

In 1957. public utility leaders formed Canyon-the location identified for our next Each of these projects is a milestone a joint operating agency to develop power wind project. Current plans are that the for Energy Northwest-which really means projects that individual entities could not project will produce up to 50 megawatts of we are better positioned to meet the needs develop on their own. Forty-five years later, electricity. This project was early in the of the region. While we are exploring new our mission is still strong and still focused permitting process as the fiscal year ended. sources of generation, and developing and on serving the needs of public power in The White Bluffs Solar Station was offering our expertise to our members in our region. What has changed is the way connected to the grid and dedicated during other areas, our primary focus remains on we do business. In fact, it is because we a ceremony at the end of May. This project providing the Pacific Northwest with safe.

have been able to effectively adapt to the produces 38.7 KwDC and was developed reliable. at-cost power.

rapid changes in our industry and respond as a demonstration project with the to better meet the needs of our members Bonneville Power Administration, Thank you for the opportunity.

that Energy Northwest is the organization Bonneville Environmental Foundation and it is today. Washington State University.

Several years ago, Energy Northwest Energy Northwest has been fortunate set out to redesign itself as an to strengthen some key relationships by organization-to develop new sources of offering operations and maintenance electricity generation to meet the needs of services on projects like the H. W. Hill our region. Although much of the legwork Landfill Gas Power Plant and the Franklin was done in previous years. FY 2002 saw County PUD and Grays Harbor County the realization of several new endeavors PUD Combustion Turbine Project. These and the best performance in the history of opportunities allow us to better address our Columbia Generating Station.

Groundbreaking for the Nine Canyon member utilities' needs.

Of course, we would not have been able I

Wind Project took place in early March. to explore any of these endeavors were it and by the end of June, 10 turbine towers not for the foundation provided by Columbia had been erected, three of which had Generating Station. FY 2002 was an completed testing and were generating outstanding year for the station, measuring I

,ASk --. a Executive Board Members Frontrow: Vera Claussen, Amy Solomon Row 2: Sid Morrison, MargaretAllen Row 3: DarrelBunch, Ted Coates Bob Graves Back row-. Dan Gunkel, Roger Sparks, EXECUTIVE BOARD John Cockburn, Larry Kenney John Cockburn, Chairman Tom Casey Bottom right Boardof Directors: Retired Bank Executive Grays Harbor County PUD Left to right Seattle, Washington Commissioner Tom Casey,RichardRiley, DarrelBunch, Dan Gunkel, Aberdeen. Washington John Whalen, Don Nuxoll, Dan Gunkel, Vice Chairman (Term began June 16. 2002)

Vera Claussen, Roger Sparks (behind Klickitat County PUD Commissioner Vera), Bob Graves, Jack Jand&Beverley Goldendale, Washington Ted Coates Cochrane Not pictured. Gregg Caudell, Retired Utility Executive Mark Crisson, ParkerKnight Sid Morrison, Secretary Tacoma. Washington GaryZarker,Ray Sieler Retired Executive Zillah, Washington Larry Kenney Retired Organized Labor Executive Vera Claussen, Assistant Secretary Seattle, Washington Grant County PUD Commissioner Ephrata, Washington Amy Solomon Management Consultant Margaret Allen Seattle, Washington Attorney Olympia. Washington Roger Sparks Kittitas County PUD Commissioner Darrel Bunch Ellensburg, Washington Okanogan County PUD Commissioner Okanogan. Washington Bob Graves Benton County PUD Commissioner Kennewick, Washington (Term ended June 16, 2002) 2

BOARD OF DIRECTORS Beverley Cochrane. President Mark Crisson Raymon Sieler Commissioner, Franklin County PUD Director of Utilities, Tacoma Public Energy Services Director.

Utilities City of Richland Richard Riley. Vice President Commissioner. Wahkiakum County PUD Bob Graves* Roger Sparks*

Commissioner. Benton County PUD Commissioner, Kittitas County PUD Vera Claussen*, Secretary Commissioner, Grant County PUD Dan Gunkel" John Whalen Commissioner, Klickitat County PUD Commissioner. Mason County PUD #3 Darrel Bunch%Assistant Secretary Commissioner, Okanogan County PUD Jack Janda Gary Zarker Commissioner. Mason County PUD #1 Superintendent. Seattle City Light Tom Casey*

Parker Knight Also serves on the Executive Board Commissioner. Grays Harbor County Bob Graves' Executive Board term PUD Commissioner, Skamania County PUD ended June 16. 2002 Tom Casey's Executive Board term Gregg Caudell Don Nuxoll began June 16. 2002 Commissioner. Ferry County PUD Commissioner, Asotin County PUD 3

GENERA TING Solutions...

Adversity in the Power Market Across the West it was a period of adversity for utilities of all sizes, and yet, despite the challenges it was a gratifying year for Energy Northwest. It was a year in which we demonstrated our value to the region by generating innovative solutions, both in the form of reliable, low-cost electricity and in the form of meeting customer needs.

Even as the unpredictable West Coast power market of previous months ebbed into history, its legacy continued to be felt Northwest continued to expand on a complicated machine, one attuned to the across the region. The Bonneville Power variety of generation fronts. highest standards of safety and operating Administration (BPA) ended the past fiscal Through it all, the men and women of parameters. Even the smallest flaw or error year under an umbrella of emergent cost Energy Northwest continued to dream, not can result in an outage. As the 15'h refueling recovery mechanisms and looked to even about the next few years, but about the next evolution lapped over into early July of greater rate increases in the near future. few decades. Might Mid-Columbia basalt 2001, the plant appeared to start back up Private utilities faced bond rating reductions formations prove an ideal location to store with no problems. Then, at the end of the or. in one case, the side effects of a massive hydrogen produced through electrolysis month, a recirculating pump seal began to bankruptcy. A cloud of uncertainty covered when hydro power is cheap? Might the skills fail. Maintenance workers pulled a quick the Northwest as utilities that only 12 learned in perfecting a large nuclear power forced outage - seven days - to replace it.

months earlier girded for a new reality of plant be transferable to increasingly In February of 2002, another quick high prices had to function in a market of efficient operation of the region's hydro outage occurred, not necessarily to replace some of the lowest prices in a decade. resources? Might not Energy Northwest's equipment but to allow technicians to Strategies crafted when the price of power unique governance and financial structure understand the idiosyncrasies of a relatively was $200 a megawatt-hour suddenly were offer member utilities and others an small piece of equipment. Essential to the unworkable when the market price opportunity to better serve their customers? safety culture of all nuclear power plants descended to $20. The planning spectrum is the philosophy that operators must for all utilities was measured in days or understand each and every process in their weeks rather than months or years. domain. In this case, operators found Yet amid this turmoil, Energy Columbia Generating switches in some electrical breaker Northwest held its own-even prospered in Station assemblies that were not operating relative terms. As a generating utility, properly. Rather than operate the plant Energy Northwest proved its worth during The Energy Northwest answer to such while sorting out the issue, managers FY 2002. The replacement value of power questions carries substance because of our rightly took the conservative course and produced by Columbia Generating Station performance with Columbia Generating shut down the station for ten days to reached $1.6 billion, compared to the $200 Station. During the energy shortages of investigate, understand, and repair the million it cost to operate the plant. Next, 2001 and into the uncertainties of 2002. problem switches.

e as the market suffered Columbia Generating Station and its people For the remainder of the fiscal year, through a hangover after stood tall, generating equal amounts of Columbia Generating Station ran safely the paroxysms of a power and of trust. and reliably, powering the region. The

'h year earlier, Energy A nuclear power plant is an extremely plant's commitment to predictable reliability 4

Above left From left to right even extended to the unpredictable. During is rapidly running out of space to store fuel Executive Management Team the spring of 2002. BPA frequently asked assemblies that have exhausted their useful Jack Baker, Vice President Resource Columbia Generating Station to change energy supply. Development power output to respond to market and During FY 2002, Energy Northwest Rod Webring, Vice President Operations river runoff demands. Energy Northwest worked with Holtec International, preparing SupportiPlO fulfilled BPA's request, one day at 45 to use its MPC-68 canister and HI-STORM Vic Parrish,Chief Executive Officer percent, the next at 100 percent, followed metal and concrete storage overpack design GregSmith, Vice President Generation by 65 percent and so on. There probably for storing the plant's spent fuel. When Jerry Kucera, Vice President completed, the system will allow spent fuel AdministrationlCFO is no other nuclear power plant in the nation that has followed a fluctuating load profile to be loaded and moved out of the reactor Al Mouncer,Vice President/General so faithfully and with such accuracy. building to a secure storage pad next to the Counsel Now firmly settled into its 24-month plant. Handling equipment has been purchased and two buildings-a Above right refueling cycle. Columbia Generating maintenance shop and an equipment Columbia GeneratingStation Station ended FY 2002 with a 95.5 percent capacity factor (including economic garage-have been erected. Crew training dispatch credits), generating 9.262 million is ongoing. Although the vendor was late megawatt-hours equivalent, which was a in supplying a few components, the overall record for the plant. project is only slightly behind schedule.

The goal of the project is to load five casks by the end of calendar year 2002.

This will put 340 fuel assemblies-68 per canister-into dry storage, which will be Independent Spent Fuel enough to accommodate the refueling Storage Installation (ISFSI) outage in 2003. The NRC requires the ISFSI project to successfully pass six demonstration exercises prior to cask The Independent Spent Fuel Storage Installation, located adjacent to Columbia loading. The first two exercises, completed I Generating Station, is a dry cask storage in late June 2002, went very well. Project system for spent nuclear fuel. It is managers are confident that all six necessary for continued operation of the exercises will be passed and loading will plant because the existing spent fuel pool proceed.

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WNP- 1 Study After approximately nine months of work, the WNP-I Feasibility Study was completed and results presented to the Executive Board and Board of Directors during their April 2002 meetings. The study was executed in three steps: 1)development of construction costs and timelines:

2) development of a power market forecast and 3) an independent review of the first two segments that would result in a final recommendation.

Bechtel Power Corp. and R.W. Beck conducted the first two portions of the study, while the consulting firm Packwood Lake Nine Canyon Wind Project Goldschmidt Imeson conducted the third Hydroelectric Project portion. When the complete study was The Nine Canyon Wind Project has presented to the Executive Board, it was In 2002, Energy Northwest managed gone from the drawing board to generating dear that the cost to complete WNP-I as an extensive project to repair tunnel leakage power. One by one, the 200-foot tall turbine a nuclear power plant was too high to be during the annual maintenance outage. towers appeared on the site southeast of economical. It was equally dear that neither The repair was successful and no leaks Kennewick, Washington. As the month of public power, collectively, nor Energy have been detected since the plant came June ended, the first five turbines began Northwest. alone, would finish the plant. back on line. After restarting, the facility producing renewable power for the Goldschmidt Imeson then met with experienced a transformer failure, which Northwest.

political, regional, and industry leaders to resulted in an extended forced outage. The Working with the contractor, discuss the best potential uses for WNP*I. spare transformer was installed; however, Renewable Energy Systems (RES), Energy During the course of those meetings it was its lower capacity resulted in lowered Northwests Resource Development team made clear that no other entity had an generation potential for the facility. A new, developed detailed construction plans, interest in completing WNP- 1.As the fiscal 40 MVA transformer will be installed during including plans to finance the project. On year came to a dose, Energy Northwest the next outage in October 2002. November 9. 2001, the Executive Board was working with BPA, United States The region experienced above approved the sale of $70,675,000 in bonds.

Department of Energy (DOE), and average precipitation through the winter This was a milestone event for Energy Washington State Energy Facility Site and spring, which will contribute to Northwest: the first time in over 20 years Evaluation Council (EFSEC) to negotiate increased revenues for project participants. that the organization had sold bonds a mutually beneficial agreement on the level Annual generation was 81.610 MWh. without the financial backing of the of restoration required for both the WNP approximately 90 percent of average Bonneville Power Administration. The fact I and WNP-4 project sites production. When the new transformer is that the bonds were avidly sought and installed, the facility will return to producing quickly sold was a dear demonstration of larger quantities of environmentally friendly the strength and stability of public power electric power for the ratepayers of the in the Northwest.

Northwest. Immediately after the bond funds were deposited in the project account, Energy Northwest notified RES to begin construction. A modest groundbreaking 6

Above left Nine Canyon Wind Project ceremony was held at the project site on of Energy, all of whom contributed funding during constructon March 1I, 2002. Chill winds buffeted the and support. Energy Northwest owns and dignitaries as they viewed the bare hillside. operates the station. The Bonneville Power Above right Three and a half months later, the first of Administration (BPA) integrates the power White Bluffs SolarStation with the huge' turbines was producing power. into its system. And the Bonneville engineerJerry Sims The entire project began commercial Environmental Foundation (BEF) markets operation in September 2002. the environmental attributes-the displaced Participating utilities in the Nine air pollution and greenhouse gas Canyon Wind Project are Benton PUD. emissions-as a "Green Tags" product to Chelan PUD. Douglas PUD. Grant PUD. buyers who want to offset negative Lewis PUD, Mason PUD No. 3, Okanogan environmental effects of their own direct PUD. Grays Harbor PUD and Columbia power consumption. The Green Tags have Generating Station. been pre-sold for the next two years to Clark Public Utilities and Puget Sound Energy for their ratepayers who are participating in the utilities* green power White Bluffs Solar Station programs.

Through BEF. the WallulaGen Supporters of renewable energy Corporation of Mercer Island, Washington.

development gathered on May 30, 2002. to also was a funding participant, contributing dedicate the White Bluffs Solar Station. $50,000 of the $230,000 capital costs.

White Bluffs is the largest photovoltaic WallulaGen is constructing a large gas-fired solar power facility constructed in the power plant near Wallula, Washington, and Pacific Northwest to date. The station has made its contribution as part of a larger a nameplate rating of 38.7 kilowatts DC mitigation package agreed to with the State and should produce 29.5 kilowatts AC at of Washington.

PVUSA Test Conditions. The system The U.S. Department of Energy I comprises 242 photovoltaic panels. contributed $30,000 through its The station is a collaborative project "Brightfields" solar grant program, with the of three leading energy organizations in the assistance of Washington State University's Pacific Northwest and the U.S. Department Cooperative Extension Energy Service.

A 7

Environmental Stewardship-ISO Report Energy Northwest's Executive Board identified environmental stewardship as a top priority in meeting our "public 11 confidence. trust and stewardship" strategic objective. To support this objective. Energy Northwest conducted an assessment of organization-wide environmental programs and performance. Pacific Northwest National Laboratory provided environmental management expertise and assistance during the assessment, which was completed in December 200 1. Energy Northwest will be developing and implementing an Environmental Management System (EMS) to provide a means to achieve this worthy goal.

An EMS provides a systematic framework for integrating environmental considerations into all aspects of Resource Protection One positive outcome of this situation.

operations. It is a tool to manage and however, was a media day, held in mid measure environmental impacts. An EMS With the tragic events of September February, with a number of local and can help improve environmental I1. 2001, the world was changed forever. regional reporters and camera operators performance, gain community trust, reduce So, too, were security programs changed on-site interacting directly with members costs, and ensure compliance with the law. at nuclear power plants across the nation. of our resource protection team. It was an Energy Northwest will develop an as facilities considered to be "critical excellent opportunity for them to learn first EMS based primarily on the International infrastructure" were closely scrutinized as hand how seriously we take security at Organization for Standardization (ISO) potential threat targets. Columbia Generating Station.

14001. It is the most widely endorsed Columbia Generating Station's We continue to work dosely with other standard for environmental management. resource protection organization responded plants and the NRC to ensure we're Included in the standard's requirements are immediately, heightening the level of implementing "best practices" in our elements designed to provide consistency security at the plant. Shortly thereafter, the security measures and communicating with in operations and achieve organizational Nuclear Regulatory Commission (NRC) a shared understanding of information and goals. developed and mandated additional events that may affect our operations.

Once the EMS was agreed on, the security measures for all nuclear plants, team assessed Energy Northwest's and set a deadline of August 3 1, 2002, for environmental stewardship program those measures to be fully in place.

against it. The results show that although At the close of the fiscal year, we had Debt Optimization Program some of our existing programs are strong. made significant progress toward we still have room for improvement. Energy implementing the new measures and The Debt Optimization Program was Northwest is committed to being a leader enhancing existing practices. Hiring a developed to defer payment on Energy in environmental stewardship. As we move number of additional security officers and Northwest debt principal and use the funds forward with this program, we will fully constructing a new security barricade to pay off higher-interest principal on integrate the EMS with other management around the site are just two of the additional Bonneville Power Administration's U.S.

systems already in place in order to meet measures underway. We're fully committed Treasury debt early. This will free up this goal. to meeting the NRC's end-of-August Bonneville's borrowing authority, which can deadline. be used on regional infrastructure improvements. Between 2001-2012, approximately $3 billion of borrowing 8

Above left Security Check Pointat Columbia authority is expected to be freed up as a Northwest responded, submitting five GeneratingStation result of this program. proposals. These proposals differed in Through the program, Energy approach, and did not center on any Above right Northwest bonds are refinanced and the particular project on BPAs priority list of Transmission Towers maturity is extended to the 2013-2018 time projects. Ours was the only public power period. Savings result from a lower interest proposal that potentially addressed a broad rate than is available to BPA through the range of BPA transmission projects.

Treasury. This process provides the region Energy Northwest's submittal with an average annual interest savings of generated interest at BPA, and discussions

$20 million for the life of the program. The continued throughout the summer of 2002.

intended purpose of these funds is to reduce BPA's interest expense.

The Debt Optimization Program is estimated to make an additional $300 million available during fiscal year 2003.

Third Party Participation in Transmission Energy Northwest's powers and authorities allow it to issue bonds, and to be involved in transmission. During this fiscal year, the Bonneville Power Administration requested expressions of I interest for third party involvement in building or funding several additions to the BPA transmission system. Energy 9

RESOURCE Development Zintel Canyon Wind Project The Energy Northwest Board of Directors approved a second wind power project during its April 2002 meeting.

allowing Energy Northwest to conduct the necessary studies and take preliminary actions to determine project feasibility.

The Zintel Canyon Wind Project has a potential capacity of about 50 megawatts.

and will be located adjacent to the Nine Canyon Wind Project. south of Kennewick.

Washington.

The first public meeting on the Zintel Canyon Wind Project was held in June 2002. attended by approximately 30 citizens. A few attendees voiced objections to the towers as spoiling their view of the customers to lease in support of their public power utilities. Energy Northwest is Horse Heaven Hills. This was not broadband needs. actively investing in emerging technologies, unexpected, since the towers at nearby Nine and has made a significant commitment Canyon are now quite visible. Others voiced to the development of the technology future their strong support of this renewable by establishing and supporting this energy project Fuel Cells incubator for research and entrepreneurial endeavors. By leveraging our existing Energy Northwest continues its facilities infrastructure and technological demonstration work with fuel cells gauged talent, Energy Northwest provides a NoaNet to single-home or small subdivision pathway to success for these future capacity. The current cell, supplied through technologies.

Energy Northwest is a founding an agreement with the Bonneville Power APEL continues to host companies member of NoaNet, offering access to a Administration and IdaTech of Bend, developing and demonstrating new fiber-optic cable network licensed from Oregon, is mounted in an enclosed technologies for treating Hanford BPA and other broadband providers. demonstration trailer and continues to tour contaminated waste sites. Products and NoaNet is a non-profit, open access. among our supporting member utilities. services also are being developed to detect fiber-optic network developed to bring Throughout our work since 2000, we have toxic materials and remove contaminants high-speed broadband communications to encountered both the great promise and from the air. APEL has expanded beyond rural areas of the Northwest. Energy the great problems ahead in fuel cell toxic waste treatment. Issues of energy.

Northwest supports the NoaNet Point of development health and environment now are principal Presence (POP) at the Ashe Substation areas of focus. APEL hosts several near Columbia Generating Station and the advanced fuel cell projects, a solar energy Moxee POP near Yakima. Washington. project, and the manufacture of power Applied Process The Ashe POP has been extended into the converters for renewable energy APEL facility in north Richland. enabling EngineeringLaboratory applications. Work also is underway on the connection of customers to the network (APEL) fabricating prostate cancer treatment seeds, and establishing a "Meet Me" point for and on treating warts and other virus t NoaNet Network. From In its fourth year, APEL continues to related illnesses without surgery.

this location. Energy host companies developing and It is clear that APEL is creating jobs Northwest offers co demonstrating new technologies. Through in the Northwest and addressing some of L location facilities for the enlightened support of its member the most vexing environmental problems I0

Above left APEL Facility hosts companies facing the planet APEL is a joint venture Wave Energy developing new technologies of Energy Northwest. the Port of Benton, the City of Richland, the Pacific Northwest Energy Northwest has teamed with Above right National Laboratory, the U.S. Department the Northwest Energy Innovation Center Steve Sidwell of Instrumentation of Energy and others. Energy Northwest and AquaEnergy Group to explore the and Calibration receives a modest income from the lease possibilities of capturing the Pacific's of facilities to APEL, but beyond that, we almost unlimited power. AquaEnergy.

believe our significant investment in the associated with a Swedish company now technology future is in the best interest of harvesting energy from the North Sea, our public power membership, our proposes to use buoys anchored off Neah community and our employees. Bay. Washington, as a one-megawatt demonstration project. At the end of fiscal year 2002, Energy Northwest was assisting Biomass in the complicated permitting process necessary for any power project on the Adhering to its commitment to develop coast. The Makah Nation is a sponsor of alternative power sources, Energy the endeavor, and Clallam County PUD will Northwest has begun the search for distribute the power.

biomass generating locations. We have spoken to livestock operations in the Mid Columbia. in Whatcom County, and in the Quincy, Washington, area, seeking partners for a demonstration project. Biomass involves using manure from dairy or feedlot operations in a digester to produce burnable gases. Such gas is used in an engine that then turns a generator. Not only would a biomass project produce power, it also would burn greenhouse gases that normally would waft into the atmosphere.

II

The Northwest Energy Innovation Center In just a few short months of existence.

the Northwest Energy Innovation Center has solidified its reputation as a creative leader in renewable generating resources.

The center was developed in January 200 1, as a consortium of the Bonneville Power Administration, Washington State University. the Pacific Northwest National Laboratory operated by Battelle. and Energy Northwest. Based in Richland. the center made possible Energy Northwest's White Bluffs Solar Station and is leading the way toward our involvement in ocean wave power, reliable tracking mechanisms for solar installations, and an innovative method to create burnable fuel from forest products industry waste.

CalibrationLaboratory EnvironmentalServices public power" which Energy Northwest or its members may purchase. Hiring of the Demand continues to grow for Energy Since 1992. Energy Northwest 27 Energy Northwest employees who will Northwest's calibration services. The staff Environmental Services staff has provided provide the contracted services is of 18 uses state-of-the-art calibration a wide range of chemical analysis and underway, with a plant general manager equipment and techniques to ensure environmental monitoring services to and a maintenance manager already on customers" equipment and systems are utility, municipal, commercial, and nuclear board. However, due to current energy doing what they say they are doing. The customers. Services include ecological market conditions, Duke Energy North main customer continues to be Columbia evaluations, environmental monitoring. America has temporarily suspended Generating Station. but interest from National Pollution Discharge Elimination construction on the Grays Harbor Energy outside customers is growing, In the third System (NPDES) permit testing. drinking Facility. Duke Energy is determining the year of the Fluor contract, for example, the water analyses, solid and hazardous waste appropriate schedule for the project to number of calibrations for the Hanford site site monitoring. lubrication oil condition resume.

was 3.443 compared to 3.400 for Columbia testing. and technical consulting.

Generating Station during the same 12 month period.

Calibration work also is increasing for Franklin PUD & Grays the Washington Demilitarization Company HarborPUD CT Project Grays Harbor at the Umatilla Chemical Depot, in Oregon.

and the Lab is doing pre-acceptance testing Energy Facility As Franklin PUD neared completion for the U.S. Air Force through HiLine of its Franklin PUD/Grays Harbor PUD Engineering. Additionally, the Lab is in the Fiscal Year 2002 saw the finalization Generating Facility. a new combustion process of gaining a place on the "evaluated of our contract with Duke Energy North turbine plant in Pasco. Washington. the suppliers list" of Bechtel for work on the America (DENA) to operate and maintain utility began looking for a flexible approach vitrification project at Hanford. the Grays Harbor Energy Facility-a 630 to operations and maintenance staffing.

MW combustion turbine facility under The plant is a peaking plant, expected construction near Olympia. Washington. to run only when it is needed. Staffing such Plans at the end of June 2002 call for the a facility with experienced and trained plant to be completed in late summer 2003. individuals on a 24-hour-a-day basis is a Part of the contract stipulates that 50 MW challenge, since it is impossible to predict of the plant's output is reserved as "at cost into the future when the plant will operate.

12

r Above left TrainingClass Energy Northwest put together a crew construction anticipated to begin late in of people who were looking for just such a 2002.

part-time, on-call opportunity. Five Energy Northwest presently has a full Above right individuals completed the necessary time site supervisor and part-time project George Noggles of the CalibrationLab training from General Electric, the manager for the facility, working in manufacturer of the turbine generators, at partnership with Ylickitat PUD employees the Franklin PUD operations center. and management. Energy Northwest also The 44-megawatt generating station completed a management audit of the plant will provide half of its power to Franklin that has helped to better schedule PUD and half to Grays Harbor PUD, maintenance activities.

providing the stability of added energy resources for their public utilities' ratepayers. Assessing the Hydro System Klickitat PUD Partnership Energy Northwest's integration into the Federal Columbia River Power System In December 2001. Energy Northwest was perhaps best illustrated by the work and Klickitat County PUD signed a five we did at six Corps of Engineers dams. As year contract defining Energy Northwesfs operators of a commercial nuclear power station management and oversight station, Energy Northwest has great responsibility for the H.W Hill Landfill Gas experience with performance indicators.

Power Plant, located at the Roosevelt We offered that expertise to the Corps to Landfill. develop individual indicators for sites we The Klickitat facility uses five visited in the spring of 2002. During the reciprocating engines to produce 10.5 second phase, Energy Northwest will help I megawatts of power. The engines burn each site establish its own performance methane gas given off by decomposing indicator system. These contracts offer the garbage in the landfill. Capacity expansion Corps the prospect of reduced power costs already is in the planning phase, with from more efficient operations at the dams.

15

The contracts also lower power costs from The Leadership Academy remains a Columbia Generating Station. because VISION FOR mainstay of our training programs for some of its overhead expense has been absorbed by these contracts with the Corps.

managers and supervisors. By the end of June 2002, twelve classes of this intensive.

The Future five-week training program had been completed. More than 200 graduates are While some of our service lines have back at work, implementing many of the changed over the past year. our vision for new tools learned during the Academy. In the future has not. We continue to focus on the coming fiscal year, we expect to have becoming the region's most valued energy EMPLOYEE trained 95 percent of all managers and company. We believe we're taking the right Development supervisors at Energy Northwest, and will be developing a plan for offering this steps. each day, to achieve that vision.

Looking forward to FY 2005, there are training to employees at all levels a number of things already on the horizon.

throughout our organization. We fully expect the focus on security Energy Northwest continues to focus The Leadership Academy has had to remain at a heightened level, and are on developing its greatest asset, its such an impact on so many of our staff, its committed to ensuring the safety of this employees, through a number of channels. reputation is becoming widely known community, Columbia Generating Station, Employees continue to receive tuition throughout the nuclear industry. We've had and our employees.

reimbursement in pursuit of higher requests for permission to observe the We have an ambitious Columbia education that will help them achieve Academy in session, and expect to be Generating Station refueling outage greater levels of success in their careers. offering the training to students from scheduled for May 2005. It will be the first In addition, Energy Northwest provided external organizations in the coming year. refueling since we implemented our two more than 8,200 hours0.00231 days <br />0.0556 hours <br />3.306878e-4 weeks <br />7.61e-5 months <br /> of training to Our succession planning process has year refueling cycle.

employees during the fiscal year just ended. made great progress over the past year. as We will continue to forge ahead with well. A fledgling program at the beginning the permitting process for the Zintel of fiscal year 2002, we've processed Canyon Wind Project. We will continue to nominations for all management positions prospect for other potential wind project throughout the organization and have sites around the state.

employees actively working individualized We will continue to investigate non development plans to prepare for future traditional sources of electricity generation, movement into those positions as they including landfill gas. biomass, wave energy, come available. Succession planning is a and the like. We understand the need to be proven method in the business world of responsible stewards of the environment ensuring an organization has a strong and the resources we use. We take that leadership team in place regardless of responsibility seriously and will be ever potential personnel changes. vigilant in ensuring that generations to come have access to clean, safe, reliable electricity, and to a clean. safe environment in which to live.

We will continue to work closely with our member utilities to strengthen those critical relationships and provide them with products and services that meet their needs.

And, finally, we will continue to keep the lights on in millions of homes across the Northwest-providing electricity at the cost of production.

14

FINANCIAL OPERATING HIGHLIGHTS For the year ended June 30, 2002 (Dollarsin Millions)

OperatingStatistics Columbia GeneratingStation Packwood Lake Project FY2002 FY2001 FY2002 FY2001 9,262 7,996 82 64 Net Generation (1) 95.4% 85.1% 81.6% 79.7%

Plant Availability (2) 92.0% 81.8% 33.9% 26A%

Plant Capacity (3)

Cost of Power (cents/kWh) 1.4 1.99 0.96 1.12 Production Expenses (4)

Industry Basis (5) 2.06 2.61 Investment Performance FY2002 FY2001 CHANGE (%)

Income $ 25 $ 38.5 (35.1%)

$ 661 $ 631 4.8%

Average Balance 3.78% 6.11% (38.1%)

Rate of Return FY2002 FY2001 CHANGE (%)

Bonds Outstanding Nuclear Project No. I Fixed $ 1,995 $ 1,956 2.0%

Weighted Average Rate 5.8% 5.8% 0.0%

Variable $ 125 $ 130 (3.8%)

Average Rate 1.6% 3.6% (55.6%)

Columbia Generating Station Fixed (6) $ 1,954 $ 1,919 1.8%

Weighted Average Rate (7) 5.5% 5.5% 0.0%

Variable $ 114 $ 121 (5.8%)

Average Rate 1.6% 3.6% (55.6%)

Nuclear Project No. 3 Fixed (6) $ 1,462 $ 1,300 12.5%

Weighted Average Rate (7) 5.5% 5.5% 0.0%

Variable $ 178 $ 184 (3.3%)

Average Rate 1.6% 3.6% (55.6%)

Packwood Lake Project Fixed $ 4.8 $ 5.4 (11.1%)

Weighted Average Rate 3.7% 3.7% 0.0%

Nine Canyon Wind Project Fixed $ 70.7 N/A N/A Weighted Average Rate 5.7% N/A N/A (I) Expressed in millions of kWh. Columbia's generation includes BPA economic dispatch credit of. FY2002: 336: FY2001: 68.

(2) Plant availability is defined as the ratio of the sum of source hours and reserve shut down hours to total period hours.

production capability.

(3) Plant capacity factor is the ratio of the actual energy production over a given period of time to the maximum energy Regulatory Commission (FERC).

(4) Includes operating, maintenance, and fuel amortization costs per the EIA-412 Report submitted to the Federal Energy and general. fuel-related costs and estimated costs (5) Industry cost of power includes expenses associated with operations and maintenance, capital additions, administrative associated with the economic dispatch credit.

(6) Excludes compound interest bonds accretion.

(7) Excludes compound interest bonds,

MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING The management of Energy Northwest is responsible for from unauthorized use or disposition, and the prevention and preparing the accompanying financial statements and for their detection of fraudulent financial reporting. These control integrity. The statements were prepared in accordance with procedures provide for appropriate division of responsibility and generally accepted accounting principles applied on a consistent are documented by written policies and procedures.

basis, and include amounts that are based on management's best Energy Northwest maintains an ongoing internal auditing estimates and judgments. program that provides for independent assessment of the The financial statements have been audited by effectiveness of internal controls, and for recommendations PricewaterhouseCoopers LLP. Energy Northwest's independent of possible improvements thereto. In addition, accountants. Management has made available to PricewaterhouseCoopers LLP, has considered the internal control PricewaterhouseCoopers LLP. all financial records and related structure in order to determine its auditing procedures for the data, and believes that all representations made to purpose of expressing an opinion on the financial statements.

PricewaterhouseCoopers LLP, during its audit were valid and Management has considered recommendations made by the appropriate. internal auditor and PricewaterhouseCoopers LLP. concerning the Management has established and maintains internal control control procedures and has taken appropriate action to respond procedures that provide reasonable assurance as to the integrity to the recommendations. Management believes that, as of June and reliability of the financial statements, the protection of assets 30, 2002. internal control procedures are adequate.

J. V Parrish G. J. Kucera Chief Executive Officer Vice President, Administration/ChiefFinancialOfficer AUDIT LEGAL AND FINANCE COMMITTEE The Executive Board's Audit. Legal and Finance Committee plans for their respective audits, and reviewed Energy Northwest's is composed of seven independent directors. Members of the financial statements and the adequacy of Energy Northwest's Committee are Margaret Allen, Chairman: Vera Claussen. Larry internal controls.

Kenney, Sid Morrison, Amy Solomon. Roger Sparks. and John The Committee met regularly with Energy Northwest's internal Cockburn. Ex Officio. The Committee held II meetings during auditor and independent accountant to discuss the results of their the fiscal year ended June 30. 2002. examinations, their evaluations of Energy Northwest's internal The Committee oversees Energy Northwest's financial controls, and the overall quality of Energy Northwest's financial reporting process on behalf of the Executive Board. In fulfilling its reporting. The meetings were designed to facilitate any private responsibility, the Committee discussed with the internal auditor communications with the Committee desired by the internal auditor and the independent accountants, the overall scope and specific or independent accountant.

MargaretAllen Chairman, Audit, Legal and Finance Committee

'1l

REPORT OF INDEPENDENTACCOUNTANTS To the Executive Board of Energy Northwest In our opinion, the basic financial statements referred to above We have audited the accompanying balance sheet of Energy present fairly, in all material respects, the financial position of Northwest and the related individual balance sheets of Energy Energy Northwest and Energy Northwest's business units and Northwest's business units and internal service fund as of June internal service fund as of June 30. 2002, and the results of their

30. 2002, and the related statements of operations and cash flows operations and their cash flows for the year then ended in for the year then ended. Energy Northwest's business units conformity with accounting principles generally accepted in the include the Columbia Generating Station, Packwood Lake United States of America.

Hydroelectric Project. Nuclear Project No. I. Nuclear Project No.

As described in Note A, Energy Northwest adopted the

3. the Business Development Fund, Grays Harbor Energy Facility provisions Governmental Accounting Standards Board (GASB) and the Nine Canyon Wind Project. These basic financial Statement No. 34, Basic Financial Statements - Management's statements are the responsibility of Energy Northwest's Discussion and Analysis - for State and Local Governments, as management. Our responsibility is to express an opinion on these basic financial statements based on our audits. amended by GASB Statement No. 37, Basic Financial Statements and Management's Discussion and Analysis for State and Local We conducted our audits in accordance with auditing standards Governments, and GASB No. 38. Certain Financial Statements generally accepted in the United States of America. Those Note Disclosures, as of July 1. 200 1.

standards require that we plan and perform the audits to obtain The Management's Discussion and Analysis (MD&A) listed reasonable assurance about whether the basic financial statements in the table of contents is not a required part of the basic financial are free of material misstatement. An audit includes examining, statements but is supplementary information required by the on a test basis, evidence supporting the amounts and disclosures Governmental Accounting Standards Board. The information in in the financial statements. An audit also includes assessing the MD-dA has not been subjected to the auditing procedures applied accounting principles used and significant estimates made by in the audit of the basic financial statements, and accordingly, we management, as well as evaluating the overall financial statement express no opinion on it.

presentation. We believe that our audits provide a reasonable basis for our opinion.

Portland,Oregon September 6, 2002

[I!

FINANCIAL DATA And Information

MANA GEMENT'S DISCUSSION AND ANALYSIS The balance sheet reports information about construction work in Energy Northwest is a municipal corporation and joint progress, amount of resources and obligations, restricted accounts operating agency of the State of Washington. Each Energy and due to/due from balances (see Note B to financial statements)

Northwest Business Unit is financed and accounted for separately that reflect what is owed to or by each Business Unit.

from all other current or future business assets. The following The statement of operations and fund equity reports discussion and analysis is organized by Business Unit. The information relating to all expenses, revenues and equity that reflect management discussion and analysis of the financial performance the results of each Business Unit and its related activities over the and activity is provided as an introduction and an aid in comparing course of the Fiscal Year. This information aids in benchmarking the basic financial statements for the Fiscal Year ended June 30, activities, conducting comparisons to evaluate progress, and 2002. with the basic financial statements for the Fiscal Year ended whether the Business Unit has successfully recovered its costs.

June 30, 2001. Energy Northwest has adopted accounting policies The statement of cash flows reflects cash receipts and and principles that are in accordance with accounting principles disbursements resulting from operating, financing and investment generally accepted in the United States of America. Energy activities. The statement provides insight into what generates cash, Northwest applies Generally Accepted Accounting Principles where the cash comes from. and what it was used for.

(GAAP) and follows Governmental Accounting Standards Board The notes to the financial statements present disclosures that (GASB) Standards (see Note B to financial statements).

provide full understanding of the material presented in the financial The financial statements include a balance sheet; statement statements. This includes, but is not limited to. accounting policies, of operations and fund equity; a statement of cash flows; schedules significant balances and activities, material risks, commitments of outstanding long-term debt and debt service requirements: and and obligations, and subsequent events, as applicable.

notes to the financial statements. The balance sheet presents the financial position of each Business Unit based on an accrual basis.

9

COLUMBIA GENERATING STATION Agency (FEMA). Also, there was an increase in employee incentive payments as a result of plant operation goals achieved. Nuclear The Columbia Generating Station Nuclear Power Plant is Fuel expenditures are down, from $34,204,000 in Fiscal Year 2001 owned and operated by Energy Northwest. The Plant is an 1,153 to $30.311.000 in Fiscal Year 2002, because of the write off of fuel megawatt boiling water nuclear power station located on the United that was not fully amortized at the time of refueling in Fiscal Year States Department of Energy's Hanford Reservation north of 2001 of $3,893,000.

Richland. Washington. Columbia produced 8,925,873 GWhrs of Other Income and Expense changes are the net effects on electricity in Fiscal Year 2002, as compared to 7.927,916 GWhrs Columbia Debt (see Note E to financial statements). Investment of electricity in Fiscal Year 2001. Income was adversely affected by historically low market interest BALANCE SHEET ANALYSIS - Columbia Generating rates resulting in a decline of $12,103,000, from $23,643,000 in Station is in the middle of its first 2-year refueling and maintenance Fiscal Year 2001 to $11,540,000 in Fiscal Year 2002 (See Financial outage cycle. The last outage was completed on July 2, 2001, with Operating Highlights). Yields during the year were the lowest yields the next outage scheduled for May 2003. Fiscal Year 2002 was a on Treasury Securities since the early 1960's. Additionally. results non- refueling outage year. Generation was greater and more fuel of the 2002-A and 2002-B Refunding Bond issues reduced interest was burned during Fiscal Year 2002. resulting in a decrease of expense and amortization expenditures by $8,577,000, from Nuclear Fuel inventory by $9,622,000. from $102,814,000 as of $130,161,000 in Fiscal Year 2001. to $121,584,000 in Fiscal Year June 30, 2001, to $93,192,000 as of June 30, 2002. However. due 2002.

to moving the fuel casks amortization from the Nuclear Fuel inventory to a liability, Nuclear Fuel inventory increased to

$121,260,000. Construction Work in Progress increased by PACKWOOD LAKE HYDROELECTRIC

$12,584.000. from $17.771,000 as of June 30. 2001, to $30,355,000 as of June 30. 2002. mainly due to the Independent Spent Fuel PROJECT Storage Installation (ISFSI) project along with heightened security The Packwood Lake Hydroelectric Project is owned and improvements. Accounts Payable and Accrued Expenses increased operated by Energy Northwest. The Project consists of a dam at

$24,585.000 from $40,358,000 as of June 30. 2001. to $64,943,000 Packwood Lake and a powerhouse 1.800 feet below the dam and as of June 30. 2002, mainly due to the issuance of $34,518,000 in is located south of Packwood, Washington. Packwood produced Notes Payable to reimburse costs of ISFSI. offset by a decrease in 81.6 GWhrs of electricity in Fiscal Year 2002. versus 63.6 GWhrs Accounts Payable of $9,933.000 due to outage costs accrued as of in Fiscal Year 2001.

June 30. 2001. Long-Term Debt, including the current portion, has BALANCE SHEET ANALYSIS - Current Assets have increased $6,402,000, from $2.073,684,000 as of June 30, 2001, to increased $969,000. from $410,000 as of June 30. 2001, to

$2,080,086.000 as of June 30, 2002. due to the results of the 2002

$1.379.000 as of June 30. 2002. due to increased sales revenue A and 2002 B Refunding Bond sales.

from greater generation and higher rates paid through the power STATEMENT OF OPERATIONS ANALYSIS - Columbia sales contract with the Bonneville Power Administration (BPA).

Generating Station is a net billed Project. Columbia Generating As a result, Packwood accrued $951,000 in excess cash to be Station recognizes revenues equal to expense for each period. No returned to the Packwood Participants in October 2002.

net revenue or loss is recognized and no equity is accumulated.

STATEMENT OF OPERATIONS ANALYSIS - The The following changes from Fiscal Year 2001 for Net Operating agreement with Packwood Project Participants obligates them to Revenues are: Operating Revenues needed to cover expenditures pay annual costs and to receive excess revenues. Accordingly.

are down by $14,157.000. from $421,152,000 in Fiscal Year 2001.

Energy Northwest recognizes revenues equal to expenses for each to $406.995,000 in Fiscal Year 2002. The decrease in operating period. No net revenue or loss is recognized and no equity is revenues can be attributed to the following: Operations and Maintenance expenditures were lower by $27,493,000, from accumulated. Revenues increased because of the cost increases detailed below. Operations and maintenance, along with

$144,325,000 in Fiscal Year 2001, to $116,832,000 in Fiscal Year administrative and general expenditures increased $108.000. from 2002. This can be attributed to Fiscal Year 2002 being a non

$1,260,000 in Fiscal Year 2001 to $1,368,000 in Fiscal Year 2002.

refueling outage year. Greater generation resulted in an increase This was due to the extended outage to repair tunnel leaks, the of Generation Taxes of $701,000, from $2,497,000 in Fiscal Year 2001 to $3,198,000 in Fiscal Year 2002. and Spent Fuel Disposal significant increase in insurance premiums, and the costs associated with a transformer failure.

Fees of $945,000, from $7,542,000 in Fiscal Year 2001 to $8,487,000 in Fiscal Year 2002. Administrative and General costs increased Investment income was adversely affected by historically low market interest rates declining $59,000, from $95,000 in Fiscal by $11,631,000, from $16.125.000 in Fiscal Year 2001 to Year 2001 to $36,000 in Fiscal Year 2002 (See Financial Operating

$27,756,000 in Fiscal Year 2002. mainly due to increased regulatory Highlights).

fees paid to the Nuclear Regulatory Commission (NRC). Energy Facility Site Evaluation Council (EFSEC), Institute of Nuclear Cash from sales increased in Fiscal Year 2002. because of greater generation and the new power sales contract with BPA at Power Operations (INPO) and Federal Emergency Management 40mills/kwh (see Note E to financial statements). Negotiations

are underway to sell the power to Benton PUD and Franklin PUD Highlights).

after the scheduled outage in October 2002. This higher rate does Land recorded at $127,000 was transferred to the Grays not increase revenue because the extra cash is intended to be Harbor Energy Facility.

returned to the Participants. STATEMENT OF OPERATIONS ANALYSIS- Investment Income decreased $4,289,000 due to historically low market interest rates from $9,971,000 in Fiscal Year 2001 to $5,682,000 in Fiscal Year 2002 (See Financial Operating Highlights). Yields during NUCLEAR PROJECT NO. 1 the year were the lowest yields on Treasury Securities since the early 1960's. In addition, Plant Preservation and Termination costs Nuclear Project No. 1. a 1,250 MWe plant, was placed in decreased $1,500,000 due to an IRS arbitrage rebate credit.

extended construction delay status in 1982, when it was 65 percent complete. On May 13.1994, Energy Northwesfs Board of Directors adopted a resolution terminating Nuclear Project No. 1. In Fiscal BUSINESS DEVELOPMENT FUND Year 1999, the assets and liabilities of the Hanford Generating Project were consolidated into Nuclear Project No. I. The Hanford The Business Development Fund (BDF) was created by Generating Project site is being restored and all funding requirements are net-billed obligations of Nuclear Project No. I. Executive Board Resolution No. 1006 in April 1997, for the purpose Energy Northwest wholly owns Nuclear Project No. 1. Termination of holding, administering, disbursing, and accounting for Energy expenses and debt service costs comprise the activity of Nuclear Northwest costs and revenues generated from engaging in new energy-related business opportunities.

Project No. 1.

BALANCE SHEET ANALYSIS -Energy Northwest executed The BDF is managed as an enterprise fund. Four business two refunding bond sales during Fiscal Year 2002 to implement sectors have been created within the fund: General Services, Generation. Power Sales, and Professional Services. Each sector Bonneville's Debt Optimization Program (see Note E to financial statements). As a result of these two refunding bond sales, Nuclear may have one or more projects that are managed as unique business ventures. A fifth business sector, Business Unit Support, has been Project No. I's long-term debt was increased by $49,050,000 from

$2.032,139,000 as of June 30, 2001, to $2,081,189,000 as of June created to capture costs associated with developing projects and infrastructure.

30. 2002. resulting from the extension of the average life of the STATEMENT OF OPERATIONS ANALYSIS - Operating debt and taking advantage of historically low interest rates.

STATEMENT OF OPERATIONS ANALYSIS- Investment Revenues in Fiscal Year 2002 totaled $6,808,000 as compared to Income decreased $8,045,000, from $14,714,000 in Fiscal Year Fiscal Year 2001 revenues of $5.218,000, an increase of $1,590,000.

2001 to $6,669,000 in Fiscal Year 2002, because of historically low Significant growth has been experienced in several of these market interest rates. Yields during the year were the lowest business programs. Among the major business program yields on Treasury Securities since the early 1960's (See Financial contributors to this growth are: Washington Demilitarization Operating Highlights). Company for management and engineering support by $528,000, Klickitat Landfill Gas management and support by $364,000, Nine Canyon Wind Project for construction support by $178,000, Environmental Services by $202,000, and Fluor Calibration NUCLEAR PROJECT NO. 3 Services by $1 19,000.

Net Revenues for Fiscal Year 2002 showed a $1,700,000 loss Nuclear Project No. 3, a 1,240 MWe plant, was placed in as compared to approximately a $600,000 loss in Fiscal Year 200 1.

extended construction delay status in 1983, when it was 75 percent Energy Northwest was created to enable its members, complete. On May 13, 1994, Energy Northwest's Board of Directors Washington public utility districts and municipalities, to build and adopted a resolution recommending the termination of Nuclear operate large commercial scale generation projects. With the Project No. 3. In June 1994, the Nuclear Project No. 3 Owners growing interest in renewable energy sources, Energy Northwest Committee voted unanimously to terminate Nuclear Project No. 3. is seeking to meet some of this regional demand with new wind Energy Northwest no longer is responsible for any site restoration generation projects.

costs as they were transferred with the assets to the Satsop Energy Northwest began the research and investigation of Redevelopment Project (see Note F to financial statements). The suitable wind power sites. This effort is referred to as Wind Mining last parcel of land was transferred during this period. The debt and accounted for $400,000 in expenditures with no revenues in service related activities remain and are net-billed. Fiscal Year 2002. These costs are for research and investigation BALANCE SHEET ANALYSIS - Under Bonneville's Debt of new potential wind sites and related expenditures that cannot Optimization Program (see Note E to financial statements), long be directly attributable to a current wind project. As a promising term debt was increased $29,600,000, from $1,787,600,000 in Fiscal site is identified and approved, such as Zintel Canyon, a new project Year 2001 to $1,817,200,000 in Fiscal Year 2002, resulting from is created and expenditures related to the new wind project are the extension of the average life of the debt and taking advantage moved out of the Wind Mining Project to the new wind project of historically low interest rates. (See Financial Operating

As Energy Northwest develops wind project power purchase in January 2002. Upon receipt of the final payment, Energy North agreements, it will seek approval from the purchasers to reim west recognized the gross proceeds of $5,000,000 as revenue. In burse a share of the residual Wind Mining Project costs. The connection with this sale, BPA was paid $2, 137,000 as reimburse Nine Canyon Purchasers Committee agreed to reimburse the BDF ment of costs to develop the site. Additional revenues were re Wind Mining Project for 50% of the residual Wind Mining Project corded for reimbursable costs and services provided to DENA.

accumulated costs per the agreement. The actual sale of the land and assets at the site in Grays The first wind project is the Nine Canyon Wind Project. Con Harbor County near Elma, Washington, already has been con struction began in Fiscal Year 2002. Later, the Energy Northwest cluded successfully. This was intended to lead to the construction Board of Directors approved the Zintel Canyon Wind Project as by DEGH of a 630 megawatt combined cycle 2-on-I gas turbine the next wind development site. During Fiscal Year 2002. the power plant at the site to be on-line by late 2003. Under the sale Zintel Canyon Wind Project accounted for a total of $150,000 in agreement, Energy Northwest was to become the operator of the expenditures with no revenues. Grays Harbor Energy Facility. However, due to current energy Early in Fiscal Year 2003. the Nine Canyon Wind Project's market conditions, Duke Energy North America has temporarily construction was completed and commercial operation was suspended construction on the Grays Harbor Energy Facility. Duke achieved on September 25. 2002. Nine Canyon Wind Project Energy is determining the appropriate schedule for the project to development costs will be reimbursed in Fiscal Year 2003 to the resume.

BDE Approximately $ 140,000 was spent on marketing efforts and an additional $340,000 over Fiscal Year 2001 levels was spent on developing the organizational infrastructure to support the growth NINE CANYON WIND PROJECT in business programs. Total operating revenues increased 30% in The Nine Canyon Wind Project is owned and operated by Fiscal Year 2002 and operational business projects returned an Energy Northwest The Project is located on hills approximately 8% margin.

10 miles southeast of Kennewick. Washington. The Project con Looking forward. Operating Revenues are expected to grow sists of 37 wind turbines, each with a maximum generating capac 40-50% in Fiscal Year 2003. Net revenues are projected to con ity of approximately 1.3 megawatts of electricity, for a total wind tinue to show a loss in the upcoming year as the business invests in the future, through development of potential new wind sites and project capacity of 48 megawatts. This is enough energy capacity for 15.000 average homes.

increased sales and marketing efforts.

Public Utility Districts in the Northwest, whose customers have The Business Development Fund receives contributions from expressed an interest in purchasing at least a portion of their elec the Internal Service Fund to cover cash needs during this startup tricity from green power sources, have purchased the electricity period. Such cash is not expected to be paid back and is shown as from the Project. The Columbia Generating Station also is a pur contributions.

chaser of a portion of electricity from the Project Each purchaser has signed a 22-year power purchase agreement with Energy North west. Electricity generated by the Project will be connected to the GRAYS HARBOR ENERGY FACILITY Bonneville Power Administration transmission grid via a substa tion and transmission lines constructed by the Benton County Becoming the operator of the Grays Harbor Energy Facility Public Utility District, and transported to the various purchasers is a key component in Energy Northwest's strategic plan to even over the Bonneville transmission system.

tually own and operate combined cycle gas turbine power plants. BALANCE SHEET ANALYSIS - Long-term debt in the form A contract with Duke Energy Grays Harbor, LLC (DEGH), will of bonds was sold in the amount of $70,675.000 in November be the first step toward establishing a credible position in the 2001 to finance the Project. A construction budget of $59,725,000 cumbustion turbine power generation market. It will provide the was established with the balance of the bond proceeds held in basis for Energy Northwest to become a major supplier of opera reserves. Construction Work in Progress totaled $48,387.000 for tions and maintenance services to other public utilities in the North Fiscal Year 2002 as compared to $508,000 in Fiscal Year 2001.

west and to become an owner of gas turbine generating facilities. Construction was completed and the Project was declared to be in STATEMENT OF OPERATIONS ANALYSIS - Non-oper commercial operation on September 25, 2002.

ating revenues were $84,000 and $5,259,000 for Fiscal Year 2001 and Fiscal Year 2002. respectively.

On January 15. 200 1. Energy Northwest entered into an agree ment to sell the Grays Harbor Energy Facility site to the Duke Energy North America (DENA) affiliate, DEGH. As partial com pensation for the sale, Energy Northwest received $1,200.000 during Fiscal Year 2001 which was recorded as deferred income.

The final payment of $3.800.000 was made to Energy Northwest I

INTERNAL SERVICE FUND The Internal Service Fund (ISF.formerly General Fund) was established in May 1957. The Internal Service Fund provides ser vices to the other funds. This accounts for the central procure ment of certain common goods and services for the Business Units on a cost reimbursement basis (see Note A and Note B to the financial statements). This accounts for the performance fees paid by BPA to Energy Northwest for achieving performance goals related to the operation of the Columbia Generating Station.

BALANCE SHEET ANALYSIS - Restricted assets and the offsetting restricted liabilities increased $10,732,000, from

$16,633,000 in Fiscal Year 2001 to $27,365,000 in Fiscal Year 2002, mainly due to a $10,000,000 payment to Energy Northwest from one of its paying agent banks for bearer bonds.

STATEMENT OF OPERATIONS ANALYSIS - The Fis cal Year 2002 Performance Fee was $5,900.000 versus $1. 100,000 for Fiscal Year 2001. Goals for the fees are based on generation and cost of power of Columbia Generating Station. Generation of 9,262 GWhrs (includes Economic Dispatch Credit) in Fiscal Year 2002 was near the top of the range of the goal for generation and cost of power of 2.06 cents/kWh was better than the highest goal of 2.07 cents/kWh (as compared to 2.61 cents/kWh for Fiscal Year 2001).

BALANCE SHEETS As of June 30, 2002 (Dollarsin Thousands)

GRATE NINE COLUMBIA PACKWOOD NUCLEAR NUCLEAR BUSINESS HARBOR CANYON INTERNAL 2002 GENERATING LAKE PROJECT PROJECT DEVELOPMENT ENERGY WIND SERVICE COMBINED STATION PROJECT NO.1

• NO.3

• FUND FACILITY PROJECT SUBTOTAL FUND TOTAL ASSETS UTILITY PLANT (NOTE B)

Inservice $ 3,419,489 $ 12,854 $ - $ $ 757 $ - $ - $ 3,433,100 $ 43,547 $3,476,647 Accumulated depreciation (1,786,935) (11,722) (166) (1,798,823) (27,591) (1.826.414) 1,632,554 1,132 591 - 1,634,277 15,956 1,650,233 Nuclear fuel, net of accumulated amortization 121,260 121,260 121,260 Construction work in progress 30,355 48,387 78,742 78,742 1,784,169 1,132 - - 591 48,387 1,834,279 15,956 1,850,235 RESTRICTED ASSETS (NOTE B)

Special funds Cash 3 2 5 2 1 13 26,858 26,871 Available-for-sale investments 18,159 288 56,966 14,808 1,013 91,234 245 91,479 Accounts and other receivables 110,140 4,627 16 114,783 114,783 Prepayments and other 1 1 262 263 Due from other business units 400 400 Due from other funds 1,760 1,760 Debt service funds Cash 24,771 8 8,367 15,712 1 48,859 48,859 Available-for-sale investments 122,107 742 215,017 163,427 9,912 511,205 511,205 Due from other funds 3,588 5,477 9,065 Other receivables 642 220 460 53 1,375 1,375 279,410 1,040 292,840 194,409 - 10,996 778,695 27,365 794,835 LONG-TERM RECEIVABLES (NOTE B) 6,201 6,201 6,201 CURRENTASSETS Cash 754 2 91 182 32 1 1,062 3,964 5,026 Available-for-sale investments 21,852 526 13,517 6,156 174 410 17,839 60,474 15,979 76,453 Accounts and other receivables 2,110 655 454 6 26 3,251 6,668 9,919 Due from Participants 163 1,319 1,314 1 2,797 2,797 Due from other business units 2,435 173 127 636 2,155 3,820 9,346 3,207 Due from other funds 11,071 23 11,968 70 23,132 Materials and supplies 72,546 72,546 72,546 Prepayments and other 258 9 267 122 389 Nuclear fuel held for sale 6,035 6,035 6,035 Plant &equipment held for sale 1,414 1,414 1,414 111,189 1,379 22,376 19,747 1,305 2,572 21,756 180,324 29,940 174,579 DEFERRED CHARGES Costs in excess of billings 120,734 2,416 1,880,270 1,639,113 3,642,533 3,642,533 Unamortized debt expense 15,960 3 18,487 12,535 3,545 50,530 50,530 Other deferred charges 1 1 1 136,695 2,419 1,898,757 1,651,648 - 3,545 3,693,064 - 3,693,064 TOTALASSETS $ 2,317,664 $ 5,970 $2,213,973 $1,865,804 $ 1,896 $ 2,572 $ 84,684 $ 6,492,563 $ 73,261 $6,518,914

• Proct recorded on a liquidationbasis See notes to financial statements

BALANCE SHEETS (continued)

As of June 30, 2002 (Dollarsin Thousands)

GRAYS NINE COLUMBIA PACKWOOD NUCLEAR NUCLEAR BUSINESS HARBOR CANYON INTERNAL 2002 SERVICE COMBINED GENERATING LAKE PROJECT PROJECT DEVELOPMENT ENERGY WIND FUND TOTAL STATION PROJECT NO.1

• NO.3

• FUND FACILITY PROJECT SUBTOTAL FUND EQUITY AND LIABILITIES FUND EQUITY $ $ - $ $ 1,411 $ 1,616 $ $ 3,027 $ 5,123 $ 8,150 LONG-TERM DEBT (NOTE E)

Revenue bonds payable 2,031,090 4,493 2,120,323 2,031,715 70,675 6,258,296 6,258,296 Unamorlized discount on bonds - net 4,527 (11) 22,634 (194,273) 8 (167,115) (167,115)

Unamortized gaint(loss) on bond refundings/redemptions (52,311) 37 (61,768) (20,290) (134,332) (134,332) 1,983,306 4,519 2,081,189 1,817,152 70,683 5,956,849 - 5,956,849 LIABILITIES-PAYABLE FROM RESTRICTED ASSETS (NOTE B)

Special funds Accounts payable and accrued expens es 110,642 70,528 181,170 26,635 207,805 11,810 70 26,549 Due to other funds 14,659 10 135 135 Other deferred credits 135 Debt service funds 98,609 98,609 10,945 59 52,454 35,151 Accrued interest payable 171 13 158 Due to other funds 136,246 82 122,982 47,119 135 70 306,634 26,635 306,549 31,813 31,813 31,813 OTHER NONCURRENT LIABILITIES CURRENT LIABILITIES 96,780 97,135 97,135 Current maturities of long-term debt 355 112,432 270 95 2 13,931 79,305 33,127 Accounts payable and accrued expenses 64,943 63 1 139 139 Interest payable 139 3,823 3,823 Due to Participants 1,293 951 8 94 685 1,6770 578 255 127 5,774 7,179 Due to other business units 3,144 7,2337 7,237 Due to other funds 166,299 1,369 9,802 1,533 350 129 13,931 193,413 40,306 213,529 DEFERRED CREDITS 827 827 1 828 Advances from Members and others 1,196 1,196 Other deferred credits

- - - - - 827 827 1,197 2,024 COMMITMENTS AND CONTINGENCIES (NOTE F)

TOTAL LIABILITIES 2,317,664 5,970 2,213,973 1,865,804 485 956 84,684 6,489,536 68,138 6,510,764 TOTAL FUND EQUITYAND LIABILITIES $2,317,664 $ 5,970 $2,213,973 $1,865,804 $ 1,896 $ 2,572 $ 84,684 $6,492,563 $ 73,261 $6,518,914

• Projectrecordedon a liquidation basis See notes to financial statements

STATEMENTS OF OPERATIONS AND FUND EQUITY As of June 30, 2002 (Dollarsin Thousands)

GRAYS NINE COLUMBIA PACKWOOD NUCLEAR NUCLEAR BUSINESS HARBOR CANYON INTERNAL 2002 GENERATING LAKE PROJECT PROJECT DEVELOPMENT ENERGY WIND SERVICE COMBINED STATION PROJECT NO.1* NO.3

• FUND FACILITY PROJECT SUBTOTAL SUBTOTAL FUND TOTAL.

OPERATING REVENUES $ 406,995 $ 1,900 $ $ $ 6,808 $ - $ - $ 415,703 $ 70,431 $ 421,513 OPERATING EXPENSES Services to other business units 63,025 Nuclear fuel 30,311 30,311 30,311 Spent fuel disposal fee 8,487 8,487 8,487 Decommissioning 16,408 16,408 16,408 Depreciation and amortization 96,171 366 148 96,685 1,569 96,685 Operations and maintenance 116,832 1,232 118,064 118,064 Administrative &general 27,756 136 27,892 27,892 Generation tax 3,198 16 3,214 3,214 New business initiatives 7,739 7,739 7,739 Total operating expenses 299,163 1,750 7,887 308,800 64,594 308,800 NET OPERATING REVENUES (EXPENSES) 107,832 150 (1,079) 106,903 5,837 112,713 OTHER INCOME &EXPENSE Non-operating revenues 117,179 93,433 5,259 215,871 215,871 Investment income 11,540 36 6,669 5,682 4 36 23,967 82 23,967 Gain on bond redemption 5 5 5 Interest expense and discount amortizateon (121,584) (191) (118,686) (99,182) (339,643) (339,643)

Plant preservation and termination costs (5,051) 67 (4,984) (4,984)

Depreciation and amortization (31) (7) (38) (38)

Revaluation of site restoration (74) (74) (74)

Other 2,212 (6) (665) (3,625) (2,084) (109) (2,084)

NET REVENUES (EXPENSES) - - (1,740) 1,663 (77) 5,810 5,733 Distribution &contributions - 1,905 - - 1,905 (1,905)

Beginning fund equity 1,246 (47) - 1,199 1,218 2,417 ENDING FUND EQUITY $ $ $ $ - $ 1,411 $ 1,616 $ -$ 3,027 $ 5,123 $ 8,150

• Projectrecordedon a liquidationbasis See notes to financialstatements

STATEMENTS OF CASH FLOWS As of June 30, 2002 (Dollarsin Thousands)

GRAYS NINE PACKWOOD NUCLEAR NUCLEAR BUSINESS HARBOR CANYON INTERNAL 2002 COLUMBIA PROJECT PROJECT DEVELOPMENT ENERGY WIND SERVICE COMBINED GENERATING LAKE PROJECT NO.1

• NO.3

• FUND FACILITY PROJECT FUND TOTAL STATION CASH FLOWS FROM OPERATING AND OTHER ACTIVITIES

$ 230,994 $ 2,504 $ -$ - $ 1,559 $ - $ - $ - $235,057 Operating revenue receipts (182,161)

(180,796) (1,365)

Cash payments for operating expenses 3,622 2,973 171,182 98,672 65,915 Non-operating revenue receipts (11,721)

(10,350) (1,371)

Cash payments for preservation/termination expense (4,933) 12,427 7,494 Cash payments for services (1,560) (2,947)

(1,387)

Cash payments for new business Net cash provided (used) by 50,198 1,139 88,322 64,544 172 (1,311) 13,840 216,904 operating and other activities CASH FLOWS FROM CAPITALAND RELATED FINANCING ACTIVITIES 292,982 374,699 81,257 66,980 815,918 Proceeds from bond refundings (162,532) (247,266) (409,798)

Refunded bond escrow requirement (4,823) (4,645) (1,023) (10,491)

Payment for bond issuance and financing costs (19,755) (19,755)

Capital and nuclear fuel acquisitions (100,289) (194) (112,010) (76,606) (2,484) (291,583)

Interest paid on revenue bonds (134,997) (521) (84,255) (70,695) (290,468)

Principal paid on revenue bond maturities (291) (360) (398) (1,049)

Interest paid on notes 34,518 34,518 Notes payable (36,239) (36,239)

Construction work in progress Net cash provided (used) by capital (95,187) (715) (73,837) (67,465) 28,257 - (208,947) and related financing activities CASH FLOWS FROM INVESTING ACTIVITIES (1,125,754) (5,832) (937,511) (665,063) (1,689) (6,973) (204,394) (211,209) (3,158,425)

Purchases of investment securities 1,178,331 5,376 919,944 676,799 1,545 8,215 175,656 214,467 3,180,333 Sales of investment securities 13,634 35 9,908 7,010 4 66 483 2,338 33,478 Interest on investments 1,549 58 1,607 Receipts from sales of plant assets 68,211 (421) (6,110) 18,746 (140) 1,308 (28,255) 5,654 56,993 Net cash provided (used) by investing activities 21,222 3 8,375 15,825 32 (3) 2 19,494 64,950 NET INCREASE (DECREASE) INCASH 4,306 9 88 71 - 4 11,328 15,806 CASH AT JUNE 30, 2001

$ 25,528 $ 12 $ 8,463 $ 15,896 $ 32 $ 1 $ 2 $ 30,822 $ 80,756 CASH AT JUNE 30, 2002 (NOTE B)

• Project ecorded on a liquidation basis See notes to financialstatements

STATEMENTS OF CASH FLOWS (continued)

As of June 30, 2002 (Dollars in Thousands)

GRAYS NINE COLUMBIA PACKWOOD NUCLEAR NUCLEAR NARBOR CANYON INTERNAL 2002 GENERATING BUSINESS LAKE PROJECT PROJECT DEVELOPMENT ENERGY WIND SERVICE COMBINED STATION PROJECT NO.1

• NO.P FUND FACILITY PROJECT PROECT FUND TOTAL RECONCILIATION OF OPERATING INCOME TO NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES Net operating revenues $ 107,832 $ 150 $ - $ $ (1,079) $

$ - $ -$ 106,903 Adjustments to reconcile net operating revenues to cash provided by operating activities:

Cost incurred inexcess of cash (176,000) (360) (176,360)

Depreciation and amortization 124,828 362 43 125,233 Decommissioning 16,408 16,408 Other 2,585 (663) 1,922 Change inoperating assets and liabilities:

Accounts receivable 2,207 (419) (151) 1,637 .

Materials and supplies (5,227) (5,227)

Prepaid and other assets 1 1 Due from/to other business units, funds and Participants 4,070 1,386 (39) 5,417 Accounts payable (26,505) 19 2,061 (24,425)

Non-operating revenue receipts 98,672 65,915 3,622 2,973 171,182 Cash payments for preservation/termination expense (10,350) (1,371) (11,721)

Cash payments for services (4,933) 12,427 7,494 Cash payments for new business /1 r"*i I1,-d, Net cash provided (used) by operating I, ,,.w ,I !2 and other activities $ 50,198 $ 1,139 $ 88,322 $ 64,544 $ 172 $ (1,311) $ $ 13,840 $ 216,904

• Projectrecorded on a liquidationbasis See notes to financial statements

OUTSTANDING LONG-TERM DEBT June 30, 2002 (Dollarsin Thousands)

SERIAL COUPON OR TERM SERIES RATE MATURITIES AMOUNT COLUMBIA (NUCLEAR PROJECT NO. 2)REFUNDING REVENUE BONDS 1990A 7.25% 7-1-2006 $ 2,115 2,115 1990C (C) 7-1-2004/2005 18,054 18,054 1991A (C) 7-1-2006/2007 10,267 10,267 1992A 5.9 7-1-2004/2006 12,415 6.30 7-1-2012 50,000 62,415 1993A 5.25-6.00 7-1-200312010 78,320 5.75 7-1-2012 10,690 89,010 1993B 5.40-5.65 7-1-2005/2008 54,725 5.55 7-1-2010 51,000 105,725 1994A 4.70-6.00 7-1-200312011 503,965 (C) 7-1-2009 4,776 5.40 7-1-2012 100,200 608,941 1996A 5.50-6.00 7-1-2003/2012 196,210 196,210 1997A 5.10-5.20 7-1-201012012 50,355 50,355 1997B 5.00-5.50 7-1-200312011 72,270 72,270 1998A 5.00-5.75 7-1-200312012 223,305 223,305 2001A 5.00-5.50 7-1-2013/2017 186,600 186,600 (A) Includes amounts due July 1,2002 (B) Excludes amounts due July 1,2002, which were paid as of June 30, 2002 (C) Compound Interest Bonds (D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of Financial Accounting (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled (E) Auction Rate Certificates will have the stated rate through the first date listed and a variable rate thereafter until the second stated date

OUTSTANDING LONG-TERM DEBT (continued)

June 30, 2002 (Dollarsin Thousands)

SERIAL COUPON OR TERN SERIES RATE MATURITIES AMOUNT COLUMBIA (NUCLEAR PROJECT NO. 21 REFUNDING REVENUE BONDS (continued) 2001B 5.50 7-1-2009/2018 $ 48.000 (E) 48,000 2002A 5.20-5.75 7-1-201712018 157,260 157,260 2002B 5.35-6.00 7-1-2018 123.815 123,815

• 1' 1997-2A-1 Variable 56,885 56,885 1997-2A-2 Variable 56,880 56,880 Compoundinterestbonds accretion 59,763 Revenue bonds payable $ 2,127,870 (B)

Estimatedfair value at June 30, 2002 $ 2,272,874 (D)

PACKWOOD LAKE PROJECT REVENUE BONDS 1962 3.625% 3-1-2012 $ 3,613 3,613 1965 3.75 3-1-2012 1,235 1,235 Revenue bonds payable $ 4,848 Estimatedfair value at June 30, 2002 $ 4,936 (D)

NUCLEAR PROJECT NO. 1 REFUNDING REVENUE BONDS 19898 7.125% 7-1-2016 $ 41,070 41,070 1990B 7.25 7-1-2009 3,590 3,590 1990C 7.75 7-1-2003 14,474 14,474 1992A 5.70-6.10 7-1-2002/2006 2,540 6.25 7-1-2017 63,420 65,960 1993A 5.30-7.00 7-1-200212008 63,079 5.70 7-1-2017 176,180 239,259 (A) Includes amounts due July 1,2002 (B) Excludes amounts due July 1, 2002, which were paid as of June 30, 2002 (C) Compound Interest Bonds (D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled (E) Auction Rate Certificates will have the stated rate through the first date listed, and a variable rate thereafter unbil the second stated date

OUTSTANDING LONG-TERM DEBT (continued)

June 30, 2002 (Dollarsin Thousands)

SERIAL COUPON OR TERM SERIES RATE MATURITIES AMOUNT NUCLEAR PROJECT NO. 1REFUNDING REVENUE BONDS (continued) 1993B 5.15-7.00 7-1-200212010 $ 53,345 5.60 7-1-2015 94,635 147,980 1993C 4.70-5.30 7-1-200212010 17,895 5.375 7-1-2015 75,650 5.40 7-1-2012 66,400 159,945 1996A 5.00-6.00 7-1-2002/2012 341,790 341,790 1996B 5.75-6.00 7-1-2003/2005 29,040 29,040 1996C 5.00-6.00 7-1-2002/2015 86,955 5.50 7-1-2017 24,860 111,815 1997A 6.00 7-1-2006/2008 20,400 20,400 1997B 5.00-5.125 7-1-200212017 250,160 250,160 1998A 5.00-5.75 7-1-2002/2017 92,125 92,125 2001A 4.125-5.50 7-1-200212013 103,285 103,285 2001B 5.50 7-1-2008/2017 23,600 (E) 23,600 2002A 5.50-5.75 7-1-13/2017 248,485 248,485 2002B 6.00 7-1-2017 101,950 101,950 1993-1A-1 Variable 53,870 53,870 (A) Includes amounts due July 1,2002 (B) Excludes amounts due July 1, 2002, which were paid as of June 30, 2002 (C) Compound Interest Bonds (D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled (E) Auction Rate Certificates will have the stated rate through the first date listed, and a variable rate thereafter until the second stated date

OUTSTANDING LONG-TERM DEBT (continued)

June 30, 2002 (Dollarsin Thousands)

SERIAL COUPON OR TERM SERIES RATE MATURITIES AMOUNT NUCLEAR PROJECT NO. 1 REFUNDING REVENUE BONDS (continued) 1993-1A-2 Variable $ 53,870 53,870 1993-1A-3 Variable 17,655 17,655 Revenue bonds payable $ 2,120,323 (A)

Estimatedfair value at June 30, 2002 $ 2,154,241 (D)

(A) Includes amounts due July 1, 2002 (B) Excludes amounts due July 1, 2002, which were paid as of June 30, 2002 (C) Compound Interest Bonds (D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled (E) Auction Rate Certificates will have the stated rate through the first date listed, and a variable rate thereafter until the second stated date

OUTSTANDING LONG-TERM DEBT (continued)

June 30, 2002 (Dollarsin Thousands)

SERIAL COUPON OR TERM SERIES RATE MATURITIES AMOUNT NUCLEAR PROJECT NO. 3 REFUNDING REVENUE BONDS 1989A (C) 7-1-200312014 $ 18,668 18,668 1989B (C) 7-1-2004/2014 70,580 7.125% 7-1-2016 76,145 146,725 1990B (C) 7-1-2002/2010 33,299 33,299 1993B 5.10-7.00 7-1-2002/2009 79,830 5.625 7-1-2012 14,555 5.60 7-1-2015 49,095 5.60 7-1-2017 37,795 5.70 7-1-2018 20,605 201,880 1993C 4.70-7.50 7-1-2002/2010 138,405 5.40 7-1-2012 105,000 5.375 7-1-2015 188,335 5.50 7-1-2018 20,805 (C) 7-1-2013/2018 23,963 476,508 1996A 5.00-6.00 7-1-2002/2009 31,330 31,330 1997A 5.00-6.00 7-1-2002/2018 108,670 108,670 1997B 5.00 7-1-2002 4,075 4,075 1998A 5.00 7-1-200212005 80,330 5.125 7-1-2018 53,825 134,155 2001A 5.00-5.50 7-1-200212018 205,890 205,890 2001B 5.00 7-1-2003/2018 5,000 (E) 5.00 7-1-200412018 10,000 (E) 5.50 7-1-2010/2018 10,675 (E) 25,675 2002B 6.00 7-1-2016 75,360 75,360 (A) Includes amounts due July 1,2002 (B) Excludes amounts due July 1, 2002, which were paid as of June 30, 2002 (C) Compound Interest Bonds (D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled (E) Auction Rate Certificates will have the stated rate through the first date listed, and a variable rate thereafter until the second stated date

OUTSTANDING LONG-TERM DEBT (continued)

June 30, 2002 (Dollarsin Thousands)

SERIAL COUPON OR TERM SERIES RATE MATURITIES AMOUNT NUCLEAR PROJECT NO. 3 REFUNDING REVENUE BONDS (continued 1993-3A-3 Variable $ 23,715 23,715 1998-3A Variable 154,730 154,730 Compound interest bonds accretion 391,035 Revenue bonds payable $ 2,031,715 (A)

Estimated fair value at June 30, 2002 $ 1,916,373 (D)

NINE CANYON WIND PROJECT REVENUE BONDS 2001A 4.00-6.00% 7-1-2004/2023 $ 50,410 50,410 2001B 4.30-6.00 7-1-200512023 20,265 20,265 Revenue bonds payable $ 70,675 Estimated fair value at June 30, 2002 $ 77,012 (D)

(A) Indudes amounts due July 1,2002 (B) Excludes amounts due July 1,2002, which were paid as of June 30, 2002 (C) Compound Interest Bonds (D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represenl the amounts at which and these obligations would be settled (E) Auction Rate Certificates will have the stated rate through the first date listed, and a variable rate thereafter until the second stated date

DEBT SERVICE REQUIREMENTS As of June 30, 2002 (Dollarsin Thousands)

COLUMBIA GENERATING STATION PACKWOOD LAKE PROJECT FISCAL YFAR PRINCIPAL INTEREST TOTAL PRINCIPAL INTEREST TOTAL YEAR TOTAL 6/3012002 Balance:* $ 5,580 $ 9,507 $ 15,087 $ 177 $ 59 $ 236 2003 102,580 110,136 212,716 540 171 711 2004 123,424 115,062 238,486 574 151 725 2005 101,885 121,009 222,894 598 130 728 2006 94,046 105,022 199,068 624 108 732 2007 149,406 94,483 243,889 648 85 733 2008-2012 975,511 319,618 1,295,129 1,687 124 1,811 2013-2017 198,860 124,137 322,997 2018 316,815 17,861 334,676 Adjustment* 59,763 (59,763) 2,127,870 $ 957,072 $ 3,084,942 $ 4,848 $ 828 $ 5,676

• Bond Fund Account balances less accrued investment income Adjustment for Compound Interest Bonds accretion; Compound Interest Bonds are reflected at their face amount less discount on the balance sheet NUCLEAR PROJECT NO. 1 NUCLEAR PROJECT NO. 3 FISCAL PRINCIPAL INTEREST TOTAL PRINCIPAL INTEREST TOTAL YEAR INTEREST TOTAL PRINCIPAL INTEREST 6130/2002 Balance:* $ 131,376 $ 50,648 $ 182,024 $ 78,757 $ 41,234 $ 119,991 2003 46,430 110,781 157,211 79,757 86,282 166,039 2004 78,990 107,153 186,143 62,906 98,004 160,910 2005 56,830 103,512 160,342 64,471 96,721 161,192 2006 91,195 100,398 191,593 65,392 95,226 160,618 2007 64,575 95,993 160,568 60,176 95,694 155,870 2008-2012 457,592 415,213 872,805 375,461 429,497 804,958 2013-2017 1,193,335 219,561 1,412,896 676,294 267,212 943,506 2018 177,466 18,026 195,492 Adjustment" 391,035 (391,035)

$ 2,120,323 $ 1,203,259 $ 3,323,582 $ 2,031,715 $ 836,861 $ 2,868,576 Bond Fund Account balances less accrued investment income Adjustment for Compound Interest Bonds accretion; Compound Interest Bonds are reflected at their face amount less discount on the balance sheet E

DEBT SERVICE REQUIREMENTS (continued)

As of June 30, 2002 (Dollarsin Thousands)

NINE CANYON WIND PROJECT FISCAL YEAR PRINCIPAL INTEREST TOTAL 6/30/2002 Balance:* $ - $ - S 2003 3,940 3,940 2004 2,060 3,940 6,000 2005 2,145 3,856 6,001 2006 2,245 3,764 6,009 2007 2,350 3,661 6,011 2008-2012 13,725 16,418 30,143 2013-2017 18,110 12,182 30,292 2018-2022 24,255 6,239 30,494 2023-2024 5,785 347 6,132 Adjustment *

$ 70.675 $ 54,347 $ 125,022 Bond Fund Account balances less accrued investment income Adjustment for Compound Interest Bonds accretion; Compound Interest Bonds are reflected at their face amount less discount on the balance sheet

NOTES TO FINANCIAL STATEMENTS including Participants in Energy Northwest's Business Units, for ultimate distribution to consumers. Participants in Energy Northwest's net billed Business Units consist of publicly owned NOTE A - GENERAL utilities and rural electric cooperatives located in the western United States who have entered into net billing agreements with Energy Organization Northwest and BPA for participation in one or more of Energy Energy Northwest. a municipal corporation and joint operating Northwest's Business Units. BPA is obligated by law to establish agency of the State of Washington. was formed in 1957. It is rates for electric power which will recover the cost of electric energy empowered to finance, acquire, construct and operate facilities for acquired from Energy Northwest and other sources as well as the generation and transmission of electric power. On June 30, BPA's other costs. (See Note E. Security - Nuclear Projects Nos.

2002, its membership consisted of 13 public utility districts and 3 1.3. and Columbia. for discussion of BPAs obligations with respect cities, Richland, Seattle and Tacoma. All members own and to Nuclear Projects Nos. 1. 3. and Columbia.)

operate electric systems within the State of Washington. Energy Energy Northwest also manages the Business Development Northwest is exempt from federal income tax. Energy Northwest Fund, Nine Canyon Wind Project, and Grays Harbor Energy has no taxing authority. Facility. The Business Development Fund was established in April 1997. to pursue and develop new energy-related business opportunities.

Energy Northwest Business Units The Nine Canyon Wind Project was established in January Energy Northwest operates Columbia Generating Station 2001, for the purpose of exploring and establishing a wind energy (Columbia), a 1.153 MWe (Design Electric Rating, net) generating project. Finalization of the Project agreements was completed plant completed in 1984. Energy Northwest has obtained all permits during Fiscal Year 2002. Construction was completed September and licenses required to operate Columbia, including a Nuclear 25, 2002. The turbines are rated at 48 MWe.

Regulatory Commission (NRC) operating license that expires in On April 25, 2002, Energy Northwest's Executive Board December 2023. approved a name change from Combustion Turbine Project to Energy Northwest also operates the Packwood Lake Grays Harbor Energy Facility. The Grays Harbor Energy Facility was established in July 1990, to collect advances and contributions Hydroelectric Project (Packwood), a 27.5 MWe generating plant completed in 1964. Packwood operates under a fifty-year license to pay the costs of investigating new generating projects, including from the Federal Energy Regulatory Commission (FERC) that the feasibility of a combustion turbine near Satsop, Washington.

expires on February 28, 2010. The electric power produced by The Project purpose was amended during Fiscal Year 2002 to Packwood is sold to 12 utilities, which pay the costs of Packwood, include the operation and maintenance of a gas fired combustion including the debt service on the Packwood revenue bonds. turbine placed on the Grays Harbor site (owned by Duke Energy Currently, negotiations are in process for a new power sales Grays Harbor LLC) and included the purchase by Energy agreement. Northwest of up to 50MW of power generated by the facility.

Nuclear Project No. 1, a 1.250 MWe plant. was placed in The Internal Service Fund (formerly General Fund) was extended construction delay status in 1982, when it was 65 percent established in May 1957. It currently is used to account for the complete. Nuclear Project No. 3. a 1.240 MWe plant. was placed central procurement of certain common goods and services for in extended construction delay status in 1983. when it was 75 the Business Units on a cost reimbursement basis. It also is used percent complete. On May 13, 1994. Energy Northwest's Board to account for the performance fees paid by BPA to Energy of Directors adopted resolutions to terminate or recommend Northwest for achieving performance goals related to the operation termination of Nuclear Projects Nos. I and 3 (see Note F - Nuclear of Columbia.

Project No. I and 3 Termination). In Fiscal Year 1999, the assets The Temporary Diesel Generation Project was established and liabilities of Hanford Generating Project were consolidated in May 2001 to provide immediate additional electrical generation into Nuclear Project No. I. The Hanford Generating Project site using temporary diesel generators. Changing circumstances is being restored and all funding requirements are net billed resulted in the stoppage of this Project after initial expenditures obligations of Nuclear Project No. 1. Nuclear Project No. I is but prior to finalizing an order for the diesel generators. The owned by Energy Northwest. negative equity of the Temporary Diesel Generation Project has Each Energy Northwest Business Unit is financed and been absorbed by the Business Development Fund in Fiscal Year 2002 and therefore no longer reported as a separate Business accounted for separately from all other current or future Business Units. Unit in Fiscal Year 2002.

All electrical energy produced by Energy Northwest net billed Business Units ultimately is delivered to electrical distribution facilities owned and operated by BPA as part of the Federal Columbia River Power System. BPA in turn distributes the electricity to electric utility systems throughout the Northwest.

NOTE B -

SUMMARY

OF SIGNIFICANT under Statement of Governmental Accounting Standard No. 7 A CCOUNTING POLICIES and No. 23 is followed. Such guidance governs the accounting for bond defeasances and refundings.

The preparation of Energy Northwest financial statements is Basis of Accounting in conformity with accounting principles generally accepted in the Energy Northwest has adopted accounting policies and United States of America, which requires management to make principles that are in accordance with accounting principles estimates and assumptions that directly affect the reported amounts generally accepted in the United States of America. Accounts are of assets and liabilities and to disclose contingent assets and maintained in accordance with the uniform system of accounts of liabilities at the date of the financial statements and the reported the Federal Energy Regulatory Commission (FERC). Separate amounts of revenue and expenses during the reporting period.

funds and books of account are maintained for each Business Actual results could differ from these estimates. Certain incurred Unit Payment of obligations of one Business Unit with funds of expenses and revenues are allocated to the Business Units based another Business Unit is prohibited, and would constitute violation on specific allocation methods and management considers the of bond resolution covenants.

allocation methods to be reasonable.

Energy Northwest maintains an Internal Service Fund for Energy Northwest's fiscal year begins on July Ist and ends centralized control and accounting of certain fixed assets such as on June 30th.

data processing equipment, and for payment and accounting of internal services, payrolls, benefits, administrative and general expenses, and certain contracted services on a cost reimbursement basis. In addition, it is used to account for performance fees paid Utility Plant by BPA to Energy Northwest for achieving performance goals Utility Plant is stated at original cost. Plant in Service is related to the operation of Columbia. The performance fee is a depreciated by the straight-line method over the estimated useful general asset of Energy Northwest not allocable to other Business lives of the various classes of plant, which range from five to 40 Units. Certain assets in the Internal Service Fund also are owned years.

by the Fund and operated for the benefit of other Business Units. During the normal construction phase of a Project, Energy Depreciation relating to fixed assets is charged to the appropriate Northwest's policy is to capitalize all costs relating to the Project Business Units based upon assets held by each Business Unit including interest expense (net of interest income), and related Liabilities of the Internal Service Fund represent accrued administrative and general expense.

payrolls, vacation pay, employee benefits, and common accounts The utility plant and net assets of Nuclear Projects Nos. 1 payable which have been charged directly or indirectly to Business and 3 have been reduced to their estimated net realizable values Units and will be funded by the Business Units when paid. Net due to their termination. A write-down of Nuclear Projects Nos. 1 amounts owed to or receivable from Energy Northwest Business and 3 was recorded in Fiscal Year 1995 and is included in Cost in Units are recorded under Current Liabilities -Due to other Business Excess of Billings. Interest expense, termination expenses and Units, or Current Assets - Due from other Business Units on the asset disposition costs for Nuclear Projects Nos. I and 3 have Internal Service Fund balance sheet been charged to operations. Utility Plant activity for the year The Combined Total column on the financial statements is ended June 30, 2002, was as follows:

for presentation only as each Energy Northwest Business Unit is leginning Ending financed and accounted for separately from all other current and Columbia Balance Increases Decreases Balance future Business Units. The Fiscal Year 2002 Combined Total Generation 3,418,892 601 (4) 3,419,489 Construction work in progress 17,771 12,584 30,355 includes eliminations for transactions between Business Units as Accumulated Depreciation (1,692,186) (94,749) (1,786,935) required by Statement No. 34 of the Governmental Accounting Utility Plant, net 1,744,477 (81,564) (4) 1,652,909 Standards Board (GASB). Packwood Pursuant to Statement No. 20 of the Governmental Accounting Generation 12,817 37 12,854 Standards Board (GASB), "Accounting and Financial Reporting Accumulated Depreciation (11,380) (382) (11,722)

Utility Plant, net 1,457 (325) 1,132 for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting," Energy Northwest has elected to Business Development Fund General 425 332 757 apply all Financial Accounting Standards Board statements and Accumulated Depreciation (119) (168) interpretations, except for those that conflict with or contradict Utility Plant, net 308 285 591 GASB pronouncements. Specifically. Statement of Governmental Nine Canyon Accounting Standard No. 7 "Advance Refundings Resulting in Construction work In progress 508 47,879 48,387 Defeasance of Debt" and No. 23 "Accounting and Financial Internal Service Fund Reporting for Refunding of Debt Reported by Proprietory Activities" General 43,348 199 43,547 conflict with Statement of Financial Accounting Standard (SFAS) Accumulated Depreciation (28,022) (1,569) (27,591)

Utility Plant, net 17,328 (1,370) 15.956 No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." As such, the guidance

Nuclear Fuel and services to be provided to Columbia as the result of a litigation All expenditures related to the purchase of nuclear fuel for settlement and subsequent revisions.

Columbia, including interest, are capitalized and carried at cost.

When the fuel is placed in the reactor, the fuel cost is amortized to operating expense on the basis of quantity of heat produced for Accounts and Other Receivables generation of electric energy. Columbia accumulated nuclear fuel Accounts and other receivables for the Internal Service Fund amortization (the amortization of the cost of nuclear fuel assemblies include miscellaneous receivables outstanding from other Business in the reactor used in the production of energy and in the fuel pool Units that have not yet been collected. The amounts due to each for less than six months per FERC guidelines) is $80 million as of Business Unit are reflected in the due to/from other Business Units June 30. 2002. account.

Energy Northwest has a contract with the United States Department of Energy (DOE) that requires the DOE to accept tide and dispose of spent nuclear fuel. Although the courts have Decommissioningand Site Restoration ruled that the DOE had the obligation to accept title to spent nuclear Energy Northwest established decommissioning and site fuel by January 31, 1998. the repository is not expected to be in restoration funds for Columbia and monies are being deposited operation before 2010. The current period operating expense for each year in accordance with an established decommissioning Columbia includes a $8.5 million charge for future spent nuclear funding plan.

fuel storage and disposal to be provided by the DOE in accordance The NRC has issued rules to provide guidance to licensees of with the Nuclear Waste Policy Act of 1982. operating nuclear plants on decommissioning the plants at the Columbia has the capacity to store spent fuel in the spent fuel end of each plant's operating life. In September 1998, the NRC pool located in the Reactor Building until May 2003. To approved and published its "Final Rule on Financial Assurance accommodate the spent fuel discharges after this date, Energy Requirements for Decommissioning Power Reactors." As provided Northwest has initiated a Project to store the spent fuel in in this rule, each power reactor licensee is required to report to the commercially available dry storage casks on a concrete pad at the NRC the status of its decommissioning funding for each reactor or Columbia site. Current period operating costs include $28.9 million share of a reactor it owns. This reporting requirement began on for nuclear fuel and $1.4 million accrued dry cask storage costs. March 31, 1999, and reports are required every two years Appropriate prior period dry storage casks costs were accrued thereafter. Energy Northwest submitted its most recent report to prior to Fiscal Year 2002. the NRC on March 23, 2001.

Energy Northwest has entered into an agreement to transfer Energy Northwest's current estimate of Columbia's enriched uranium to General Electric Company in exchange for decommissioning costs is approximately $360 million (in 2001 equivalent amounts of uranium at reload enrichments in future dollars). This current estimate is based on the NRC minimum years and usage/loan fees. Energy Northwest has transferred amount required to demonstrate reasonable financial assurance approximately 488,151 pounds of UF6 and 263,137 SWU of for a boiling water reactor with the power level of Columbia.

Columbia uranium. The exchange agreement has been secured Site restoration requirements for Columbia are governed by by an irrevocable letter of credit issued in the amount of the the site certification agreements between Energy Northwest and replacement value of the loaned uranium product, adjusted the State of Washington and regulations adopted by the Washington semiannually. The cost of the loaned uranium. $36 million, is Energy Facility Site Evaluation Council (EFSEC). Energy included in the carrying amount on the balance sheet of Columbia's Northwest submitted a site restoration plan for Columbia that was nuclear fuel. approved by the EFSEC on June 12, 1995. Energy Northwests current estimate of Columbia's site restoration costs is approximately $56 million (in 2001 dollars).

Restricted Assets Both decommissioning and site restoration estimates (in 2001 In accordance with each Project's bond resolutions, related dollars) are used as the basis for establishing a funding plan that agreements or state law, separate restricted funds have been includes escalation and interest earnings until decommissioning established for each Business Unit. The assets held in these funds activities occur. Payments to the decommissioning and site are restricted for specific uses including construction, debt service, restoration funds have been made since January 1985. The fair capital additions, extraordinary operation and maintenance costs. value of cash and investment securities in the decommissioning termination, decommissioning and workers' compensation claims. and site restoration funds as of June 30, 2002, totaled approximately

$68.0 million and $6.2 million, respectively. Since September 1996, these amounts have been managed by BPA and held in external Long-Term Receivables trust funds in accordance with NRC requirements and site certification agreements.

Long-term receivables include minimum guaranteed amounts adjusted annually pertaining to future discounts for certain goods

Energy Northwests accrued liability for decommissioning and benefits, $14.4 million for compensated absences, and $2.7 million site restoration for Columbia is $110.1 million as of June 30, 2002. for outstanding warrants. Columbia includes accrued expenses of Per the net billing agreements. BPA is obligated to provide for the $1.4 million for fuel casks, $3.2 million for arbitrage rebate (as entire cost of decommissioning and site restoration. A defined by the Internal Revenue Service). $13.9 million for fuel, corresponding receivable has been established within Restricted and $34.5 million for notes payable for the Independent Spent Assets reflecting amounts owed to Columbia by BPA. The Fuel Storage Installation. The Nine Canyon Wind Project includes decommissioning and site restoration liability is not based on the $5.5 million of accrued substation costs and $2 million for contract funding plan. Annual decommissioning and site restoration retention.

expense is accounted for on a pro-rata basis over the life of the plant and is based on the total estimated decommissioning and site restoration costs, adjusted for inflation. Energy Northwest Fair Value of FinancialInstruments will adopt SFAS No. 143 "Accounting for Obligations Associated The fair value of financial instruments has been estimated with the Retirement of Long-Lived Assets" during Fiscal Year 2003.

using available market information and certain assumptions.

This statement addresses accounting standards for recognizing Considerable judgment is required in interpreting market data to and measuring the liability of an asset retirement obligation and develop fair value estimates and such estimates are not necessarily the associated asset retirement cost. (See Note G. New Accounting indicative of the amounts that could be realized in a current market Pronouncements).

exchange. The following methods and assumptions were used to estimate the fair value of each of the following financial instruments.

Financial instruments for which the carrying value is Materialsand Supplies considered a reasonable approximation of fair value include: cash.

Materials and supplies are valued at cost, using weighted accounts and other receivables, accounts payable and accrued average methods. expenses, advances from Members and others, other non-current liabilities and due to/due from Participants, funds, and other Business Units. The fair values of investments (See Note C. Cash FinancingExpense, Bond Discountand and Investments) and revenue bonds payable (See Outstanding Premium and Deferred Gain and Losses Long-Term Debt Schedule) have been estimated based on quoted Financing expenses and bond discounts and premiums are market prices for such instruments or based on the fair value of amortized over the terms of the respective bond issues using the financial instruments of a similar nature and degree of risk.

bonds outstanding method.

In accordance with the Statement of Governmental Accounting Standard No. 23. losses on debt refundings have been deferred Revenues and amortized as a component of interest expense over the shorter Energy Northwest accounts for expenses on an accrual basis.

of the remaining life of the old or new debt. The balance sheet and recovers, through various agreements. actual cash requirements includes the original deferred amount less recognized amortization for operations and debt service for Columbia, Packwood, Nuclear expense and is included as a reduction to the new debt. Project No. 1 and Nuclear Project No. 3. For these Business Units, Energy Northwest recognizes revenues equal to expenses for each period. No net revenue or loss is recognized, and no CurrentMaturitiesof Revenue Bonds equity is accumulated. The difference between cumulative billings Current maturities of revenue bonds payable from restricted received and cumulative expenses is recorded as either billings in assets are reflected in Long-Term Debt. Current maturities of excess of costs (liability) or as costs in excess of billings (asset), as bonds for which funds have not yet been restricted are reflected in appropriate. Such amounts will be settled during future operating Current Liabilities. periods.

Energy Northwest accounts for revenues and expenses on an accrual basis for the remaining Business Units. The difference between cumulative revenues and cumulative expenses is Accounts Payable and Accrued Expenses recognized as net revenue or losses and included in fund equity Restricted Liabilities - Internal Service Fund accounts payable for each period.

and accrued expenses include $24.6 million for unclaimed bearer bonds. Columbia includes $110.1 million for decommissioning and site restoration. Nuclear Project No. I includes $59.3 million for its own site restoration and $9.2 million for Hanford Generating Project site restoration.

Current Liabilities - Internal Service Fund accounts payable and accrued expenses include $1.2 million for payroll and related

Concentrationof Credit Risk Financial instruments which potentially subject Energy Northwest to concentrations of credit risk consist of available-for sale investments, accounts receivable, other receivables, long-term receivables and costs in excess of billings. Energy Northwest invests exclusively in U.S. Government Securities and Agencies.

Energy Northwesfs accounts receivable and costs in excess of billings are concentrated with Project Participants and BPA through the net billing agreements. (See Note E, Security- Nuclear Projects Nos. 1, 3. and Columbia; Security - Packwood Lake Hydroelectric Project.) The long-term receivable is with a large and stable company which Energy Northwest considers to be of low credit risk. Other large receivables are secured through the use of letters of credit and other similar security mechanisms or are with large and stable companies which Energy Northwest considers to be of low credit risk. As a consequence, Energy Northwest considers the exposure of the Business Units to concentration of credit risk to be limited.

Statements of Cash Flows For purposes of the statements of cash flows, cash includes unrestricted and restricted cash balances. Short-term, highly liquid investments are not considered cash equivalents.

NOTE C - CASH AND INVESTMENTS Cash and investments for each Business Unit are separately maintained. Energy Northwest's deposits are insured by federal depository insurance or through the Washington Public Deposit Protection Commission. Energy Northwest bond resolutions and investment policies limit investment authority to obligations of the United States Treasury. Federal National Mortgage Association and Federal Home Loan Banks. All investments are held for the benefit of each individual Energy Northwest Business Unit by safe keeping agents, custodians, or trustees.

Investments are classified as available-for-sale and are stated at fair value with unrealized gains and losses reported as invest ment income. Available-for-sale investments at June 30, 2002, are categorized below to give an indication of the types and amounts of investments held by each Business Unit at year-end. (See tables on next pages.)

AVAILABLE-FOR-SALE-INVESTMENTS (Dollarsin Thousands)

Amortized Cost Unrealized Gains Unrealized Losses Fair Value Columbia Generating Station U.S. Government Securities $ 48,938 $ 1,626 $ 0 $ 50,564 U.S. Government Agencies 111,309 249 (4) 111,554 Total $ 160,247 $ 1,875 $j(4 $ 1624118 Packwood Lake U.S. Government Securities S1.556 $ 0 $ 0 $ 1,556 Total $ 1,556 $ 0 0 $$$ 1,556 Nuclear Project No. I U.S. Government Securities $ 21,464 $ 335 $ (1) $ 21,798 U.S. Government Agencies 263,711 4 (13) 263,702 Total $ 285,175 $ 339 $ (14) $ 285,500 Nuclear Project No. 3 U.S. Government Securities $ 16,342 $ 614 $ 0 $ 16,956 U.S. Government Agencies 166,851 601 (17) 167,435 Total $ 183,193 $ 1,215 $ (17) $ 184,391 Business Development Fund U.S. GovernmentAgencies $ 174 $ 0 $ 0 S 174 Total $ 174 $ 0 $ 0 $ 174 Grays Harbor Energy Facility U.S. Government Agencies $ 410 $ 0 $ 0 $ 410 Total $ 410 $ 0 $ 0 $ 410 Nine Canyon Wind Project U.S. Government Securities $ 10,616 $ 24 $ (2) $ 10,638 U.S. Government Agencies 18,127 0 (1) 18,126 Total $ 28,743 $ 24 $ (3) $ 28,764 Internal Service Fund U.S. Government Securities $ 4,371 $ 0 $ 0 $ 4,371 U.S. Government Agencies 11,853 0 0 11,853 Total $ 16,224 $ 0 $ 0 $ 16,224

AVAILABLE-FOR-SALE-INVESTMENTS (continued)

(Dollarsin Thousands)

< 1 year 1-5 years 5-10 years >10 years Total Columbia Generating Station U.S. Government Securities $ 9,844 $ 17,763 $ 22,957 $ 0 $ 50,564 U.S. Government Agencies 106,292 5,262 0 0 111,554 Total $ 116,136 $ 23,025 $ 22,957 $ 0 $ 162,118 Packwood Lake U.S. Government Securities $ 1,556 $ 0 $ 0 $ 0 $ 1,556 Total $ 1,556 $ 0 $ 0 $ 0 $ 1,556 Nuclear Project No. 1 U.S. Government Securities $ 18,857 $ 2,941 $ 0 $ 0 $ 21,798 U.S. Government Agencies 263,702 0 0 0 263,702 Total $ 282,559 2,941 $ 0 $ 0 $ 285,500 Nuclear Project No. 3 U.S. Government Securities $ 3,085 $ 12,289 $ 0 $ 1,582 $ 16,956 U.S. Government Agencies 146,988 11,740 8,707 0 167,435 Total $ 150,073 $ 24,029 $ 8,707 $ 1,582 $ 184,391 Business Development Fund U.S. Government Agencies $ 174 $ 0 $ 0 $ 0 $ 174 Total $ 174 $ 0 $ 0 $ 0 $ 174 Grays Harbor Energy Facility U.S. Government Agencies $ 410 $ 0 $ 0 $ 0 410 Total $ 410 $ 0 $ 0 $ 0 410 Nine Canyon Wind Project U.S. Government Securities $ 6,913 $ 3,725 $ 0 $ 0 $ 10,638 U.S. Government Agencies 18,126 0 0 0 18,126 Total $ 25,039 $ 3,725 $ 0 $ 0 $ 28,764 Internal Service Fund U.S. Government Securities $ 4,371 $ 0 $ 0 $ 0 $ 4,371 U.S. Government Agencies 11,853 0 0 0 11,853

$ 16,224 $ 0 $ 0 $ 0 $ 16,224 Total

NOTE D - RETIREMENT BENEFITS Funding Policy Each biennium, the state Pension Funding Council adopts Plan Substantially all Energy Northwest full-time and qualifying I employer contribution rates and Plan 2 employer and employee part-time employees participate in one of the following statewide rates. Employee contribution rates for Plan I are established by retirement systems administered by the Washington State statute at six percent and do not vary from year to year. The Department of Retirement Systems, under cost-sharing multiple employer and employee contribution rates for Plan 2 are set by employer public employee defined benefit and defined contribution the director of the Department of Retirement Systems based on retirement plans. The Department of Retirement Systems (DRS), recommendations by the Office of the State Actuary to continue a department within the primary government of the State of to fully fund the plan. All employers are required to contribute at Washington, issues a publicly available comprehensive annual the level established by state law. The methods used to determine financial report (CAFR) that includes financial statements and the contribution requirements are established under state statute required supplementary information for each plan. The DRS in accordance with chapters 41.40 and 41.45 Revised Code of CAFR may be obtained by writing to: Department of Retirement Washington.

Systems, Administrative Services Division, P.O. Box 48380, Olympia. WA 98504-8380. The following disclosures are made The required contribution rates expressed as a percentage of pursuant to GASB Statement No. 27. Accounting for Pensions by current year covered payroll, as of June 30. 2002. were:

State and Local Government Employers.

PERS Plan I PERS Plan 2 I Employer 1.77%* I 1.77%*

Public Employees Retirement System (PERS) Employee 6.00% 0.88%

Plans 1 and 2

• The employer rates do not include the employer Plan Description PERS is a cost-sharing multiple-employer defined benefit administrative expense fee currently set at 0.23%.

pension plan. Membership in the plan includes: elected officials; state employees: employees of the Supreme, Appeals, and Superior Both Energy Northwest and the employees made the required courts (other than judges in a judicial retirement system): employees contributions. Energy Northwest's required contributions for the of legislative committees: college and university employees not in years ended June 30 were:

national higher education retirement programs; judges of district and municipal courts. non-certificated employees of school districts: PERS Plan I PERS Plan 2 and employees of local government, including Energy Northwest. 2002 $ 147,307 $ 1,238,861 2001 $ 410,640 $ 3,100,152 The PERS system includes two plans. Participants who joined 2000 the system by September 30, 1977, are Plan I members. Those $ 415,538 $ 2,929,576 joining thereafter are enrolled in Plan 2. Retirement benefits are financed from employee and employer contributions and investment In addition to the pension benefits available through PERS, earnings. Retirement benefits in both Plan I and Plan 2 are vested Energy Northwest offers post-employment life insurance benefits after completion of five years of eligible service. to retirees who are eligible to receive pensions under PERS Plan Plan I members are eligible for retirement at any age after I and Plan 2. One hundred twenty-one retirees have elected to completing 30 years of service, or at age 60 with five years of participate in this insurance. In 1994. Energy Northwestes Executive service, or at age 55 with 25 years of service. The annual pension Board approved provisions which continued the life insurance is two percent of the average final compensation per year of service. benefit to retirees at 25 percent of the premium for employees who retire prior to January 1. 1995, and charged the full 100 percent capped at 60 percent The average final compensation is based on the greatest compensation during any 24 eligible consecutive premium to employees who retired after December 31, 1994. The compensation months. If qualified, after reaching age 66 a cost life insurance benefit is equal to the employee's annual rate of of-living allowance is granted based on years of service credit and salary at retirement for non-bargaining employees retiring prior to January 1. 1995. The cost of coverage for employees who retired is capped at three percent annually.

Plan 2 members may retire at age 65 with five years of service, after January 1. 1995, is $2.33 per $1,000 of coverage. Employees who retired prior to January 1, 1995. contribute $.58 per $1,000 of or at age 55 with 20 years of service, with an allowance of two percent per year of service of the average final compensation. coverage while Energy Northwest pays the remainder. Premiums Plan 2 retirements prior to age 65 receive reduced benefits. If are paid to the insurer on a current period basis.

At the time each employee retires, Energy Northwest accrues retirement is at age 55 with 30 years of service, a 3 percent per year reduction applies, otherwise an actuarial reduction will apply. a liability for the actuarial value of estimated future premiums, net There is no cap on years of service credit and a cost-of-living of retiree contributions. The total liability recorded at June 30, allowance is granted, capped at three percent annually. 2002. was $1.196 million for these benefits.

During Fiscal Year 2002, pension costs for Energy Northwest Columbia, respectively. Debt service increased for Nuclear Project employees and post-employment life insurance benefit costs for No. I because the average life of the Nuclear Project No. I Series retirees were calculated and allocated to each Business Unit based 2002 A Bonds was extended closer to the final maturity date of on direct labor dollars. Approximately 90 percent of all such costs 2017. Columbia's debt service increased because the final maturity were allocated to Columbia during Fiscal Year 2002. date was extended from 2009 for the Columbia refunded bonds to 2018 for the Columbia Series 2002 A Bonds. Net proceeds from the Series 2002 A Bonds were deposited in a separate irrevocable trust for each Project under the control of the trustee/escrow agent 40 1(k) Deferred Compensation Plan bank to provide all required future debt service payments on the Energy Northwest provides a 401 (k) Deferred Compensation refunded bonds until their dates of redemption. As a result, the Plan (the 401(k) Plan). The 401(k) Plan is a defined contribution refunded bonds are considered to be defeased and the liability for plan that was established to provide a means for investing savings these bonds has been removed from long-term debt.

by employees for retirement purposes. All permanent, full-time The Series 2002 B Bonds. issued for Nuclear Projects Nos employees are eligible to enroll in the Plan. Each participant may 1, 3. and Columbia, in the aggregate principal amount of $301.1

'elect to contribute pre-tax annual compensation, subject to current million, also are fixed rate bonds and have an average coupon Internal Revenue Service limitations. Energy Northwest matches interest rate of 5.89%. The Series 2002 B Bonds were used to 50% of the portion of the participants salary deferral amount, refund $329.5 million of outstanding bonds, all of which either which does not exceed 5% of the participant's 401(k) eligible matured or were called for redemption on July 1. 2002. Net earnings for the 401 (k)Plan year. Participants direct the investment proceeds from the Series 2002 B Bonds were deposited in the of their individual contributions. Participants are immediately Bond Fund Principal Accounts and the Debt Service Accounts for vested in their contributions plus actual earnings thereon. During each project under the control of the trustee banks to provide all Fiscal Year 2002, Energy Northwest contributed $1,443,977 in required remaining deposits for principal payments on the refunded employer matching funds. bonds until the maturity date or the date of redemption. Certain of the proceeds from the Series 2002 B Bonds were paid to Citibank, NA. for repayment of the Promissory Notes drawn upon periodically throughout the previous months of the fiscal year.

In prior fiscal years. Energy Northwest also defeased certain NOTE E - LONG TERM DEBT revenue bonds by placing the net proceeds from the refunding bonds in irrevocable trusts to provide for all required future debt service Each Energy Northwest Business Unit is financed separately. payments on the refunded bonds until their dates of redemption.

The resolutions of Energy Northwest authorizing issuance of Accordingly, the trust account assets and the liability for the revenue bonds for each Business Unit provide that such bonds are defeased bonds are not included in the financial statements in payable from the revenues of that Business Unit. All bonds issued accordance with GASB Nos. 7 and 23. Including the Fiscal Year under Resolutions Nos. 769, 775, and 640 for Nuclear Projects 2002 defeasements, approximately $2,108.5 million. $1,640.7 million Nos. I, 3, and Columbia. respectively, have the same priority of and $2,068.1 million of defeased bonds were not called or had not payment within the Business Unit (the "Prior Lien Bonds"). All matured at June 30, 2002, for Nuclear Projects Nos. 1, 3, and bonds issued under Resolutions Nos. 835, 838, and 1042 for Columbia. respectively.

Nuclear Projects Nos. 1. 3. and Columbia, respectively, are During the Fiscal Year ended June 30,2002, Energy Northwest subordinate to the Prior Lien Bonds and have the same also issued, for the Nine Canyon Wind Project, the Series 2001 A subordinated priority of payment within the Business Unit (the Wind Project Revenue Bonds and the Series 2001 B Wind Project "Electric Revenue Bonds"). Revenue Bonds. The Series 2001 A Bonds, in the aggregate During the year ended June 30, 2002. Energy Northwest principal amount of $50.4 million, are fixed rate bonds with an issued, for Nuclear Projects Nos. 1. 3. and Columbia. the Series average coupon interest rate of 5.77%. The Series 2001 A Bonds 2002 A Bonds and the Series 2002 B Bonds. The Series 2002 A were issued to finance the costs of acquiring, constructing and Bonds, issued for Nuclear Project No. 1 and Columbia. in the installing Turbines Nos. 1 through 28 of the Project and certain aggregate principal amount of $405.7 million, are fixed rate bonds transmission interconnection facilities. The Series 2001 B Bonds, with an average coupon interest rate of 5.63%. The Series 2002 A in the aggregate principal amount of $20.3 million, are fixed rate Bonds refunded $401.8 million of outstanding bonds having an bonds with an average coupon interest rate of 5.77%. The Series average coupon rate of 6.26%. This transaction resulted in net losses 2002 B Bonds were issued to finance the costs of acquiring, for accounting purposes of $15.7 million and $8.3 million for Nuclear constructing and installing Turbines Nos. 29 through 37 of the Project No. 1 and Columbia, respectively. Remaining debt service Project. (See Note A) on the refunded bonds prior to the refunding was $333.4 million Outstanding revenue bonds for the various Business Units as and $196.6 million for Nuclear Project No. I and Columbia, of June 30, 2002, and future debt service requirements for these respectively. The debt service on the Series 2002 A Bonds is bonds are presented at the end of the Financial Section of this

$443.7 million and $300.3 million for Nuclear Project No. I and report.

Energy Northwest expects to continue its "Traditional Security - Packwood Lake Hydroelectric Refinancing Program" as outlined in the September 2001 Refunding Project Plan by refinancing higher interest rate outstanding bonds. Energy Northwest and BPA signed an agreement which previously issued for Nuclear Projects Nos. 1, 3. and Columbia. became effective on July 31. 2001, for the period beginning July 1.

when economically feasible. Additionally, the Bonneville Power 2001 to October 1,2002. BPA will pay Energy Northwest 40 mills Administration requested Energy Northwest to help implement per kWh in exchange for the Project's total output of electric Bonneville's Debt Optimization Program. Subject to the annual capacity and energy delivered from the Project. Under the power approval by Energy Northwest's Executive Board, implementation sale agreement. Energy Northwest is responsible for the cost of will require Energy Northwest to issue refunding bonds which will transmission to the BPA delivery point Packwood is now an I) extend the final maturity date of Columbia debt to 2018. and 2) "endorsed resource" in BP~s environmental foundation pool. The extend the average life of the Nuclear Projects Nos. I and 3 debt Packwood Participants are obligated to pay annual costs of the closer to the final maturity dates of 2017 and 2018. respectively. Project including debt service, whether or not the Project is operable, The issuance of such refunding bonds will roll out principal until the outstanding bonds are paid or provision is made for their maturities scheduled to occur through 2012 and defer principal retirement in accordance with provisions of the bond resolutions.

retirement on Energy Northwest debt- to the 2013 to 2018 time frame. Reducing net billing requirements for Energy Northwest will free up cash in the Bonneville Fund to be used to accelerate the retirement of the higher cost Federal debt by Bonneville.

NOTE F - COMMITMENTS AND The goals and objectives of the Debt Optimization Program were included in the Energy Northwest Refunding Plan-September CONTINGENCIES 2001 adopted by the Energy Northwest Executive Board.

Nuclear Project No. 1 Termination Security - Nuclear ProjectsNos. 1, 3, and Since the Nuclear Project No. 1 termination. Energy Northwest Columbia has been planning for the demolition of Nuclear Project No. 1 and Project Participants have purchased all of the capability of restoration of the site, recognizing the fact that there is no market Nuclear Projects Nos. 1. 3, and Columbia. BPA has, in turn.

for the sale of the Project in its entirety and to date, no viable acquired the entire capability from the Participants under contracts alternative use has been found. The final level of demolition and referred to as net billing agreements. Under the net billing restoration will be in accordance with agreements discussed below.

agreements for each of the Business Units, Participants are obligated to pay Energy Northwest their pro rata share of the total annual costs of the respective Projects, including debt service on bonds relating to each Business Unit and BPA, in turn, is obligated to pay the Participants identical amounts by reducing amounts Nuclear ProjectNo. 3 Termination due to BPA by Participants under BPA power sales agreements.

The net billing agreements provide that the Participants and BPA In June 1994, the Nuclear Project No. 3 Owners Committee are obligated to make such payments whether or not the Projects voted unanimously to terminate the Project In February 1999, are completed, operable or operating and notwithstanding the Energy Northwest entered into a transfer agreement with the suspension, interruption, interference, reduction or curtailment of Satsop Redevelopment Project (SRP) to transfer the real and the Projects' output. personal property at the site of Nuclear Project No. 3 and Nuclear On May 13. 1994, Energy Northwest's Board of Directors Project No. 5. The SRP also agreed to assume regulatory adopted resolutions terminating or recommending the termination responsibility for site restoration Therefore, Energy Northwest is of Nuclear Projects Nos. I and 3. The Nuclear Projects Nos. I no longer responsible to the State of Washington and the and 3 Project Agreements and the net billing agreements, except Washington Energy Facility Site Evaluation Council (EFSEC) for for certain sections which relate only to billing processes and any site restoration costs, with respect to Nuclear Project No. 3 accrued liabilities and obligations under the net billing agreements. and Nuclear Project No. 5.

ended upon termination of the Projects. Energy Northwest entered into an agreement with BPA to provide for continuation of the present budget approval, billing and payment processes. With respect to Nuclear Project No. 3. the ownership agreement among Energy Northwest and private companies was terminated in Fiscal Year 1999. The ownership of all real and personal property interests was transferred to Energy Northwest

]

Nuclear Projects Nos. 1 and 4 Site Future equity contributions, if any, will be treated the same until NoaNet has a positive equity position.

Restoration Site restoration requirements for Nuclear Projects Nos. I and 4 are governed by site certification agreements between Energy Northwest and the State of Washington and regulations adopted Other Litigation and Commitments by the EFSEC, and a lease agreement with the United States Department of Energy (DOE). Energy Northwest submitted a Energy Northwest is involved in various claims, legal actions site restoration plan for Nuclear Projects Nos. I and 4 to EFSEC and contractual commitments and in certain claims and contracts on March 8. 1995, which complied with EFSEC requirements to arising in the normal course of business. Although some suits.

remove the assets and restore the sites by demolition, burial, daims and commitments are significant in amount, final disposition entombment, or other techniques such that the sites pose minimal is not determinable. In the opinion of management, the outcome hazard to the public. EFSEC approved Energy Northwest's site of such litigation, claims or commitments will not have a material restoration plan on June 12. 1995. In its approval. EFSEC adverse effect on the financial positions of the Business Units or recognized that there is uncertainty associated with Energy Energy Northwest as a whole. The future annual cost of the Northwest's proposed plan. Accordingly, EFSEC's conditional Business Units, however, may either be increased or decreased as approval provides for additional reviews once the details of the a result of the outcome of these matters.

plan are finalized. A new plan with additional details is being prepared for expected submittal within Fiscal Year 2003.

Based on current estimates for site restoration. Energy Northwest has accrued liabilities of $59.3 million for Nuclear Project Nuclear Licensing and Insurance No. 1. Funding for this liability will be provided by BPA. No source of funding has been identified for site restoration of Nuclear Energy Northwest is a licensee of the Nuclear Regulatory Project No. 4, which is located approximately one-half mile from Commission and is subject to routine licensing and user fees, to Nuclear Project No. 1. Energy Northwest believes that although retrospective premiums for nuclear liability insurance, and to license Nuclear Project No. I has no legal obligation to fund Nuclear Project modification, suspension, or revocation or civil penalties in the No. 4, it is possible that claims may be asserted against Nuclear event of violations of various regulatory and license requirements.

Project No. I to pay the costs of site restoration for Nuclear Project The Price-Anderson Act currently provides for nuclear liability No. 4. Energy Northwest currently estimates that the cost of site insurance of over $9.45 billion per incident, which is covered by a restoration for Nuclear Project No. 4 is $41.3 million. Nuclear combination of commercial nuclear insurance and mandatory Project No. I has not accrued any costs for Nuclear Project No. 4. industry self-insurance. Energy Northwest has purchased the maximum commercial insurance available of $200 million, which is the first layer of protection. The second layer of protection is provided through a mandatory industry self insurance plan wherein Business Development Fund Interest in each licensed nuclear facility required to participate in the plan Northwest Open Access Network (currently 105) may be assessed up to $88.1 million per incident, subject to a maximum annual assessment of $10 million per year.

The Business Development Fund is a member of the Nuclear property damage and decontamination liability Northwest Open Access Network ("NoaNet"). Members formed insurance requirements are met through a combination of NoaNet pursuant to an Interlocal Cooperation Agreement for the commercial nuclear insurance policies purchased by Energy development and efficient use of a communication network in Northwest and BPA. The total amount of insurance purchased is conjunction with BPA for use by the members and others. currently $2.25 billion. The deductible for this coverage is $5 million The Business Development Fund has a 7.38% interest in per occurrence.

NoaNet with an additional 25% step-up possible for a maximum of 9.23%. In July 2001. NoaNet issued $27 million of bonds. The members are obligated to pay the principal and interest on the bonds when due, in the event and to the extent that NoaNet's Gross Revenue (after payment of costs of Maintenance and Operation) is insufficient for this purpose. The maximum principal share (with step-up) that the Business Development Fund could be required to pay is $2,490,800. In Fiscal Year 2002. the Business Development Fund contributed $146,000 to NoaNet. This equity contribution was reduced to zero at year-end because NoaNet had a negative net equity position of $9.2 million as of June 30, 2002.

NOTE G - NEW ACCOUNTING PRONOUNCEMENTS Effective July 1. 2001. Energy Northwest adopted the provi sions of GASB No. 34, Basic Financial Statements and Managementfs Discussion and Analysis for State and Local Gov ernments, as amended by GASB Nos. 37 and 38. The statement establishes new requirements for the basic financial statements and requires supplementary information (RSI) for general pur pose governments consisting primarily of a management's discus sion and analysis section preceding the basic financial statements.

In addition, the statement requires that the statement of cash flows be prepared using the direct method. Adoption of this statement did not have a material impact on the financial position, results of operations or cash flows of Energy Northwest.

The FASB has recently issued SFAS No. 143. "Accounting for Obligations Associated with the Retirement of Long-Lived Assets," which is effective for fiscal years beginning after June I 5, 2002. As required, Energy Northwest will adopt this Statement during its Fiscal Year 2003. The impact of adopting this statement has not yet been determined. This Statement requires an entity to recognize the fair value of a liability for an asset retirement obligation (ARO). such as nuclear decommissioning and site restoration liabilities, in the period in which it is incurred, rather than using a cost-accumulation approach. Asset retirement costs will be capitalized as part of the cost of the related long-lived asset then allocated to depreciation expense over the life of that asset The fair value of the liability will be discounted initially, then accreted with a charge to expense based on the risk-free interest rate in effect at the time of initial recognition. Upon adoption of the Statement, an entity will use a cumulative-effect approach to recognize transition amounts for any existing ARO liabilities, asset retirement costs, and accumulated depreciation.

CURRENT DEBT RATINGS (Unaudited)

ENERGY NORTHWEST (Long-Term) RATING OUTLOOK Fitch Ratings AA Negative Moodys Investors Service, Inc. (Moodys) Aal Stable Standard and Poor's Ratings Services (S&P) AA- Stable VARIABLE RATE DEBT MOODYS Letter of Credit Banks Bank of America Long-Term AA- Aal Short-Term A-1+ P-1 JPMorgan Chase Bank Long-Term AA- Aa3 Short-Term A-1+ P-I Bond Insurance (Long-Term)

MBIA Insurance Corporation AAA Aaa Bank Credit Facility (Short-Term)

Credit Suisse First Boston A-1+ P-1

I AI

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• Richland, Washington 99352-0968

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