GO2-08-005, 2007 Annual Financial Report

2007 Annual Financial Report

ML080240242
Person / Time
Site:	Columbia
Issue date:	01/10/2008
From:	Cullen G Energy Northwest
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
GO2-08-005
Download: ML080240242 (72)

Text

Gregory V. Cullen ENERGY Manager, Regulatory Programs P.O. Box 968, Mail Drop PE20 NORTHWEST Richland, WA 99352-0968 Ph. 509-377-6105 F. 509-377-4317 gvcullen@energy-northwest.com January 10, 2008 G02-08-005 10 CFR 50.71(b)

U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555-0001

Subject:

COLUMBIA GENERATING STATION, DOCKET 50-397 2007 ANNUAL FINANCIAL REPORT

Dear Sir or Madam:

In accordance with 10 CFR 50.71(b), enclosed is a copy of the Energy Northwest 2007 Annual Report for the subject facility.

There are no commitments being made to the NRC by this letter. Should you have any questions, please contact DW Gregoire at (509) 377-8616.

Respectfully, GV Cullen Manager, Regulatory Programs

Enclosure:

As stated cc: EE Collins - NRC RIV w/o CF Lyon - NRC - NRR w/o NRC Sr. Resident Inspector - 988C w/o RN Sherman - BPA/1 399 w/o WA Horin - Winston & Strawn w/o ApAicq

ENERGY NORTHWEST ANN 20S7 AL REPOR

OUR VSIO Th reins preferre sorc fo energ soutos.

OUR M SSO Prvie resonsbl and cos-efetv energ souin fo th regions ratpaer.,

CONTENTS i A Message From Our Executive Board Chairmanand CEO 3 50 YEARS SERVING PUBLIC POWER 4 GeneratingResources io Energy/Business Services 16 Commitment to Our Community 17 EnvironmentalManagement System 18 Looking Ahead 20 50 Years in Review 23 FINANCIAL DATA AND INFORMATION 24 Management Report on Responsibilityfor FinancialReporting 24 Audit, Legal and FinanceCommittee Chairman'sLetter 25 Report of IndependentAuditors 26 Energy Northwest Management's Discussion and Analysis 38 Balance Sheets 40 Statements of Operationsand Fund Equity 41 Statements of Cash Flows 43 Notes to FinancialStatements 64 Current Debt Ratings

I

Dan Gunkel Larry Kenney Tom Casey, Vice Chairman Kathy Vaughn, Assistant Secretary EXECUTIVE Sid Morrison, Chairman Dave Remington, Secretary BOA RD Edward (Ted) Coates Bill Gordon JackJanda Tim Sheldon Not pictured - K.C. Golden (left to right)

Aler . Moncr Vic Prsdet Coprt Sevcs/eea Counel/hie Fiaca Officer EXEC TIV Sct W.Oxnfd Vic Presden IPAssgmn Joseph V. (Vc ParsCifExctv fie MANAGEMENT Jac Baer Vic PrsdnEeg/uiesSrie Chery W ito b Vic Prsdet Oraiatoa Pefrac

- - .~.and*.* Stafn/he Knweg Officer Dale* iePeietaula Atisn3 eeain he ula fie (lf to right 50 Yer Sevn Puli Power anuar 31 207 make th 50t aniesayo Washinto Sat Cosrvto an Deeomn Wehvebe Enrg Notws.net5er and As~~~~~~~~~~~~~~~~~~S we ceertS0Yý1sO'slvcew

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'a ri PUD will upgrade the Nine Canyon elec-kstructure to support the Phase III intercon-the Bonneville Power Administration's grid.

-it schedule has the new turbines generating

,wable power for the region by spring 2oo8.

iases I and 11, the expansion is financed with bonds.

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maaemn tea w S rvd acnuie zainto ras moe an inres awrns of enorgn niomn o supotepoe the poitv ~ ~ im ac t s gnismk or ivle et o aho u fi ilcaiis Community. ~~~ FrmOrCOt ews mlyeEeg Mayf'Or mpoee ae lo ctvly Nothet arsabutou om unt trog invlve in irc supr ad fudriigefrs dietha s-nnvl m n.

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Th Puli Po e Moem n ha it ad6n in th 1920s Pubi Utilty cratedto istictswer rovde rliale nd lw cst owe foh gro in stt .- 6 6 6 6 ~

• 6 6 6 Th loia exeso wa t 6 for a join agnc tobuldan oer 5 0 ~~ at elcria geeatn failtis Poe wa to 6epovdda the*6 cos of prdcin totertpyr ftepriiaigpbi utltis Suhajitoeaigaecyw satoie6n rae onJnay3,150h ahngo ulcPwrSpl ytm nowEnrgyNothwst Th1is97s@sheSI~lýSIICIIwst

Of the five nuclear projects started, only one - WNP \ýould ever be completed. The other pl a nts were even-so MESON MENEM MmM:M tually mothballed and terminated. The ON :: H H H ME SOMME

MMMM:: MZMMMCM  :: M:MMmM end of'thc Cold War brought a SUdden on so so on ME no on MEMMEM MEN MENEM SEEN MESON reduction in the need for Plutonium f'()l defense purposes. In Febl'Ual) 1988, the N-Reaclor \%as closed fffl- good.

For the organization as a whole, the establishirient of Core ValUeS -

Teamwork, Excellence, Accountability, and MUtual TrUSt through Open and

" onest Communications - led to rising standards of'professionalism and higher 19 9 0 S levels ofachievement. A gro\k ingregional econorny and widespread concern for the environment led SLIP].-)Iy SýStCnl leaders to investigate and propose new projects to ineet the needs of merriber Utilities.

The first pUblic power wind project in the region - the Nine Canyon Wind Project - was dedicated in October 2002.

White BIL]Ifs Solar Station came next, With 242 photovoltaic panels, it was dedicated in May 2002. In keeping with the commitment to responsible steNý-

20 0 0 s ardship, Energy Northwest has adopted an Environmental Management System that has been certified as meeting the stringent standards of'ISO 14001:200,1.

5 0 Y E ARS SERVING PUBLIC POWER 2007

F-inancia Data and Information

Management Report on Responsibility for Financial Reporting The management of Energy Northwest is responsible procedures provide appropriate division of respon-for preparing the accompanying financial statements sibility and are documented by written policies and and for their integrity. The statements were prepared in procedures.

accordance with generally accepted accounting princi- Energy Northwest maintains an ongoing internal ples applied on a consistent basis, and include amounts auditing program that provides for independent assess-that are based on management's best estimates and ment of the effectiveness of internal controls, and for judgments. recommendations of possible improvements thereto. In The financial statements have been audited by addition, PricewaterhouseCoopers LLP has considered PricewaterhouseCoopers LLP, Energy Northwest's inde- the internal control structure in order to determine pendent accountants. Management has made available their auditing procedures for the purpose of expressing to PricewaterhouseCoopers LLP all financial records an opinion on the financial statements. Management and related data, and believes that all representations has considered recommendations made by the internal made to PricewaterhouseCoopers LLP during its audit auditor and PricewaterhouseCoopers LLP concerning were valid and appropriate. the control procedures and has taken appropriate action Management has established and maintains to respond to the recommendations. Management internal control procedures that provide reasonable believes that, as of June 30, 2007, internal control proce-assurance as to the integrity and reliability of the finan- dures are adequate.

cial statements, the protection of assets from unauthor-ized use or disposition, and the prevention and detec- J.V. Parrish A.E. Mouncer tion of fraudulent financial reporting. These control CHIEF EXECUTIVE OFFICER VICE PRESIDENT, CORPORATE SERVICES/

GENERAL COUNSEL/CFO Audit, Legal and Finance Committee Chairman's Letter The Executive Board's Audit, Legal and Finance The Committee met regularly with Energy North-Committee is composed of six independent direc- west's internal auditor and independent accountants to tors. Members of the Committee are Chairman Larry discuss the results of their examinations, their evalu-Kenney, K.C. Golden, Bill Gordon, Jack Janda, Dave ations of Energy Northwest's internal controls, and Remington, Kathy Vaughn and Sid Morrison, Ex Officio. the overall quality of Energy Northwest's financial The Committee held ii meetings during the fiscal year reporting. The meetings were designed to facilitate any ended June 30, 2007. private communications with the Committee desired by I

The Committee oversees Energy Northwest's the internal auditor or independent accountants.

financial reporting process on behalf of the Executive Board. In fulfilling its responsibilities, the Committee Larry Kenney discussed with, the internal auditor and the indepen- CHAIRMAN, dent accountants, the overall scope and specific plans AUDIT LEGAL AND FINANCE COMMITTEE for their respective audits, and reviewed Energy North-west's financial statements and the adequacy of Energy Northwest's internal controls.

Financial Data and Information

Report of Independent Auditors To the Executive Board of Energy Northwest We have audited the accompanying balance sheet of used and significant estimates made by management, Energy Northwest and the related individual balance as well as evaluating the overall financial statement sheets of Energy Northwest's business units and presentation. We believe that our audit provides a rea-internal service fund as of June 30, 2007, and the related sonable basis for our opinions.

statements of operations and fund equity and of cash In our opinion, the basic financial statements flows for the year then ended. Energy Northwest's busi- referred to above present fairly, in all material respects, ness units include the Columbia Generating Station, the financial position of Energy Northwest and Energy Packwood Lake Hydroelectric Project, Nuclear Project Northwest's business units and internal service fund at No. i, Nuclear Project No. 3, the Business Development June 30, 2007, and the results of their operations and Fund, and the Nine Canyon Wind Project. These basic their cash flows for the year then ended in conformity financial statements are the responsibility of Energy with accounting principles generally accepted in the Northwest's management. Our responsibility is to United States of America.

express an opinion on these basic financial statements The Management's Discussion and Analysis listed based on our audit. in the table of contents is not a required part of the basic We conducted our audit in accordance with financial statements but-is supplementary information auditing standards generally accepted in the United required by the Governmental Accounting Standards States ofAmerica. Those standards require that we plan Board. We have applied certain limited procedures, and perform the audit to obtain reasonable assurance which consisted principally of inquiries of manage-about whether the basic financial statements are free ment, regarding the methods of measurement and pre-from material misstatement. An audit includes exam- sentation of the required supplementary information.

ining, on a test basis, evidence supporting the amounts However, we did not audit the information and express and disclosures in the basic financial statements. An no opinion on it.

audit also includes assessing the accounting principles Portland, Oregon September 24, 2007

-7 Energy Northwest 2007 Annual Report

Energy [ Jorthwest Mana gement's Discussi( )n and Analysis F nergy Northxaest (r 1 .- . IrTATis a municipal corporation and joint operating agency I

• 1- 1 IT T- .11 T

• TT J.,.-AU1 LI DLdLedI* -i VvdasIII116LUII. Eachi*l Ellergy NnI IJL*We*i. DUSICIISS* UIIIL is*

financed and accounted for I separately from all other I current or future business assets. The following discussion and analysis is organized by Business Unit. The management discussion and analysis of the financial performance and activity is provided as an introduction and to aid in com-paring the basic financial statements for the Fiscal Year (FY) ended June 30, 2007, with the basic financial statements for the FY ended June 30, 2oo6.

Energy Northwest has adopted accounting policies and principles that are in accordance with Generally Accepted Accounting Principles (GAAP) in the United States of America. Energy Northwest's records are maintained as prescribed Dy tne UovernmentaI Accounting btanaaras tioara kGASB)

I and, when not in conflict with GASB pronouncements, I accounting prin-I ciples prescribed by the Financial Accounting Standards Board (FASB).

(SEE NOTE B TO THE FINANCIAL STATEMENTS).

Because each Business Unit is financed and Operations and Fund Equity, the Statements of accounted for separately, I the following section Cash Flows for each  !

of the Business Units and on financial performance is discussed by Notes to Financial Statements.

Business Unit to aid in analysis of assessing the The Balance Sheets present the financial financial position of each individual Business position of each Business Unit on an accrual Unit. For comparative purposes only, the table basis. The Balance Sheets report financial infor-on the following page represents a memorandum mation about construction work in progress, the total only for Energy Northwest, as a whole, amount of resources and obligations, restricted for FY 2007 and FY 2006 in accordance with accounts and duei to/from balances (see Note B GASB No. 34, "Basic Financial Statements-and

,I to the Financial Statements) for each Business Unit.  !

Management's Discussion and Analysis-for State The Statements of Operations and Local Governments!" and Fund I

The financial statements for Energy North- Equity provide financial information relating to west include the Balance Sheets, Statements of all expenses, revenues and equity that reflect the Financial Data and Information

results of each Business Unit ahid its related activ- statements. This includ~s, but is not limited to; ities over the course of the Fiscal Year. TheIJfinan- Schedule of Outstanding Long-Term Debt and cial information provided aids in benchmarking Debt Service Requirements (see Note E - Long-I.

activities, conducting comparisons to evaluate Term Debt), accounting policies, significant progress, and determining ~I whIether the Business balances and activities, Imaterial risks, commit-Unit has successfully recovered its costs. ments and obligations and subsequent events, if The Statements of Cash Flows reflect cash applicable.

receipts and disbursements and net changes The basic financial statements of each Busi-resulting-from-operating,-financing-and-invest.---ness-Unit.should-be-used.individually-along-with ment activities. The statements provide insight the notes to the financial statements and the into what generates cash, where the cash comes management discussion land analysis to provide from, and purpose of cash actility. an overview of Energy Northwest's financial The Notes to Financial Statements I

present I performance. Questions! concerning any of the disclosures that contribute to the understanding information provided in this report should be of the material presented in the financial addressed to Energy Northwest at PO Box 968, Richland, WA, 99352.

COMBINED FINANCIAL INFORMATION June 30, 2007 and 2006 (000's) 2006 2007 Change Assets Net Plant $ 1,524,835 $ 1,512,222 $ (12,613)

Nuclear Fuel 190,483 235,742 45,259 Current and Restricted Assets 439,728 497,562 57,834 Long-term Receivables and Deferred Charges 4,434,978 4,517,173 82,195 TOTAL ASSETS $ 6,590,024 $ 6,762,699 $ 172,675 i Fund Equity (29):$ (7,667): $ (7,638)

Long-Term Debt $ 6,240,866 :$ 6,379,097 $ 138,231 Restricted and Non-current Liabilities 262,620 274,625 12,005 Current Liabilities 85,118 113,504 28,386 Deferred Credits 1,449 3,140 1,691

!TOTAL EQUITY AND LIABILITIES 6,590,024 6,762,699 172,675 Operating Revenues $ 413,919 $ 452,402 $ 38,483 Operating Expenses 300,582 355,675 55,093 Net Operating Revenues $ 113,337 $ 96,727 $ (16,610)

Other Income and Expense (120,202): (105,136) i 15,066 Distribution and Contributions 1,384 771 (613)

Beginning Fund Equity 5,452 (29):: (5,481)

ENDING FUND EQUITY $ (29)1 $ (7,667)1$ (7,638),

E Energy Northwest 12007 Annual Report

COLUMBIA GENERATING STATION The Columbia Generating Station (Columbia) is owned by Energy Northwest and its Participants and operated by Energy Northwest. The Plant 8,017 is a 1,157 megawatt electric (MWe, Design Electric Rating, net) boiling water nuclear power 9,636 station located on the Department of Energy's

-,-(D.OE)_HanfordR~seryation-nor~th-of-Richland,-

Washington.

Columbia ac ieved a record run for genera-tion which ended in FY 2007. The record genera-92tion run began on July 2, 2005, ending October 31, 2006, resulting in a continuous daily record run of 486 days.

Columbia produced 8,017 gigawatt-hours (GWh) of electric~ity in FY 2007, as compared

- to 9,636 GWh of~electricity in FY 2oo6, which included economic dispatch of 33 GWh and loi GWh respectively} Columbia successfully com-pleted its two-year refueling and maintenance I

outage (R-18) in June of 2007, in 44 days with costs totaling $12o.o million. Generation was less in FY 2007 asl compared to FY 2006, due to R-18, three forced outages (November 2006, April 2007 and June 2007) and the effects of the entire FY 2006 being included in the record generation run discussed previously.

Columbia's performance is measured in sev-

...... ... eral ways, including cost of power at Columbia.

The cost of powei for FY 2007 was 3.69 cents per kilowatt-hour i(kWh) as compared with 2.12 cents per kWh in !FY 2006. The industry cost of power fluctuates year to year depending on var-ious factors such as refueling outages and other planned activities. R-18 was the major driver for 7 Y 26 FY25 F 2 F 2 the increased cost of power as compared with FY 2006.

Financial Data and Information

Balance Sheet Analysis million which were related to R-i8 and budgeted The net decrease to Plantl in Service and maintenance items.

Construction Work In Progress (CWIP) from Deferred charges increased $27.5 million FY 2006 to FY 2007 (excluding nuclear fuel) was in 2007 from $667.0 million to $694.5 million.

$18.6 million. The additions to Plant/cwIP of $53.5 Costs in Excess of Billings increased $27.9 million million were offset by an increase to Accumulated which was offset slightly, by a decrease to unam-Depreciation of $72.1 million resulting in the net ortized debt expense of $0.4 million. The increase decrease to Plant of $18.6 million. The majority of to Costs in Excess was due to refunding current additions-to-plant.for-FY-2o0o. resulted-from-the-maturities-while-extending-the-overall-maturi_

work performed up to and during R-18. Seven major ties on the refunding debt. In addition, the accu-projects (Feedwater Heaters! Digital Electro- mulated decommissioning and site restoration Hydraulic (DEH) upgrade, Reactor Recirculation accrued costs are not currently billed to Bonnev-Motor Refurbishment, Condensate Valve work, ille Power Administration (BPA). BPA holds and Control Rod Blade Replacement, Radiation manages a trust fund for!the purpose of funding Monitor Replacement, and High Pressure Core decommissioning and site restoration (see Note B Spray (HPCS) Pump Refurbishment/Replacement) to the Financial Statements, Decommissioning resulted in 71 percent of the additions to plant. and Site Restoration"). The balances in these Nuclear fuel, net of accumulated amorti- external trust funds are not reflected on Energy zation, increased $45.3 million from FY 2006 Northwest's Balance Sheet.

to $235.7 million for FY 20071 During FY 2007, Long-Term Debt increased $42.6 million in Columbia purchased $69.1 millIion of nuclear fuel, FY 2007 from $2.35 billion to $2.39 billion, which which completed the planned 1purchases for R-19 was a result of the FY 200,7 Bond Issue. In FY 2007, and R-2o. The increase to nuclear fuel was offset new debt was issued for, various Columbia con-I by current year amortization of $23.8 million. struction projects, as well as for part of the Debt The Restricted Assets Special Funds Optimization Program (see Note E to the Finan-decreased $41.3 million from IFY 2006 levels to cial Statements). I

$63.4 million in FY 2007. Construction Fund Through June 30, 2 oo6, Energy Northwest spending and the completion of the planned fuel was being paid by the lParticipants for Net Bill-purchases for R-i 9 and R-2o Contributed to the ings. The payments were based on a percentage decrease. of ownership in ColumbIia and Nuclear Projects The Debt Service Funds increased $6.8 mil- No. i and 3 and reflected budgeted costs for oper-lion in FY 2007 to $54.3 million. The increase was ations of the fiscal year.I Beginning in FY 2007, created from funding increases in FY 2007 due to Energy Northwest began billing Bonneville Power borrowing activities. I Administration on a monthly basis for estimated Long-term receivables remained relatively expenses, not to exceed the approved budget, I..

stable, increasing from $0.4 million in FY 2006 instead of billing and receiving the participants' to $1.1 million in FY 2007. The slight increase was legal obligations. The chlange in billing arrange-due to a change in estimate resulting from R-18 ment does not impact the Net Billing Agreements activity. Current assets increased $44.1 million for Columbia and Nuclear Projects No. i and 3.

in FY 2007 to $175.4 million. The majority of the increase was due to $26.7 million of reimburse-ments of operations using the' direct pay billing and increases to materials anld supplies of $17.4 Energy Northwest 12007 Annual Report

Statement of Operations Analysis million from FY 2006 to $ioi.8 million in FY 2007.

Columbia is a net-billed Project. Energy Northwest The majority of the overall decrease was due to recognizes revenues equal to expense for each increases in net revenues from a building sale period on net-billed projects. No net revenue or of $5.5 million and loaned fuel revenue of $6.9 loss is recognized and no equity is accumulated. million combined with a decrease of $6.5 mil-Operating expenses increased $53.7 mil- lion relating to the net effects of Columbia Debt lion from FY 2oo6 to $335.2 million mostly due activity (see Note E to the Financial Statements).

to the effect of R-18 completed in FY 2007, with A slight decrease in interest earnings of $1.2 mil-operations and maintenance increasing $66.2 lion and Columbia general services and sales million from FY 2oo6. There were decreases in activity decreases of $3.1 million accounted for fuel and fuel disposal of $14.o million and genera- the remainder of the changes. The loaned fuel tion taxes of $0.5 million which were related to agreement associated with the FY 2007 revenue the decreased generation for FY 2007. There were was completed in FY 2007. A new fuel lease agree-other nominal increases of $2.0 million relating ment is in effect through FY 2009, which provides to general operations and depreciation. for an exchange of uranium oxide (u 3o 8 ) for an Other Income and Expenses decreased $14.6 equivalent amount of uranium hexafluoride (UF 6 )

plus the cash value of conversion services.

Columbia total revenue increased from

$397.9 million in FY 2006 to $437.0 million in FY 2007. The increase of $39.1 million is due to the increased costs incurred for R-18 and the related effect of the net billing agreements on total revenue.

Financial Data and Information

PACKWOOD LAKE 1 -

HYDROELECTRIC PROJECTR

................................................................... ! ........................................ o f The Packwood Lake Hydroelectric Project (Packwood) is owned and operated by Energy Northwest. Packwood consists of a dam at S Packwood Lake and a powerhouse 18oo feet below the dam that is located sIouth of Packwood, 8 Washington._Packwood-produced_97.8oG.W.h-of electricity in FY 2007 versus 85.22 GWh in FY 2006. Due to good wateri conditions and a 88.31 successful outage, Packwood experienced its highest generation levels in t*he last five years, 90.10 which were 6.3 percent above t;he 30-year average of 92 GWh. Water conditions reflected the oppo-19 site scenario that was prevalent in FY 2006 when generation was impacted due to the Northwest drought situation, resulting in the lowest genera- -

tion on record for July and August, 2005. In November 2006, Lewis County was declared a disaster area because of torrential rain and flooding. During this event a large slide occurred P L goe t Pj adjacent to the Packwood underground pipeline. C o Energy Northwest submitted a Public Assistance Grant" request to the Washington State Military Department (Emergency Management Division) and Federal Emergency Management Agency 2.20 (FEMA) for financial aid to stabilize and repair the slide area. The acceptan.ce of the grant is pending; preliminary estimates of repair are $1.7 million. I Packwood's performance is measured in several ways, including cost of!power. The cost of power for FY 2007 was $1.31 cents/kWh as com-pared to $i.61 cents/kWh in FY 2006. The cost of power fluctuates year to year depending on various factors such as outa maintenance and Y 207 FY. Y ,, F00 ,

other operating activities. Th'e FY 2007 cost of 7 power decrease was due to a 6.3 percent higher than anticipated generation increase and lower operations and maintenance costs due to under running the outage budget.

Energy Northwest 2007 Annual Report

Balance Sheet Analysis Statement of Operations Analysis Total Assets increased $1.4 million from FY 2006, The agreement with Project Participants (see with $1.o million of the increase due to costs Note A to the Financial Statements) obligates incurred and capitalized for the relicensing effort. them to pay annual costs and to receive excess There were no significant changes to current revenues. Accordingly, Energy Northwest recog-liabilities other than a decrease in Revenue Bonds nizes revenues equal to expenses for each period.

Payable of $0.7 million and the related increase No net revenue or loss is recognized and no equity in Deferred Credits of $1.7 million due to opera- is accumulated.

tions, relicensing and bond retirements. No new Operating expenses decreased $4 3 k in debt was issued and the total debt continues to FY 2007 due to a decrease in purchased power decrease per the current debt schedules. Similar costs of $165 k which was slightly offset by an to the previous fiscal year, there was no excess increase to operations and maintenance expense funding accrued in FY 2007. Participants have of $121k.

agreed to retain all excess within the Packwood Packwood is obligated to supply a speci-business unit for relicensing efforts. fied amount of power. If power production from Packwood has incurred $2.4 million in reli- Packwood does not supply the required amount censing costs through FY 2007. These costs are of power, the shortfall is provided by purchasing shown as Deferred Charges on the Balance Sheet. power on the open market. The decrease in The FY 2008 projections call for an additional FY 2007 expenses reflects the change in water

$0.7 million in costs to continue the relicensing conditions from FY 2006. Conversely, if there is efforts. The Federal Regulatory Commission excess capacity per the power sales agreement (FERC) issued a fifty-year operating license to with Benton and Franklin PUDs, Energy North-Packwood on March i, 196o. The current license west sells the excess on the open market for addi-will expire on February 28, 2010. tional revenues to be included as part of the power purchase agreements with the participants of the Project (see Note E, Long-Term Debt, "Security -

Packwood Lake Hydroelectric Project").

Other income and expenses changed from a net expense of $8k to an income of $65 k.

The increase is due to decreasing interest and other bond related expenses ($27 k savings from FY 2006) and increase interest earnings of $4 6k over FY 2006 levels on invested funds.

Financial Data and Information

NUCLEAR PROJECT NO., 1 NUCLEAR PROJECT NO. 3 Energy Northwest wholly owns Nuclear Project Nuclear Project No. 3, a 1,240 MWe plant, was No. i. Nuclear Project No. i, a 1,250 MWe plant, placed in extended construction delay status in was placed in extended construction delay 1983, when it was 75 percent complete. On May status in 1982, when it was 651percent complete. 13, 1994, Energy Northw~est's Board of Directors On May 13, 1994, Energy Northwest's Board adopted a resolution terminating Nuclear of Directors adopted a resolution terminating Project No. 3. Energy Northwest is no longer I

.Nuclear-Project.No..1..All.funding-requirements as the responsible fora- site restoration costs are net-billed obligations of Nuclear Project were transferred with the assets to the Satsop No. i. Termination expenses and debt service Redevelopment Project (see I Note F, Commitments costs comprise the activity on Nuclear Project and Contingencies). Thie debt service related I

No. i and are net-billed.

I activities remain and are net-billed.

Balance Sheet Analysis Balance Sheet Analysis Under the Debt Optimization I rogram, long-term Under the Debt Optimization Program, long-debt increased $5.3 million frc m $1.971 billion in term debt increased $2o0.1 million from si.833 1

FY 2oo6 to $1.976 billion in F 2007 due to debt billion in FY 2oo6 to $1.853 billion in FY 2007 due restructuring to take advantal e of lower interest to debt restructuring to take advantage of lower rates. interest rates.

Statement of Operations Analysis Statement of Operations Analysis Other Income and ExpensesI showed a net Overall expenses increased $4.o million from increase to other expenses of $8.2 million, up FY 2006. Bond related expenses increased $3.6 from $105.2 million in FY 200ý6 to $113.4 million million as a result of the debt restructuring.

in FY 2007. The net increase was due to increased The remaining change [in other expenses was bond related expenses of $5.9 !million, decreased a combination of lower, investment income of revenues from investment income of $1.9 million, $o.6 million due to market conditions and the decreases to gain on sales of assets of $o.9 million, continued decrease to plant preservation costs of and increased costs for decommissioning and $0.2 million.

plant preservation of $0.5 million.

Energy Northwest 12007 Annual Report

BUSINESS DEVELOPMENT FUND PMEC is a proposed 68o MWe $1.5 billion

............................................................................................................ Integrated Gasific tion Com bined Cycle (IGCC)

Energy Northwest was created to enable power generation plant in western Washington.

Washington public power utilities and municipal- Permitting efforts are currently ongoing for ities to build and operate generation projects. The PMEC, which totaled $1.7 million for FY 2007.

Business Development Fund (BDF) was created When the permit is granted financing efforts will by Executive Board Resolution No. ioo6 in April commence. I 1997, for the purpose of holding, administering, Wind generation development resulted disb~ursing,.and.accountingfor.Energy-Nor thw~est-in-$o.2_million-in-expenditures-and_$o.4.mil-costs and revenues generated from engaging in lion in revenues. The Nine Canyon Phase III 36 new energy business opportunities. MW developmentl in Kennewick, Washington, The BDF is managed as an enterprise fund. completed a financial bond sale of $72.6 mil-Four business sectors have been created within lion that resulted in $0.3 million in revenue and the fund: General Services and Facilities, Genera- cost recovery. Additional revenue of $5 5 k was tion, Professional Services and Business Unit Sup- obtained by selling abandoned wind mining site port. Each sector may have one or more programs data. The other FY'J 2007 wind prospecting efforts that are managed as a unique business activity, resulted in two project land leases accounting for

$0.3 million in expenditures. Permitting activity Balance Sheet Analysis and technical evaluations are being conducted at There was a slight overall decrease to the Balance each site with an anticipated resource of 6o MW Sheet from FY 2006 to FY 2007. The $0.5 million per site.

decrease in net assets consisted of a $o.6 million The BioEnergy Solutions business line was decrease in receivables. ,which d i was due to timing, minimized in 2007T . resultl r inLin ante~ni a net ex.endi-of FY 2oo6 year end receivables and a $o.1 million ture of $3 6k for FY 2007. This business line will dollar increase in allocated Internal Service Fund respond to and evaluate opportunities but limit plant. Accounts Payable and Accrued Expenses proactive expenditures for new development.

increased slightly from $1.5 million in FY 2006 to Future activities inI. this area will concentrate on

$1.8 million in FY 2007. supporting an existing consulting agreement with King County, Washington.

Statement of Operations Analysis The Business Development Fund receives Operating Revenues in FY 2007 totaled $7.6 contributions from the Internal Service Fund to million as compared to FY 2006 revenues of $7.8 cover cash needs during startup periods. Initial million, a slight decreas of$o.2 million; operating startup costs are not expected to be paid back and expenses were steady at $11 9 million. Net opera- are shown as contributions. As an operating busi-tions for FY 2007 showed a loss of $2.6 million ness unit, requests can be made to fund incurred compared to a loss in FY 2006 of $2.3 million. operating expenses. In FY 2007, the Business Power generation development activities are Development Fund received contributions (trans-centered around the Pacific Mountain Energy fers) of $i.8 millioA, down slightly from $2.4 mil-Center (PMEC) and three wind generation proj- lion from FY 2 oo6J ects that are being developed in the Northwest.

Financial Financial Data and Information

NINE CANYON WIND PROJECT Nine Canyon's performance I

is measured in several ways, including cost of power. The cost of The Nine Canyon Wind Energy Project (Nine power for FY 2007 was $8.20 cents/kWh as com-Canyon) is owned and operated by Energy pared to $7.30 cents/kW hl in FY 2oo6. The cost of Northwest. Nine Canyon is located in the Horse power fluctuates year to year depending on var-Heaven Hills area southwest of Kennewick, ious factors such as wirdd totals and unplanned Washington. Electricitygenerated byNine Canyon maintenance. The FY 2007 cost of power increase is purchased by Pacific Northwest Public Utility was mostly due to unanticipated increases in wind Districts-(purchasers).-Each-purchaser-of-Phase.i-turbine.maintenance-due-to-gear-box.failures.

has signed a 28-year power purchase agreement I I

with Energy Northwest; each purchaser of Phase 11 has signed a 27-year powe'r purchase agree- Nin Cayo WidPrjc ment, and each purchaser of Phase III has signed a 23-year power purchase agreement. I The agree-ments are part of the 2nd Amended and Restated 156.70 Nine Canyon Wind Projectj Power Purchase Agreement which now have an agreement end date of 2030. Nine Canyon is connected to the 158.34 Bonneville Power Administration transmission grid via a substation and transmission lines 154.52 constructed by the Benton County Public Utility District. tI . 138.45 Phase I of Nine Canyon, which began com-mercial operation in September 2002, consists of 37 wind turbines, each with a maximum gener- Y29069 ating capacity of approximatel4 1.3 MW, for a total 1 0 20 40 60 0 8 100 12 140 16 capacity of 48.1 MW. Phase I of Nine Canyon, _.

which was declared operational in December 2003, includes an additionall 12 wind turbines with an aggregate generating capacity of approxi-mately 15.6 MW. The current total Nine Canyon N generating capability is 63.7 MW, which produces enough energy for approximately 26,000 average homes. Phase III of Nine Canyon, currently under construction and scheduled for completion in February 2008, includes 14 wind turbines, each I

with a maximum generating capacity of 2.3 MW, for an aggregate generating ca'pacity of 32.2 MW. . ... .4. 6.0.

Phase III will increase the total Nine Canyon gen-I erating capability to 95.9 MW, which will produce 39,000 average enough energy for approximatIely homes. 1 Nine Canyon produced 156.71 GWh of elec-tricity in FY 2007 versus 158.34 GWh in FY 2006.

6 Y 207F666 F 00 Y20 Y20 Energy Northwest 2007 Annual Report

Balance Sheet Analysis Statement of Operations Analysis Assets increased from $8o.2 million in FY 2006 Operating Revenues increased slightly to $148.4 million in FY 2007 mostly due to the from $6.3 million in FY 2oo6 to $6.5 million in receipts of funds relating to the $72.6 million FY 2007. The project received revenue from the bond sale for funding of Phase Ill. The increase to billing of the project purchasers at an average assets related to the bond sale was slightly offset rate of $37.2 per MWh for FY 2007 which was a by an increase to accumulated depreciation of planned 3 percent increase from FY 2oo6. There

$3.7 million from FY 2oo6 to FY 2007. Receivables was an increase in operating expenses of $1.4 mil-decreased slightly by $0.4 million which lion from $5.8 million in FY 20o6 to $7.2 million corresponds to the decrease in amount of the in FY 2007 due to increased maintenance costs.

Renewable Energy Performance Incentive (REPI) Other revenue and expenses decreased $0.2 mil-payment accrued. The FY 2006 REPI accrual lion from FY 20o6 to $5.5 million in FY 2007. Net was $1.2 million compared to $0.8 million for FY losses of $6.2 million for FY 2007 continued the 2007. The increase of $73.8 million to liabilities trend from previous years. This trend is reflected was a direct result of the Phase III bond sale. The in the declining Fund Equity balance.

decrease in Fund Equity was $5.6 million in FY Energy Northwest has accrued, as income 2007 as compared to a $4.1 million decrease in FY (contribution) from the DOE, REPI payments that 20o6. The continued decline in Fund Equity is enable Nine Canyon to receive funds based on because the original plan anticipated operating at generation as it applies to the REPI bill. The REPI a loss in the early years and gradually increasing was created as part of the Energy Policy Act of the rate charged to the purchasers to avoid a large 1992 to promote increases in the generation and rate increase after the REPI expires. The REPI utilization of electricity from renewable energy incentive expires ten years from the initial opera- sources and to further the advances of renewable tion startup date for each Phase. Reserves that energy technologies. This program, authorized were established are used to facilitate this plan. under section 1212 of the Energy Policy Act of 1992, provides financial incentive payments for electricity produced and sold by new qualifying renewable energy generation facilities. Nine Canyon recorded a receivable of $o.8 million which represented twenty-seven percent of the

$3.0 million applied for REPI funding in FY 2007.

The payment stream and the REPI receipts were projected to cover the total costs over the life of the purchase agreement. The reserve funds were established so that the participant payments would increase at a rate of three percent per year over the life of each power purchaser agreement.

Permanent shortfalls in REPI funding will lead to increases in the billing for FY 20o8 and subse-quent years to the participants in order to cover total Nine Canyon costs.

Financial Data and Information

INTERNAL SERVICE FUND The Internal Service Fund (ISF) (formerly the General Fund) was established in May 1957.

The Internal Service Fund provides services to the other funds. This fund accounts for the central procurement of certain common goods and services for the business units on a cost reimbursement-basis-(sele-Note.A-and-Note-B3o-- - ,

Financial Statements).

Balance Sheet Analysis The FY 2007 Balance Sheet increased slightly from FY 2006. Assets lincreased $0.2 million primarily due to an incre ase of $3.1 million in due from other business units related to end of year obligations and a $0.2 million dollar increase to cash and investments tor personal time bank (employee leave program), disability, and worker's compensation requirements. These changes were offset by a $2.0 million increase in accumulated depreciation, and a sia. 'million decrease due to business unit activity in performance fee invest-ments. The net increase in Fund Equity and Liabilities is from an increase of $1.4 million to Payroll related expenses! $o.5 million in current liabilities related to Accounts Payables which was offset by a decrease of $1o.5 million to employee benefits and reserves and $1.2 million decrease relating to Performance Fee draw downs.

I Statement of Operations Analysis Net Revenues for FY 2007 remained relatively steady from FY 2006 (down $io9k). Investment income was up $63 k due to better return on investments. Rental revenues for available build-ings at corporate headqdarters were down $27 1k as lease utilization was lower in FY 2007. There were slight increases to non-utility revenues of $9oK with daily operations resulting in the remainder of the change from FY 2006.

Energy Northwest 2007 Annual Report I

J

BALANCE SHEETS As of June 30, 2007 (Dollars in Thousands)

Columbia Business  !.2007 Generating Packwood Lake Nuclear Project Nuclear Project 3 Development Nine Canyon Internal Service Combined Station Project No.1* No.3* - Fund Wind Project Subtotal Fund Total Assets UTILITY PLANT (NOTE B)

Inservice $ 3,578,218 $ 13,098 $ $ 1,230 $ 74,268 $ 3,666814 46,765 $ 3,713,579 Not in service 25,253 25,253 25,253 Accumulated depreciation (2,174,753) (12,492) (25,253): (496) (16,041) (2,229,035); (35,751) (2,264,786) 1,403,465 606 734 58,227 1,463,032 11,014 1,474,046 Nuclear fuel, net of accumulated amortization 235,742 235,742 235,742 Construction work in progress 26,999 11,177 38,176 38,176 1,666,206 606 734: 69,404: 1 , 736 , 9 50 11,014 1,747,964 RESTRICTED ASSETS (NOTE B)

Special funds Cash 9,014 173 1793 23 9,368 860 10,228 Available-for-sale investments 54,409 294 7,412 10,633 3 53,730 3 126,478 903 127,381 Accounts and other receivables 790 790 790 Debt service funds Cash 54,337 6 389 1,379 7,149 63,260 63,260 Available-for-sale investments 763 49,862 28,467 13,869 92,961 92,961 Due from other funds  : 296 3 134 430 117,760 1,063 1 58,132 40,792 75,540 293,287 1,763 294,620 LONG-TERM RECEIVABLES " "

(NOTE B) 1,104 -  :" 1,104 - 1,104 CURRENT ASSETS Cash 15,052 4243 7963 23 53 1083 16,435 1,096 17,531 Available-for-sale investments 40,689 1,536 3 6,504 4,210 1,081 54,020 25,546 79,566 Accounts and other receivables 738 233 1,587 277 2,835 61 2,896 Due from other business units 22 988 1,010 3,686 Due from other funds 16,134 39 3,723 7,376 338 27,610 Materials and supplies 101,550 101,550 101,550 Prepayments and other 1,234 60 2 30 7 1,333 66 i 1,399 175,397 2,292 12,634 11,588 2,429 453 204,793 30,455 202,942 DEFERRED CHARGES Costs in excess of billings 681,202 1,965,219 3 1,828,338 3 4,474,759 4,474,759 Unamortized debt expense 13,255 12,454 3 10,254 2,960 3 38,923 3 38,923 Other deferred charges 2,387 3_ 2,387 3 2,387 694,457 3 2,387 3 1,977,673 3 1,838,592 3 - 2,960 3 4,516,069 3 "3 4,516,069 TOTALASSETS 3$ 2,654,924 3$ 6,348 3$ 2,048,439 3$ 1,890,972 3$ 3,163 3$ 148,357 3$ 6,752,203 3$ 43,232 3$ 6,762,699

'Project recorded on a liquidation basis See notes to financial statements Financial Data and Information I

BALANCE SHEETS (CONT'D)

As of June 30, 2007 (Dollars in Thousands)

Columbia Business 2007 Generating Packwood Lake Nuclear Project Nuclear Project Development Nine Canyon Internal Service Combined Station Project No.1 No.3* Fund Wind Project Subtotal Fund Total Fund Equity and Liabilities FUND EQUITY Invested in capital assets, net of related debt ES -ES

-S -E -ES 734E (87,812) $ (87,078):; $ 11,014 E$ (76,064)

-C Restricted, net _ _ _ " 7 700,836 70,836 1,399 72,235 Unrestricted, net 649 (945)!: (296)i (3,542):; (3,838) 1,383 (17,921)E (16,538): 8,871 (7,667)

LONG-TERM DEBT (NOTE E)

Revenue bonds payable 2,327,420 1,241 1,938,640 1,909,430 152,750 6,329,481 6,329,481 Unamortized (discount)/premium on bonds- net 88,223 (1)E 81,295 (38,511): 6,148 137,154 137,154 Unamortized gain/(loss) on bond refundings (23,690): 18 (43,688) (18,075):: (2,103):: (87,538): (87,538) 2,391,953 1,258 1,976,247 1,852,844 156,795 6,379,097 6,379,097 LIABILITIES- PAYABLE FROM RESTRICTED ASSETS (NOTE B)

Special funds Accounts payable and accrued expenses 107,358i! 13,787 598 121,743 363 122,106 Due to other funds 15,875 i 14 4,019 7,510i 338 27,756 Debt service funds Accrued interest payable 49,797 23 41,394 29,980 i 3,768 124,962 124,962 Due to other funds 259 25 - 284 173,289 62 59,200 37,490 E - 4,704 274,745 363 247,068 OTHER NONCURRENT - -

LIABILITIES 27,557 - - - - 27,557 27,557 CURRENT LIABILITIES Current maturities of long-term debt 4,280 660 9,160 3,380 17,480 17,480 Accounts payable and accrued expenses 47,550 374 1,392 427 1,780 622 52,145 32,289 84,434 Due to Participants 7,667 1,483 2,440 11,590 11,590 Due toother business units 2,628 70 211 777 3,686 1,010 62,125 2,587 - 12,992 638 1,780 4,779 84,901 33,299 - 113,504 DEFERRED CREDITS Advances from Members and "

others _ __ __37_37 Other deferred credits 2,441 2,441 662 E 3,103

• - 2,441 - - 2,441 2-i 699 3,140 TOTAL LIABILITIES E 2,654,924 6,348 2,048,439 1,890,972 1,780 166,278 6,768,741 34,361 6,770,366 TOTAL FUND EQUITY AND S 2,654,924 ES LIABILITIES2,654,924 6,348 $S 2,048,439 :S 1,890,972 $ 3,163 E$ 148,357 :! 6,752,203 ES 43,232 ES 6,762,699

• Project recorded on a liquidatioonbasis See notes to financial statemennts Energy Northwest 12007 Annual Report

STATEMENTS OF OPERATIONS AND FUND EQUITY For the year ended June 30, 2007 (Dollars in Thousands)

Columbia Business 2007 Generating Packwood Lake Nuclear Project Nuclear Project Development Nine Canyon Internal Service Combined Station Project No.1 No.3* Fund Wind Project Subtotal Fund Total OPERATING REVENUES i$ 436,972 l$ 1,323 $ - i$ - $ 7,615 !$ 6,492 i$ 452,402 $ - $ 452,402 OPERATING EXPENSES Nuclear fuel 25,318i  : 25,318 25,318 Spent fuel disposal fee 7,634 i 7,634 5 l 7,634 Decommissioning 5,885 555 5,940 i 5,940 I. 4 - -C 4 ------ ;

Depreciation and amortization 74,678 34 i 196 3,642 78,550 78,550 Operations and maintenance 198,717 1,071 11,668 3,448 214,904 214,904 Other power supply expense 58 . 58 58 Administrative and general  : 20,436 205 i i . 47 20,688 20,688 Generation tax l 2,529 20 i 34 i 2,583 2,583 TOTAL OPERATING EXPENSES 335,197 1,388 " 11,864 7,226 i 355,675 355,675 NET OPERATING REVENUES S (EXPENSES) 101,775 (65) (4,249)i (734): 96,727 96,727 OTHER INCOME AND EXPENSE Non-operating revenues 113,381 97,499 210,880 52,895 211,278 Investment income 8,070 144 1,909 2,191 92 623 13,029 532 13,029 Interest expense and discount amortization (122,518)5 (79)' (114,218): (97,773):: (6,069)i (340,657) (340,657)

Plant preservation and termination costs (4,695):: (1,917):: (6,612) (6,612)

Depreciation and amortization (18) (18) (2,043) (18)

Decommissioning (540):" (540):: (540)

Services to other business units (50,986)

Other 12,673 4,181 1,530 18,384 18,384 TOTAL OTHER INCOME AND Z EXPENSES (101,775) 3 65 - 1,622 (5,446)i (105,534)3 398 (105,136)

NET REVENUES (EXPENSES) - - - 3 (2,627): (6,180); (8,807): 398 (8,409)

Distribution and Contributions " - " - 1,800 596 2,396 (1,625):: 771 Beginning Fund Equity - - - - 2,210 (12,337)i (10,127): 10,098 (29)

ENDING FUND EQUITY 5$ - 5$

s$ - - 5$ - 5$ 1,383 3$ (17921)i$ (16,538)3$ 8,871 5$ (7,667),

• Project recorded on a liquidation basis See notes to financial statements Financial Data and Information

STATEMENTS OF CASH FLOWS For the year ended June 30, 2007 (Dollars in Thousands)

Columbia i Business Generating Packwood Lake Nuclear Project Nuclear Project Development i Nine Canyon Internal Service 2007 Station Project i No.1 No.3* Fund Wind Project Fund Combined Total CASH FLOWS FROM OPERATING AND OTHER ACTIVITIES Operating revenue receipts $ 416,768 S 3,297 - $ - 3,836 iS 6,492 i$ - 430,393 Cash payments for operating expenses (221,013)  : (1,115) _ _ :_ (4,102):: (1,496):: (227,726)

Non-operating revenue receipts 93,480 i 67,875 161,355 Cash payments for preservation, i  :

termination expense (3,933): (59) (3,992)

Cash payments for services (3,007):: (3,007)

Net cash provided/(used) by operating and i other activities 195,755 2,182 89,547 67,816 (266) 4,996 (3,007): 357,023 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from bond refundings 132,555 . 299,965 159,324 72,554 664,398 Refunded bond escrow requirement (85,611) (299,854) (159,265) (544,730)

Payment for bond issuance and financing costs (1,330)1; (43): (4,519): (3,001) (2): (1,445) : _ (10,340)

Capital (49,891) (980)i i_"_i__ (180): (11,218): 539 (61,730)

Receipts from sales of plant assets 5,368 3,385 8,753 Nuclear fuel acquisitions (87,788) (87,788)

Interest paid on revenue bonds (116,747)i (90)i (95,473)i (75,210)i (4,180): _ (291,700)

Principal paid on revenue bond maturities (644) i (3,240): (3,884)

Interest paid on Notes (1,321):i (307):i (911)i W i (2,539)

Net cash provided/(used) by capital and "

related financing activities (204,765)" (1,757): (96,803), (79,063)i (182)i 52,471 i 539 i (329,560)i CASH FLOWS FROM NON-CAPITAL i .

FINANCE ACTIVITIES .: - ." . " -

CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investment securities (878,738):: (8,233):i (264,753):i (224,180): (8,069):i (295,391) (62,214)i (1,741,578)

Sales of investment securities . 894,134 8,086 248,772 i 232,302 8,451 i 237,370 64,205 i 1,693,320 Interest on investments 8,759 i 137 i 2,324 2,379 g90 2,111 1,519 17,319 Net cash provided/(used) by investing activities 24,155 (10)i (13,657): 10,501 472 (55,910) 3,510 (30,939)'

NET INCREASE (DECREASE) IN CASH 15,145 415 (20,913), (746)i 24 i 1,557 i 1,042 i (3,476)

CASH ATJUNE 30, 2006 63,258 15i 22,271 i 2,306 i 29 5,702 i 914 94,495 iCASH ATJUNE 30, 2007 (NOTE B) ES 78,403 i$ 430 i$ 1,358 i$ 1,560 i$ 53 i$ 7,259 i$ 1,956 i$ 91,019

• Project recorded on a liquidation basis See notes to financial statements Energy Northwest 12007 Annual Report

STATEMENTS OF CASH FLOWS (CONT'D)

For the year ended June 30, 2007 (Dollars in Thousands)

Columbia Business Generating Packwood Lake Nuclear Project Nuclear Project Development Nine Canyon Internal Service 2007 Station Project No.1 No.3* Fund Wind Project Fund Combined Total RECONCILIATION OF NET OPERATING REVENUES TO NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES Net operating revenues (expenses) $ 101,775 $ (65):$ - $- $ (4,249)i$ (734)i$ - i$ 96,727 Adjustments to reconcile net operating revenues to cash provided by operating activities:

Depreciation and amortization i 97,714 25 73 3,628 101,440 Decommissioning 5,885 22 5,907 Other 7,404 1,023 1,522 41 j 9,990 Change in operating assets and liabilities:

Deferred charges/costs in excess of .

billings (20,204): (22) (20,226)

Accounts receivable 2,468 160 i , 647 - 3,275 Materials and supplies (17,370): 226 (17,144)

Prepaid and other assets (19): 21 37 (3) 36 Due from/to other business units, funds and Participants 8,355 916 (421) 491 9341 Accounts payable 9,747 124 325 321 10,517 Non-operating revenue receipts 93,480 67,875 161,355 Cash payments for preservation, termination expense (3,933):: (59):: (3,992)

Cash payments for services (3,007): (3,007)

Receipts for grants/contributions 1800 1004 2804 Net cash provided (used) by operating and other activities 195,755 $ 2,182 $ 89,547 $ 67,816 $ (266) $ 4,996 '$ (3,007): $ 357,023

• Project recorded on a liquidation basis See notes to financial statements Financial Data and Information I I I

Energy Northwest Notes to F nancial Stateme nts NOTE A - GENERAL Organization I Units. BPA is obligated by law to establish rates Energy Northwest, a municipal corporation and for electric power whichl will recover the cost of joint operating agency of the State ofWashington, electric energy acquiredifrom Energy Northwest was organized in 1957. It is empowered to finance, and other sources as well as BPA's other costs (see acquire, construct and operate facilities for the Note E).

generation and transmission lof electric power. Energy Northwest operates the Columbia On June 30, 2007, its membership consisted of 17 Generating Station (Columbia), a 1,157 MWe public utility districts and three cities, Richland, (Design Electric RatingI net) generating plant Seattle and Tacoma. All members own and operate completed in 1984. Energy Northwest has electric systems within the State of Washington. obtained all permits and licenses required to Energy Northwest is exempt from federal income operate Columbia, inclulding a Nuclear Regula-tax. Energy Northwest has no taxing authority. tory Commission (NRC)i operating license that exnires in December 2021.

JE ......

Energy Northwest Business Units Energy Northwest 'also operates the Pack-Each Energy Northwest Business Unit is financed wood Lake Hydroelectric Project (Packwood), a and accounted for separate from all other current 27.5 MWe generating plant completed in 1964.

or future Business Units. I Packwood operates under a fifty-year license All electrical energy produced by Energy from the Federal Energy iRegulatory Commission Northwest net-billed Business IUnits is ultimately (FERC) that expires on lFebruary 28, 2010. The delivered to electrical distribution facilities electric power producedi by Packwood is sold to owned and operated by Bonneville Power Admin- 12 Project Participant utilities which pay the costs istration (BPA) as part of the Federal Columbia of Packwood, including Ithe debt service on the River Power System. BPA in turn distributes the Packwood revenue bonds. The Packwood Partici-electricity to electric utility systems throughout pants are obligated to pay annual costs of Pack-the Northwest, including Participants in Energy wood including debt service, whether or not Pack-Northwest's Business Units, Ifor ultimate dis- wood is operable, until the outstanding bonds are tribution to consumers. Participants in Energy paid or provisions are made for bond retirement, Northwest's net-billed Business Units consist of in accordance with the requirements of the bond publicly owned utilities and rural electric coop- resolution. The Participants I share Packwood rev-I eratives located in the western United States enue as well. In 2002, Packwood I and its partici-I who have entered into net-billing I agreements pants entered into a Power I Sales Agreement with with Energy Northwest and BPA for participation Benton and Franklin PUDs to guarantee a speci-i in one or more of Energy Northwest's Business fied level of power generation from the Packwood Energy Northwest 12007 Annual Report

project (see Note E, "Security-Packwood Lake The Internal ýService Fund was established Hydroelectric Project"). in May 1957. It is currently used to account for the Nuclear Project No. i, a 1,250 MWe plant, central procurement of certain common goods was placed in extended construction delay and services for the Business Units on a cost status in 1982, when it was 65 percent complete. reimbursement basis.

Nuclear Project No. 3, a 1,240 MWe plant, was placed in extended construction delay status in 1983, when it was 75 percent complete. On May NOTE B - SUMM1IARY OF SIGNIFICANT a13,p994,EnergeyNorthkest'sNBoardgofNDirectors - o-ACCOUNTINGPOLICIES adopted resolutions terminating Nuclear Proj-ects Nos. 1 and 3 (see Note F, "Nuclear Projects Nos. i and 3 Termination"). All funding require- Basis of Accounting ments remain as net-billed obligations of Nuclear Energy Northwestl has adopted accounting poli-Projects Nos. i and 3. Energy Northwest wholly cies and principles that are in accordance with owns Nuclear Project Nb. 1. Energy Northwest is GenerallyAccepted Accounting Principles (GAAP) no longer responsible for site restoration costs for in the United State' ofAmerica. Energy Northwest Nuclear Project No. 3 (s&e Note F, Commitments applies Financial lAccounting Standards Board and Contingencies). (FASB) standards to the extent it does not conflict Energy Northwest !also manages the Busi- with Governmental Accounting Standards Board ness Development Fund and the Nine Canyon (GASB) standards.I Accounts are maintained in Wind Project (Nine Canyon): accordance with the uniform system of accounts of the FERC. Energy Northwest uses the full E The Business Development Fund was estab- accrual basis of accounting where revenues are lished in April 1997 to pursue and develop new recognized when Iearned and expenses recog-energy related business opportunities. nized when incurred. Revenues and expenses related to principal operations are considered to 0 Nine Canyon was established in January 20o1 be operating revenues and expenses; while reve-for the purpose of exploring and establishing nues and expenses related to capital, financing a wind energy project. Phase I of the project and investing activities are considered to be was completed in Fiscal Year (FY) 2003. Phase non-operating revenues and expenses. Separate I of Nine Canyon consists of turbines which funds and books of account are maintained for have a capacity of 48t1 MWe. Phase ii of Nine each Business Unit. Payment of obligations of Canyon consists of turbines which have a ca- one Business Unit with funds of another Business pacity of 15.6 MWe. The total Nine Canyon Unit is prohibited, and would constitute violation generating capability, for Phase I and II is ap- of bond resolutionicovenants.

proximately 63.7 MWe. Phase III of Nine Can- Energy Northwest maintains an Internal Ser-yon is currently under construction and will vice Fund for centralized control and accounting consist of an additioAfal 14 wind turbines with of certain capital assets such as data processing an aggregate capaciiy of approximately 32.2 equipment, and f6r payment and accounting of MWe. Phase III is scheduled for commercial internal services, lpayroll, benefits, administra-operation in February 2oo8. tive and general expenses, and certain contracted services on a cost Ireimbursement basis. Certain assets in the Internal Service Fund are also owned 4--

1 Financial Data and Information

by this Fund and operated for 1he benefit of other in conformity with GAAP requires management Projects. Depreciation relating to capital assets is to make estimates and assumptions that directly charged to the appropriate Business Units based affect the reported amounts of assets and liabili-upon assets held by each Project. ties, disclosures of contingent assets and liabili-Liabilities of the Internal Service Fund repre- ties at the date of the financial statements, and sent accrued payroll, vacation pay, employee ben- the reported amounts of revenue and expenses efits, and common accounts payable which have during the reporting period. Actual results could been charged directly or indirectly to Business differ from these estimates. Certain incurred Units-and-w.ill-be-funded-by-t~heBusiness-Units-expenses.and.rev.enues-are~allocatedtothe.Busi-..

when paid. Net amounts owed! to or from Energy ness Units based on specific allocation methods Northwest Business Units are recorded under that management considers to be reasonable.

Current Liabilities-Due to other Business Units, Energy Northwest's fiscal year begins on July or Current Assets-Due from other Business Units 1st and ends on June 30t on the Internal Service Fund Balance Sheet.

The Combined Total column on the finan- Utility Plant cial statements is for presentation only as each Utility plant is stated at original cost. Plant in Energy Northwest Business Unit is financed and service is depreciated by the straight-line method accounted for separately from all other current over the estimated useful lives of the various and future Business Units. The FY 2007 Com- classes of plant, which range from five to 6o bined Total includes eliminations for transac- years.

tions between Business Units as required in During the normal construction phase of Statement No. 34, "Basic FinIancial Statements a Capital Facility, which historically has been and Management's Discussion and Analysis for defined as constructionlof a generation facility, State and Local Governments," of the Govern- Energy Northwest's polIicy is to capitalize all mental Accounting Standards Board (GASB). costs relating to the Project, including interest Pursuant to GASB Statement No. 20, expense, related administrative and general "Accounting and Financial Reporting for Propri- expense, less any interest income earned. For etary Funds and Other Governmental Entities financing not related to a' Capital Facility, Energy That Use Proprietary Fund Accounting, Energy Northwest analyzes thel gross interest expense Northwest has elected to ap ly all FASB state- relating to the cost of the bond sale, taking into ments and interpretations, except for those that account interest earnings and draws for purchase conflict with, or contradict, GASB pronounce- or construction reimbursements for the purpose ments. Specifically, GASB No. I'"Advance Refund- of analyzing impact to the recording of capital-ings Resulting in Defeasance of Debt," and GASB ized interest. Columbia is a net-billed business No. 23, 'Accounting and Financial Reporting unit, therefore costs whether expense or capital, I

for Refundings of Debt Reported by Proprietary are reimbursed each year. However, if estimated I

Activities," conflict with Statement of Financial costs are more than inconsequential, an adjust-Accounting Standard (SFAS) No. 140, "Accounting ment will be made to allocate capitalized interest I

for Transfers and Servicing oIf Financial Assets to the appropriate plant account. Nine Canyon is and Extinguishments of Liabilities." As such, I currently constructing Phase III of the generation the guidance under GASB No. ,7 and No. 23 is fol- project and capitalized $1.71 million of interest lowed. Such guidance governs jthe accounting for costs to construction work in progress.

bond defeasances and refundings. The prepara- The utility plant and net assets of Nuclear tion of Energy Northwest financial I statements Projects Nos. i and 3 havle been reduced to their Energy Northwest 12007 Annual Report

estimated net realizable values due to termina- Nuclear Fuel tion. A write-down of Nuclear I Projects Nos. i and All expenditures related to the initial purchase 3 was recorded in FY 1995 and was included in of nuclear fuel forl Columbia, including interest, Cost in Excess of Billings. Interest expense, ter- were capitalized and carried at cost. Fuel expen-mination expenses and asset disposition costs for ditures relating to the use of funds from the Nuclear Projects Nos. i and 3 have been charged Series 200 5 -C Bonds for purchases of nuclear to operations. Utility Plant activity for the year fuel were capitalized and carried at cost. When ended June 30, 2007, was as follows: the fuel is placed in the reactor, the fuel cost is I I UTILITY PLANT ACTIVITY (Dollars in Thousands)

Beginning Balance Increases Decreases Ending Balance Columbia Generating Station Generation $ 3,497,075 $ 50,194 $ (1,520)1$ 3,545,749 Decommissioning 32,469 32,469 Construction Work-in-Progress 22,161 51,381 (46,543):: 26,999 Accumulated Depreciation (2,102,609):: (73,346) 1,202 (2,174,753)

UTILITY PLANT, net* $ 1,449,096 E$ 28,229 E$ (46,861):-$ 1,430,464 Packwood Lake Hydroelectric Project Generation $ 12,991 :$ 107 E$ - $ 13,098 Accumulated Depreciation (12,466) (26) - (12,492)

UTILITY PLANT, net i$ 525 '$ 81 E$ - ES 606 Business Development Generation iS 1,039 :$ 191 $ $ 1,230 Construction Work-in-Progress - - -

Accumulated Depreciation (422) : (74) - (496)

UTILITY PLANT, net  !$ 617 ES 117 i$ - 734 Nine Canyon Wind Project Generation $ 73,617 $ 221 :$ (19):is 73,819 Decommissioning 449 449 Construction Work-in-Progress - 11,177 - . 11,177 Accumulated Depreciation . (12,392): (3,649) - - (16,041)

UTILITY PLANT, net 61 674 $ 7,749 i$ (19).'$ 69,404 Internal Service Fund Generation $ 46,631 $ 134 E$ -i$ 46,765 Construction Work-in-Progress - 0 -

Accumulated Depreciation (33,708):: (2,043) i - (35,751)

UTILITY PLANT, net 12,923 E$ (1,909)S - 7$ 11,014

• Does not include Nuclear Fuel Amount of $236 million, net of amortization.

Financial Data and Information

amortized to operating expense on the basis of Long-Term Receivables quantity of heat produced for generation of elec- Long-term receivables include an estimate of tric energy. Accumulated nuclear fuel amortiza-II future discounts for certain goods and services to tion (the amortization of the cost of nuclear fuel be provided to Columbial These amounts are the assemblies in the reactor usedl in the production result of a litigation settlement and subsequent of energy and in the fuel pool for less than six revisions of that settlement.

months per FERC guidelines) is, $117.1 million as of June 30, 2007, for Columbia. Accounts and Other Receivables EnergyNorthwest-has-a contract-with-the-Accounts-and-other.receivables-for-theInternal Department of Energy (DOE) that requires the Service Fund include miscellaneous receivables DOE to accept title and dispose of spent nuclear outstanding from other Business Units that have fuel. Although the courts have ruled that the DOE not yet been collected. The amounts due to each had the obligation to accept title to spent nuclear Business Unit are reflected in the Due To/From fuel by January 31, 1998, the repository is not other Business *Units account. Accounts and expected to be in operation before I . 2017. other receivables specific to each Business Unit The current period operating expense for are recorded in the residing Business Unit.

Columbia includes a $7.6 million charge from I the DOE for future spent nuclear fuel storage and Asset Retirement Obligation disposal in accordance with the Nuclear Waste Energy Northwest adopted SFAS No. 143, Policy Act of 1982. 'Accounting for Obligations Associated with the Energy Northwest has completed the Inde- Retirement of Long Lived Asset," on July 1, 2002.

I pendent Spent Fuel Storage installation (ISFSI) SFAS 143 requires an entity to recognize the fair

_project, which is a temporary dry cask storage value of a liability for ani asset retirement obliga-until the DOE completes its plan for a national tion (ARO), such as nuclear decommissioning and repository. ISFSI will store theispent fuel in com- site restoration liabilities! in the period in which mercially available dry storage casks on a con- it is incurred, rather than using a cost accumula-crete pad at the Columbia site.j Spent Fuel will be tion approach (see Note I Accounting for Asset transferred from the Spent Fuel pool to the ISFSI Retirement Obligations).

periodically to allow for future refuelings. Cur-rent period operating costs include $24.2 million Decommissioning and Site Restoration for nuclear fuel and $i.i million dry cask storage Energy Northwest established decommissioning costs. and site restoration fuInds for Columbia and monies are being deposited each year in accor-Restricted Assets dance with an established funding plan.

Separate restricted funds have been established The NRC has issued rules to provide guid-for each Business Unit, in accordance with Project ance to licensees of operating nuclear plants on bond resolutions, related agreements or state decommissioning the plants at the end of each law. The assets held in these fu!nds are restricted plant's operating life. In September 1998, the NRC for specific uses including construction, debt approved and published its "Final Rule on Finan-service, capital additions an'd fuel purchases, cial Assurance Requirements for Decommis-extraordinary operation and maintenanceI costs, sioning Power Reactors."As i. provided in this rule, termination, decommissioning, hazardous waste each power reactor licensee is required to report disposal, operating reserves, financing, long-term to the NRC the status of its decommissioning disability and workers' compensation claims.

SEnergyNorthwest 12007 Annual Report I

funding for each reactor or share IIof a reactor Materials and Siipplies it owns. This reporting requirement began on Materials and supplies are valued at cost using a March 31,1999, and reports are required every two weighted average cost method.

years thereafter. Energy Northwest submitted its I most recent report to the NRC in March 2007. Financing Expense, Bond Discount and Energy ,Northwest'stI current estimate of Deferred Gain and Losses Columbia's decommissioning costs in 2007 dol- Financing expenses and bond discounts are lars is $573.2 million (Columbia-$57o.o million amortized over the terms of the respective bond

_andISESI=$3.2_million).bThis-estimate,_which-is-issues-using-the bonds-outstanding-method updated biannually, is based on the NRC min- which Energy Nor~thwest has determined to not imum amount required to demonstrate rea- be materially different from the effective interest sonable financial assurance for a boiling water method of bond accounting.

reactor with the power level of Columbia. In accordance with GASB No. 23, losses on Site restoration requirements for Columbia debt refundings have been deferred and amor-are governed by the site certification agreements tized as a component of interest expense over between Energy Northwest and the State ofWash- the shorter of the remaining life of the old or ington and by regulations adopted by the Wash- new debt. The balance sheet includes the original ington Energy Facility Site Evaluation Council deferred amount 'less recognized amortization (EFSEC). Energy Northwest submitted a site res- expense and is included as a reduction to the new toration plan for Columbia that was approved by debt.

the EFSEC on June 12, 1995. Energy Northwest's current estimate of Columbia's site restoration Current Maturities of Revenue Bonds costs k. V.Rn6 millinn in cnn.tant dollar. (ha.qed Current maturitie. (le-s. than one vear) of revenue on 2007.... Study) and is uIpdated biannually along bonds payable fror i restricted assets are reflected with the decommissioning estimate. as current matu ities. Debt with maturities Both decommissioning and site restora- greater than one ,ear is reflected as Long-Term tion estimates (based on 2007 Study) are used Debt.

as the basis for establishing a funding plan that includes escalation and interest earnings until Accounts Payable and Accrued Expenses decommissioning activities occur. Payments to Liabilities-Payablel From Restricted Assets-the decommissioning and site restoration funds Columbia includeIs $107.4 million for decom-have been made sinceI January 1985. The fair missioning and site restoration. Nuclear Project value of cash and investment securities in the No. i includes $13.8 million for decommissioning decommissioning and site restoration funds as of and site restoration. Nine Canyon includes $o.6 June 30, 2007, totaled approximately $118.1 mil- million for decommissioning and site restora-lion and $16.1 million, Irespectively. Since Sep- tion. The other large amount of payables from tember 1996, these amounts have been held and . restricted assets relate to accrued interest payable.

managed by BPA in external trust funds in accor- There was $125.0 1million accrued amongst the dance with NRC requirements and site certifica- five business units (none for the Internal Service tion agreements; the balances in these external Fund) for this item.

trust funds are not reflIected on Energy North- Current Liabilities-Internal Service Fund west's Balance Sheet. accounts payable land accrued expenses include

$6.3 million for payroll and related benefits, $17.2 Data and Information 0Financial

million for compensated abseitces, and $8.8 mil- expenses is recorded as leither billings in excess lion for outstanding warrants! taxees, and reten- of costs (liability) or costs in excess of billings tion withheld. Other Business Unit accrued costs (asset), as appropriate. jSuch amounts will be accounted for the other $52.1 Milli4on and repre- settled during future operating periods.

I sents general Business Unit activity Energy Northwest accounts for revenues and Other Non Current Lialbilitie s-The $27.6 expenses on an accrual lbasis for the remaining million is the Columbia defeIrred cask liability Business Units. The difference between cumu-which relates to the storage an'd dis posal of spent lative revenues and cumulative I expenses is rec-fiele I -ognized-as-net-revenue-or-lossesoandaincludednin....... ......

1 fund equity for each perilod.

Fair Value of Financial Instiumeants Energy Northwest has accrued, as income The fair value of financial instrum4ents has been (contribution) from the DOE, Renewable Energy estimated using available market information Performance Incentive (REPI) payments that and certain assumptions. Consideraable judgment enable Nine Canyon to 1receive funds based on is required in interpreting market d.ata to develop generation as it applies to the REPI bill. The REPI fair value estimates and suchj estiinates are not was created as part of the Energy Policy Act of necessarily indicative of the amourits that could 1992 to promote increases in the generation and be realized in a current market excliange. utilization of electricityjfrom renewable. energy Financial instruments for wi hich the car- sources and to further the advances of renewable rying value is considered a reason able approxi- energy technologies. I mation of fair value include: cash, accounts and This program, authorized under section 1212 other receivables, accounts payable and accrued of the Energy PolicyAct of19 9 2, provides financial expenses, advances from Member.s and others, incentive payments for electricity produced and

_.ýix_

and Due To/From Participants, funds, and other sold by new qualifying renewable energy genera-Business Units. The fair values of investments tion facilities. Nine Canyon recorded a receivable (see Note C, Cash and Investments) and revenue for 27 percent of the applied REPI funding in the bonds payable (see Note E, Long-Term Debt) have amount of $o.8 million fbr FY 2007, representing been estimated based on quoted market prices its share of funded amounts. The payment stream for such instruments or on the fair market value from Nine Canyon participants and the REPI of financial instruments of a similar nature and receipts were projected to cover the total costs degree of risk. I over the purchase agreement. Permanent short-falls in REPI funding will lead to future increases Revenues in the billing of the Nine' Canyon participants in Energy Northwest accounts for expenses on order to cover total ProjeIct costs.

an accrual basis, and recover , through various agreements, actual cash requi rements for opera- Concentration of Credit Risk tions and debt service for Col umbia, Packwood, Financial instruments which I potentially subject Nuclear Project No. 1 and Nu( lear Project No. 3. Energy Northwest to concentrations of credit For these Business Units, Itnergy Northwest risk consist of available-for-sale investments, recognizes revenues equal to expenses for each accounts receivable, other receivables, long-term period. No net revenue or loss is recognized, and receivables and costs in excess of billings. Energy no equity is accumulated. The lifference between Northwest invests exclusively in U.S. Government cumulative billings receive& and cumulative securities and agencies. Energy Northwest's accounts receivable and costs in excess of billings Energy Northwest 12007 Annual Report

are concentrated BPoughth t e with Ill n Participants net- Project g e m n s and (e NOTE C - CASH AND INVESTMENTS BPA through the net-billing agreements (see Note E, Long-Term Debt, "Security-Nuclear Cash and investments for each Business Unit Projects Nos. 1, 3 and Columbia" and "Security are separately maintained. Energy Northwest's

- Packwood Lake Hydroelectric Project"). The deposits are insured by federal depository insur-long-term receivable is Iwith a large and stable ance or through the Washington Public Deposit company which Energy Northwest considers Protection Commission. Energy Northwest reso-to be of low credit risk! Other large receivables lutions and investment policies limit investment

-- ar~e-secur~ed..thr~ough _the--use-,of-letters-o f-credit -_authorit~y-to-obligations-of-the..United .States-Trea ..........

and other similar security mechanisms or are sury, Federal National Mortgage Association and with large and stable companies which Energy Federal Home Loan Banks. Safekeeping agents, Northwest considers to jbe of low credit risk. As custodians, or trustees hold all investments for the a consequence, Energy Northwest considers the benefit of the individual Energy Northwest Busi-exposure of the Business Units to concentration ness Units.

of credit risk to be limited. Investments are classified as available-for-I sale and are statedI at fair value with unrealized Statements of Cash Flows gains and losses reported in investment income.

For purposes of the statements of cash flows, Available-for-sale investments at June 30, 2007, are cash includes unrestricted and restricted cash categorized below to give an indication of the types balances. Short-term, highly liquid investments and amounts as well as maturities of investments are not considered cash 1equivalents but are clas- held by each Business Unit at year end:

sified as available for sale investments.

AVAILABLE-FOR-SALE-INVESTMENTS (Dollars inThousands)

Amortized Cost Unrealized Gains Unrealized Losses Fair Value (1)(2)

Columbia Generating Station $ 95,135 $ - $ (37) 1$ 95,098 Packwood Lake Hydroelectric Project 2,592 1 2,593 Nuclear Project No. 1 63,797 - (19) 63,778 Nuclear Project No. 3 43,323 - (13) 43,310 Business Development Fund 1,081 - 1,081 Internal Service Fund 26,460 - (11) 26,449 Nine Canyon Wind Project 67,628 - (29) 67,599 (1) All investments are in U.S. Government Agencies with the exception of Packwood which holds only U.S. Government Treasury Bills.

(2) All investments have maturities of less than 1 year.

Financial Data and Information I I-

NOTE D - RETIREMENT! BENEFITS unless they exercise an option to transfer their

................................................................... i......................................... r hp t l n3 Ieb S p r i i a t E o nn membership to Plan 3. PERS participants joining Substantially all Energy Northwest full-time the system on or after March 1, 2002, for state and qualifying part-time employees participate and higher education employees, or September in one of the following statewide retirement 1, 2002, for local government employees have systems administered by the Washington State the irrevocable option oIf choosing membership Department of Retirement Systems, under cost- in either PERS Plan 2 or PERS Plan 3. The option sharing multiple-employer public employee defined must be exercised within' 90 days of employment.

~b~enefit.and-defined-contributiotn.r~etirement-plans.-An-emplo~yee-is-repor~ted-~in.Plan-2_until-a-choice The Department of Retirement Systems (DRS), a is made. Employees who fail to choose within 90 department within the primary, governmentI of the days default to PERS Plant 3. PERS defined benefit State of Washington, issues a publicly available retirement benefits are financed from a combina-comprehensive annual financial report (CAFR) tion of investment earnings and employer and that includes financial statements and required employee contributions. IPERS retirement benefit supplementary information for each plan. The DRS provisions are established in state statute and CAFR may be obtained by writing to: Department may be amended only by the State Legislature.

of Retirements Systems, Communications Unit, Plan i retirement benefits are vested after an P.O. Box 48380, Olympia, WA' 98504-8380. The employee completes five years of eligible service.

following disclosures are made pursuant to GASB Plan i members are eligible for retirement at any age Statement No. 27, "Accountin~g for Pensions by after 30 years of service, or at the age of 6o with five State and Local Government Employers. years of service, or at the Iage of 55 with 25 years of service. The annual benefit is 2 percent ofthe average Public Employee's Retirement System final compensation per year of service, capped at 6o (PERS) Plans 1, 2, and 3 PlAn Description percent. The average final compensation is based PERS is a cost-sharing multiple-employer retire- on the greatest compensation during any 24 eligible ment system comprised of three separate plans for consecutive compensation months. If qualified, after membership purposes: Plans it and 2 are defined reaching the age of 66 a cost-of-living allowance is benefit plans and Plan 3 is a combination defined granted based on years ofservice credit and is capped benefit/defined contribution plan. Membership at 3 percent annually.

in the system includes: elected officials; state Plan 2 retirement benefits are vested after an employees; employees of the Supreme, Appeals, employee completes five years of eligible service. Plan and Superior courts (other than judges in a judi- 2 members may retire at the age of 65 with five years cial retirement system); employees of legislative of service, or at the age of 55 with 20 years of service,

.1 committees; college and university employees with an allowance of 2 percent of the average final not in national higher eduIcation retirement compensation per year of service. The average final programs; judges of district and municipal courts; compensation is based on the greatest compensation and employees of local government, including during any eligible consecutive 6o-month period.

Energy Northwest. Participants who joined the Plan 2 retirements prior to the age of 65 receive system by September 30,1977, are Plan i members, reduced benefits. If retirement is at age 55 or older Those who joined on or after October 1, 1977, and with at least 30 years of service, a 3 percent per year by either, February 28, 2002, for state and higher reduction applies; otherwise an actuarial reduction education employees, or August 31, 2002, for will apply. There is no cap on years of service credit; local government employees, are Plan 2 members and a cost-of-living allowance is granted (indexed to Energy Northwest 12007 Annual Report

the Seattle Consumer Price Index), capped at 3 per- Funding Policy cent annually. Each biennium, the state Pension Funding Council Plan 3 has a dual benefit structure. Employer adopts Plan i employer contribution rates, Plan 2 contributions finance a defined benefit component, employer and employee contribution rates, and and member contributions finance a defined contri- Plan 3 employer contribution rates. Employee bution component. The defined benefit portion pro- contribution rates for Plan 1 are established by vides a benefit calculated at 1 percent of the average statute at 6 percent for state agencies and local final compensation per year of service. The average government unit employees, and 7.5 percent for final-compensation is-balsedon-the-greatest-com:- state-goyvernment elected-officers.-The-emplo~yer pensation during any eligible consecutive 6o-month and employee contribution rates for Plan 2 and period. Effective June 7, 2oo6, Plan 3 members are the employer contribution rate for Plan 3 are vested in the defined benefit portion of their plan developed by the Office of the State Actuary to after ten years of service; or after five years if twelve fully fund Plan 2 and the defined benefit portion months of that service are earned after age 44; or of Plan 3. All employers are required to contribute after five service credit years earned in PERS Plan at the level established by the Legislature. Under prr t 2 prior to June 1, 2003. Plan 3 members are imme- PERS Plan 3, emplpyer contributions finance the diately vested in the defined contribution portion defined benefit portion of the plan, and member of their plan. Vested Pla 3 members are eligible to contributions finance the defined contribution retire with full benefits at age 65, or at age 55 with portion. The Employee Retirement Benefits io years of service. Retirements prior to the age of 65 Board sets Plan 31 employee contribution rates.

receive reduced benefits. If retirement is at age 55 or Six rate options are available ranging from 5 to older with at least 30 years of service, a 3 percent per 15 percent; two of tihe options are graduated rates year reduction applies; otherwise an actuarial reduc- dependent on thel emDlovee's arze. The methods tion will apply. The benefit is also actuarially reduced used to determine ithe contribution requirements to reflect the choice of a survivor option. There is no are established under state statute in accordance cap on years of service cre dit; and Plan 3 provides the with chapters 41.4o and 41.45 RCW.

same cost-of-living allowance as Plan 2. The defined The required contribution rates for the defined contribution portion can be distributed in accor- benefit plan expressed as a percentage of current dance with an option sele cted by the member, either year covered payroll, as of June 30, 2007, were:

as a lump sum or pursuant to other options autho-rized by the Employee Retirement Benefits Board.

There are 1,181 participating employers in PERS. PERS Plan 1 PERS Plan 2 PERS Plan 3 Membership in PERS consisted of the following as Employer* 5.46% 5.46% 5.46%**

of the latest actuarial valuation date for the plans of Employee 6.00% 3.50%

September 30, 2005:

Retirees and Beneficiaries Receiving Benefits 68,609 *The employer rates include the employer administrative expense fee currently set at 0.18%. This rate reflects the change effective December 31, 2006. Previous to this period Terminated Plan Members Entitled to But Not Yet 22,567 sonrase was Um.l/.

Receiving Benefits

• • Plan 3 defined benefit portion only.

Active Plan Members Vested 104,574

-Variable from 5.0% minimum to 15.0% maximum based on rate selected by PERS3 Active Plan Members Nonvested 51,004 member.

Total 246,754 Financial Data and Information I

Both Energy Northwest And the employees During FY 2007, pension costs for Energy make the required contributions. The required Northwest employees and post-employment life employer contribution increased 1 January 1, 2007, insurance benefit costs for retirees were calcu-from 3.69 percent for all plans toI the current level lated and allocated to each Business Unit based of 5.46 percent. For FY 2005 andI FY 20o6 the rates on direct labor dollarst This allocation basis ranged from 1.38 percent to 2.44 percent. Energy resulted in the following percentages by Business Northwest's required contributions for the years Unit for FY 2007 for this and other allocated costs; ended June 30 was: Columbia at 92 percent, Business Development at percent,.and.Project.i,_NineCanyon,-Packwood PERS Plan 1 PERS Plan 2 PERS Plan 3 and Project 3 receiving the residual amount of 2 2007 $ 174,813 $ 3,235,922 $ 1,269,321 percent.

2006 $ 107,096 $ 1,458,655 $ 564,242 2005 $ 86,067 $ 958,601 $ 364,653 401(k) and 457 Plan Deferred Compensation Plan Energy Northwest provides a 4o1(k) Deferred In addition to the pensionI benefits available Compensation Plan (40,1(k) Plan), and a 457 through PERS, Energy Northwest offers post- Deferred CompensationI Plan. Both Plans are employment life insurance benefits to retirees defined contribution plans that were established who are eligible to receive pensions under PERS to provide a means fo'r investing savings by Plan 1, Plan 2, and Plan 3. Ninety-seven retirees employees for retirement purposes. All perma-have elected to participate in this insurance. nent, full-time employees are eligible to enroll in In 1994, Energy Northwest's Executive Board the Plans. Participants are immediately vested in approved provisions which continued the life their contributions and d1irect the investment of insurance benefit to retirees at 25 percent of the their contribution. Each Iparticipant may elect to premium for employees who retire I prior to Jan- contribute pre-tax annual compensation, subject uary 1, 1995, and charged the full loo percent pre- to current Internal Reve~nue Service limitations.

mium to employees who retired after December For the 4o1(k) Plan, Energy Northwest may elect 31, 1994. The life insurance benefit is equal to the to make an Employer matching contribution for employee's annual rate of salary at retirement for each of its Employees who are a Participant during non-bargaining employees retiring prior to Jan- the Plan Year. The amount of such an Employer uary 1, 1995. The cost of coverage for employees match shall be 50 percent of the maximum salary who retired after January 1, 11995, is $2.33 per deferral percentage. During FY 2007 Energy S$,ooo of coverage with a maximum limit of Northwest contributed $2.0 million in employer

$1o,ooo. Employees who retired prior to January i, matching funds.

1995, contribute $.58 per $i,oo* of coverage while I

Energy Northwest pays the remainder. Premiums are paid to the insurer on a current period basis. NOTE E - LONG-TERM DEBT At the time each employee retires, Energy Northwest accrues a liability1 for the actuarial Each Energy Northwest Business Unit is financed value of estimated future premiums, I net of retiree separately. The resolutions of Energy Northwest contributions. The total liability recorded at June authorizing issuance of revenue bonds for each 30, 2007, was $0.7 million for these benefits. Business Unit provide that such bonds are payable from the revenues of that Business Unit. All bonds Energy Northwest 12007 Annual Report

issued under Resolution, Nos. 769,775 and 640 for 'costs relating to the issuance of the Series 2007-A, Nuclear Projects Nos. 1,13 and Columbia, respec- Series 200 7 -B,and Series 2007-C Bonds as well as tively, have the same priority of payment within certain costs relating to the refunding of certain the Business Unit (the "Prior Lien Bonds"). All outstanding bonds.

bonds issued under Resolutions Nos. 835, 838 and The Series 2007-C Bonds, issued for Nuclear 1042 (the "Electric Revenue Bonds") for Nuclear Project No. 1 and Nuclear Project No. 3 are tax Projects Nos. 1,3 and Columbia, respectively, are exempt fixed-rate bonds that created savings subordinate to the PriorlLien Bonds and have the based on improved interest rates.

same~subordinated.priority.of.payment.within.the_ TheSeries20o.7=D.Bondsissued.for.Columbia Business Unit. Nine Canyon's bonds were autho- are tax exempt fixed-rate bonds to finance a por-rized by the following resolutions: Resolution No. tion of the cost of certain capital improvements 1214 2OO1 Bonds, Resolution No. 1299 2003 Bonds, at Columbia.

Resolution No. 1376 2005 Bonds and Resolution Nuclear Projects Nos. i and 3 have long debt No.1482 the 2006 Bonds. The Packwood Bonds that contains variable rate interest. These rates were authorized by Resiolution 325 for the 1962 are set periodically through a weekly auction Bonds and Resolution 328 for the 1965 Bonds. rate. These rates ranged from 3.102 percent to During the year ended June 30, 2007, Energy 4.000 percent during FY 2007.

Northwest issued, for INuclear Projects No. 1 The Bond Proceeds, Weighted Average and 3, and Columbia, the Series 2007-A Bonds, Coupon Interest Rates, Net Accounting Loss, Eco-Series 200 7 -B Bonds, Series 200 7 -C Bonds, nomic Gain, and total defeased bonds for 2007-A, and Series 200 7 -D Bonds. The Series 200 7 -A, 200 7 -B,200 7 -C, and 200 7 -D are presented in the 200 7 -B, 200 7 -C, and 200 7 -D Bonds issued for following tables:

Nuclear Project No. 1, Nuclear Project No. -, and Columbia are fixed rate bonds with a weighted Bond Proceeds ($ in millions) average coupon interest rate ranging from 4.50 percent to 5.33 percent. This transaction resulted 2007A 2007B 2007C 2007D Total I.

in a net-loss for accounting purposes of $24.82 Project 1 $ 56.17 $ 6.74 $ 237.05 $ - $ 299.96 million. According to GASB No. 23, "Accounting Columbia 84.17 10.67 - 37.72 '132.56 and Financial Reporting for Refundings of Debt Project 3 91.43 1.72 66.17 - 159.32 Reported by Proprietary Activities," gains and Total $ 231.77 $ 19.13 $ 303.22 $ 37.72 $ 591.84 losses on the refundings are deferred and amor-tized over the remaining life of the old debt or the new debt, whichever is shorter. However an eco- Weighted Average Coupon Interest Rate nomic gain of $19.13 million, based on the present for Refunded Bonds value of debt service comparison, was obtained.

The economic gain was recorded according to 2007A 2007B 2007C 2007Dj GASB 7, 'Advance Refundlings Resulting in Defea- Total 5.64% - 5.16%

sance of Debt." I The Series 200 7 -A Bonds, I

issued for Nuclear Project No. 1, Nuclear Project No. 3, and Columbia Weighted Average Coupon Interest Rate are tax exempt fixed-ratte bonds that create sav- for New Bonds ings based on improved ;interest rates.

The Series 2007-B Bonds, issued for Nuclear 2007A 20078 2007C 2007D Project No.l, Nuclear Project No. 3 and Columbia Total 4.99% 5.26% 5.00% 5.00%

are taxable fixed-rate for the purpose of paying Financial Data and Information

Net Accounting Loss ($ in millions) In prior fiscal years! Energy Northwest also defeased certain revenue ,bonds by placing the net 2007A 2007B 2007C 2007D To0tal proceeds from the refunding bonds in irrevocable Project 1 $ 0.05 $ 6.70 $ 12.20 $ $ 18.95 trusts to provide for all required future debt service Columbia -0.57 0.72 - - 0.15 payments on the refunded bonds until their dates Project 3 0.54 1.71 3.47 - 5.72 of redemption. Accordingly, the trust account Total $ 0.02 $ 9.13 $ 15.67 $ $ 24.82 assets and liability for the defeased bonds are not included in the financial *tatements in accordance

-w~ithGASB-statements_ No..7-and.23..Including-the...

Total Defeased ($ in millions) FY 2007 defeasements, $440.4 million, $159.9 mil-lion, and $314.3 million of defeased bonds were 2007A 2007B 2007C 2007D Total not called or had not matured at June 30, 2007, L

Project 1 $ 56.17 $ $ 235.48 $ - $291.65 for Nuclear Projects Nos! i and 3, and Columbia Columbia 84.18 NA 84.18 respectively.

Project 3 91.45 65.71 - 157.16 Outstanding principal on revenue and Total $231.80 $ $ 301.19 $ $ 532.99 refunding bonds for the various Business Units as of June 30, 2007, and future debt service require-ments for these bonds are presented in the fol-During the Fiscal Year ended June 30, 2007, lowing tables:

Energy Northwest also issuedI Nine Canyon, the Series 2007 Wind Project Revenue Bonds. The Series 2007 Bonds, in aggregate principal amount of $69.4 million, are fixed-rate bonds with an average coupon interest rate of 5.0 percent. The Series 2007 Bonds were issued to finance the costs of acquiring, constructing and installing Phase III of Nine Canyon which consists of an additional 14 wind turbines.

Energy Northwest did not issue or refund any bonds associated with Packwooqd for FY 2007.

Energy Northwest 12007 Annual Report I

OUTSTANDING LONG-TERM DEBT As of June 30, 2007 (Dollars in Thousands)

Columbia Generating Refunding Revenue Bonds Nuclear Project No.1 Refunding Revenue Bonds Serial or Term Serial or Term Series Coupon Rate Maturities Amiount Series Coupon Rate Maturities Amount 1992A 6.30 7-1-2012 $ 50,000 1989B 7.125 7-1-2016 l$ 41,070 1993A 5.70-5.80 7-1-2008 4,415 1990B 7.25 7-1-2009 3,590 1994A (A) 7-1-2009 4,776 1993A 7.00 7-1-2008 13,075 5.40 7-1-2012 100,200 1993D 7.00 7-1-08/2009 15,090 104,976 19930 5.20 7-1-2008 1,985 1996A 6.00 7-1-2008 17,475 1996A 6.00 7-1-2008 40,050 1997B 5.00-5.20 7-1-09/2011 15,000 1996C 6.00 7-1-2009 8,445 1998A 5.00-5.75 7- -08/2012 160,640 1997A 6.00 7-1-2008 7,080 2001A 5.00-5.50 7-1-13/2017 186,600 1997B 5.00-5.125 7-1-08/2011 4,885 2001B 5.50 7- -2018 48,000 1998A 5.00-5.75 7-1-08/2017 78,260 2002A 5.20-5.75 7-1-17/2018 157,260 2001A 4.50-5.50 7-1-10/2013 76,560 2002B 5.35-6.00 7-1-2018 123,815 20018B 5.50 7-1-2017 23,600 (C) 2003A 5.50 7-1-10/2015 132,970 2002A 5.50-5.75 7-1-13/2017 248,485 2003B 4.15 7-1 -2009 4,530 2002B 6.00 7-1-2017 101,950 2003F 5.00-5.25 7- -07/2018 41,330 2003A 5.50 7-1-13/2017 241,455 2004A 3.75-5.25 7- -08/2018 403,080 20038 4.06 7-1-2009 18,210 2004B 5.50 7- -2013 12,715 2004A 5.25 7-1-2013 62,485 2004C 5.25 7-1-07/2018 26,620 2004B 5.50 7-1-2013 $1,135 2005A 5.00 7-1-15/2018 114,985 2005A 5.00 7-1-13/2015 72,175 2005B 4.11 7-1-2008 1,600 2005B 4.11 7-1-2008 925 2005C 4.34-4.74 7-1-09/2015 91,890 2006A 5.00 7-1-08/2017 309,205 2006A 5.00 7-1-20/2024 434,210 2006B 5.16 7/11/2007 9,160 2006B 5.23 7-1-2011 4,420 2007A 5.00 7-1-13/2017 - 51,730 2006C 5.00 7-1-20/2024 62,200 2007B 5.07-5.10 7-112/2013 6,740 2006D 5.80 7- -2023 3,425 2007C 5.00 7-1-1312017 219,020 2007A 5.00 7-1-13/2018 77,575 1993-lA- 1 VARIABLE 39,070 2007B 5.07-5.33 7-1-12/2021 10,665 1993-lA-2 VARIABLE 39,070 2007D 5.00 7-1-21/2024 35,080 1993-lA-3 VARIABLE 12,810 2003-C- 1 VARIABLE 50,235 Compound interest bonds accretion 6,224 2003-C-2 VARIABLE 50,000 Revenue bonds payable $ 2,331,700 2003-C-3 i VARIABLE 50,250 Estimated fair value at June 30, 2007 i $ 2,446,584 (B) 2003-C-4 i VARIABLE 50,000 Revenue bonds payable i $ 1,947,800 (A) Compound Interest Bonds Estimated fair value at June 30, 2007: $ 2,046,150 (B)

(B) The estimated fair value shown has been reported to meet the disclosure requirements of the State-ment of Financial Accounting Standards (SFAS)107 and does not purport to represent the amounts at (B) The estimated fair value shown has been reported to meet the disclosure requirements of the State-which these obligations would be settled. ment of Financial Accounting Standards (SFAS)107 and does not purport to represent the amounts at which these obligations would be settled.

(C) Auction Rate Certificates that will have a rate of 5.50 through 7/112008 and a variable rate there-after until 7/1/2017.

Financial Data and Information I I

OUTSTANDING LONG-TERM DEBT (CONT'D)

As of June 30, 2007 (Dollars in Thousands)

Nuclear Project No.3 Refunding Revenue Bonds Packwood Lake Hydroelectric Project Refunding Revenue Bonds Serial or Term Series Coupon Rate

• Maturities Amount Serial or Term 1989A (A) 7-1-08/2014 $ Series Coupon Rate Maturities Amount 1989B (A) 7-1-08/2014 1962 3.625 3-1-08/2010 $ 1,271 7.125 7-1-2016 1965 3.75 3-1-08/2012 630 113,682 1990B (A) 7-1-08/2010 8,225 Revenue bonds payablei$ 1,901 1993B 5.65-7.00

• 7-1-08/2009 23,460 Estimated fair value at June 30, 2007: $ 1,898 (B) 1993C 7.50 7-1-2008 14,150 (A) 7-1-13/2018 23,963 (B)The estimated fair value shown has been reported to meet the disclosure requirements of the State-ment of Financial Accounting Standards (SFAS)107 and does not purport to represent the amounts at 38,113 which these obligations would be settled.

1997A 5.10-6.00 7-1-08/2011 28,690 1998A 5.125 7-1-17/2018 53,825 2001A 5.50 7-1-10/2018 151,380 2001B 5.50 7-01-2018 10,675 Nine Canyon Wind Project 2002B 6.00 7-01-2016 75,360 Refunding Revenue Bonds 2003A 5.50 7-1-11/2017 241,915 Serial or Term 20038 4.15 7-1-2009 21,575 Series Coupon Rate Maturities Amount 2004A 5.25 7-1-14/2016 83,835 2001A 4.75 7-1-2007 $ 1,675 2004B 5.50 7-1-2013 1,515 2001A 4.95 7-1-2008 1,760 2005A 5.00 7-1-13/2015 129,265 2001B 4.75 7-1-2007 675 2005B 4.11 7-1-2008 1,060 20018B 4.95 7-1-2008 705 2006A 5.00 7-1-08/2018 54,760 4,815 2006B 5.21 7-1-2008 525 2003 i 3.00 7-1-2007 820 2007A 4.50-5.00 7-1-13/2018 84,465 3.75-5.00 7-1-0812023 19,335 2007B 5.07 7-1-2012 1,725 20,155 2007C 5.00 7-1-12/2018 61,085 2005 4.00 i 7-1-2007 210 1993-3A-3 VARIABLE 18,205 4.00-5.00 7-1-08/2023 61,540 1998-3A VARIABLE 119,560 61,750 2001 8-3 1 VARIABLE 5,000 (C) 2006 / 4.50-5.00 7-1-10/2030 69,410 2001 B 2 VARIABLE (C) 2003D-1 VARIABLE Revenue bonds payable $ 156,130 2003D-2 VARIABLE Estimated fair value at June 30, 2007! $ 161,375 (B) 2003E VARIABLE (B) The estimated fair value shown has been reported to meet the disclosure requirements of the State-ment of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at

- which these obligations would be settled.

Compound interest bonds accretiont 261,328 Revenue bonds payable:: $ 1,909,430 Estimated fair value at June 30, 2007: $ 1,923,111 (B)

Total Bonds Payable - Energy Northwest:: $ 6,346,961 (A) Compound Interest Bonds Estimated fair value at June 30, 2007:!$ 6,579,118 (B) The estimated fair value shown has been reported to meet the disclosure requirements of the State-ment of Financial Accounting Standards (SFAS)107 and does not purport to represent the amounts at which these obligations would be settled.

(C) Auction Rate Certificates that will have a rate of 5.50 through 7/1/2010 and a variable rate there-after until 7/1/2018.

1 Energy Northwest 12007 Annual Report

DEBT SERVICE REQUIREMENTS As of June 30, 2007 (Dollars in Thousands)

Columbia Generating Station Nuclear Project No. 1 FiscalYear Principal Interest Tota Fiscal Year Principal Interest j Total 6/30/2007 Balance- $ 4,280 $ 48,711 $ 52,991 6/30/2007 Balance $ 9160 :$ 40,371 1$ 49,531 2008 126,285 121,5041 247,789 2008 80,310 100,452;: 180,762 2009 115,806i 120,964: 236,770 2009 87,110 95,623: 182,733 2010 157,650 108,982 266,632 2010 80,620 91,161 171,781 2011 95,4051 100,803 196,208 2011 89,090 87,204 : 176,294 2012 267,885 95,958 363,843 2012 87,475 82,828 170,303 2013-2017 535,020: 358,871 893,891 2013-2017 1,514,035i 253,831 1,767,866 2018-2022 789,120:: 148,067 937,187 $ 1,947,800 $ 751,470 $ 2,699,270 2023-2024 234,025 17,723 251,748

• Principal and interest due July 1, 2007.

Adjustment ** 6224 (6,224)

$ 2,331,700$ 1,115,359$ 3 ,447,059

• Principal and interest due July 1, 2007.

• • Adjustment for Compound Interest Bonds accretion; Compound Interest Bonds are reflected at their face amount less discount on the balance sheet Nuclear Project No. 3 Packwood Lake Hydroelectric Project FiscalYear Principal Interest Total FiscalYear Principal Interest Total 6/30/2007 Balance' $ - $ 27,603 $ 27,603 6/30/2007 Balance"' t$ 660 $ 68 $ 728 2008 64,426; 109,861 174,287 2008 690: 46 736 2009 68,378; 109,1581 177,536 2009 336: 20; 356 2010 38,862 107,074:: 145,936 2010 150:: 81 158 2011 87,514: 97,697:; 185,211 2011 651 2i 67 2012 74,832 93,937 168,769 $ 1,901 $ 144 $ 2,045 2013-2017 921,780 i 349,942:: 1,271,722 " Principal and Interest due March 1,2008.

2018 392,310i 26,464! 418,774 Adjustment

• 261,328:: (261,328) -

$ 1,909,430 $ 660,408 $ 2,569,838 Principal and interest due July 1,2007.

• • Adjustment for Compound Interest Bonds accretion; Compound Interest Bonds are reflected at their face amount less discount on the balance sheet Nine Canyon Wind Project FiscalYear Principal Interest Total 6/30/2007 Balance i$ 3,380:$ 3,768;$ 7,148 2008 4,315: 7,335; 11,650 2009 3,705! 7,139:: 10,844 2010 3,965:: 6,963: 10,928 2011 4,260i 6,774: 11,034 2012 4,575i 6,570: 11,145 2013-2017 38,240:: 28,224:: 66,464 2018-2022 48,495:: 18,134: 66,629 2023-2030 45,195; 8,692: 53,887

$ 156,130 $ 93,599 $ 249,729

'Principal and interest due July 1,2007.

Fi Financial Data and Information

Security - Nuclear Projects Nos. 1 and 3 Security - Packwood Lake and Columbia Hydroelectric ProjectI Project Participants have purchased all of the Energy Northwest, Benton County PUD and capability of Nuclear Projects Nos. i and 3 and Franklin County PUD I have signed a Power Columbia. BPA has in turn acquired the entire Sales agreemept, as amended, which extends capability from the Participants under contracts the period through October 1, 2o08. The agree-referred to as net-billing agreements.

II Under the ment became effective November 1, 2002. Benton net-billing agreements for each of the Business and Franklin County PUDs agree to pay Energy

.Units,_Par~ticipants-are-obligated-to-payEnergy_.__Nor.thw.est-in-exchange for-the-totaloutputof Northwest a pro rata share oIf the total annual electric capacity and energy delivered from the costs of the respective Projects, including debt Packwood Generation Project. In addition, the service on bonds relating to each Business Unit. Project is required to supply a specified amount BPA is then obligated to reduce amounts from of power to Benton and Franklin County PUDs. If Participants under BPA power! sales agreements power production does not supply the required by the same amount. The net-billing agreements amount of power, the Project is required to provide that Participants andIBPA are obligated provide any shortfall by purchasing power on to make such payments whether or not the the open market. The Packwood Participants Projects are completed, operable or operating are obligated to pay annual costs of the Project and notwithstanding the suspension, interrup- including debt service, whether or not the Project tion, interference, reduction r curtailment of is operable, until the outstanding bonds are paid the Projects' output. or provisions are made 'for bond retirement, in On May 13, 1994, Energy Northwest's I. Board accordance with the . requirements t of the bond of Directors adopted resolutions terminating resolution. The Participants also share project Nuclear Projects Nos. i and 3. The Nuclear Proj- revenue to the extent that the amounts exceed ects Nos. 1 and 3 Project agreements and the project costs.

net-billing agreements, except for certain sec-tions which relate only to billing processes and accrued -liabilities and obligations under the net-billing agreements, 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 pay-ment processes. With respect to Nuclear Project No. 3, the ownership agreement among Energy Northwest and private companies was termi-nated in FY 1999 (see Note F, Commitments and Contingencies).

Energy Northwest 2007 Annual Report I

NOTE F - COMMITMENTS AND Nuclear Projects Nos. 1 and 4 Site CONTINGENCIES Restoration

. . . . ........................................... Site restoration requirements for Nuclear Projects Nos. 1 and 4 are 'governed by site certification Nuclear Project No. 1 Termination agreements between Energy Northwest and the SincetheNuclearProjectNo.itermination, Energy State of Washington and regulations adopted Northwest has been planning for the demolition by EFSEC, and a lease agreement with the DOE.

of Nuclear Project No. i and restoration of the site, Energy Northwesf submitted a site restoration recognizing-the-fact-that..there-is-no-market-forplan-forNuclear Projects.Nos._z1and4_toEESEC the sale of the Project in its entirety and to-date, on March 8, 1995, which complied with EFSEC no viable alternative use has been found. The requirements to remove the assets and restore final level of demolition and restoration will be the sites by demolition, burial, entombment, or in accordance with agreements discussed later in other techniques such that the sites pose minimal Note F under "Nuclear Projects Nos. i and 4 Site hazard to the public. EFSEC approved Energy Restoration." Northwest's site restoration plan on June 12,1995.

In its approval, EFSEC recognized that there is Nuclear Project No. 31 Termination uncertainty associated with Energy Northwest's In June 1994, the Nuclear Project No. 3 Owners proposed plan. Accordingly, EFSEC'S conditional Committee voted unanimously to terminate approval provides; for additional reviews once the Project. During 1995, a group from Grays the details of the plan are finalized. A new plan Harbor County, WashinIgton, formed the Satsop with additional details was submitted in FY 2003.

Redevelopment Project] (SRP). The SRP intro- This submittal was used to calculate the ARO duced legislation with the State of Washington discussed in Note G of the financial statements.

under Senate Bill No. 6427, I which passed and was signed by the Governor of the State of Business Development Fund Interest in Washington on March 17, 1996. The legislation Northwest Open Access Network enables local governments and Energy Northwest The Business Development Fund is a member of to negotiate an arrangement allowing such local the Northwest Open Access Network (NoaNet).

governments to assume Ian interest in the site on Members formed NoaNet pursuant to an which Nuclear Project I0o. 3 exists for economic Interlocal Cooperation Agreement for the devel-development by transferring ownership of all opment and efficient use of a communication or a portion of the site to local government network in conjunction with BPA for use by the entities. This legislation also provides for the Members and others.

local government entities to assume regulatory The Business Development Fund has a 7.38 responsibilities for site restoration requirements percent interest in NoaNet with a potential man-and control of water rights. In February 1999, date of an additional 25 percent step-up possible Energy Northwest entered into a transfer agree- for a maximum 9.23 percent. As of December ment with the Satsop Redevelopment Project 31, 2006, (last audited 1

statements), NoaNet has (SRP) to transfer the real and personal property $20.1 million in network revenue bonds out-I I at the site of Nuclear Project No. 3. The SRP also standing. The members are obligated to pay the agreed to assume regulatory responsibility for principal and interest on the bonds when due in site restoration. Therefore, Energy Northwest is the event and to the extent that NoaNet's Gross no longer responsible tolthe State of Washington Revenue (after payment of costs of Maintenance and EFSEC for any site restoration costs.

I 1~

Financial Data and Information

II and Operation) is insufficient! for this purpose. civil penalties in the event of violations of various The maximum principal shareI (based on step-up regulatory and license relquirements.

potential) that the Business Development Fund Federal law under the Price Anderson Act could be required to pay is j$2.1 million. It is currently limits public Iliability claims from a important to note that the Business Develop- nuclear incident to $io.8 billion. As required by ment Fund is not obligated to reimburse losses law, Energy Northwest has purchased the max-of NoaNet unless an assessment is made to Noa- imum commercial insurance available of $300 Net's members based on a two-thirds vote of the million, which is the primary layer of protection.

-membership._In.F.Y_2oo7_theBusinessD.evelop- The-balance-is-co.vered by the-industr.y's-retro-ment Fund contributed $22 3 kI to NoaNet based spective rating plan that.I uses deferred premium on an assessment by the NoaNet members, charges to every reactor licensee if a nuclear inci-This equity contribution was reduced to zero dent at any licensed reactor in the United States at year-end because NoaNet had a negative net results in claims that exceed the individual equity position of $13.8 million as of December licensee's primary insurance layer. The current 31, 20o6. Future equity contributions, if any, will maximum deferred premium for each nuclear be treated the same until NoaNet has a positive incident is $1oo.59 million per reactor, but not equity position. Financial statements for NoaNet more than $15 million per reactor may be charged may be obtained by writing to: Northwest Open in any one year for each incident.

Access Network, iii Devereese Road, Chehalis, Nuclear property damage and decontami-WA 98532. nation liability insurance requirements are met through a combination of commercial nuclear Other Litigation and Commitments insurance policies purchased by Energy North-Energy Northwest is involved in various claims, west and BPA. The total aImount of insurance pur-legal actions and contractual commitments chased is currently $2.75 billion. The deductible and in certain claims and contracts arising in for this coverage is $5.o million per occurrence.

the normal course of business. Although some suits, claims and commitments are significant in amount, final disposition is not determinable. In the opinion of management, the outcome of such litigation, claims or commitments will not have a material adverse effect on the !financial positions of the Business Units or Energy Northwest as a whole. The future annual cost of the Business Units, however, may either be increased or decreased as a result of the outcome of these matters.

Nuclear Licensing and Insu'rance Energy Northwest is a licensee of the Nuclear Regulatory Commission and1 is subject to routine licensing and user fees, to retrospective premiums for nuclear liability insurance, and to license modification, suspension, or revocation or Energy Northwest 2007 Annual Report g e D

..NOTE G - ACCOUNITING FOR ASSET RETIREMENT OBLIGATIONS . . . . . . . . . . . . . .

between Energy N6rthwest and the State of Wash-ington and regulations adopted by the EFSEC and a lease agreement with the DOE (see Notes B and Energy Northwest adopted SFAS No. 143 on July F). Additionally, there are separate lease agree-1, 2002, (see Note B, Summary of Significant ments for land located at Nine Canyon. Leases at Accounting Policies"). This Statement requires these locations are considered operating leases an entity to recognize the fair value of a liability and expenses were $7 27 .9 k for Columbia, $7 .4 k for an ARO, measured at estimated fair value, for for Nuclear Project No. i and $268.6k for the Nine legal nhli~atinng related _tn ihp disrnantlpment

.. .... ... ......... ... . ... . .... ..... n....men

........ t _Canyon-project. I__.. . ... .

and restoration costs associated with the retire- As of June 30, 2007, Columbia has a capital ment of tangible long-livxed assets, such as nuclear decommissioning net asset value of $18.7 million decommissioning and site restoration liabilities, and an accumulated liability of $105.7 million for in the period in which it, is incurred. Upon initial the generating plant and a net asset value of $1.2 recognition of the AROs that are measurable, the million and an accumulated liability of $i.6 mil-probability weighted future cash flows for the lion for the ISFSI.L associated retirement costs, discounted using a An adjustment was made in FY 2007 for credit-adjusted-risk-free! rate, and is recognized Nuclear Project No. i to account for costs incurred as both a liability and as an increase in the for decommissioning and site restoration. Costs capitalized carrying amount of the related long- incurred in FY 2007 of $13 k combined with cur-lived assets. Capitalized asset retirement costs rent year accretion expense of $o.69 million and are depreciated over the life of the related asset revision in future restoration estimates of $(o.14) with accretion of the ARO liability classified as an million resulted in!a small increase to the ARO of operating expense -- on-----

the statement of operations

---

$o.'4 million. Nuclear Project No. i has a capital and fund equity each period. Upon settlement of decommissioning jnet asset value of $o and an the liability, an entity either settles the obligation accumulated liability of $13.8 million.

for its recorded amount bor incurs a gain or loss if Under the current agreement, Nine Canyon the actual costs differ from the recorded amount. has the obligation to remove the generation facil-However, with regard to the net-billed Projects, ities upon expiration of the lease agreement if BPA is obligated to provide for the entire cost of requested by the lessors. The Nine Canyon Wind decommissioning and site restoration, therefore, Project recorded the I related ARO in FY 2003. As of any gain or loss recogn~ized upon settlement of June 30, 2007, Nine Canyon has a capital decom-the ARO results in an adjustment to either the missioning net asset value of $0.3 million and an billings in excess of costs (liability) or costs in accumulated liability of $o.6 million.

excess of billings (asset),I as appropriate, as no net Packwood's obligation has not been calcu-revenue or loss is recognized, and no equity is lated because the jtime frame and extent of the accumulated for the netibilled projects. obligation was considered under this statement Energy Northwest has identified legal obli- as indeterminate. As a result, no reasonable esti-gations to retire generating plant assets at the fol- mate of the ARO obligation can be made. An ARO I

lowing business units: Iolumbia, Nuclear Project will be required to be recorded if circumstances No. 1 and Nine Canyon. Decommissioning and change. Managenrent believes that these assets site restoration requirements for Columbia and will be used in utility operations for the foresee-Nuclear Project No. 1 are governed by the NRC able future. I regulations and site certification agreements i I i an I I I Financial Data and Information I

The following table desqribes the changes to Energy Northwest's ARO liabilities for the year ended June 30, 2007:

Asset Retirement Obligation (Millions of Dollars)

Columbia Generating Station Balance at June 30, 2006 i$ 100.50 Current year accretion expense . 5.24 ARO at June 30, 2007 $ 105.74 ISFSI Balance at June 30, 2006 $ 1.50 Current year accretion expense 0.08 ARO at June 30, 2007 $ 1.58 Nuclear Project No. 1 Balance at June 30, 2006 $ 13.25 Less: Restoration costs incurred (0.01)

Current year accretion expense . 0.69 Revision in future restoration estimates (0.14)

ARO at June 30, 2007 $ 13.79:

Nine Canyon Wind Project Balance at June 30, 2006 $ 0.57 Current year accretion expense 0.03 ARO at June 30, 2007 $ 0.60.

Energy Northwest 12007 Annual Report

CURRENT DEBT RATINGS (unaudited)

Energy Northwest (Long-Term) Net-Billed Rating Nine Canyon Rating Fitch, Inc. AA- A-Moodys Investors Service, Inc. (Moodys) Aaa A3 Standard and Poor's Ratings Services (S & P) AA- A-Variable Rate Debt S&P FITCH MOODYS Letter of Credit Banks Bank of America Long-Term - AA Aal Short-Term . A-1 + P-I JPMorgan Chase Bank Long-Term AA A+ Aa3 Short-Term A-I+ FI VMIG-1 Bond Insurance (Long-Term) .....

t MBIA Insurance Corporation AAA AAA Aaa AMBAC Assurance Corporation AAA AAA Aaa Financial Guaranty Insurance Company AAA AAA Aaa XLCapital Assurance Inc. AAA AAA Aaa Financial Security Assurance AAA AAA Aaa FSA (Short-Term)

Dexia A-1+ F1+ VMIG-1

CO80 'ýoO

~-