GO2-12-019, 2011 Annual Financial Report

2011 Annual Financial Report

ML12047A130
Person / Time
Site:	Columbia
Issue date:	02/06/2012
From:	Gregoire D Energy Northwest
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
GO2-12-019
Download: ML12047A130 (77)

Text

Donald W. Gregoire ENERGY Manager, Regulatory Affairs P.O. Box 968, Mail Drop PE20 NORTHWEST Richland, WA 99352-0968 Ph. 509-377-8616 F. 509-377-4317 dwgregoire @energy-northwest.com February 6, 2012 10 CFR 50.71 (b)

G02-12-019 U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555-0001

Subject:

COLUMBIA GENERATING STATION, DOCKET 50-397 2011 ANNUAL FINANCIAL REPORT

Dear Sir or Madam:

In accordance with 10 CFR 50.71 (b), enclosed is a copy of the Energy Northwest 2011 Annual Report for the subject facility.

There are no commitments contained in this letter or its enclosure. Should you have any questions, please call Zachary Dunham at (509) 377-4735.

Respectfully, DW Gregoire Manager, Regulatory Affairs

Enclosure:

As stated cc: NRC RIV Regional Administrator w/o NRC NRR Project Manager w/o NRC Sr. Resident Inspector - 988C w/o RN Sherman - BPA/1 399 w/o WA Horin - Winston & Strawn w/o

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5 outage, the contractor presented us with a revised work schedule for the 53-day project. We received multiple revisions during the course of the contractor's work, ultimately resulting in a 143-day project and much longer-than-planned outage duration. We consistently stated our disappointment in their contract breach. Although their performance remains an ongoing issue, the new condenser will provide enormous benefit to Northwest ratepayers, essentially paying for itself over time through increased generation efficiency.

Despite outage challenges at Columbia which impacted the capital budget, the Energy Northwest team took measures to reduce the operations and maintenance budget, to remain within our long-range plan commitment, ending the year $3.4 million under budget, underscoring our dedication to fiscal discipline and responsibility, and our promise to the region's ratepayers.

Additionally, bond sates in March and June translated into approximately $220 million in reductions for ratepayers during the 2012-2013 rate period. This also enabled Bonneville Power Administration to use the cash freed up by these sates to pay off its higher-interest U.S. Treasury bonds, resulting in savings for the region and restoring BPA's Treasury borrowing authority. Through this partnership with BPA, debt on Columbia, which was scheduled to be paid off in 2012, was extended into the future.

Among our other projects, the agency's first generation resource at Packwood Lake had an incredible year. A high-water season helped Packwood Lake Hydroelectric Project yield nearly 108 gigawatt-hours, the dam's highest output in 12 years.

Energy Northwest people also offered powerful solutions through the contribution of their time and skills to support the needs of our communities. In December, we marked the 30th anniversary of our support to Head Start. We're stilt honored to lead this heartfelt holiday effort that has brought much needed joy to more than 10,000 underprivileged children in the Tri-Cities and surrounding areas since 1980.

The greatest strength of Energy Northwest is our remarkable people, who have shown they can rise to any challenge. We continue to progress in the long process of returning Columbia to top performance.

To achieve this, safety and accountability must remain at the core of everything we do. And we must manage our risks, develop our leaders and continue to demonstrate fiscal responsibility.

We define our success by the enduring value we create for our stakeholders, employees and communities. We are confident that as we continue to focus on the mission of providing our public power members with safe, reliable and cost-effective power, Energy Northwest will emerge a stronger agency benefiting our stakeholders, employees and communities for many decades to come.

Respectfully, Mark Reddemann Sid Morrison Chief Executive Officer Chairman, Executive Board

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7 ANN CONGDON LINDA GOTT BILL GORDON JUDY RIDGE DOUG AUBERTIN NANCY BARNES President Vice President Secretary Assistant Secretary Commissioner, Commissioner, Commissioner, Commissioner, Commissioner, Commissioner, Ferry County PUD Clark Public Utilities Chelan County PUD Mason County PUD 3 Franklin County PUD Asotin County PUD Keller, Wash. Vancouver, Wash.

Manson, Wash. Shelton, Wash. Pasco, Wash. Clarkston, Wash.

TERRY BREWER TOM CASEY LARRY DUNBAR BILL UAIA'lJ*b DAN LiUUNK.L BOB HAMMOND Commissioner, Commissioner, Deputy Director Director of Utilities, Commissioner, Energy Services Director, Grant County PUD 2 Grays Harbor County PUD of Power Systems, Tacoma Public Utilities Klickitat County PUD Richland Energy Services Soap Lake, Wash. Aberdeen, Wash. City of Port Angeles Tacoma, Wash. Goldendale, Wash. Richland, Wash.

Sequim, Wash.

BOARD OF DIRECTORS T he Energy Northwest Board of Directors includes a representative JACK JANDA ROBERT JUNGERS from each of its member utilities. The powers and duties of the Commissioner, Commissioner, Mason County PUD I Wahkiakum County PUD Shelton, Wash. Cathlamet, Wash.

board of directors include final authority on any decision to purchase, acquire, construct, terminate or decommission any plants and/or facilities of Energy Northwest.

Board members represent utilities with strong histories of serving the public power needs of Washington ratepayers. Their experience helps guide the agency STEVE KERN BUZKETCHAM as a continuing and effective source of powerful energy solutions. Power Supply and Commissioner, Environmental Affairs Cowlitz County PUD 1 Officer, Kalama, Wash.

Seattle City Light Seattle, Wash.

CURT KNAPP CLYDE LEACH KEN MCMILLEN MIKE MURPHY WILL PURSER LORI SANDERS Commissioner, Commissioner, Commissioner, Commissioner, Commissioner, Commissioner Pend Oreille County PUD Skamania County PUD Jefferson County PUD Whatcom County PUD Clallam County PUD Benton County PUD Newport, Wash. Underwood, Wash. Port Hadlock, Wash. Bellingham, Wash. Sequirn, Wash. Kennewick, Wash.

ROGER SPARKS Commissioner, Kittitas County PUD Ellensburg, Wash.

CHUCK TENPAS Commissioner, Lewis County PUD Randle, Wash.

DIANA THOMPSON Commissioner, Pacific County PUD 2 Oysterville, Wash.

KATHY VAUGHN Commissioner, Snohomish County PUD Lynnwood, Wash.

ED WILLIAMS Commissioner, Centralia City Light Centralia, Wash.

I DAVE WOMACK Commissioner, Okanogan Public Utilities Okanogan, Wash.

DAEAKNO RDSWAZE MR ED N J AC BAE RN IG 9

PROJECT 7,247 GWh 107.92 GWh 264.74 GWh Columbia produces Packwood has produced The total Nine Canyon White Bluffs produced 1,150-megawatts of 4,359,610 megawatt- generating capability is 39,336 net kilowatt-hours electricity, enough energy hours of electricity since 95.9 MW, enough energy of electricity during fiscal to power more than a commercial operation for approximately 39,000 year 2011.

million homes. began in 1964. homes.

COLUMBIA PACKWOOD NINE WHITE Generating Station LAKE CANYON BLUFFS Hydroelectric Wind Project Solar Station Project J

10 Energy Northwest 2011 Annual Report COLUMBIA providing valuable electrical power to the region.

OnlineGenerating olumbia performance improved Station in fiscal continues year 2011 to operate withand safety no efficiently, shutdowns v KAREN McGAUGHEY "As purchasing lead, preparing or forced outages. However, during the fiscal year, reduced power periods were for and supporting refueling outages for Columbia is one of implemented to make necessary repairs to plant equipment, which resulted in my responsibilities. I worked with my team to meet milestones not meeting net generation goats by less than two days. Columbia was shut down related to identifying necessary parts; ensuring approvals were in early April for its biennial refueling and maintenance outage (see next page).

given in a timely manner; and that The shutdown marked the end of Columbia's longest continuous run record at 505 materials were received well in advance of the start of the outage.

days, besting the old record of 485 days set in 2006.

It's a challenging position but very rewarding." However, the challenges driven by equipment problems during the last two years resulted in a lower performance compared to industry peers. In fiscal year 2011, there is a renewed focus and plan for continual improvement with the addition of a nuclear Excellence Model as part of the Excellence in Performance initiative.

74 7 ial year 2011 T1

11 Columbia Generating Station is a boiling water reactor, or BWR. Columbia produces 1,1 50-megawatts of electricity, enough energy to power more than a million homes. Columbia began commercial operation in December 1984.

The excellence plan will also drive improved individual behaviors and accountability for overall improved performance.

In addition to plant performance challenges, the station supported many reviews by external agencies, which al[ concluded the plant is operated safely.

Training is maximized to ensure both new and current employees receive the necessary skills and knowledge for achieving excellent performance levels. In fiscal 2011, accreditation was renewed for Energy Northwest's technical training programs by an external independent review board.

12 Energy Northwest 2011 Annual Report REFUELING OUTAGE TWENTY Generating Station's reconnection to the Northwest power grid. It V TINA MALTOS Refueling outages are busy times R efueling the involved Outage 20 equipment largest began Aprilrepair 6 andscope ended Sept. 27 with in Columbia's Columbia history, with around nuclear energy facilities - the most significant task being the replacement of the steam condenser.

thousands of people performing thousands of tasks. Energy More than 1,800 contract and temporary workers were hired to accomplish the Northwest employs advanced scheduling software to make sure outage work, which included 3,380 work orders and nearly 16,500 individual tasks in nothing gets missed. This outage, Tina Maltos, Project Control support of a more than $170 million overall investment.

Integration analyst, played a key Contractor delays in the condenser replacement project extended the outage role in making sure all departments worked seamlessly with the duration from a scheduled 78 days to 174 days - into fiscal year 2012. As a result, software - increasing efficiency throughout the organization. outage duration goals were not met.

In addition to the condenser replacement, 244 of Columbia's 764 nuclear fuel assemblies in the reactor core were replaced with new assemblies; there were replacements and repairs of multiple other major components that have contributed to past equipment performance issues. Columbia's reliability will be significantly improved due to these initiatives.

Major R-20 outage PROJECTS:

Condenser replacement Non-segregated bus repair and inspection Main generator rotor replacement Overhaul of one low pressure turbine Overhaul of two diesel generators Control rod hydraulic unit directional control valves replacement Reactor recirculation motor oil level alarm modification Reactor water cleanup piping replacement Refurbishment, overhaul and replacement of valves

CONDENSER Replacement Project The condenser turns steam that has flowed through the turbine back into water for re-use in the reactor. It comprises 12 modules, each containing more than 6,000 titanium tubes, and nine waterboxes that direct clean water from the cooling towers through the tubes and back to the cooling towers. The 26-year-old condenser was becoming less reliable over time. Columbia is expected to gain more than 12 megawatts of electricity generation with the new condenser.

PUM THERESA NEIDHOLD b "Foreign Material Exclusion programs, or FME, are always important. But refueling outages are a time when many major components are open - disassembled - and susceptible to foreign material events, which can cost nuclear energy facilities millions of dollars. The focus has to be preventing the foreign material from entering systems. The results from our recent refueling outage showed we are embracing industry best practices to prevent significant FME events from happening. I am proud of the job we did and continue to do in this area."

14 Energy Northwest 2011 Annuat Report RENEWAL to meeting the region's future electricity needs. The initial 40-year enewal of Columbia license was granted in Generating Station's December 1983 operatingoperation (commercial license is key began in December 1984), and in January 2010, Energy Northwest filed a 2,200-page application with the Nuclear Regulatory Commission for a 20-year license extension.

Energy Northwest anticipates Columbia's license to be renewed by summer 2012.

To obtain renewal, Energy Northwest must demonstrate to the NRC plant structures and equipment can continue to safety function for the duration of continued operations, through 2043.

NRC staff visited Columbia for two separate inspections as part of the renewal process, during October and November 2010. The NRC issued the subsequent inspection report with no violations and no findings.

The Energy Northwest team responded to 293 NRC requests for additional years information.

Public involvement is an important part of the license renewal process. Energy Northwest held two open house-style "information nights" in January 2011 where the public learned more about the agency, Columbia's safe operation, the local economic impact of Columbia and the license renewal process. Additionally, the NRC held a public meeting in June 2011 in Richland, Wash.

Columbia can safety produce electricity many years beyond its current 40-year license. This average licensing term for all U.S. nuclear energy facilities was specified by Congress under the Atomic Energy Act of 1954 and was not based on safety, technical or environmental factors but rather on financing purposes; this was simply a typical amortization period for an electric power plant.

to -cs enrg - muc loe tha wind soa an te eeal wa 10,2 megaatt-our - up2 pecn fro 2010 -

prmail du tom r prcptto an hihe snofal . [e t n the- Cacd range Th caact factor foisa 2011 was 47. peren an the prjc ataie 99. pecn avilailt.

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16 Energy Northwest 2011 Annual Report NINE CANYON Wnd Project wind projects in the nation. With 63 wind turbines - 14 rated at T he Nine 2.3 Canyonand megawatts Wind Project 49 more is one at 1.3 of the Largest megawatts - Nine publicly Canyon'sowned total installed capacity is 95.9 megawatts.

Fiscal year 2011 produced 264,738 net megawatt-hours of electricity, a record for the project, and achieved a 97.4 percent adjusted availability factor, down from 98.2 percent in fiscal 2010. This decline is directly related to tower welding warranty work conducted by the supplier of Phase III equipment to correct V DAN ROSS manufacturing defects by the vendor. To ensure long-term reliability, Energy Dan Ross successfully made the Northwest worked with a new bearing supplier to develop a more robust design transition from water to wind. After years of managing the Packwood projected to have twice the service life of the original bearings. Lake project, Ross took over Nine Canyon and led the project Energy Northwest also coordinated plant controls to respond to the Bonneville during its best generation year ever. Before leaving Packwood, Power Administration's "limit to schedule" requirement caused by the installation he was instrumental in Energy Northwest's efforts to extend of 3,500 megawatts of wind projects in the region and the operating requirements the project's license. Ross now manages both Packwood and Nine of BPA's hydropower system.

Canyon. But why limit yourself?

With a vision to be the region's leader in energy generation, Energy Northwest When Columbia's condenser project needed a craft supervisor, the call partnered with Walla Walla Community College to host the first wind technician went to Dan.

intern program to increase the availability of a local skilled workforce to enter the growing wind energy job market.

GVV infiscal wa:

19 WHITE BLUFFS Solar St]ti hite Bluffs Solar Station, a 242-panel demonstration facility with a rating of 38.7 kilowatts direct current, is located at the Industrial Development Complex near Columbia Generating Station. White Bluffs produced 39,336 net kilowatt-hours of electricity during fiscal year 2011.

The Bonneville Power Administration integrates the power from White Bluffs into its system and Bonneville Environmental Foundation markets the displaced air pollution and greenhouse gas emissions as "green tags." Buyers who participate in utility green power programs purchase these tags to replace traditional polluting sources of electricity with clean, secure and sustainable renewable sources of energy from across North America.

Energy Northwest is using the White Bluffs site for two additional solar energy demonstration projects.

Homestead-01 is a 2,025-watt thin-film demonstration array to compare capture efficiencies against the White Bluffs crystalline panel design. The thin-film type is less expensive, but also less efficient. Testing on the project occurred throughout fiscal 2011. Homestead-02 is similar, but uses a different manufacturer's panels and has a tower capacity of 1,280-watts.

KWh in fiscal year 2011

20 Energy Northwest 2011 Annual Report GENERATION Project Development from six months to three years depending on the technology an experienced power generation developer. involved and complexity of the project. A typical generation E The Northwest nergy is recognized major development in the region activities as in fiscal project development needs to anticipate market demand year 2011 centered on providing member utilities generation several years in advance of actual utility needs.

supply options that align with regional renewable policies Additionally, the economy and hydroelectric power in and power markets. the Northwest drives agency members and other regional The agency works with its members to understand and utilities to seek the lowest cost power for their customers.

anticipate their thermal and renewable resource needs The high percentage of regional hydropower creates market and identify regional generation supply opportunities to uncertainty and periodic price dilution.

develop appropriate tow-cost resources. The goal is to offer Finally, transmission and pipeline interconnection competitive generation supply options and solutions to meet processes are becoming complex and may take more than utility member needs. The process includes technology two years to complete.

evaluation, financial analysis, site selection and acquisition, development marketing and funding, plant permitting and infrastructure interconnection (right of way permits and easements, as welt as interconnection agreements to major pipelines, transmission lines, water and discharge, and other utilities) among other supporting services.

The major challenges to developing new generation I I The agency works with its members to understand and projects in the Northwest include raising investment funding anticipate their thermal and for developments prior to completing power purchase renewable resource needs and agreements. The timeline for project site selection, identify regional generation supply opportunities to engineering, permitting and infrastructure interconnection develop appropriate ranges from two to four years and construction can range low-cost resources.

mm 22 IWOOOAPEL he Applied Process Engineering Laboratory is a business incubator that supports start-Lip and acceleration of nevý technologies, and technotogy-based businesses. Energy ýIorthwest and local partners createct APEL by convertino a ,,)aoehOUSe into laboratory, office and light manufacturing rental space, making it a key part of Energy florthv,/est's continuring, commitment to local econorý,'Ic de/elopment. APEL fiRs a community need for bjsiness ýfarter space and provl(IeS SUitable environments for controtted testing, of ad,/anced processes.

Located in the heart of the Tri-Cities Research District inno/ation Partnership Zone, APEL is thp "launch pad" to teveraae reaiona[ techno[ocica[ expertise intr. early stave entiepieneUrial ventUres. By cteatin,,ý an enviroriment rich resoutce5, terhnical asistance and conn(ýction,, to potentiat paitneis and customr.-,rs, APEL fosters collaboration in innovation and cornmerciahzation. APEL výekomc--d a new ( hent during fisca( year 2011 , and expects another client to complete the inculbatoi proo.fam ýLiccessfully in earty fiscal 2012.

Infisal 2011, APEL viorked effectively to broaden its mission to Include services for non-lenant clients. Historicatly, ervice,, were provided to tenant clients via a

[ea.e cr)ntract only. To provide service, to expandino and emeraing businesses, APEL scýjzed the opportunity to expand its rea( h to non-t esident clients. This meets two o5jectives: Suppotting bu,,jne,,,,es that do not need physical ýpaccý on in onaoin',),

haris (hut simply a short-tet m laborMot y ic-rital or use of office/confet en(ýe space for key rneetina,) )nd, (,xl)o,,ij[-(, for rnore husinesses the entrepteneuts and their piodw ts to the APEL. (-orrii-nimill y, whic h rýnhýmce,_, (_o[lriborai jon ý-rnd intitual "uppol t.

Mojor 111'Jitution" 11)the -111 Citi(-, mppw t ind APEL in(Indim), Enetoy in(, Poll, of k1rnioii, thf, of Fiw i(ýy, M ishiwý,toii IA(Ite Tti-(M(-,, Ri( h( llottlwýw.l 11,fljon.-il Iýfl)otltoly, 111f,( Ily ot RI(I)I'llid rll)d tll(, 1-11(Ow" 111(k]"tri'll DevOnpinont Cotjn(,i(. APEC,, op(ýiýitinq (o,,tý mc (ovel(ýd hy tenalit tont.

23 Generating Station and is operated by Energy Northwest. A leasing T he Industrial business Development line was developedComplex to utilizeis the located just east out-lying of Columbia buildings at the IDC for use as office and warehouse space, as well as power block facilities.

The revenue from the leasing program reduces the fixed costs for the IDC site, which are the responsibility of the Bonneville Power Administration. Fiscal year 2011 revenue from the leasing line totaled more than $1.26 million, a net positive margin of $236,000, an increase of $74,000 over fiscal 2010. This success provides ID C Energy Northwest with the ability to continue maintenance efforts on site and prepare additional structures for potential lease. It also reflects expansion of f-A T- business by IDC tenants and additional service needs provided by Energy Northwest.

A significant challenge the DC faced during fiscal 2011 was correcting power outages due to an aging underground electrical system. An underground cable was installed approximately 30 years ago and, at the time, was only meant to be temporary. Energy Northwest worked closely with BPA in completing approximately

$600,000 of immediate repairs needed to continue servicing IDC customers. A long-range plan is being developed to replace the remaining temporary cable to ensure reliability of the power system.

Energy Northwest will continue to maintain the leasing business line at IDC, focusing on landing an anchor tenant, or tenants, for long-term occupancy of the facilities.

The success of the leasing program will aid in many ways. The program will keep an active Energy Northwest staff on site to maintain and improve the infrastructure, and help complete studies on placing new power generation projects at the IDC, such as solar, nuclear or bio-fueLs facilities.

Fiscal year 2011 revenue from the leasing line at the IDC totaled more than 1.26

24 Energy Northwest 2011 Annual Report CALIBRATION SERVICES Laboratory alibration services operates and maintains the Energy Northwest Standards Laboratory, located adjacent to Columbia Generating Station. This facility is a multi-disciplined applied physics laboratory performing calibrations in virtually every aspect of metrology, including torque, force, pressure, vacuum, mass, dimensional, electrical, electronic, temperature, humidity, flow, vibration, tight and sound.

In addition to primarily providing services to Columbia Generating Station, the Standards Laboratory performs work in the commercial sector, which has helped develop and expand the laboratory's capabilities, increased the technical expertise of the staff, and enhanced its quality program.

In fiscal year 2011, laboratory staff successfully completed the American Association for Laboratory Accreditation on-site assessment process and the laboratory was officially re-accredited. This status provides assurance to customers that calibration activities are in compliance with International Standard ANS/ISO/IEC 17025, which designates the Requirements for Competence of Testing and Calibration Laboratories. The laboratory was first accredited in January 2009, and has since been on an annual assessment schedule. Having successfully completed its third year of the annual assessments, the association has now moved the laboratory to a two-year accreditation cycle. The laboratory's current accreditation is valid through January 2013.

Maintaining accreditation, enhancing capabilities and continually making improvements to technical and quality programs have at[ been factors in securing multi-year contracts with several major clients. The laboratory is heading into its 12th year as the sole source provider for calibration services to the Department of Energy's Hanford Site. The current Hanford service contract was extended to Sept. 30, 2011, while the parties negotiate a new multi-year calibration services contract.

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26 Energy Northwest 2011 Annual Report STEWARD ENVIRONMENTAL SHIP V AUDREY DESSERAULT The Energy/Business Services group consists of several business lines. Their business purpose is varied, but they have the same expectation - maintain environmental stewardship. "We to meet the rigorous requirements of the globally recognized provide several goals so employees at all levels can have an impact on the organization's environmental E nergy Northwest's International Environmental Organization Management14001:2004 for Standardization System is standard, designed objectives and targets. I have great with additional emphasis on compliance and pollution prevention. Energy advocates in each of the E/BS departments who are ensuring that Northwest's EMS was registered to ISO 14001 in April 2005 by NSF International the EMS program remains strong."

Strategic Registrations, an accredited registrar. After a successful registration audit in February 2011 with no findings of non-conformance, continuation of Energy Northwest's EMS registration to the standard was granted.

During fiscal year 2011, Energy Northwest established and exceeded environmental improvement targets for reduction of hazardous materials spills and hazardous waste generation and mixed waste generation at Columbia Generating Station.

Energy Northwest is committed to integrating environmental responsibilities into everything the agency does. The agency's environmental stewardship policy is the cornerstone of the environmental management system. This comprehensive program demonstrates commitment and establishes clear expectations for the entire organization. This means consideration of the environment is integrated into all aspects of the organization, including structure, resources, responsibilities, planning, practices, procedures and processes.

27 The regulated waste program has been enhanced by modifying the process of how waste generation is tracked. Through this change more accurate waste generation data will provide information to identify further waste reduction opportunities.

Several pollution prevention opportunities were identified and implemented in fiscal year 2011. These included changing the management of photochemical waste to minimize the regulated (hazardous waste) volume; reduction of vehicle emissions by use of an electric cart for deliveries of materials from the warehouse to Columbia Generating Station; and reduction of paper/packaging waste through use of technology and re-use.

BRAD BARFUSS 1 "Environmental stewardship is central to what I do and the decisions I make each day. My role is to support Energy Northwest projects by providing regulation-based guidance to ensure environmental and regulatory compliance. Environmental stewardship is holding myself and the organization accountable to do the right thing, the first time, with the aim to continuously look at ways to improve our interactions with the environment."

28 Energy Northwest 2011 Annual Report COMMUNITY SERVICE D uring fiscal year 2011, Energy Northwest increased community outreach efforts to strengthen the agency's image as a regional energy leader and to educate key audiences about energy issues facing Washington state.

The need to reach stakeholders beyond the immediate support base in the Tri-Cities is of vital interest to the agency, especially as it undertakes Columbia From the CEO to the newest employee, Energy Generating Station's license renewal effort and explores new power generation Northwest cares about development for member utilities in other parts of the region.

the Tri-Cities community One of the community and educational outreach opportunities Energy Northwest through direct, hands-on involvement. participated in this past fiscal year included energy conservation and efficiency education trivia, which appeared across Washington state in movie theaters, newspapers, online, and ran on radio and television stations.

Energy Northwest participated in several energy and environmentally related events such as the Sustainable Energy and Environmental Expo; the Hanford Health and Safety Expo; Harvesting Clean Energy; Energy Independence Day; and Imagine Tomorrow, a Washington State University science and energy-oriented event for high school students.

Energy Northwest employees also spoke to a wide range of audiences, including a workshop in Olympia for the Washington state House Technology, Energy and Communications Committee to inform legislators about nuclear energy, Energy Northwest, its projects and people.

Additionally, Energy Northwest has been a member of the local Tri-Cities business community for more than 50 years. As a major non-Hanford employer, the agency strongly believes in the importance of supporting the communities and non-profit agencies where employees work and live.

4 CINDY WAY 10CRAIG WITTE "Our 2010 Head Start campaign was our The professionals at Energy Northwest 30th year. We could not accomplish this are experts in many fields, which year after year without the overwhelming benefits the organization in the daily generosity of our employees. Our operation of multiple power generation employees enjoy the experience just projects. But it can also benefit the as much as the kids who receive the community. When a local non-profit gifts. Our internal committee volunteers organization needed help in the field work diligently through November of architecture, Craig Witte was able and December, and with the folks at to step up and volunteer his expertise.

Head Start, to ensure all children are Energy Northwest is proud to support "adopted," all gifts have been received, its employees who volunteer their time and all parties are a success." - and their knowledge - to make the community a better place to live.

29 The agency officially sponsors three vital community organizations: Head Start, United Way and March of Dimes.

Head Start United Way In fiscal year 2011, Energy Northwest celebrated the Approximately 171 employees donated nearly $79,000 30th anniversary of supporting the Benton Franklin Head to United Way in 2010. And four stepped forward to Start program (since 1980). join the United Way Vintner Club leadership program Each year, Energy Northwest commits to adopting for a total of 29 employees currently in the Vintner every Head Start child for the holiday season. In fiscal Club. These pledges help provide hot meals to elderly 2011, nearly 400 children were "adopted" by employees. neighbors, fund youth developmental programs, provide Each child provided a wish list to Santa and received disaster relief planning for our community and build self-at least one toy and one clothing item. The gifts were esteem in at-risk youths.

distributed by Energy Northwest employees, playing Santa and his elves, during various Head Start parties. March of Dimes The Head Start program is the most successful and Energy Northwest's "power marchers" team raised longest-running school readiness program in the U.S. It $21,020 this year for the March of Dimes, exceeding the provides comprehensive education, health, nutrition and goal and once again demonstrating the philanthropy and parental involvement services to low-income children generosity of employees. About 35 walkers from Energy and their families. Northwest, along with their spouses, children and pets, More than 25 million pre-school aged children have participated in the 2011 Tri-Cities March for Babies benefited from Head Start and the number of children event that helps support neo-natal birth centers and served in Benton and Franklin counties has more than local families in need.

doubled in the past two decades.

Head Unite 1,1Ivl I StartIM Other activities Energy Northwest participated in include:

4 Earth Day Clean-up Energy Northwest and AREVA employees worked together for the community during a volunteer Earth Day clean-up project. In all, 21 Energy Northwest employees participated, filling about 60, 40-gallon bags with paper, plastic, cans and other debris.

Energy Northwest is committed to taking care of the environment.

Energy Northwest's commitment is formally certified by the International Organization for Standardization, which underscores the agency's compliance to international environmental standards and provides third-party validation that Energy Northwest's environmental stewardship and management efforts are both effective and sustainable.

The clean-up activity reflects both organizations' commitment to the Tri-Cities community and the environment.

Member Forum Climate change, wind power and the legislative energy landscape were key topics during the Energy Northwest 13th annual Member Forum.

Headlining the event was Dr. Patrick Moore, a co-founder of Greenpeace and staunch commercial nuclear power advocate.

More than 90 commissioners, managers and other representatives from the agency's 28 member utilities attended the annual event, which is an important venue for a regional public power community that serves more than 1.5 million ratepayers across Washington state. The forum provides utility representatives an opportunity to meet and listen to speakers on regional and national energy issues, and to discuss solutions to key challenges facing public power. Participants also have the opportunity to network with other members and utility leaders.

30 Energy Northwest 2011 Annual Report PEOPLE GENERATING POWERFUL SOLUTIONS S..'

I RAVIS BLST JOHN STEIGERS TRACEY BROWN

FINANCIAL 0@ DATA &

INFORMATION

32 [nerp~ North~wets 2011 AnnuaL Report Management Report on Responsibility for Financial Reporting Energy Northwest management is responsible for Energy Northwest maintains an ongoing internal preparing the accompanying financial statements and for auditing program that provides for independent their integrity. They were prepared in accordance with assessment of the effectiveness of internal controls, and generally accepted accounting principles applied on a for recommendations of possible improvements thereto.

consistent basis, and include amounts that are based on In addition, PricewaterhouseCoopers LLP has considered management's best estimates and judgments. the internal control structure in order to determine The financial statements have been audited by their auditing procedures for the purpose of expressing PricewaterhouseCoopers LLP, Energy Northwest's an opinion on the financial statements. Management has independent auditors. Management has made available considered recommendations made by the internal auditor to PricewaterhouseCoopers LLP all financial records and and PricewaterhouseCoopers LLP concerning the control related data, and believes that all representations made to procedures and has taken appropriate action to respond PricewaterhouseCoopers LLP during its audit were valid and to the recommendations. Management believes that, as of appropriate. June 30, 2011, internal control procedures are adequate.

Management has established and maintains internal control procedures that provide reasonable assurance as to M.E. Reddemann B.J. Ridge the integrity and reliability of the financial statements, the Chief Executive Officer Vice President, protection of assets from unauthorized use or disposition, Chief Financial Officer/

and the prevention and detection of fraudulent financial Chief Risk Officer reporting. These control procedures provide appropriate division of responsibility and are documented by written policies and procedures.

Audit, Legal and Finance Committee Chairman's Letter The Executive Board's Audit, Legal and Finance The Committee met regularly with Energy Northwest's Committee (Committee) is composed of 11 independent internal auditor and convened periodic meetings with the directors. Members of the Committee are Chair Larry independent auditors to discuss the results of their audit, Kenney, Marc Daudon, Dan Gunkel, Jack Janda, Skip Orser, their evaluations of Energy Northwest's internal controls, Will Purser, Dave Remington, Lori Sanders, Tim Sheldon, and the overall quality of Energy Northwest's financial Kathy Vaughn and Sid Morrison, Ex-Officio. The Committee reporting. The meetings were designed to facilitate any held 10 meetings during the fiscal year ending June 30, private communications with the Committee desired by the 2011. internal auditor or independent auditors.

The Committee oversees Energy Northwest's financial reporting process on behalf of the Executive Board. In Larry Kenney fufilling its responsibilities, the Committee discussed with Chairman, the internal auditor and the independent auditors the Audit, Legal and Finance Committee overall scope and specific plans for their respective audits, and reviewed Energy Northwest's financial statements and the adequacy of Energy Northwest's internal controls.

I f() 33 Report of Independent Auditors To the Executive Board of Energy Northwest:

In our opinion, the financial statements of the business-type activities of Energy Northwest (the "Company"), including the Columbia Generating Station, Packwood Lake Hydroelectric Project, Nuclear Project No. 1, Nuclear Project No. 3, the Business Development Fund, the Nine Canyon Wind Project, and the Internal Service Fund which collectively comprise the Company's balance sheets, statements of revenues, expenses and changes in net assets, and of cash flows, present fairly, in all material respects, the respective financial position of the business-type activities of the Company at June 30, 2011, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.

The Management's Discussion and Analysis listed in the table of contents is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

LI-,"

Portland, Oregon October 27, 2011

34 [nervy Nor thwest 201 1 Annual, Report 000 Energy Northwest Management's Discussion & Analysis Energy Northwest is a municipal corporation and joint and Changes in Net Assets, and Statements of Cash Flows operating agency of the State of Washington. Each Energy for each of the business units, and Notes to Financial Northwest business unit is financed and accounted for Statements.

separately from all other current or future business assets. The Balance Sheets present the financial position of The following discussion and analysis is organized by each business unit on an accrual basis. The Balance Sheets business unit. The management discussion and analysis of report financial information about construction work the financial performance and activity is provided as an in progress, the amount of resources and obligations, introduction and to aid in comparing the basic financial restricted accounts and due to/from balances for each statements for the Fiscal Year (FY) ended June 30, 2011, business unit. (See Note 1 to the Financial Statements.)

with the basic financial statements for the FY ended June The Statements of Revenues, Expenses, and Changes 30, 2010. in Net Assets provide financial information relating to all Energy Northwest has adopted accounting policies and expenses, revenues and equity that reflect the results of principles that are in accordance with Generally Accepted each business unit and its related activities over the course Accounting Principles (GAAP) in the United States of of the Fiscal Year. The financial information provided aids America. Energy Northwest's records are maintained as in benchmarking activities, conducting comparisons to prescribed by the Governmental Accounting Standards evaluate progress, and determining whether the business Board (GASB) and, when not in conflict with GASB unit has successfully recovered its costs.

pronouncements, accounting standards prescribed by the The Statements of Cash Flows reflect cash receipts and Financial Accounting Standards Board (FASB). (See Note 1 disbursements and net changes resulting from operating, to the Financial Statements.) Effective July 1, 2009, the financing and investing activities. The Statements of Cash FASB issued the Accounting Standards Codification (ASC). Flows provide insight into what generates cash, where the The ASC does not change GAAP and does not have an cash comes from, and purpose of cash activity.

effect on Energy Northwest's financial position or results The Notes to Financial Statements present disclosures of operation. Technical references to GAAP included in this that contribute to the understanding of the material report are provided under the new ASC structure. presented in the financial statements. This includes, but Because each business unit is financed and accounted is not limited to, Schedule of Outstanding Long-Term for separately, the following section on financial Debt and Debt Service Requirements (See Note 5 to the performance is discussed by business unit to aid in analysis Financial Statements), accounting policies, significant of assessing the financial position of each individual balances and activities, material risks, commitments and business unit. For comparative purposes only, the table obligations, and subsequent events, if applicable.

on the following page represents a memorandum total The basic financial statements of each business unit only for Energy Northwest, as a whole, for FY 2011 and along with the notes to the financial statements and FY 2010 in accordance with GASB No. 34, "Basic Financial management discussion and analysis should be used to Statements-and Management's Discussion and Analysis-for provide an overview of Energy Northwest's financial State and Local Governments." performance. Questions concerning any of the information The financial statements for Energy Northwest include provided in this report should be addressed to Energy the Balance Sheets, Statements of Revenues, Expenses, Northwest at PO Box 968, Richland, WA, 99352.

35 Combined Financial Information June 30, 2011 and 2010 (in thousands) 2010 2011 Change Assets Current Assets 189,918 $ 225,932 $ 36,014 Restricted Assets Special Funds 93,454 118,860 25,406 Debt Service Funds 421,110 459,183 38,073 Net Plant 1,485,233 1,519,569 34,336 Nuclear Fuel 196,379 266,949 70,570 Deferred Charges 4,306,114 4,027,612 (278,502)

TOTAL ASSETS $ 6,692,208 $ 6,618,105 $ (74,103)

Current Liabilities 374,924 $ 435,218 $ 60,294 Restricted Liabilities Special Funds 141,811 149,430 7,619 Debt Service Funds 145,396 150,832 5,436 Long-Term Debt 6,022,980 5,875,190 (147,790)

Other Long Term Liabilities 12,373 14,028 1,655 Deferred Credits 6,020 5,820 (200)

Net Assets (11,296) (12,413) (1,117)

TOTAL LIABILITIES AND NET ASSETS $ 6,692,208 $ 6,618,105 $ (74,103)

Operating Revenues $ 475,985 $ 552,292 $ 76,307 Operating Expenses 360,876 415,020 54,144 Net Operating Revenues 115,109 137,272 22,163 Other Income and Expenses (113,498) (138,790) (25,292)

(Distribution) & Contribution (650) 1,000 1,650 Beginning Net Assets (12,856) (11,895) 961 ENDING NET ASSETS $ (11,895) $ (12,413) $ (518)

36 Eneray Noi~Kt0 Ai[

Columbia Generating Station The Columbia Generating Station (Columbia) is Columbia Generating Station wholly owned by Energy Northwest and its Participants COST OF POWER - Cents/kWh and operated by Energy Northwest. The plant is a 1,150-megawatt electric (MWe, Design Electric Rating, FY2011 5.69 net) boiling water nuclear power plant located on the FY201C 3.74 Department of Energy's (DOE) Hanford Site north of Richland, Wash.

FY2009 4.94 Columbia produced 7,247 gigawatt-hours (GWh) of electricity in FY 2011, as compared to 8,124 GWh of 2.75 electricity in FY 2010, which included economic dispatch of 99 and 119 GWh respectively. Columbia set a record FY2007 3.69 run of 505 days which ended when Columbia entered its 0 1 2 3 4 5 6 longest planned refueling cycle (R-20) of 78 days on April 1. The planned outage extended past the 78 days and into September of FY 2012. The extended outage, along with the record run occurring mostly in FY 2010 were year to year depending on various factors such as refueling the factors in the decreased generation of 10.8 percent in outages and other planned activities. The cost of power FY 2011. increase of 52.1 percent from FY 2010 was due to the Columbia's cost performance is measured by the cost of planned outage and the impact of the extension of the power indicator. The cost of power for FY 2011, was 5.69 outage through the end of the fiscal year.

cents per kilowatt-hour (kWh) as compared with 3.74 cents per kWh in FY 2010. The industry cost of power fluctuates Balance Sheet Analysis The net increase to Utility Plant (Plant) and

.. Construction Work In Progress (CWIP) from FY 2010 to FY 2011 (excluding nuclear fuel) was $34.4 million. The Columbia Generating Station additions to Ptant/CWIP of $13.3 million were additions NET GENERATION - GWhrs to Plant of $59.5 million offset by retirements of $86.0 S7,247 million and an increase to CWIP of $39.8 million. The FY2011 remaining change of $21.1 million to net Plant was a result FY2010O 8,124 of a decrease in accumulated depreciation for retirement of the main condenser unit, as part of R-20 ($61.0 million)

FYI 7,725 and adjustment for a historical correction to accumulated depreciation and net book value of $34.3 million (See FY2( 9,594 Note 2 to Financial Statements). These items were offset against the normal period impacts for FY 2011 of $66.6 FY200; 8,016 million resulting in the net decrease to accumulated 0 2,000 4,000 6,000 8,000 10,000 depreciation.

37 The gross addition of $101.1 million to CWIP in FY 2011 accounted for the remainder of the change. Columbia was captured in six major projects of at least $2.0 million: was issued a standard 40-year operating license by the Main Condenser Replacement, Main Generator Rotor, Non- Nuclear Regulatory Commission (NRC) in 1983. On January Segmented Bus Hardware, Turbine Blade Replacement, 19, 2010 Energy Northwest submitted an application Main Transformer, and Cooling Tower Fitl Replacement. to the NRC to renew the license for an additional 20 These projects resulted in 81 percent of CWIP activity. years, thus continuing operations to 2043. The estimated The remaining 19 percent were made up of 100 separate duration of the license renewal process is 20 to 24 months projects. from acceptance of the application; notice is expected Nuclear fuel, net of accumulated amortization, in FY 2013. The accumulated decommissioning and site increased $70.6 million from FY 2010 to $267.0 million restoration accrued costs related to Columbia will be for FY 2011. Fuel amounts used for reload increased affected by any relicensing decisions. These costs are not

$47.8 million, fuel removed for cooling increased $53.5 currently billed to Bonneville Power Administration (BPA).

million. These increases were offset by decreases in fuel BPA holds and manages a trust fund for the purpose of loan amount of $3.4 million and $27.3 million in current funding decommissioning and site restoration. (See year amortization. Note 12 to the Financial Statements.)

Current assets increased $41.0 million in FY 2011 to Current Liabilities decreased $131.1 million in

$193.7 million. The main cause of this increase was due FY 2011 to $87.5 million mostly due to the decrease of to timing of FY 2012 obligations due July 1 and timing $140.7 million in current maturities of long-term debt.

of transfers between current and restricted funds. This This decrease was offset by an increase of $9.6 million in resulted in an increase of $25.9 million. Decreases year-end obligations related to the extended R-20 activity.

in normal year timing and obligations resulted in the Restricted Liabilities (Special Funds and Debt Service) remaining change of $0.3 million. increased $30.0 million in FY 2011 to $225.6 million due to Special funds increased $26.3 million to $104.2 million bond activity.

in FY 2011 due to the FY 2011 bond financing plan and Long-Term Debt increased $176.1 million in FY 2011 schedule of construction costs for these funds in FY 2011. from $2.40 billion to $2.57 billion due to the FY 2011 The debt service funds decreased $137.1 million in refunding issuance. Current maturing debt is not included.

FY 2011 to $62.8 million. The decrease is due in part In FY 2011, new debt was issued for various Columbia to the maturity schedule of outstanding debt along with operational and construction projects, the extension of restructuring and funding activities associated with the some maturing debt, the early redemption of certain Spring 2011 Bond Sate. callable maturities, and to pay for a portion of the costs of Deferred Charges increased $32.5 million in FY 2011 issuing debt.

from $821.7 million to $854.2 million. Components of Other long-term liabilities increased $1.6 million in this increase were changes in Costs in Excess of Billings FY 2011 to $14.0 million related to nuclear fuel cask related to the net effect of payment of current maturities activity.

and refunding activity related to available debt of $24.9 million. There was also a slight decrease to unamortized debt expense of $1 .6 million due to refunding activity.

Relicensing activities of $6.0 million for Columbia

38 E ' o%,4 S

Statement of Operations Analysis Other Income and Expenses increased $19.6 million Columbia is a net-billed project. Energy Northwest from FY 2010 to $133.3 million net expenses in FY 2011.

recognizes revenues equal to expense for each period on Expenses associated with the retirement of the condenser net-billed projects. No net revenue or loss is recognized contributed to $25.0 million of the increase. The loss and no equity is accumulated. on the condenser was offset by gains of $6.4 million for Operating expenses increased $54.5 million from enrichment services and loaned fuel. The remaining net FY 2010 to $388.9 million from the effects of the planned changes in other income and expenses of $3.0 million R-20 78 day outage activity combined with the extension resulted from increased cost due to bond activity of $4.4 of the outage through fiscal year end. Operations and million, offset by increased investment income of $0.2 Maintenance costs increased $74.6 million, which is million due to market condition and increases to non-attributable to the increased maintenance projects generation related revenue of $3.2 million.

performed during R-20. The increase to Operations and Columbia's total operating revenue increased from Maintenance costs was offset by lower nuclear fee costs of $448.1 million in FY 2010 to $522.2 million in FY 2011. The

$5.5 million and generation taxes of $0.5 million which are increase of $74.1 million was due to the originally planned a direct result of decreased generation. Administrative 78 day R-20 activities and the impacts of the extension of and general expenses decreased $5.2 million; drivers for the outage through the end of the fiscal year. R-20 was this change were a decrease of $8.7 million in litigation originally budgeted for $153.7 million and 78 days. Actual costs related to the spent fuel project (see note 13 for cost and days through June 30, 2011 were $171.6 million further discussion), offset by increases of $3.5 million and 85 days. R-20 activities continued through September for staffing requirements, related benefit programs and of FY 2012. Columbia officially synced to the grid on regulatory requirements. September 27, 2011, signaling the end of R-20.

Columbia's insurer, NEIL, paid BPA $3.4 million for settlement of the final payment of the reactor building siding repair which resulted from costs incurred for this and previous fiscal years. Damage was incurred Columbia Generating Station in February 2008. The $3.4 million received in FY 2011 TOTAL OPERATING COSTS represents the final portion of the $14.0 million dollar (dollars in thousands)

Total Expenses total claim that was reimbursable.

FY2011 522,156 FY2010 448,075 FY2009 519,759 FY2008' 428,993 FY2007 436,972 o $100,000 $200,000 $300,000 $400,000 $500,000 N Operating Expenses U Other Income I Expenses

39 Packwood Lake Hydroelectric Project The Packwood Lake Hydroelectric Project (Packwood)

Packwood Lake Hydroelectric Project is wholly owned and operated by Energy Northwest.

COST OF POWER - Cents/kWh Packwood consists of a diversion structure at Packwood Lake and a powerhouse located near the town of FY 2011 1.59 Packwood, Wash. The water is carried from the Lake to the powerhouse through a five-mite long buried tunnel and FY201 ( 1.82 drops nearly 1,800 feet in elevation. Packwood produced 107.92 GWh of electricity in FY 2011 versus 86.07 GWh in FY 200 1.62 FY 2010. The 25.4 percent increase in generation can be attributed to increased water availability compared to the FY2O0N 3.87 previous year. FY 2011 was the 4th highest generation in the last 18 years while FY 2010 was near the 90.5 GWh 46 FY2001 1.31 year average. 0.5 LO 2 2.5 3.0 3.5 4.0 Packwood's cost performance is measured by the cost of power indicator. The cost of power for FY 2011 was $1.59 cents/kWh as compared to $1.82 cents/kWh Balance Sheet Analysis in FY 2010. The cost of power fluctuates year-to-year Total assets decreased $0.2 million from FY 2010, with depending on various factors such as outage, maintenance, the drivers being a decrease to cash due to operations of generation, and other operating costs. The FY 2011 cost of $0.1 million and a decrease to plant of $0.1 million with power decrease of 12.6 percent was a result of increased $22k related to historical adjustment to accumulated generation from FY 2010 partially offset by increased costs depreciation and net book value of assets (See Note 2 to in FY 2011 due to maintenance and miscellaneous hydro Financial Statements). The corresponding increases to costs. total liabilities resulted from year end costing recognition.

Packwood has incurred $3.7 million in relicensing costs through FY 2011. These costs are shown as Deferred Charges on the Balance Sheet. Packwood has been Packwood Lake Hydroelectric Project operating under a 50-year license issued by the Federal Energy Regulatory Commission (FERC), which expired on NET GENERATION - GWhrs February 28, 2010. Energy Northwest submitted the Final License Application (FLA) for renewal of the operating FY2011 107.92 license to FERC on February 22, 2008. On March 4, FY2010 86.07 2010, FERC issued a one-year extension to operate under the original license which is indefinitely extended for FY2009 ".934 continued operations until formal decision is issued by FERC and a new operating license is granted. As of June FY2008 77.47 30, 2011, Packwood is relicensed under this extended agreement.

FY 2007 97.80 0 20 40

40 Energy Northwest 2011 AnnMat Report Statement of Operations Analysis The agreement with Packwood participants obligates of power hourly, known as Priority Firm Energy (PFE).

them to pay annual costs and to receive excess revenues. The amount varies monthly based on historical average (See Note 1 to the Financial Statements.) Accordingly, generation. If the project cannot deliver PFE, replacement Energy Northwest recognizes revenues equal to expenses power must be purchased on the spot market. Electrical for each period. No net revenue or loss is recognized and energy from Packwood is currently sold directly to no equity is accumulated. Snohomish PUD which purchases all of the output Operating expenses increased $0.2 million from FY 2010 directly. The power purchase agreement (PPA) provides a amounts. Most costs remained steady from FY 2010 to FY predetermined rate for all firm delivery, per the contract 2011; the increased costs related to repairs of the turbine schedule and the Mid-Columbia (Mid-C) based rate for any runner ($44k), purchases of backup batteries ($48k), and deliveries above firm, or secondary power. Conversely, if additional project management costs ($175k). Remaining there is excess capacity per the PPA with Snohomish PUD, changes in costs were increases to generation tax related Energy Northwest sells the excess on the open market to the generation increase (S8k), increases resulting from for additional revenues to be included as part of the PPA staffing and related benefits ($10k), and changes to power with the participants of the project. (See Note 6 to the and depreciation expenses ($2k). Overall increases were Financial Statements.)

offset by lower operating and maintenance costs of $87k. Other Income and Expenses increased from a net loss of Packwood is obligated to supply a specified amount $15k in FY 2010 to a net toss of $23k in FY 2011. The $8k increase in net loss from other income and expenses was due to increased expenses related to the line of credit and Packwood Lake Hydroelectric Project lower investment earnings.

TOTAL OPERATING COSTS (dollars in thousands)

Total Expenses FY2011 1,742 FY 2010

- I- 1,535 FY2009

-I- 1,641 2,962 FY 2007 1,323 0 500 1000 1500 2000 2500 3000 U Operating Expenses U Other Income / Expenses

41 o Nuclear project No. 1 Energy Northwest wholly owns Nuclear Project No. 1. Statement of Operations Analysis Nuclear Project No. 1, a 1,250-MWe plant, was placed in Other Income and Expenses showed a net decrease to extended construction delay status in 1982, when it was expenses of $2.0 million from $86.2 million in FY 2010 65 percent complete. On May 13, 1994, Energy Northwest's to $84.2 million in FY 2011. Investment revenue stayed Board of Directors adopted a resolution terminating steady, bond related expenses decreased $2.3 million Nuclear Project No. 1. All funding requirements are net- but were offset by an increase in $0.3 million for plant billed obligations of Nuclear Project No. 1. Termination preservation and decommissioning costs.

expenses and debt service costs comprise the activity on Nuclear Project No. 1 and are net-billed.

Balance Sheet Analysis Long-term debt decreased $176.7 million from $1 .799 billion in FY 2010 to $1 .622 billion in FY 2011 as a result of maturing debt per schedule. The decrease in tong term debt was offset by the $90.5 million increase in the current debt per the debt maturity schedule.

Nuclear project No. 3 Nuclear Project No. 3, a 1,240-MWe plant, was placed Balance Sheet Analysis in extended construction delay status in 1983, when it was Long-term debt decreased $133.4 million from $1 .681 75 percent complete. On May 13, 1994, Energy Northwest's billion in FY 2010 to $1.548 billion in FY 2011, as a result Board of Directors adopted a resolution terminating of maturing debt per schedule. The decrease in long Nuclear Project No. 3. Energy Northwest is no longer term debt was offset by the $85.4 million increase in responsible for any site restoration costs as they were the current debt per the debt maturity schedule. The transferred with the assets to the Satsop Redevelopment remaining change of $9.3 million was related to year-Project. The debt service related activities remain and are end timing of planned expenses and effects of net-billing net-billed. (See Note 13 to the Financial Statements.) operations.

Statement of Operations Analysis Overall expenses decreased $2.0 million from FY 2010 related to bond activity with Investment income steady with previous year levels.

42 Enetvy Northwest 2011 Anm~ Ik~

Business Development Fund Energy Northwest was created to enable Washington Statement of Operations Analysis public power utilities and municipalities to build and Operating Revenues in FY 2011 totaled $12.1 million operate generation projects. The Business Development as compared to FY 2010 revenues of $10.6 million, an Fund (BDF) was created by Executive Board Resolution increase of $1.5 million. The majority of the increase was No. 1006 in April 1997, for the purpose of holding, in two sectors, Environmental t Information ($0.8 million) administering, disbursing, and accounting for Energy and Professional Services ($0.6 million). Generation has a Northwest costs and revenues generated from engaging in small increase of $0.1 million to account for the remaining new energy business opportunities. change in revenue.

The BDF is managed as an enterprise fund. Four Other Income and Expenses decreased $3.5 million from business lines have been created within the fund: General $4.5 million in net revenues in FY 2010 to net revenue of Services and Facilities, Generation, Professional Services, $1.0 million FY 2011. Major drivers for the overall change and Business Unit Support. Each line may have one or more from the previous year were a $1.4 million power sales programs that are managed as a unique business activity. settlement in FY 2010 which did not recur in 2011. In FY 2011 there was a $0.9 million decrease to power sales Balance Sheet Analysis options (see note 14). These major drivers were offset by Total assets decreased $0.9 million from $9.5 million a $1.2 million increase in miscellaneous reimbursements.

in FY 2010 to $8.6 million in FY 2011. Net Plant decreased The Business Development Fund receives contributions

$0.5 million, due to increases of $0.1 million from Plant from the Internal Service Fund to cover cash needs during activity offset by a decrease of $0.6 million due the startup periods. Initial startup costs are not expected historical adjustment made to accumulated depreciation to be paid back and are shown as contributions. As an and net book value (See Note 2 to Financial Statements), operating business unit, requests can be made to fund and $0.1 of accumulated depreciation. Current assets incurred operating expenses. In FY 2011 there were increased $0.5 million due to current funding of no contributions (transfers); in FY 2010, the Business operations. The remaining change was due to a decrease Development Fund received contributions (transfers) of in deferred charges of $1.0 million related to power $2.5 million.

options derivatives (see note 14). Liabilities remained steady between fiscal years. Net Assets decreased $1.0 million from $7.9 million in FY 2010 to $6.9 million in FY 2011 due to the decrease in value of power option derivatives.

43 Nine Canyon Wind Project The Nine Canyon Wind Project (Nine Canyon) is wholly on various factors such as wind totals and unplanned owned and operated by Energy Northwest. Nine Canyon maintenance. The decrease of 16.8 percent cost of is located in the Horse Heaven Hills area southwest of power was a result of the record generation coupled with Kennewick, Wash. Electricity generated by Nine Canyon lower operations and maintenance costs due to no major is purchased by Pacific Northwest Public Utility Districts component outages.

(purchasers). Each of the purchasers of Phase I, Phase II, and Phase III have signed a power purchase agreement which is part of the 2nd Amended and Restated Nine Canyon Wind Project Power Purchase Agreement which now has an end date of 2030. Nine Canyon is connected to Nine Canyon Wind Project the Bonneville Power Administration transmission grid via a substation and transmission lines constructed by Benton NET GENERATION - GWhrs County Public Utility District.

Phase I of Nine Canyon, which began commercial FY2011 264.7 4 operation in September 2002, consists of 37 wind turbines, each with a maximum generating capacity of approximately FY2010 226.7 3 1.3 MW, for an aggregate generating capacity of 48.1 MW.

FY2009 226.2 :7 Phase 11of Nine Canyon, which was declared operational in December 2003, includes 12 wind turbines, each with a FY2008 237.3 '3 maximum generating capacity of 1.3 MW, for an aggregate generating capacity of approximately 15.6 MW. Phase III FY2007 156.7 '1 of Nine Canyon, which was declared operational in May 50 100 150 200 250 300 2008, includes 14 wind turbines, each with a maximum generating capacity of 2.3 MW, for an aggregate generating capacity of 32.2 MW. The total Nine Canyon generating Nine Canyon Wind Project capability is 95.9 MW, enough energy for approximately COST OF POWER - Cents/kWh 39,000 homes.

Nine Canyon produced 264.74 GWh of electricity in FY2011 6.56 FY 2011 versus 226.73 GWh in FY 2010. FY 2011 was the highest generation in the history of the project. FY2010 7.88 Nine Canyon's cost performance is measured by the FY2009 7.79 cost of power indicator. The cost of power for FY 2011 was

$6.56 cents/kWh as compared to $7.88 cents/kWh in FY FYI 6.05 2010. The cost of power fluctuates year to year depending FY200; 8.20 0 2 4 6 8 10

44 Energy Northwest 2011 Annual Report Balance Sheet Analysis Total Assets decreased $5.6 million from $133.0 million wind technician costs and decreased need for expenditures in FY 2010 to $127.4 million in FY 2011. Major drivers on main bearings as compared to FY 2010.

for the change in assets was a decrease of $6.9 million Other Income and Expenses increased $2.1 million from due to plant activity and a small adjustment related to a $4.5 million in net expenses FY 2010 to $6.6 million in FY historical adjustment to accumulated depreciation and net 2011. Other revenues decreased due to FY 2010 showing a book value of assets (See Note 2 to Financial Statements). $2.0 million settlement for bearing replacement on Phase I The remaining change was an increase to cash of $1.3 and II. There was a net cost to Nine Canyon of $0.1 million million from operations. There was an overall decrease for BPA scheduling. Investment income associated with to liabilities of $4.6 million with a decrease to long-term bond funds decreased $0.1 million due to market conditions debt of $4.7 million, increases to current debt maturities with tower bond related expenses of $0.2 accounting for of $0.3 million, decreases to accrued debt-related interest the remainder of other revenues and expenses. Net losses of $0.1 million and other deferred credits of $0.1 million. of $1.2 million for FY 2011 were incurred and are consistent The decrease in Net Assets was $1.2 million in FY 2011 with the expectations of a gradual revenue recovery of as compared to $0.7 million in FY 2010. The decline operating costs. A declining net asset balance is expected experienced in previous years is continuing, though the in future years until bond principal payments exceed trend is consistent with the rate stabilization approach annual depreciation requirements.

for Nine Canyon planning. The original plan anticipated In previous years Energy Northwest has accrued, as operating at a loss in the early years and gradually income (contribution) from DOE, REPI payments that increasing the rate charged to the purchasers to avoid a enable Nine Canyon to receive funds based on generation large rate increase after the Renewable Energy Production as it applies to the REPI bill. REPI was created to promote Incentive (REPI) expires. The REPI incentive expires 10 increases in the generation and utilization of electricity years from the initial operation startup date for each from renewable energy sources and to further the advances phase. Reserves that were established are used to facilitate of renewable energy technologies. Energy Northwest had this plan. The rate plan in FY 2008 was revised to account no REPI activity for FY 2011.

for the shortfall experienced in the REPI funding and to This program, authorized under Section 1212 of the provide a new rate scenario out to the 2030 project end Energy Policy Act of 1992, provides financial incentive date. Energy Northwest did not receive REPI funding in FY payments for electricity produced and sold by new 2011 and is not anticipating future REPI incentives. qualifying renewable energy generation facilities. Nine Canyon did not receive funding for FY 2010. The payment Statement of Operations Analysis stream from Nine Canyon participants and the REPI Operating Revenues increased $0.5 million from $15.8 receipts were projected to cover the total costs over the million in FY 2010 to $16.3 million in FY 2011. The project purchase agreement. Continued shortfalls in REPI funding received revenue from the billing of the purchasers at an for the Nine Canyon project led to a revised rate plan to average rate of $60.69 per MWh for FY 2011 as compared incorporate the impact of this shortfall over the life of the to $66.81 per MWh for FY 2010, which is reflective of the project. The billing rates for the Nine Canyon participants implementation of the revised rate plan in FY 2008 to increased 69 percent and 80 percent for Phase I and Phase account for REPI funding shortfalls and costs of operations. II participants respectively in FY 2008 in order to cover The slight increase in operating revenues was due to the total project costs, projected out to the 2030 proposed planned MWh budgeted rate. Operating costs decreased project end date. The increases for FY 2008 were a change from $12.0 million in FY 2010 to $10.9 million in from the previous plan where a 3 percent increase each FY 2011. Decreased operating costs were due to lower year over the life of the project was projected. Going

45 forward, the increase or decrease in rates will be based Nine Canyon Wind Project on cash requirements of debt repayment and the cost of TOTAL OPERATING COSTS (dollars in thousands) operations. Phase III started with an initial planning rate of Total Expenses

$49.82 per MWh which increased at 3 percent per year for FY. 17,466 three years. In year six (FY 2013) the rate will increase to a rate that will be stabilized over the life of the project.

FY20' 16,506 Possible adjustments may be necessary to future rates depending on operating costs and REPI, similar to Phase I 17,632 FY200i and II.

FY200W 15,484 FY2001 12,672 S3,000 $6,000 $9,000 $12,000 $15,000 U Operating Expenses E Other Income / Expenses Internal Service Fund The Internal Service Fund, formerly the General Fund, $0.3 million in restricted assets due to maturity schedule was established in May 1957. The Internal Service Fund and escrow requirements processing schedule, and 6) an provides services to the other funds. This fund accounts increase to operational activities of $0.2 million.

for the central procurement of certain common goods and The net increase in Net Assets and Liabilities is due to services for the business units on a cost reimbursement increases in Accounts Payable and Payroll related liabilities basis. (See Note 1 to Financial Statements.) of $9.3 million due to year-end timing, an increase to Sales Tax Payable of $4.0 million due to off-cycle year fuel Balance Sheet Analysis activity, an increase of $1.9 million in retention payable Total Assets for FY 2011 increased $18.0 million from related to increased public works activity, a $1.7 million

$37.6 million in FY 2010 to $55.6 million in FY 2011. The increase in due to other business units, and a $0.3 million six major items for the change were 1) increases to net decrease to bearer bond activity.

plant of $7.4 million, reflecting $9.6 million of an historical adjustment to plant activity and $2.2 million decrease due Statement of Operations Analysis to period activity, 2) increase of $8.2 million to Cash for Net Revenues for FY 2011 decreased $29k from FY anticipated year end check and warrant redemption, 3) an 2010. The decrease was due to increased costs for lease increase in performance fee of $1.0 million for payments activity of $36k, decrease in investment returns of $9k, and from other business units, 4) an increase of $0.9 million to increases to depreciation of $467k offset by increases in Personal Time Bank investments and cash, 5) an increase of revenue due to operations of $484K.

46 Energy Northwest 2011 AnLual Report M@0 B alance Sheets As of June 30, 2011 (dollars in thousands)

Columbia Packwood Lake Business Generating Hydroelectric Nuclear Project Nuclear Project Development Nine Canyon Internal Service 2011 Station Project No.1* No.3* Fund Wind Project Subtotal Fund Combined Total ASSETS CURRENT ASSETS Cash $ 39,100 $ 861 $ 69 $ 287 $ 1,357 $ 9,671 $ 51,345 $ 13,680 $ 65,025 Available-for-sale investments 13,858 3,137 7,560 4,737 - 29,292 23,481 52,773 Accounts and other receivables 802 471 501 194 1,968 92 2,060 Due from other business units 4,567 16 255 87 699 - 5,624 362 Due from other funds 30,669 1,038 26,248 951 58,906 Materials and supplies 103,099 - 103,099 103,099 Prepayments and other 1,645 67 - - - 114 1,826 1,149 2,975 TOTAL CURRENT ASSETS 193,740 1,415 4,499 34,182 7,294 10,930 252,060 38,764 225,932 RESTRICTED ASSETS (NOTE 1)

Special funds Cash 1,125 - 150 1,168 - 5 2,448 293 2,741 Available-for-sale investments 102,846 3,096 5,608 1,549 113,099 2,699 115,798 Accounts and other receivables 194 55 72 - 321 321 Debt service funds Cash 42,747 97,458 18,545 7,831 166,581 166,581 Available-for-sale investments 20,101 114,877 146,268 11,172 292,418 292,418 Accounts and other receivables - - 184 - 184 184 TOTAL CURRENT RESTRICTED ASSETS 167,013 - 215,636 171,845 20,557 575,051 2,992 578,043 NONCURRENT ASSETS Utility Plant (Note 2)

In service 3,594,468 13,625 - - 2,065 134,447 3,744,605 48,961 3,793,566 Not in service - - 25,253 - 25,253 25,253 Construction work in progress 185,801 - - 185,801 185,801 Accumulated depreciation (2,370,557) (12,716) (25,253) (862) (40,572) (2,449,960) (35,091) (2,485,051)

Net Utility Plant 1,409,712 909 1,203 93,875 1,505,699 13,870 1,519,569 Nuclear fuel, net of accumulated amortization 266,949 - - - 266,949 - 266,949 TOTAL NONCURRENT ASSETS 1,676,661 909 - - 1,203 93,875 1,772,648 13,870 1,786,518 DEFERRED CHARGES Costs in excess of billings 822,956 - 1,625,119 1,530,596 - - 3,978,671 3,978,671 Unamortized debt expense 12,551 - 5,803 5,994 - 2,019 26,367 26,367 Other deferred charges 18,721 3,737 116 - 22,574 22,574 TOTAL DEFERRED CHARGES 854,228 3,737 1,630,922 1,536,590 116 2,019 4,027,612 4,027,612 TOTALASSETS $ 2,891,642 $ 6,061 $ 1,851,057 $ 1,742,617 $ 8,613 $ 127,381 $ 6,627,371 $ 55,626 $ 6,618,105

• Project recorded on a liquidation basis The accompanying notes are an integral part of these combined financial statements

Data.[ h l~nfornIation 47 Columbia Packwood Lake Business Generating Hydroelectric Nuclear Project Nuclear Project Development Nine Canyon Internal Service 2011 Station Project No.1* No.3* Fund Wind Project Subtotal Fund Combined Total LIABILITIES AND NET ASSETS CURRENT LIABILITIES Current maturities of long-term debt $ 45 $ $ 166,030 $ 129,435 $ $ 4,260 $ 299,770 $ - $ 299,770 Accounts payable and accrued expenses 50,991 182 247 172 1,675 506 53,773 44,319 98,092 Due to Participants 36,488 868 - 37,356 - 37,356 Due to other business units 362 362 5,624 -

TOTAL CURRENT LIABILITIES 87,524 1,050 166,277 129,607 1,675 5,128 391,261 49,943 435,218 LIABILITIES- PAYABLE FROM CURRENT RESTRICTED ASSETS (NOTE 1)

Special funds Accounts payable and accrued expenses 132,111 15,839 1,187 149,137 293 149,430 Due to other funds 30,667 301 3,848 951 35,767 Debt service funds Accrued interest payable 62,801 45,568 39,076 3,387 150,832 150,832 Due to other funds 2 737 22,400 - 23,139 TOTAL CURRENT RESTRICTED LIABILITIES 225,581 62,445 65,324 5,525 358,875 293 300,262 LONG-TERM DEBT (NOTE 5)

Revenue bonds payable 2,487,355 1,573,805 1,495,480 136,505 5,693,145 - 5,693,145 Unamortized (discount)/

premium on bonds - net 92,655 55,641 53,430 4,155 205,881 205,881 Unamortized loss on bond refundings (15,501) (7,111) (1,224) - (23,836) (23,836)

TOTAL LONG-TERM DEBT 2,564,509 1,622,335 1,547,686 140,660 5,875,190 5,875,190 OTHER LONG-TERM LIABILITIES 14,028 - - - 14,028 14,028 DEFERRED CREDITS Advances from Members and others 5,011 5,011 5,011 Advances from Members and others - - - 651 651 Other deferred credits - 153 153 5 158 TOTAL DEFERRED CREDITS 5,011 153 5,164 656 5,820 NET ASSETS Invested in capital assets, net of related debt - 1,203 (49,026) (47,823) 13,870 (33,953)

Restricted, net - 14,879 14,879 2,699 17,578 Unrestricted, net 5,735 10,062 15,797 (11,835) 3,962 NET ASSETS - - - - 6,938 (24,085) (17,147) 4,734 (12,413)

TOTAL LIABILITIES 2,891,642 6,061 1,851,057 1,742,617 1,675 151,466 6,644,518 50,892 6,630,518 TOTAL LIABILITIESAND $ 2,891,642 $ 6,061 $ 1,851,057 $ 1,742,617 $ 8,613 $ 127,381 $ 6,627,371 $ 55,626 $ 6,618,105 NET ASSETS

• Project recorded on a liquidation basis The accompanying notes are an integral part of these combined financial statements

48 Energy Northwest 2011 Annual Report MOO Statements Of Revenues, Expenses, And Changes In Net Assets As of June 30, 2011 (dotlars in thousands)

Columbia Packwood Lake Business Generating Hydroelectric Nuclear Project Nuclear Project Development Nine Canyon Internal Service 2011 Station Project No.1* No.3* Fund Wind Project Subtotal Fund Combined Total OPERATING REVENUES $ 522,156 $ 1,742 $ $ $ 12,144 $ 16,250 $ 552,292 $ $ 552,292 OPERATING EXPENSES Nuclear fuel 30,772 30,772 30,772 Spent fuel disposal fee 6,845 6,845 6,845 Decommissioning 7,090 80 7,170 7,170 Depreciation and amortization 66,636 59 196 6,790 73,681 73,681 Operations and maintenance 247,008 1,462 13,331 3,938 265,739 265,739 Other power supply expense 17 - 17 17 Administrative & general 27,358 156 34 27,548 27,548 Generation tax 3,166 25 - 57 ,248 3,248 TOTAL OPERATING EXPENSES 388,875 1,719 13,527 10,899 415,020 415,020 NET OPERATING REVENUES 133,281 23 (1,383) 5,351 137,272 137,272 OTHER INCOME AND EXPENSE Other (14,210) - 84,228 76,356 1,939 (129) 148,184 71,909 148,269 Investment income 721 3 72 70 (943) 81 4 38 4 Interest expense and discount amortization (119,792) (26) (82,094) (76,064) - (6,519) (284,495) - (284,495)

Plant preservation and termination costs (1,656) (362) (2,018) (2,018)

Depreciation and amortization (6) - (6) (2,268) (6)

Decommissioning (544) (544) (544)

Services to other business units (69,594)

TOTAL OTHER INCOME AND EXPENSE (133,281) (23) 996 (6,567) (138,875) 85 (138,790)

Changes in Net Assets - (387) (1,216) (1,603) 85 (1,518)

(DISTRIBUTION)/CONTRIBUTION 1,000 1,000 TOTAL NET ASSETS, BEGINNING OF YEAR 7,325 (22,869) (15,544) 3,649 (11,895)

TOTAL NET ASSETS, $ $ $ $ $ 6,938 $ (24,085) $ (17,147) $ 4,734 $ (12,413)

END OF YEAR

• Project recorded on a liquidation basis The accompanying notes are an integral part of these combined financial statements

I a & Information 49 Statements Of Cash Flows As of June 30, 2011 (dollars in thousands)

Columbia Packwood Lake Business Generating Hydroelectric Nuclear Project Nuclear Project Development Nine Canyon Internal Service 2011 Station Project No.I

• No.3* Fund Wind Project Fund Combined Total CASH FLOWS FROM OPERATING AND OTHER ACTIVITIES Operating revenue receipts $ 464,563 $ 1,569 $ $ $ 8,965 $ 16,685 $ $ 491,782 Cash payments for operating expenses (267,790) (1,721) (8,728) (4,619) (282,858)

Other revenue receipts 259,036 207,163 130 466,329 Cash payments for preservation, termination expense (1,006) (256) (1,262)

Cash payments for services - - - - - - 11,243 11,243 Net cash provided/(used) by operating and other activities 196,773 (152) 258,030 206,907 237 12,196 11,243 685,234 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from bond refundings 532,565 - 106,667 - - - 639,232 Deposit to Debt Service Fund (347,355) - - - (347,355)

Payment for bond issuance and financing costs (3,224) (203) (107,297) (1) (32) (110,757)

Payment for capital items (109,930) 23 - 311 78 (1,421) (110,939)

Receipts from sales of plant assets 3 3 Nuclear fuel acquisitions (93,890) - (93,890)

Interest paid on revenue bonds (123,727) - (92,525) (107,645) (6,868) (330,765)

Principal paid on revenue bond maturities (140,790) (4) (75,505) (10,167) - (3,965) (230,431)

Net cash provided/(used) by capital and related financing activities (286,351) 19 (168,230) (118,442) 310 (10,787) (1,421) (584,902)

CASH FLOWS FROM NON-CAPITAL FINANCE ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investment securities (409,128) (644) (405,856) (371,135) (10,046) (29,975) (27,494) (1,254,278)

Sales of investment securities 553,860 644 406,182 297,175 9,470 30,062 25,566 1,322,959 Interest on investments 903 3 72 (4) 9 91 349 1,423 Net cash provided/(used) by investing activities 145,635 3 398 (73,964) (567) 178 (1,579) 70,104 NET INCREASE (DECREASE) IN CASH 56,057 (130) 90,198 14,501 (20) 1,587 8,243 170,436 CASH ATJUNE 30, 2010 26,915 991 7,479 5,499 1,377 15,920 5,730 63,911 CASH ATJUNE 30, 2011 $ 82,972 $ 861 $ 97,677 $ 20,000 $ 1,357 $ 17,507 $ 13,973 $ 234,347

• Project recorded on a liquidation basis The accompanying notes are an integral part of these combined financial statements

50 Energy Northwest 2011 Annual Report M OO Statements Of Cash Flows As of June 30, 2011 (dottars in thousands)

(Cont'd)

Columbia Packwood Lake Business Generating Hydroelectric Nuclear Project Nuclear Project Development Nine Canyon Internal Service 2010 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 $ 133,281 $ 23 $ $ $ (1,383) $ 5,351 $ $ 137,272 Adjustments to reconcile net operating revenues to cash provided by operating activities:

Depreciation and amortization 95,105 48 108 6,770 102,031 Decommissioning 7,090 33 7,123 Other (13,745) 26 813 (97) (13,003)

Change in operating assets and liabilities:

Deferred charges/costs in excess of billings (57,192) (48) (57,240)

Accounts receivable 146 (49) 590 (57) 630 Materials and supplies 1,951 1,951 Prepaid and other assets (395) 6 (389)

Due from/to other business units, funds and Participants (1,306) (14) - 391 (929)

Accounts payable 31,838 (138) 109 (201) 31,608 Other revenue receipts 259,036 207,163 466,199 Cash payments for preservation, termination expense (1,006) (256) (1,262)

Cash payments for services - 11,243 11,243 Net cash provided (used) by operating and other activities $ 196,773 $ (152) $ 258,030 $ 206,907 $ 237 $ 12,196 $ 11,243 $ 685,234

• Project recorded on a liquidation basis The accompanying notes are an integral part of these combined financial statements

51 Energy Northwest Notes To Financial Statements Note 1 - Summary Of Operations (NRC) operating license that expires in December 2023.

and Significant Accounting Policies On January 19, 2010 Energy Northwest submitted an application to the NRC to renew the license for an Energy Northwest, a municipal corporation and joint additional 20 years, thus continuing operations until 2043.

operating agency of the State of Washington, was organized The estimated duration of the license renewal process is 20 in 1957 to finance, acquire, construct and operate facilities to 24 months from acceptance of the application.

for the generation and transmission of electric power. Costs to date for Columbia relicensing are $18.7 million Membership consists of 23 public utility districts and and are shown as deferred charges in the balance sheet.

five municipalities. AlL members own and operate electric Energy Northwest also operates the Packwood Lake systems within the State of Washington. Hydroelectric Project (Packwood), a 27.5-MWe generating Energy Northwest is exempt from federal income tax and plant completed in 1964. Packwood has been operating has no taxing authority. under a 50-year license issued by the Federal Energy Energy Northwest maintains seven business units. Each Regulatory Commission (FERC), which expired on Feb.

unit is financed and accounted for separately from all other 28, 2010. Energy Northwest submitted the Final License current or future business units. Application (FLA) for renewal of the operating license to All electrical energy produced by Energy Northwest net- FERC on Feb. 22, 2008. On March 4, 2010, FERC issued a billed business units is ultimately delivered to electrical one-year extension, or until the issuance of a new license distribution facilities owned and operated by Bonneville for the project or other disposition under the Federal Power Administration (BPA) as part of the Federal Columbia Power Act, whichever comes first. FERC is awaiting issuance River Power System. BPA in turn distributes the electricity of the National Oceanic and Atmospheric Administration's to electric utility systems throughout the Northwest, (NOAA) Biological Opinion (BO), after which FERC wil[

including participants in Energy Northwest's business complete the final license renewal documentation for units, for ultimate distribution to consumers. Participants Packwood. Costs incurred to date for relicensing are $3.7 in Energy Northwest's net-billed business units consist of million.

public utilities and rural electric cooperatives located in The electric power produced by Packwood is sold to the western United States who have entered into net- 12 project participant utilities which pay the costs of billing agreements with Energy Northwest and BPA for Packwood. The Packwood participants are obligated to pay participation in one or more of Energy Northwest's business annual costs of Packwood including debt service, whether units. BPA is obligated by law to establish rates for electric or not Packwood is operable, until the outstanding bonds power which wilt recover the cost of electric energy are paid or provisions are made for bond retirement, in acquired from Energy Northwest and other sources, as well accordance with the requirements of bond resolution. The as BPA's other costs (see Note 6). participants also share Packwood revenue.

Energy Northwest operates the Columbia Generating In October 2008, Packwood entered into a new Power Station (Columbia), a 1,150-MWe (Design Electric Rating, Sales Agreement with Snohomish PUD to purchase the net) generating plant completed in 1984. Energy Northwest entire project output (see Note 6). This contract was has obtained all permits and licenses required to operate extended in the fall of 2010 and wilt continue until the Columbia, including a Nuclear Regulatory Commission fall of 2011. The Packwood participants will then assume

52 thwest 2011 Anonki Repor Energy rN4c the responsibility to purchase their respective shares in The following is a summary of the significant accounting the fall of 2011, or they can re-assign their shares to other policies:

participants.

Nuclear Project No. 1, a 1,250-MWe plant, was placed a) Basis of Accounting and Presentation:

in extended construction delay status in 1982, when it The accounting policies of Energy Northwest conform was 65 percent complete. Nuclear Project No. 3, a 1,240- to GAAP applicable to governmental units. The MWe plant, was placed in extended construction delay Governmental Accounting Standards Board (GASB) is status in 1983, when it was 75 percent complete. On May the accepted standard-setting body for establishing 13, 1994, Energy Northwest's Board of Directors adopted governmental accounting and financial reporting resolutions terminating Nuclear Projects Nos. 1 and 3. All principles. Energy Northwest has applied all applicable funding requirements remain as net-billed obligations of GASB pronouncements and elected to apply Financial Nuclear Projects Nos. 1 and 3. Energy Northwest wholly Accounting Standards Board (FASB) standards except owns Nuclear Project No. 1. Energy Northwest is no longer for those conflicting with or in contradiction to GASB responsible for site restoration costs for Nuclear Project pronouncements. The accounting and reporting No. 3. (See Note 13) policies of Energy Northwest are regulated by the The Business Development Fund was established in April Washington State Auditor's Office and are based 1997 to pursue and develop new energy related business on the Uniform System of Accounts prescribed opportunities. There are four main business lines associated for public utilities and licensees by FERC. Energy with this business unit: General Services and Facilities, Northwest uses the full accrual basis of accounting Generation, Professional Services, and Business Unit where revenues are recognized when earned and Support. expenses are recognized when incurred. Revenues and Nine Canyon was established in January 2001 for the expenses related to Energy Northwest's operations are purpose of exploring and establishing a wind energy considered to be operating revenues and expenses; project. Phase I of the project was completed in FY 2003 while revenues and expenses related to capital, and Phase II was completed in FY 2004. Phase I and II financing and investing activities are considered to combined capacity is approximately 63.7 MWe. Phase III be other income and expenses. Separate funds and was completed in FY 2008 adding an additional 14 wind book of accounts are maintained for each business turbines to the Nine Canyon Wind Project and adding an unit. Payment of obligations of one business unit with aggregate capacity of 32.2 MWe. The total number of funds of another business unit is prohibited, and would turbines at Nine Canyon is 63 and the total capacity is 95.9 constitute violation of bond resolution covenants. (See MWe. Note 5)

The Internal Service Fund was established in May 1957. Energy Northwest maintains an Internal Service It is currently used to account for the central procurement Fund for centralized control and accounting of certain of certain common goods and services for the business units capital assets such as data processing equipment, on a cost reimbursement basis. and for payment and accounting of internal services, Energy Northwest's fiscal year begins on July 1 and payroll, benefits, administrative and general ends on June 30. In preparing these financial statements, expenses, and certain contracted services on a cost the Company has evaluated events and transactions for reimbursement basis. Certain assets in the Internal potential recognition or disclosure through November 30, Service Fund are also owned by this Fund and operated 2011, the date the financial statements were issued. for the benefit of other projects. Depreciation relating

53 to capital assets is charged to the appropriate business b) Utility Plant and Depreciation:

units based upon assets held by each project. Utility plant is recorded at original cost which includes Liabilities of the Internal Service Fund represent both direct costs of construction or acquisition and accrued payroll, vacation pay, employee benefits, and indirect costs.

common accounts payable which have been charged Property, plant, and equipment are depreciated directly or indirectly to business units and will be using the straight-line method over the following funded by the business units when paid. Net amounts estimated useful lives:

owed to, or from, Energy Northwest business units are recorded as Current Liabilities-Due to other business Buildings and Improvements 20 - 60 years units, or as Current Assets-Due from other business Generation Plant 40 years units on the Internal Service Fund Balance Sheet. Transportation Equipment 6 - 9 years The Combined Total column on the financial General Plant and Equipment 3 - 15 years statements is for presentation only as each Energy Northwest business unit is financed and accounted Group rates are used for assets and, accordingly, for separately from all other current and future no gain or toss is recorded on the disposition of an business units. The FY 2011 Combined Total includes asset unless it represents a major retirement. When eliminations for transactions between business units as operating plant assets are retired, their original cost required in GASB Statement No. 34, "Basic Financial together with removal costs, less salvage, is charged Statements and Management's Discussion and Analysis to accumulated depreciation.

for State and Local Governments." The utility plant and net assets of Nuclear Projects Pursuant to GASB Statement No. 20, "Accounting Nos. 1 and 3 have been reduced to their estimated net and Financial Reporting for Proprietary Funds and realizable values due to termination. A write-down Other Governmental Entities That Use Proprietary of Nuclear Projects Nos. 1 and 3 was recorded in FY Fund Accounting," Energy Northwest has elected 1995 and included in Cost in Excess of Billings. Interest to apply all FASB standards, except for those that expense, termination expenses and asset disposition conflict with, or contradict, GASB pronouncements. costs for Nuclear Projects Nos. 1 and 3 have been Specifically, GASB No. 7, "Advance Refundings charged to operations.

Resulting in Defeasance of Debt," and GASB No. 23, "Accounting and Financial Reporting for Refundings c) Allowance for Funds Used During Construction of Debt Reported by Proprietary Activities," conflict (AFUDC):

with ASC 860, "Transfers and Servicing." As such, the For financing not related to a Capital Facility, Energy guidance under GASB No. 7 and No. 23 is followed. Northwest analyzes the gross interest expense Such guidance governs the accounting for bond relating to the cost of the bond sale, taking into defeasances and refundings. account interest earnings and draws for purchase or construction reimbursements for the purpose of analyzing impact to the recording of capitalized interest. However, if estimated costs are more than inconsequential, an adjustment is made to allocate capitalized interest to the appropriate plant account.

Interest costs capitalized for FY 2011 totaled $0.6 million and related to Columbia.

54 [11,~ , N, , wst 2011 Ar/

d) Nuclear Fuel: Energy Northwest has completed the Independent Energy Northwest has various agreements for Spent Fuel Storage Installation (ISFSI) project, which is uranium concentrates, conversion, and enrichment a temporary dry cask storage until the DOE completes to provide for short-term enriched uranium product its plan for a national repository. ISFSI will store the and Long-term enrichment services. These contracts spent fuel in commercially available dry storage casks do not obligate Energy Northwest to purchase on a concrete pad at the Columbia site. No casks were fuel components in excess of the requirements of issued from the cask inventory account in FY 2011.

operations. Alt expenditures related to the initial Spent fuel is transferred from the spent fuel pool to purchase of nuclear fuel for Columbia, including the ISFSI periodically to allow for future refuelings.

interest, were capitalized and carried at cost. When Current period costs include $29.1 million for nuclear the fuel is placed in the reactor; the fuel cost is fuel and SI .7 million for dry cask storage costs.

amortized to operating expense on the basis of quantity of heat produced for generation of electric e) Asset Retirement Obligation:

energy. Accumulated nuclear fuel amortization (the Energy Northwest has adopted ASC 410, "Asset amortization of the cost of nuclear fuel assemblies Retirement and Environmental Obligations". This in the reactor used in the production of energy and standard requires Energy Northwest to recognize the in the fuel pool for less than six months per FERC fair value of a liability associated with the retirement guidelines) is $53.5 million as of June 30, 2011. Fees of a long-lived asset, such as: Columbia Generating for disposal of fuel in the reactor are expensed as part Station, Nuclear Project No. 1, and Nine Canyon, in of the fuel cost. the period in which it is incurred. (See Note 11)

Energy Northwest has a contract with the U.S.

Department of Energy (DOE) that requires the DOE f) Decommissioning and Site Restoration:

to accept title and dispose of spent nuclear fuel Energy Northwest established decommissioning and (reference to the term "spent fuel" is due to DOE site restoration funds for Columbia and monies are contract and current court proceedings. "Used fuel" being deposited each year in accordance with an is the preferred term by Energy Northwest). Although established funding plan. (See Note 12) the courts have ruled that DOE had the obligation to accept title to spent nuclear fuel by January 31, g) Derivative Instruments:

1998, currently, there is no known date established In June, 2008, GASB issued Statement No. 53, when DOE will fufill this legal obligation and begin "Accounting and Financial Reporting for Derivative accepting spent nuclear fuel. Energy Northwest was Instruments." Statement No. 53 provides a awarded Final Judgment and received damages in the comprehensive framework for the measurement, amount of $48,702,551 (See Note 13). recognition and disclosure of derivative instrument The current period operating expense for Columbia transactions for the purpose of enhancing the includes a $6.8 million charge from DOE for future usefulness and comparability of derivative instrument spent fuel storage and disposal in accordance with the information reported by state and local governments.

Nuclear Waste Policy Act of 1982. (See Note 14)

55 h) Restricted Assets: k) Other Receivables:

In accordance with bond resolutions, related Other receivables include amounts related to the agreements and laws, separate restricted accounts Internal Service Fund from miscellaneous outstanding have been established. These assets are restricted receivables from other business units which have not for specific uses including debt service, construction, yet been collected. The amounts due to each business capital additions and fuel purchases, extraordinary unit are reflected in the Due To/From other business operation and maintenance costs, termination, unit's account. Other receivables specific to each decommissioning, operating reserves, financing, long- business unit are recorded in the residing business term disability, and workers' compensation claims. unit.

They are classified as current or non-current assets as appropriate. 1) Materials and Supplies:

Materials and supplies are valued at cost using the i) Cash and Investments: weighted average cost method.

For purposes of the Statement of Cash Flows, cash includes unrestricted and restricted cash balances and m) Long-Term Liabilities:

each business unit maintains its cash and investments. These consist of obligations related to bonds payable Short-term highly liquid investments are not and the associated premiums/discounts and gains/

considered to be cash equivalents, but are classified losses. Other noncurrent liabilities for Columbia relate as available-for-sale investments and are stated at to the dry cask storage activity.

fair value with unrealized gains and Losses reported in investment income. (See Note 3) Energy Northwest resolutions and investment policies limit investment authority to obligations of the United States Treasury, Federal National Mortgage Association and Federal Home Loan Banks. Safe keeping agents, custodians, or trustees hold all investments for the benefit of the individual Energy Northwest business units.

j) Accounts Receivable:

The percentage of sales method is used to estimate uncollectible accounts. The reserve is then reviewed for adequacy against an aging schedule of accounts receivable. Accounts deemed uncollectible are transferred to the provision for uncollectible accounts on a yearly basis. Accounts receivable specific to each business unit are recorded in the residing business unit.

56 Energy Northwest 2011 Annual Report Long-Term Liability activity for the year ended June 30, 2011 was as follows:

1 Long-Term Liabilities (dollars in thousands)

Beginning Balance Increases Decreases Ending Balance Columbia Generating Station Revenue bonds payable $ 2,327,455 $ 501,570 $ 341,670 $ 2,487,355 Unamortized (discount)/premium on bonds - net 78,202 30,637 16,184 92,655 Unamortized gain/(Iloss) on bond refundings (8,232) (12,005) 4,736 (15,501)

Other noncurrent liabilities 12,373 1,655 14,028 Current portion 140,790 140,745 45

$ 2,550,588 $ 521,857 $ 503,335 $ 2,578,582 Nuclear Project No.1 Revenue bonds payable $ ,739,835 $ - $ 166,030 $ 1,573,805 Unamortized (discount)/premium on bonds - net 71,488 30 15,877 55,641 Unamortized gain/floss) on bond refundings (12,292) (237) 5,418 (7,111)

Current portion 75,505 166,030 75,505 166,030

$ ,874,536 $ 165,823 $ 262,830 $ 1,788,365 Nuclear Project No.3 Revenue bonds payable $ ,637,715 $ 92,285 $ 234,520 $ 1,495,480 Unamortized (discount)I/premium on bonds- net 47,646 12,797 7,013 53,430 Unamortized gain/(loss) on bond refundings (4,235) (948) 3,959 (1,224)

Current portion 44,050 129,435 44,050 129,435

,725,176 $ 233,569 $ 289,542 $ 1,677,121 Nine Canyon Wind Project Revenue bonds payable $ 140,765 $ 4,260 $ 136,505 Unamortized (discount)Ipremium on bonds- net 4,633 478 4,155 Current portion 3,965 4,260 3,965 4,260

$ 149,363 $ 4,260 $ 8,703 $ 144,920 n) Debt Premium, Discount and Expense: Reported by Proprietary Activities," losses on debt Original issue and reacquired bond premiums, refundings have been deferred and amortized as a discounts and expenses relating to the bonds are component of interest expense over the shorter of the amortized over the terms of the respective bond remaining life of the old or new debt. The Balance issues using the bonds outstanding method which Sheet includes the original deferred amount less approximates the effective interest method. In recognized amortization expense and is included as a accordance with GASB Statement No. 23, "Accounting reduction to the new debt.

and Financial Reporting for Refundings of Debt

57 o) Revenue Recognition: Energy Northwest under this program. The payment Energy Northwest accounts for expenses on an accrual stream from Nine Canyon participants and the basis, and recovers, through various agreements, anticipated REPI receipts were projected to cover the actual cash requirements for operations and debt total costs over the purchase agreement. Permanent service for Columbia, Packwood, Nuclear Project shortfalls in REPI funding for the Nine Canyon project No. 1 and Nuclear Project No. 3. For these business led to a revised rate plan to incorporate the impact units, Energy Northwest recognizes revenues equal of this shortfall over the life of the project. The rate to expenses for each period. No net revenue or schedule for the Nine Canyon participants covers total toss is recognized, and no equity accumulated. The project costs occurring in FY 2011 and projections out difference between cumulative billings received and to the 2030 proposed end date.

cumulative expenses is recorded as either billings in excess of costs (deferred credit) or as costs in q) Compensated Absences:

excess of billings (deferred debit), as appropriate. Employees earn leave in accordance with length of Such amounts wilt be settled during future operating service. Energy Northwest accrues the cost of personal periods. (See Note 6) leave in the year when earned. The liability for unpaid Energy Northwest accounts for revenues and leave benefits and related payroll taxes was $19.9 expenses on an accrual basis for the remaining million at June 30, 2011 and is recorded as a current business units. The difference between cumulative liability.

revenues and cumulative expenses is recognized as net revenue or toss and included in Net Assets for each r) Use of Estimates:

period. The preparation of Energy Northwest financial statements in conformity with GAAP requires p) Capital Contribution: management to make estimates and assumptions Renewable Energy Performance Incentive (REPI) that directly affect the reported amounts of assets payments enable Nine Canyon to receive funds based and liabilities, disclosures of contingent assets and on generation as it applies to the REPI bill. REPI was liabilities at the date of the financial statements, created as part of the Energy Policy Act of 1992 to and the reported amounts of revenue and expenses promote increases in the generation and utilization during the reporting period. Actual results could differ of electricity from renewable energy sources from these estimates. Certain incurred expenses and and to further the advances of renewable energy revenues are allocated to the business units based technologies. on specific allocation methods that management This program, authorized under section 1212 of the considers to be reasonable.

Energy Policy Act of 1992, provides financial incentive payments for electricity produced and sold by new qualifying renewable energy generation facilities. Nine Canyon did not record a receivable for FY 2011 REPI funding as no funds are anticipated to be disbursed to

58 Energy Northwest 2011 Annual Report Note 2 - Utility Plant Utility plant activity for the year ended June 30, 2011 was as follows:

, Utility Plant Activity (dollars in thousands)

Beginning Balance Increases Decreases Ending Balance Columbia Generating Station Generation 3,588,450 59,536 (85,987) 3,561,999 Decommissioning 32,469 - 32,469 Construction Work-in-Progress 146,030 99,046 (59,275) 185,801 Accumulated Depreciation and Decommissioning (2,391,614) (81,818) 102,875 (2,370,557)

Utility Plant, net 1,375,335 76,764 (42,387) 1,409,712 Packwood Lake Hydroelectric Project Generation 13,647 (22) 13,625 Accumulated Depreciation (12,668) (48) - (12,716)

Utility Plant, net $ 979 $ (48) $ (22) $ 909 Business Development General 2,399 255 (589) 2,065 Construction Work-in-Progress Accumulated Depreciation (742) (120) (862)

Utility Plant, net 1,657 135 (589) 1,203 Nine Canyon Wind Project Generation 133,666 265 (345) 133,586 Decommissioning 861 - - 861 Construction Work-in-Progress - 213 (213)

Accumulated Depreciation and Decommissioning (33,771) (6,801) - (40,572)

Utility Plant, net 100,756 (6,323) (558) 93,875 Internal Service Fund General 46,914 2,481 (434) 48,961 Construction Work-in-Progress 591 - (591)

Accumulated Depreciation (40,999) (2,293) 8,201 (35,091)

Utility Plant, net 6,506 188 7,176 13,870

• Does not include Nuclear Fuel Amount of $267 million, net of amortization.

Reclassifications took place in FY 2011 for various plant and accumulated depreciation accounts. Corrections were a result of legacy adjustments made in the asset records that tracked historical changes. Changes reported for each business unit were:

Plant Accumulated Depreciation Columbia Generating Station (1,336) 34,273 Packwood Lake Hydroelectric Project (22)

Business Development (589) (13)

Nine Canyon Wind Project (2)

Internal Service Fund 1,870 7,741 Total Legacy Adjustments (77) 41,999

59 Note 3 - Deposits And Investments As of June 30, 2011, Energy Northwest had the following unrealized gains and Losses:

- Available-For-Sale-Investments (dollars inthousands)

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

Columbia Generating Station $ 136,627 $ 178 $ $ 136,805 Packwood Lake Hydroelectric Project Nuclear Project No. 1 121,110 - 121,110 Nuclear Project No. 3 159,434 2 159,436 Business Development Fund 4,736 1 - 4,737 Internal Service Fund 26,132 52 (4) 26,180 Nine Canyon Wind Project 12,718 4 (1) 12,721 (I) All investments are in U.S.Government backed securities including U.S.Government Agencies and Treasury Bills.

(2)Themajority of investments have maturities of less than 1 year. Approximately $21.56 million have a maturity beyond 1 year with the longest maturity being March 8th, 20131 Interest rate risk: In accordance with its investment Custodial credit risk, Deposits: For a deposit, this policy, Energy Northwest manages its exposure to declines is the risk that in the event of bank failure, Energy in fair values by limiting investments to those with Northwest's deposits may not be returned to it. Energy maturities designated in specific bond resolutions. Northwest's interest bearing accounts and certificates of deposits are covered up to $250,000 by Federal Depository Credit risk: Energy Northwest's investment policy Insurance Corporation (FDIC) while non-interest bearing restricts investments to debt securities and obligations deposits are entirely covered by FDIC and if necessary, all of the U.S. Treasury, U.S. Government agencies Federal interest and non-interest bearing deposits are covered by National Mortgage Association and the Federal Home collateral held in multiple financial institution collateral Loan Banks, certificates of deposit and other evidences of pool administered by the Washington State Treasurer's deposit at financial institutions qualified by the Washington Local Government Investment Pool (LGIP). Under state Public Deposit Protection Commission (PDPC), and general law, public depositories under the PDPC may be assessed obligation debt of state and local governments and public on a prorated basis if the pool's collateral is insufficient authorities recognized with one of the three highest credit to cover a loss. As a result, deposits covered by collateral ratings (AAA, AA+, AA, or equivalent). This investment held in the multiple financial institution collateral pool are policy is more restrictive than the state law. considered to be insured. State law requires deposits may only be made with institutions that are approved by the Concentration of credit risk: Energy Northwest PDPC.

investment policy does not specifically address concentration of credit risk. An individual authorized security or obligation can receive up to 100 percent of the authorized investment amount; there are no individual concentration limits.

60 Fnerg'y Nwht%'

, i 01 Ann~ual Repori Note 4 - Others Deferred Charges During the year ended June 30, 2011, Energy Northwest And Deferred Credits issued, for Columbia, the Series 2010-D, 2011-B, and 2011 -C Bonds. The Series 2011 -A Bonds were issued for Other deferred charges of $18.7 million and $3.7 million Nuclear Project 3 and Columbia. The Series 2010-D, 2011-relate to the Columbia and Packwood relicensing effort, A, 2011 -B, and 2011-C Bonds issued for Nuclear Project respectively. Business Development deferred charge of No. 3 and Columbia are fixed rate bonds with a weighted

$0.1 million relates to derivative power options. (See average coupon interest rate ranging from 3.55 percent to Note 14) Other deferred credits of $0.2 million consist of 5.70 percent. These transactions resulted in a net loss for turbine elevator purchases for Nine Canyon that will be accounting purposes of $11.71 million.

completed in FY 2013. According to GASB No. 23, "Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Note 5 - Long-Term Debt Activities," gains and losses on the refundings are deferred and amortized over the remaining life of the old debt or Each Energy Northwest business unit is financed the new debt, whichever is shorter.

separately. The resolutions of Energy Northwest authorizing The Series 2010-D Bonds issued for Columbia are taxable issuance of revenue bonds for each business unit provide fixed-rate Build America Bonds to finance costs of acquiring that such bonds are payable from the revenues of that fuel and to finance a portion of the costs planned to be business unit. All bonds issued under Resolutions Nos. 769, incurred during fiscal years 2011, 2012 and 2013 for certain 775 and 640 for Nuclear Projects Nos. 1, 3 and Columbia, capital improvements.

respectively, have the same priority of payment within The Series 2011-A Bonds issued for Nuclear Project the business unit (the "Prior Lien Bonds"). All bonds No. 3 and Columbia are tax exempt fixed-rate bonds that issued under Resolutions Nos. 835, 838 and 1042 (the refunded certain Electric Revenue Bonds.

"Electric Revenue Bonds") for Nuclear Projects Nos. 1, 3 The Series 2011-B Bonds issued for Columbia are taxable and Columbia, respectively, are subordinate to the Prior fixed-rate bonds that refunded certain Electric Revenue Lien Bonds and have the same subordinated priority of Bonds and are to finance a portion of the cost of certain payment within the business unit. Nine Canyon's bonds capital improvements.

were authorized by the following resolutions: Resolution The Series 2011-C Bonds issued for Columbia are taxable No. 1214 (2001 Bonds), Resolution No. 1299 (2003 Bonds), fixed-rate bonds to finance costs of operating Columbia.

Resolution No. 1376 (2005 Bonds) and Resolution No.1482 (2006 Bonds).

61 The Bond Proceeds, Weighted Average Coupon Interest Rates, Net Accounting Loss, and Total Defeased Bonds for 2010-D, 201 IA, 201 IB, and 2011-C are presented in the following tables:

Bond Proceeds (dollars in millions) 2010D 2011A 20118 2011C Total CGS $ 155.81 $ 341.84 $ 29.92 $ 4.60 $ 532.17 Project 3 - 10508 - 105.08 Total $ 155.81 $ 446.92 $ 29.92 $ 4.60 $ 637.25 Weighted Average Coupon Interest Rate for Refunded Bonds (dollars in millions) 2011A 2011B Total 5.38% 5.23%

Weighted Average Coupon Interest Rate for New Bonds (dollars in millions) Energy Northwest did not issue or refund any bonds 2010D 2011A 2011B 2011C associated with Packwood or Nine Canyon for FY 2011.

Total 5.70% 4.91% 4 .92% 3.55%° In prior fiscal years, Energy Northwest also defeased certain revenue bonds by placing the net proceeds from Net Accounting Loss (Gain) ($ in millions) the refunding bonds in irrevocable trusts to provide for all 2010D 2011A 2011B 2011C Total required future debt service payments on the refunded CGS $ - $ (4.72) $ (6.27) $ (10.99) bonds until their dates of redemption. Accordingly, the Project 3 (0.72) (0.72) trust account assets and liability for the defeased bonds Total $ - $ (5.44) $ (6.27) $ (11.71) are not included in the financial statements in accordance Total Defeased (dollars in millions) with GASB statements No. 7 and 23. Including the FY 2011 2010D 2011A 2011B 2011C Total defeasements, $33.6 million, $9.5 million, and $88.0 CGS $ - $ 343.95 $ 4.37 $ 348.32 million of defeased bonds were not called or had not Project 3 105.10 - 105.10 matured at June 30, 2011, for Nuclear Projects Nos. 1 and Total $ - $ 449.05 $ 4.37 $

$ 453.42 3, and Columbia respectively.

62 Energy Noithwest 2011 Anrmal Repoit Outstanding Long-Term Debt As Of June 30, 2011 (dollars In thousands)

Outstanding principal on revenue and refunding bonds for the various business units as of June 30, 2011, and future debt service requirements for these bonds are presented in the following tables:

Columbia Revenue and Refunding Bonds Nuclear Project No. 1 Refunding Revenue Bonds Serial or Term Serial or Term Series Coupon Rate (%) Maturities Amount Series Coupon Rate (%) Maturities Amount 1992A 6.30 7-1-2012 $ 50,000 19898 7.125 7-1-2016 $ 41,070 1994A 5.40 7-1 -2012 100,200 2001A 4.50-5.50 7-1-2011 73,010 2002A 5.20-5.75 7-1-17/2018 157,260 2002A 5.50-5.75 7-1-13/2017 248,485 2002B 5.35-6.00 7-1-2018 63,140 2002B 6.00 7-1-2017 101,950 2003A 5.50 7-1 -12/2015 103,845 2003A 5.50 7-1-13/2017 241,455 2003F 5.00-5.25 7-1-12/2018 27,015 2004A 5.25 7-1-2013 62,485 2004A 5.25 7-1-17/2018 129,260 20048 5.50 7-1-2013 1,135 2004B 5.50 7-1-2013 12,715 2005A 5.00 7-1-13/2015 72,175 2004C 5.25 7-1-12/2018 17,230 2006A 5.00 7-1-11/2017 206,575 2005A 5.00 7-1-1512018 114,985 2007A 5.00 7-1-1312017 51,730 2005C 4.52-4.74 7-1-12/2015 55,945 20078 5.07-5.10 7-1-12/2013 6,740 2006A 5.00 7-1 -20/2024 434,210 2007C 5.00 7-1 -13/2017 219,020 2006B 5.23 7-1-2011 45 2008A 5.00-5.25 7-1-13/2017 230,535 2006C 5.00 7-1 -2012024 62,200 2008D 5.00 7-1-11/2017 62,085 2006D 5.80 7-1 -2023 3,425 2009A 3.25-5.00 7-1-14/2015 48,905 2007A 5.00 7-1-1312018 77,575 20098 4.59 7-1-2014 515 2007B 5.07-5.33 7-1-12/2021 10,665 2010A 2.00-5.00 7-1-11/2017 71,150 2007D 5.00 7-1 -21/2024 35,080 20108 2.00 7-1-2011 815 2008A 5.00-5.25 7-1-14/2018 110,935 2008B 5.95 7-1-2012021 12,025 Revenue bonds payable $ 1,739,835 2008C 5.00-5.25 7-1-2112024 37,240 Estimated fair value at June 30, 2011 $ 1,920,469 (B) 2008D 5.00 7-1 -2012 74,950 (B)Theestimated fair value shown has been reported to meet the disclosure requirements of the 2009A 3.00-5.00 7-1-14/2018 116,425 Accounting Standards Codification (ASC) 820 and does not purport to represent the amounts at which these obligations would be settled.

20098 4.59-6.80 7-1-14/2024 18,515 2009C 4.25-5.00 7-1 -20/2024 69,170 2010B 3.75-4.25 7-1 -20/2024 16,005 2010C 4.52-5.12 7-1 -20/2024 75,770 2010D 5.61-5.71 7-1 -23/2024 155,805 2011A 3.00-5.00 7-1-13/2023 311,245 20118 4.19-5.19 7-1-19/2024 29,920 2011C 3.55 7-1-2019 4,600 Revenue bonds payable $ 2,487,400 Estimated fair value at June 30, 2011 $ 2,746,735 (B)

(B)Theestimated fair value shown has been reported to meet the disclosure requirements of the Accounting Standards Codification (ASC) 820 and does not purport to represent the amounts at which these obligations would be settled.

Taiorý 63 Ilo Nuclear Project No.3 Refunding Revenue Bonds Nine Canyon Wind Project Revenue and Refunding Bonds Serial or Term Serial or Term Series Coupon Rate (%) Maturities Amount Series Coupon Rate (%) Maturities Amount 1989A (A) 7-1-1112014 $ 6,065 2003 3.75-5.00 7-1-11/2023 16,680 1989B (A) 7-1-1112014 18,719 2005 4.50-5.00 7-1-11/2023 54,755 7.125 7-1-2016 76,145 2006 4.50-5.00 7-1-11/2030 69,330 94,864 1993C (A) 7-1-13/2018 23,963 Revenue bonds payable $ 140,765 2001A 5.50 7-1-2011 34,190 Estimated fair value at June 30, 2010 $ 146,424 (B) 2002B 6.00 7-01-2016 75,360 (BTheestimated fair value shown has been reported to meet the disclosure requirements of the 2003A 5.50 7-1-11/2017 241,915 Accounting Standards Codification (ASC) 820 and does not purport to represent the amounts at which these obligations would be settled.

2004A 5.25 7-1-14/2016 83,835 20048 5.50 7-1-2013 1,515 2005A 5.00 7-1-13/2015 129,265 Total bonds payable $ 5,992,915 2006A 5.00 7-1-16/2018 39,445 Estimated fair value at June 30, 2011 $ 6,620,190 2007A 4.50-5.00 7-1-13/2018 84,465 2007B 5.07 7-1-2012 1,725 2007C 5.00 7-1-12/2018 61,085 2008A 5.25 7-1-2018 13,790 2008D 5.00 7-1-11/2017 50,615 2009A 5.00-5.25 7-1-14/2018 116,055 2009B 4.59 7-1 -2014 970 2010A 5.00 7-1-1612018 279,980 2010B 5.00 7-1-2016 29,865 2011A 4.00-5.00 7-1-2018 92,285 Compound interest bonds accretion 163,663 Revenue bonds payable $ 1,624,915 Estimated fair value at June 30, 2011 $ 1,806,562 (R)

(A)Compound Interest Bonds (B)Theestimated fair value shown has been reported to meet the disclosure requirements of the Accounting Standards Codification (ASC) 820 and does not purport to represent the amounts at which these obligations would be settled.

64 Energy Northwest 2011 An~nual, Rpcort Debt Service Requirements As Of June 30, 2011 (Dollars In Thousands)

Columbia Generating Station Nuclear Project No. 1 Fiscal Year Principal Interest Total Fiscal Year Principal Interest Total 6/30/2011 Balance* $ 45 $ 62,801 $ 62,846 6/30/2011 Balance* $ 166,030 $ 45,568 $ 211,598 2012 266,810 127,605 394,415 2012 56,030 82,769 138,799 2013 40,785 113,153 153,938 2013 276,250 80,079 356,329 2014 83,410 111,201 194,611 2014 368,040 65,788 433,828 2015-2017 418,545 295,122 713,667 2015 191,970 46,787 238,757 2018-2022 1,056,405 313,167 1,369,572 2016 326,980 37,197 364,177 2023-2024 621,400 50,201 671,601 2017 354,535 19,373 373,908

$ 2,487,400 $ 1,073,250 $ 3,560,650 $ 1,739,835 $ 377,561 $ 2,117,396

• Principal and Interest due July1, 2011. . Principal and Interest due July1, 2011.

Nuclear Project No. 3 Nine Canyon Wind Project Fiscal Year Principal Interest Total Fiscal Year Principal Interest Total 6/30/2011 Balance $ 103,514 $ 64,997 $ 168,511 6/30/2011 Balance* $ 4,260 $ 3,387 $ 7,647 2012 69,132 95,934 165,066 2012 4,575 6,570 11,145 2013 131,875 100,433 232,308 2013 6,930 6,351 13,281 2014 124,704 92,367 217,071 2014-2017 31,310 21,873 53,183 2015 151,885 64,116 216,001 2018-2021 37,835 15,445 53,280 2016 264,213 58,814 323,027 2022-2025 30,460 7,827 38,287 2017 211,232 43,694 254,926 2026-2029 19,855 3,305 23,160 2018 404,696 29,230 433,926 2030 5,540 249 5,789

$ 140,765 $ 65,007 $ 205,772 Adjustment ** 163,664 (163,664) . Principal and Interest due July1, 2011.

$ 1,624,915 S 385,921 $ 2,010,836 PrincipalandInterestdueJuly1,2011.-

Adjustment for CompoundInterestBondsaccretion; CompoundInterestBondsarereflectedat their faceamount lessdiscounton the balancesheet Note 6 - Net Billing a pro-rata share of the total annual costs of the respective projects, including debt service on bonds relating to each Security - Nuclear Projects Nos. I and 3 business unit. BPA is then obligated to reduce amounts and Columbia from participants under BPA power sales agreements by The participants have purchased all of the capability the same amount. The net-billing agreements provide of Nuclear Projects Nos. 1 and 3 and Columbia. BPA has in that participants and BPA are obligated to make such turn acquired the entire capability from the participants payments whether or not the projects are completed, under contracts referred to as net-billing agreements. operable or operating and notwithstanding the suspension, Under the net-bitting agreements for each of the business interruption, interference, reduction or curtailment of the units, participants are obligated to pay Energy Northwest projects' output.

65 On May 13, 1994, Energy Northwest's Board of Directors Note 7 - Pension Plans adopted resolutions terminating Nuclear Projects Nos.

1 and 3. The Nuclear Projects Nos. 1 and 3 project Substantially all Energy Northwest full-time and agreements and the net-billing agreements, except for qualifying part-time employees participate in one of the certain sections which relate only to billing processes and following statewide retirement systems administered by accrued liabilities and obligations under the net-billing the Washington State Department of Retirement Systems, agreements, ended upon termination of the projects. under cost-sharing multiple-employer public employee Energy Northwest entered into an agreement with BPA to defined benefit and defined contribution retirement provide for continuation of the present budget approval, plans. The Department of Retirement Systems (DRS), a billing and payment processes. With respect to Nuclear department within the primary government of the State Project No. 3, the ownership agreement among Energy of Washington, issues a publicly available comprehensive Northwest and private companies was terminated in FY annual financial report (CAFR) that includes financial 1999. (See Note 13) statements and required supplementary information for each plan. The DRS CAFR may be obtained by writing Security - Packwood Lake Hydroelectric Project to: Department of Retirement Systems, Communications The Packwood participants and Snohomish PUD have a Unit, P.O. Box 48380, Olympia, WA 98504-8380; or it Power Sales agreement that became effective in October may be downloaded from the DRS website at www.drs.

2008. Under the agreement, Snohomish PUD purchases wa.gov. The following disclosures are made pursuant to all of the output directly. The power purchase agreement GASB Statements No. 27, Accounting for Pensions by State (PPA) provides a predetermined rate for all firm delivery, and Local Government Employers and No. 50, Pension per the contract schedule and the Mid-Columbia (Mid-C) Disclosures, an Amendment of GASB Statements No. 25 and based rate for all firm deliveries above firm, or secondary No. 27.

power. Packwood is obligated to supply a specified amount Any information obtained from the DRS is of power. If power production does not supply the required the responsibility of the State of Washington.

amount of power, Packwood is required to provide any PricewaterhouseCoopers LLP (PwC), independent auditors shortfall by purchasing power on the open market which for Energy Northwest, has not audited or examined any of resulted in $17k of purchased power in FY 2011. Conversely, the information available from the DRS; accordingly, PwC if there is excess capacity per the PPA with Snohomish does not express an opinion or any other form of assurance PUD, Packwood sells the excess on the open market for with respect thereto.

additional revenues to be included as part of the PPA with the Packwood participants. The Packwood participants Public Employees' Retirement System (PERS) are obligated to pay annual costs of the project including Plans 1, 2, and 3 debt service, whether or not Packwood is operable, until PERS is a cost-sharing multiple-employer retirement the outstanding bonds are paid or provisions are made for system comprised of three separate plans for membership bond retirement, in accordance with the requirements of purposes: Plans 1 and 2 are defined benefit plans and Plan the bond resolution. The Packwood participants also share 3 is a defined benefit plan with a defined contribution project revenue to the extent that the amounts exceed component.

project costs. Membership in the system includes: elected officials; state employees; employees of the Supreme, Appeals, and Superior courts (other than judges currently in a judicial retirement system); employees of legislative committees; community and technical colleges, college and university

66 Energy Northwest 2011 Annual Report employees not participating in national higher education years of service times the COLA amount, which is increased retirement programs; judges of district and municipal 3 percent annually. Plan 1 members may also elect to courts; and employees of local governments. receive an optional COLA that provides an automatic annual PERS members who joined the system by September 30, adjustment based on the Consumer Price Index. The 1977 are Plan 1 members. Those who joined on or after adjustment is capped at 3 percent annually. To offset the October 1, 1977 and by either, February 28, 2002 for state cost of this annual adjustment, the benefit is reduced.

and higher education employees, or August 31, 2002 for PERS Plan 1 provides duty and non-duty disability local government employees, are Plan 2 members unless benefits. Duty disability retirement benefits for they exercise an option to transfer their membership to disablement prior to the age of 60 consist of a temporary Plan 3. PERS members joining the system on or after life annuity payable to the age of 60. The allowance March 1, 2002 for state and higher education employees, amount is $350 a month, or two-thirds of the monthly AFC, or September 1, 2002 for local government employees whichever is less. The benefit is reduced by any workers' have the irrevocable option of choosing membership in compensation benefit and is payable as long as the member either PERS Plan 2 or PERS Plan 3. The option must be remains disabled or until the member attains the age of exercised within 90 days of employment. An employee 60. A member with five years of covered employment is is reported in Plan 2 until a choice is made. Employees eligible for non-duty disability retirement. Prior to the age who fail to choose within 90 days default to PERS Plan 3. of 55, the allowance amount is 2 percent of the AFC for Notwithstanding, PERS Plan 2 and Plan 3 members may opt each year of service reduced by 2 percent for each year out of plan membership if terminally ill, with less than five that the member's age is less than 55. The total benefit is years to live. limited to 60 percent of the AFC and is actuarially reduced PERS Plan 1 and Plan 2 defined benefit retirement to reflect the choice of a survivor option. A cost-of living benefits are financed from a combination of investment allowance is granted at age 66 based upon years of service earnings and employer and employee contributions. PERS times the COLA amount (based on the consumer Price retirement benefit provisions are established in chapters Index), capped at 3 percent annually. To offset the cost of 41.34 and 41.40 RCW and may be amended only by the this annual adjustment, the benefit is reduced.

State Legislature. PERS Plan 1 members can receive credit for military PERS Plan 1 members are vested after the completion of service while actively serving in the military, if such credit five years of eligible service. Plan 1 members are eligible makes them eligible to retire. Members can also purchase for retirement after 30 years of service, or at the age of up to 24 months of service credit lost because of an on-the-60 with five years of service, or at the age of 55 with 25 job injury.

years of service. The monthly benefit is 2 percent of the PERS Plan 2 members are vested after the completion of average final compensation (AFC) per year of service. (AFC five years of eligible service. Plan 2 members are eligible is the monthly average of the 24 consecutive highest-paid for normal retirement at the age of 65 with five years of service credit months.) The retirement benefit may not service. The monthly benefit is 2 percent of the AFC per exceed 60 percent of AFC. The monthly benefit is subject year of service. (AFC is the monthly average of the 60 to a minimum for PERS Plan 1 retirees who have 25 years consecutive highest-paid service months.)

of service and have been retired 20 years, or who have 20 PERS Plan 2 members who have at least 20 years of years of service and have been retired 25 years. Plan 1 service credit and are 55 years of age or older are eligible members retiring from inactive status prior to the age of for early retirement with a reduced benefit. The benefit 65 may receive actuarially reduced benefits. If a survivor is reduced by an early retirement factor (ERF) that varies option is chosen, the benefit is further reduced. A cost-of according to age, for each year before age 65.

living allowance (COLA) is granted at age 66 based upon

67 PERS Plan 2 members who have 30 or more years of following conditions and benefits:

service credit and are at least 55 years old can retire under one of two provisions: " If they have at least ten service credit years and are 55 years old, the benefit is reduced by an ERF that varies

" With a benefit that is reduced by 3 percent for each with age, for each year before age 65.

year before age 65. " If they have 30 service credit years and are at least

" With a benefit that has a smaller (or no) reduction 55 years old, they have the choice of a benefit that is (depending on age) that imposes stricter return-to-work reduced by 3%for each year before age 65; or a benefit rules. with a smaller (or no) reduction factor (depending on age) that imposes stricter return-to-work rules.

PERS Plan 2 retirement benefits are also actuarially reduced to reflect the choice, if made, of a survivor option. PERS Plan 3 defined benefit retirement benefits are also There is no cap on years of service credit; and a cost-of- actuarially reduced to reflect the choice, if made, of a living allowance is granted (based on the Consumer Price survivor option. There is no cap on years of service credit Index), capped at 3 percent annually. and Plan 3 provides the same cost-of-living allowance as The surviving spouse or eligible child or children of Plan 2.

a PERS Plan 2 member who dies after leaving eligible PERS Plan 3 defined contribution retirement benefits are employment having earned ten years of service credit solely dependent upon the results of investment activities.

may request a refund of the member's accumulated The defined contribution portion can be distributed in contributions. Effective July 22, 2007, said refund accordance with an option selected by the member, either (adjusted as needed for specified legal reductions) as a lump sum or pursuant to other options authorized by is increased from 100 percent to 200 percent of the the Director of the Department of Retirement Systems.

accumulated contributions if the member's death occurs PERS Plan 2 and Plan 3 provide disability benefits.

in the uniformed service to the United States while There is no minimum amount of service credit required for participating in Operation Enduring Freedom or Persian eligibility. The Plan 2 monthly benefit amount is 2% of the Gulf, Operation Iraqi Freedom. AFC per year of service. For Plan 3, the monthly benefit PERS Plan 3 has a dual benefit structure. Employer amount is 1%of the AFC per year of service.

contributions finance a defined benefit component and These disability benefit amounts are actuarially reduced member contributions finance a defined contribution for each year that the member's age is less than 65, and component. The defined benefit portion provides a to reflect the choice of a survivor option. There is no cap monthly benefit that is 1 percent of the AFC per year of on years of service credit, and a cost-of-living allowance is service. (AFC is the monthly average of the 60 consecutive granted (based on the Consumer Price Index) capped at 3%

highest-paid service months.) annually.

Effective June 7, 2006, PERS Plan 3 members are vested PERS Plan 2 and Plan 3 members may have up to ten in the defined benefit portion of their plan after ten years years of interruptive military service credit; five years at of service; or after five years of service, if twelve months no cost and five years that may be purchased by paying of that service are earned after age 44; or after five service the required contributions. Effective July 24, 2005, a credit years earned in PERS Plan 2 prior to June 1, 2003. member who becomes totally incapacitated for continued Plan 3 members are immediately vested in the defined employment while serving the uniformed services, or contribution portion of their plan. a surviving spouse or eligible children, may apply for Vested Plan 3 members are eligible for normal interruptive military service credit. Additionally, PERS Plan retirement at age 65, or they may retire early with the 2 and Plan 3 members can also purchase up to 24 months of

68, service credit lost because of an on-the-job injury. contribution rate for Plan 3 are developed by the Office PERS members may also purchase up to five years of of the State Actuary to fully fund Plan 2 and the defined additional service credit once eligible for retirement. This benefit portion of Plan 3. All employers are required to credit can only be purchased at the time of retirement and contribute at the level established by the Legislature.

can be used only to provide the member with a monthly Under PERS Plan 3, employer contributions finance annuity that is paid in addition to the member's retirement the defined benefit portion of the plan, and member benefit. contributions finance the defined contribution portion.

Beneficiaries of a PERS Plan 2 or Plan 3 member with ten The Director of the Department of Retirement Systems years of service who is killed in the course of employment sets Plan 3 employee contribution rates. Six rate options receive retirement benefits without actuarial reduction, if are available ranging from 5 to 15 percent; two of the the member was not at normal retirement age at death. options are graduated rates dependent on the employee's This provision applies to any member killed in the course of age. As a result of the implementation of the Judicial employment, on or after June 10, 2004, if found eligible by Benefit Multiplier Program in January 2007, a second tier the Department of Labor and Industries. of employer and employee rates was developed to fund, A one-time duty-related death benefit is provided to the along with investment earnings, the increased retirement estate (or duly designated nominee) of a PERS member who benefits of those justices and judges that participate in the dies in the line of service as a result of injuries sustained in program. The methods used to determine the contribution the course of employment, or if the death resulted from an requirements are established under state statute in occupational disease or infection that arose naturally and accordance with chapters 41.40 and 41.45 RCW.

proximately out of said member's covered employment, if The required contribution rates expressed as a found eligible by the Department of Labor and Industries. percentage of current-year covered payroll, as of The defined contribution portion can be distributed in December 31, 2010, are as follows:

accordance with an option selected by the member, either as a lump sum or pursuant to other options authorized by PERS Plan 1 PERS Plan 2 PERS Plan 3 Employer* 5.31%** 5.31 5.31%***

the Employee Retirement Benefits Board.

Employee 6.00%**-* 3.90%****

There are 1,189 participating employees in PERS.

Membership in PERS consisted of the following as of the Theemployer rates include the employer administrative expense fee currently set at 0.16 percent.

Theemployer rate for state elected officials is 7.89 percent for Plan 1 and 5.31 latest actuarial valuation date for the plans of June 30, percent for Plan 2 and Plan 3.

Plan 3 defined benefit portion only.

2009: Theemployee rate for state elected officials is 7.50 percent for Plan I and 3.90 percent for Plan 2.

Variable from 5.0 percent minimum to 15.0 percent maximum based on rate selected bythe PERS3 member.

Retirees and Beneficiaries Receiving Benefits 74,857 Terminated Plan Members Entitled to But Not Yet Receiving Benefits 28,074 Active Plan Members Vested 105,339 Both Energy Northwest and the employees made the Active Plan Members Non-vested 53,896 required contributions. Energy Northwest's required Total 262,166 contributions for the years ending June 30 were as follows:

Funding Policy Each biennium, the state Pension Funding Council PERS Plan 1 PERS Plan 2 PERS Plan 3 2011 $ 184,863 $ 7,921,762 $ 4,281,077 adopts Plan 1 employer contribution rates, Plan 2 employer 2010 $ 214,117 $ 7,238,997 $ 3,971,410 and employee contribution rates, and Plan 3 employer 2009 $ 244,531 $ 6,774,304 $ 2,964,075 contribution rates. Employee contribution rates for Plan 1 are established by statute at 6 percent for state agencies and local government unit employees, and at 7.5 percent for state government elected officials. The employer and employee contribution rates for Plan 2 and the employer

69 Note 8 - Deferred Compensation Plans Premiums are paid to the insurer on a current period basis.

At the time each employee retired, Energy Northwest Energy Northwest provides a 401(k) Deferred accrued an estimated liability for the actuarial value of the Compensation Plan (401(k) Plan), and a 457 Deferred future premium. Energy Northwest revises the liability for Compensation Plan. Both plans are defined contribution the actuarial value of estimated future premiums, net of plans that were established to provide a means for retiree contributions. The total liability recorded at June investing savings by employees for retirement purposes. 30, 2011, was $0.6 million for these benefits.

All permanent, full-time employees are eligible to enroll During FY 2011, pension costs for Energy Northwest in the plans. Participants are immediately vested in employees and post-employment life insurance benefit costs their contributions and direct the investment of their for retirees were calculated and allocated to each business contribution. Each participant may elect to contribute unit based on direct labor dollars. This allocation basis pre-tax annual compensation, subject to current Internal resulted in the following percentages by business unit for Revenue Service limitations. FY 2011 for this and other allocated costs; Columbia at 94 For the 401 (k) Plan, Energy Northwest may elect to percent; Business Development at 4 percent; and Project 1, make an employer matching contribution for each of its Nine Canyon, Packwood and Project 3 receiving the residual employees who is a participant during the plan year. The amount of 2 percent.

amount of such an employer match shall be 50 percent of the maximum salary deferral percentage. During FY 2011 Note 10 - Insurance Energy Northwest contributed $2.9 million in employer matching funds. Nuclear Licensing and Insurance Energy Northwest is a licensee of the Nuclear Regulatory Note 9 - Other Employment Benefits Commission and is subject to routine licensing and user

- Post-Employment fees, to retrospective premiums for nuclear liability insurance, and to license modification, suspension, or In addition to the pension benefits available through revocation or civil penalties in the event of violations of PERS, Energy Northwest offers post-employment life various regulatory and license requirements.

insurance benefits to retirees who are eligible to receive Federal taw under the Price Anderson Act currently pensions under PERS Plan 1, Plan 2, and Plan 3. There limits public liability claims from a nuclear incident.

are 83 retirees that remain participants in the insurance As of June 30, 2011, the current limit was $12.6 billion program. In 1994, Energy Northwest's Executive Board and is subject to change to account for the effects of approved provisions which continued the life insurance inflation and changes in the number of Licensed reactors.

benefit to retirees at 25 percent of the premium for As required by law, Energy Northwest has purchased the employees who retire prior to January 1, 1995, and charged maximum commercial insurance available of $375 million, the full 100 percent premium to employees who retired which is the primary layer of protection. The remaining after December 31, 1994. The life insurance benefit is equal balance is covered by the industry's retrospective rating to the employee's annual rate of salary at retirement for plan that uses deferred premium charges to every reactor non-bargaining employees retiring prior to January 1, 1995. licensee if a nuclear incident at any licensed reactor in the The life insurance benefit has a maximum limit of $10,000 United States results in claims that exceed the individual for retirees after December 31, 1994. The cost of coverage licensee's primary insurance layer. The current maximum for retirees remained unchanged for FY 2011 and was $2.82 deferred premium for each nuclear incident is $117.5 per $1,000 of coverage. Employees who retired prior to million per reactor, but not more than $17.5 million per January 1, 1995, contribute $.58 per $1,000 of coverage reactor may be charged in any one year for each incident.

while Energy Northwest pays the remainder; retirees after Nuclear property damage and decontamination liability December 31, 1994, pay 100 percent of the cost coverage.

70 Energy Northwest 2011I Annual Repoft insurance requirements are met through a combination Energy Northwest has identified legal obligations to of commercial nuclear insurance policies purchased by retire generating plant assets at the following business Energy Northwest and BPA. The total amount of insurance units: Columbia, Nuclear Project No. 1 and Nine Canyon.

purchased is currently $2.8 billion. The deductible for this Decommissioning and site restoration requirements for coverage is $5.0 million per occurrence. Columbia and Nuclear Project No. 1 are governed by the NRC regulations and site certification agreements Note 11 - Asset Retirement Obligation (ARO) between Energy Northwest and the State of Washington and regulations adopted by the Washington Energy Facility Energy Northwest adopted ASC 410 on July 1, 2002. This Site Evaluation Council (EFSEC) and a lease agreement standard requires an entity to recognize the fair value of with the DOE. (See Notes 1 and 13) Additionally, there are a liability of an ARO for legal obligations related to the separate lease agreements for land located at Nine Canyon.

dismantlement and restoration costs associated with the Leases at these locations are considered operating leases retirement of tangible long-lived assets, such as nuclear and expenses were $38.3k for Columbia, S35.Ok for Nuclear decommissioning and site restoration liabilities, in the Project No. 1 and $641.6k for the Nine Canyon project.

period in which it is incurred. Upon initial recognition of As of June 30, 2011, Columbia has a capital the AROs that are measurable, the probability weighted decommissioning net asset value of $16.6 million and an future cash flows for the associated retirement costs are accumulated liability of $129.7 million for the generating discounted using a credit-adjusted-risk-free rate, and plant, and for the ISFSI a net asset value of $1.1 million and are recognized as both a liability and as an increase in an accumulated liability of $1.9 million.

the capitalized carrying amount of the related long-lived Restoration costs incurred in FY 2011 of $0.2 million assets. Capitalized asset retirement costs are depreciated combined with the current year accretion expense of over the life of the related asset with accretion of the $0.8 million and downward revision in future restoration ARO liability classified as an operating expense on the estimates of $0.1 million resulted in the small increase statement of operations and Net Assets each period. Upon to the ARO of $0.5 million. Nuclear Project No. 1 has a settlement of the liability, an entity either settles the capital decommissioning net asset value of zero and an obligation for its recorded amount or incurs a gain or loss if accumulated liability of $15.8 million.

the actual costs differ from the recorded amount. However, Under the current agreement, Nine Canyon has the with regard to the net-billed projects, BPA is obligated to obligation to remove the generation facilities upon provide for the entire cost of decommissioning and site expiration of the lease agreement if requested by the restoration; therefore, any gain or loss recognized upon lessors. The Nine Canyon Wind Project recorded the settlement of the ARO results in an adjustment to either related original ARO in FY 2003 for Phase I and II. Phase III the billings in excess of costs (liability) or costs in excess of began commercial operation in FY 2008 and the original billings (asset), as appropriate, as no net revenue or loss is ARO was adjusted to reflect the change in scenario for recognized, and no equity is accumulated for the net-billed the retirement obligation, with current lease agreements projects.

of 71 reflecting a 2030 expiration date. As of June 30, 2011, Nine Note 12 - Decommissioning And Site Restoration Canyon has a capital decommissioning net asset value of

$0.6 million and an accumulated liability of $1.2 million. The NRC has issued rules to provide guidance to Packwood's obligation has not been calculated because licensees of operating nuclear plants on decommissioning the time frame and extent of the obligation was considered the plants at the end of each plant's operating life (See under this statement as indeterminate. As a result, no Note 11 for Columbia ARC). In September 1998, the reasonable estimate of the ARO obligation can be made. NRC approved and published its "Final Rule on Financial An ARO will be required to be recorded if circumstances Assurance Requirements for Decommissioning Power change. Management believes that these assets wilt be Reactors." As provided in this rule, each power reactor used in utility operations for the foreseeable future. licensee is required to report to the NRC the status of The following table describes the changes to Energy its decommissioning funding for each reactor or share of Northwest's ARO liabilities for the year ended June 30, a reactor it owns. This reporting requirement began on 2011: March 31, 1999, and reports are required every two years thereafter. Energy Northwest submitted its most recent Asset Retirement Obligation (dollars in millions) report to the NRC in March 2011.

Columbia Generating Station Energy Northwest's current estimate of Columbia's Balance At June 30, 2010 $ 123.22 decommissioning costs in FY 2011 dollars is $463.5 million Current year accretion expense 6.44 (Columbia - $459.7 million and ISFSI - $3.8 million). This ARO at June 30,2011 $ 129.66 estimate, which is updated biannually, is based on the NRC minimum amount required to demonstrate reasonable ISFSI Balance At June 30, 2010 $ 1.85 financial assurance for a boiling water reactor with the Current year accretion expense 0.09 power level of Columbia.

ARO at June 30, 2011 $ 1.94 Site restoration requirements for Columbia are governed by the site certification agreements between Energy Nuclear Project No. 1 Northwest and the State of Washington and by regulations Balance At June 30, 2010 15.30 Less: Restoration costs incurred (0.16) adopted by the EFSEC. Energy Northwest submitted a Current year accretion expense 0.79 site restoration plan for Columbia that was approved by Revision in future restoration estimates (0.09) the EFSEC on June 12, 1995. Energy Northwest's current ARO at June 30,2011 $ 15.84 estimate of Columbia's site restoration costs is $96.4 million in constant dollars (based on the 2011 study) and is updated Nine Canyon Wind Project Balance At June 30, 2010 $ 1.14 biannually along with the decommissioning estimate. Both Current year accretion expense 0.05 decommissioning and site restoration estimates (based ARO at June 30,2011 $ 1.19 on 2011 study) are used as the basis for establishing a funding plan that includes escalation and interest earnings until decommissioning activities occur. Payments to the decommissioning and site restoration funds have been made since January 1985. The fair value of cash and investment securities in the decommissioning and site restoration funds

72 Energy Northwest 2011 AnnuaL Report as of June 30, 2011, totaled approximately $160.3 million The legislation enables local governments and Energy and $25.4 million, respectively. Since September 1996, Northwest to negotiate an arrangement allowing such local these amounts have been held in an irrevocable trust that governments to assume an interest in the site on which recognizes asset retirement obligations according to the Nuclear Project No. 3 exists for economic development fair value of the dismantlement and restoration costs of by transferring ownership of all or a portion of the site to certain Energy Northwest assets. The trustee is a domestic local government entities. This legislation also provides U.S. bank that certifies the funds for use when needed to for the local government entities to assume regulatory retire the asset. The trust is funded by BPA ratepayers and responsibilities for site restoration requirements and control managed by BPA in accordance with NRC requirements and of water rights. In February 1999, Energy Northwest entered site certification agreements; the balances in these external into a transfer agreement with the SRP to transfer the real trust funds are not reflected on Energy Northwest's Balance and personal property at the site of Nuclear Project No. 3.

Sheet. The SRP also agreed to assume regulatory responsibility for Energy Northwest established a decommissioning and site site restoration. Therefore, Energy Northwest is no longer restoration plan for the ISF51 in 1997. Beginning in FY 2003, responsible to the State of Washington and EFSEC for any an annual contribution is made to the Energy Northwest site restoration costs.

Decommissioning Fund. These contributions are held by Energy Northwest and not held in trust by BPA. The fair Nuclear Project No. 1 Site Restoration market value of cash and investments as of June 30, 2011, Site restoration requirements for Nuclear Project No. 1 is is $0.9 million. These contributions wilt occur through FY governed by site certification agreements between Energy 2029; cash payments wilt begin for decommissioning and Northwest and the State of Washington and regulations site restoration in FY 2025 with equal installments for five adopted by EFSEC, and a lease agreement with the DOE.

years totaling $2.06 million in constant dollars based on the Energy Northwest submitted a site restoration plan for 1997 study. Nuclear Project No. 1 to EFSEC on March 8, 1995, which complied with EFSEC requirements to remove the assets Note 13 - Commitments And Contingencies and restore the sites by demolition, burial, entombment, or other techniques such that the sites pose minimal hazard Nuclear Project No. I Termination to the public. EFSEC approved Energy Northwest's site Since the Nuclear Project No.1 termination, Energy restoration plan on June 12, 1995. In its approval, EFSEC Northwest has been planning for the demolition of Nuclear recognized that there is uncertainty associated with Energy Project No. 1 and restoration of the site, recognizing the Northwest's proposed plan. Accordingly, EFSEC's conditional fact that there is no market for the sale of the project in approval provides for additional reviews once the details its entirety, and to-date no viable alternative use has been of the plan are finalized. A new plan with additional details found. The final level of demolition and restoration will was submitted in FY 2003. This submittal was used to be in accordance with agreements discussed below under calculate the ARO discussed in Note 11.

"Nuclear Project No. 1 Site Restoration."

Business Development Fund Interest in Nuclear Project No. 3 Termination Northwest Open Access Network In June 1994, the Nuclear Project No. 3 Owners The Business Development Fund is a member of the Committee voted unanimously to terminate the project. Northwest Open Access Network (NoaNet). Members formed During 1995, a group from Grays Harbor County, Washington, NoaNet pursuant to an Interlocal Cooperation Agreement formed the Satsop Redevelopment Project (SRP). The SRP for the development and efficient use by the members and introduced legislation with the State of Washington under others of a communication network in conjunction with BPA.

Senate Bill No. 6427, which passed and was signed by the The Business Development Fund has a 7.38 percent Governor of the State of Washington on March 7, 1996. interest in NoaNet with a potential mandate of an additional

73 25 percent step-up possible for a maximum 9.23 percent. of Final Judgment in Favor of Plaintiff Energy Northwest NoaNet has $14.3 million in network revenue bonds and and that same day, the Court of Federal Claims entered note payables outstanding, based on their June 30, 2011 Final Judgment in the amount of $48.7 million which was unaudited financial statements. The members are obligated received on August 29, 2011.

to pay the principal and interest on the bonds when due in Energy Northwest vs. United States of America filed the event and to the extent that NoaNet's Gross Revenue in U.S. Court of Federal Claims in July 2011 (Cause No.

(after payment of costs of Maintenance and Operation) is 1:11-cv-00447-EJD). This is the second action for breach of insufficient for this purpose. The maximum principal share contract brought by Energy Northwest against the United (based on step-up potential) that the Business Development States (Department of Energy, "DOE") for damages for DOE's Fund could be required to pay is $1.7 million. It is important continuing failure to meet its Legal obligations to accept to note that the Business Development Fund is not obligated and dispose of spent nuclear fuel and high-level radioactive to reimburse tosses of NoaNet unless an assessment is made waste per the Standard Contract. The outcome of the to NoaNet's members based on a two-thirds vote of the litigation is unknown at this time.

membership. In FY 2011 the Business Development Fund Energy Northwest is involved in other various claims, contributed $63k to NoaNet based on assessments by the Legal actions and contractual commitments and in certain NoaNet members. claims and contracts arising in the normal course of Financial statements for NoaNet may be obtained business. Although some suits, claims and commitments are by writing to: Northwest Open Access Network, NoaNet significant in amount, final disposition is not determinable.

Headquarters, 5802 Overtook Ave. NE, Tacoma, WA 98422. In the opinion of management, the outcome of such Any information obtained from NoaNet is the responsibility litigation, claims or commitments will not have a material of NoaNet. PwC has not audited or examined any adverse effect on the financial positions of the business information available from NoaNet; accordingly, PwC does units or Energy Northwest as a whole. The future annual not express an opinion or any other form of assurance with cost of the business units, however, may either be increased respect thereto. or decreased as a result of the outcome of these matters.

Energy Northwest experienced a significant delay in the Other Litigation and Commitments completion of R-20. The planned outage extended past Energy Northwest v. United States of America filed in U.S. the fiscal year-end and was completed in September of Court of Federal Claims in January 2004 (Cause No. 04- 2011. R-20 was planned for 78 days and lasted 174 days.

0010C). This is an action for breach of contract and breach On October 21, 2011, the contractor for the majority of of implied covenant of good faith and fair dealing brought the condenser work for R-20 filed a claim against Energy by Energy Northwest against the United States (Department Northwest for additional costs incurred in connection with of Energy, "DOE") for damages for DOE's failure to meet its the extended outage in the amount of $50 million. The legal obligations to accept and dispose of spent nuclear fuel Company intends to vigorously defend against this claim and high-level radioactive waste per the Standard Contract. and cannot reasonably estimate the final outcome; however Energy Northwest's claim was in the amount of $56.8 the potential range of exposure is between zero and $50 million. A bench trial was conducted in February 2009. The million. As of June 30, 2011, an accrual has been made for Court issued its opinion in February 2010, awarding Energy our best estimate of the potential loss within this range.

Northwest 100% of its claim. The Government appealed approximately $10 million of the trial court's decision.

The U.S. Court of Appeals for the Federal Circuit issued its decision on April 7, 2011 affirming the trial court's decision in part, reversing in part, and remanding the case to the trial court for further proceedings. On July 8, 2011, DOE and Energy Northwest filed a Stipulation for Entry

74 Energy Northwest 2011 Annual Report Note 14 - Derivative Instruments GASB Statement No. 53, "Accounting and Reporting for The Business Development Fund had a power sales Derivative Instruments" was adopted in FY 2010. Energy contract subject to the provisions of GASB No. 53. Call Northwest's policy is to review and apply as appropriate the options associated with the contract had a notional amount normal purchase and normal sales exception under GASB of 50 MWh. The fair value of the power sales option No. 53. Energy Northwest has reviewed various contractual contract is based on the futures price curve for the Mid-arrangements to determine applicability of this statement. Columbia Intercontinental Exchange for electricity and the Purchases and sales of nuclear fuel and components that Sumas index for natural gas. This contract has an end date require physical delivery and are expected to be used of June 2013. Assets associated with the call options are and/or sold in the normal course of business are generally classified on the Balance Sheet as deferred charges (other considered normal purchases and normal sales. These deferred charges) and are currently valued at $0.1 million.

transactions are excluded under GASB No. 53 and therefore Changes in the fair value of the call options are classified as are not required to be recorded at fair value in the financial non-operating revenue and expenses - investment income statements. Certain contracts for power options were on the Statements of Revenues, Expenses and Changes in evaluated and the following contract did not meet the Net Assets.

exclusion for normal purchase and normal sale:

~@0 Current Debt Ratings (Unaudited)

Nine Canyon Rating Energy Northwest (Long-Term) Net-Billed Rating Phase I &II Phase III Fitch, Inc. AA A- A-Moodys Investors Service, Inc. (Moodys) Aaa A3 A3 Standard and Poor's Ratings Services (S & P) AA A- A

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