View source for GO2-02-031, Energy Northwest'S Submittal of 2001 Annual Financial Report for Columbia Generating Station

{{Adams
| number = ML020670033
| issue date = 02/26/2002
| title = Energy Northwest'S Submittal of 2001 Annual Financial Report for Columbia Generating Station
| author name = Coleman D
| author affiliation = Energy Northwest
| addressee name = 
| addressee affiliation = NRC/Document Control Desk, NRC/NRR
| docket = 05000397
| license number = NPF-021
| contact person = 
| case reference number = GO2-02-031
| document type = Annual Report
| page count = 49
}}

=Text=
{{#Wiki_filter:ENERGY NORT-HI WEST PO. Box 968
* Richland, Washington 99352-0968 February 26, 2002 G02-02-031 Docket No:      50-397 U.S. Nuclear Regulatory Commission Attn: Document Control Desk Washington, DC 20555 Gentlemen:

==Subject:==
COLUMBIA GENERATING STATION, OPERATING LICENSE NPF-21 2001 ANNUAL FINANCIAL REPORT In accordance with 10 CFR 50.71(b), enclosed is a copy of the Energy Northwest 2001 annual financial report for the subject facility.
Should you have any questions, please call RA Bresnahan at (509) 372-5730.
Respectfully, DW Coleman, Manager Performance Assessment and Regulatory Programs Mail Drop PE20

==Enclosure:==
As stated cc:    EW Merschoff- NRC RIV JS Cushing - NRC - NRR w/o MM Mendonca - NRC w/o NRC Sr. Resident Inspector - 988C DL Williams - BPA/1399 w/o TC Poindexter - Winston & Strawn w/o 01\

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Table of Contents page 1 ...............               Executive Board page 2 ............................. Creating Value pages 4-99...................        Energy... GeneratingResources page 10 ........................... Board of Directors page 11-40 .............             FinancialHighlights

2002 Incoming Members Executive Board Leading the way to tomorrow.
S 11%
                                                       * :1

John Cockburn, Chairman                                  DarrelBunch, Member Dan Gunkel, Vice Chairman                                Edward E. (Ted) Coates, Member Robert Graves, Secretary                                 (also Chairman of Operations & Construction Committee)
Vera Claussen, Assistant Secretary                       Larry Kenney, Member (also Chairman of Administrative & Public Responsibility Roger Sparks, Member Committee)
MargaretAllen, Member (also Chairman of Audit, Legal & Finance Committee)
Page 1

Creating Value In the fiscal year ended June 30, 2001, Columbia Generating Station delivered electricity worth $1.6 billion-based on the published California-OregonBorder market prices-to the people of the Pacific Northwest. However, the actual cost of power to the region was less than 15 percent of that amount because Energy Northwest provides power from Columbia Generating Station at cost through the Bonneville Power Administration.
Page 2

managing the water supply and fish runs through the dam system.
Beyond providing clean, reliable public power to the region from Columbia Generating Station, Energy Northwest continues to operate the environmentally friendly 27-megawatt Packwood Lake Hydroelectric Project.
In addition, we are moving ahead with development of a wind farm and a solar energy demonstration facility. The Executive Board Chairman   Nine Canyon Wind Farm will provide 48 megawatts electric, John Cockburn              with opportunity for expansion, and is expected to be in operation by summer 2002. The White Bluffs Solar Demonstration Facility will be the largest solar panel facility Chief Executive Officer                                       in the northwest.
Vic Parrish                                                        In partnership with Duke Energy North America, Energy Northwest intends to operate and maintain a 630 megawatt natural gas powered combustion turbine facility at Satsop that is expected to be online in late 2003. A portion At the beginning of this new fiscal year, we have just of the electricity generated at this facility is committed to completed our 15"' refueling and maintenance outage the public power community, as well. We invite you to read (R-1S). R-1S prepared Columbia Generating Station to run through this annual report for more information on all of for its first-ever two-year operating cycle. Two Energy Northwest's projects.
year operating cycles provide the region with a longer continuous run of available                 We are proud to have been there for the region during electricity and allow us time to plan        an unprecedented, volatile market year, and especially proud outage work more efficiently. Over     of our staff who made it possible. It is with great energy time, the extended cycle will        and unwavering commitment to public power and the reduce the cost of power, as well   ratepayers of the region that we step forward into the new as offer the Bonneville Power       year ahead, focused on our mission of providing much Administration more flexibility in needed electricity to the Pacific Northwest at cost.
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Energy...
Generating Resources Power Market Volatility The West Coast power market was tumultuous during           February-and other generating resources either in the the 2000-2001 fiscal year. As the fiscal year began, spot prices Northwest or California couldn't meet the call-Columbia were near $300 a megawatt-hour, a substantial jump from          Generating Station operated flawlessly, reliably generating prices in the $30-range just a few months before. But as the     1,1S) net megawatts 24 hours a day.
fiscal year unfolded, people in the power business were to            Bonneville publicly confirmed the value of the station be shocked repeatedly.                                           when its executives said the plant, which normally Prices regularly reached $500 a megawatt-hour in            produced about 5 percent of the region's power, would January and February, when the Southwest suffered through        contribute 10 percent during calendar year 2001. That's several rolling blackouts. Prices of $1,000 were not             enough power to light one out of every 10 homes, heat one uncommon. For generators and retailers alike, the world          out of every 10 schools and nurture one out of every 10 had turned upside down and only began to right itself as         jobs in the Pacific Northwest.
the fiscal year ended and the Federal Energy Regulatory               This tradition of excellence could be seen in other Commission instituted power price caps.                          innovative endeavors coming from the men and women Ironically, public power agencies in California all did     of Columbia Generating Station:
remarkably well during the turbulent year, because they          N A possible increase in power at the plant continues to had opted out of the restructuring scheme.                       be evaluated. By making some modifications to piping, Columbia Generating Station, functioning nearly             valves and transformers, and replacing the generator, flawlessly, shouldered a large portion of the load as surplus    Columbia Generating Station's output could be increased capacity became non-existent during the winter and prices        by as much as 150 megawatts with very little corresponding went higher than experts thought possible.                       increase in operating costs.
One measure of the station's value is in the replacement
* The end of the fiscal year saw the successful completion cost of its electricity generation--what would it cost the       of the station's 15"' refueling outage and its first outage Bonneville Power Administration to buy power, at market          designed to prepare the plant for a two-year generating prices, to replace that from Columbia Generating Station?        campaign. While the outage lasted longer than scheduled, Based upon that formula, the replacement value of               it was one of the shortest in the history of the plant.
Columbia Generating Station's power for the fiscal year was      N Columbia Generating Station's current operating
$1.6 billion. By comparison, it cost about $200 million to       license is scheduled to expire in December of 2023. However, operate and maintain the plant during that period.               station managers expect to apply for a 20-year extension of As a public power generator, Energy Northwest does          the license, giving the plant an effective generating life of not earn a profit. That benefit accrues to the people of the     60 years. Subject to approval by its Executive Board, Energy Pacific Northwest who saved more than $1 billion on power        Northwest expects to seek the extension as soon as the NRC purchases to light and heat their homes, businesses, and         will accept the application.
schools.                                                              These endeavors, and others, prompted The Nuclear Professional magazine to publish an extensive cover story last winter calling Columbia Generating Station "TheJewel Columbia Generating Station                                     of the Pacific Northwest."
When Columbia Generating Station finished its fiscal year on June 30, it marked the end of one of the most astonishingly successful operating periods in the plant's Spent Fuel Storage history.                                                              Since 1984, Columbia Generating Station has refueled Columbia Generating Station began the fiscal year with      its reactor core fifteen times. The uranium fuel pellets are two short forced outages, both caused by unavoidable             contained in long tubes, which are bundled into fuel equipment failure. But when demand rose in January and           assemblies. When the fuel in each of these assemblies has Page 4

exhausted its energy, it is removed from the core and placed Yucca Mountain in the spent fuel pool, adjacent to the reactor.                  To pay for the national facility, utilities have paid into The spent fuel pool has spots for 2,658 bundles. After  the Nuclear Waste Fund a fee of one-tenth of a cent for the July 2001 refueling, the pool contains 2,244 spent fuel  every nuclear-generated kilowatt-hour of electricity used.
bundles. The pool also is used to store various tools and    The fund now exceeds $17 billion. As of the end of fiscal miscellaneous equipment. Under the current configuration,    year 2001, Energy Northwest has paid approximately $96.1 there will not be enough space in the pool to offload spent  million into this fund.
fuel from the next refueling, now scheduled for spring of         DOE has focused its investigation on Yucca Mountain, 2003.
Nevada, with site characterization beginning in 1986, and From the very beginning of the design of Columbia       has spent approximately $7 billion studying it as a possible Generating Station, it was assumed that commercial nuclear   underground repository. Although the Secretary of Energy power plants would transfer their spent fuel to a national   is expected to make a recommendation to the President in spent fuel repository. In 1983, Energy Northwest, along with late 2001 or early 2002, selection of Yucca Mountain is other U.S. nuclear utilities, signed an agreement with the   politically sensitive and it is not clear when or if such a U.S. Department of Energy (DOE) wherein DOE agreed to        decision will be made. This long delay has forced the nuclear provide disposal services for discharged nuclear fuel,       industry to explore alternative methods to store spent fuel beginning on or before Jan. 31, 1998. This agreement was     from the 103 commercial nuclear power plants that provide established in accordance with the Nuclear Waste Policy      one-fifth of the nation's electric power. The solution is called Act of 1982, and was further elaborated by the Nuclear Waste the Independent Spent Fuel Storage Installation (ISFSI), or Policy Act of 1999.                                          'dry cask storage.'
Page 5

Independent Spent Fuel Storage                                   Omaha Public Power District Installation (ISFSb)                                                  During 2000, Energy Northwest continued to explore During fiscal year 2001, Energy Northwest began work        a potential partnership with the Omaha Public Power on the design, licensing and fabrication of up to 22 canisters    District (OPPD). The goal was to determine if such a and casks to meet Columbia Generating Station's need for          partnership-in the form of a service company-would offer spent fuel storage through 2010. Each concrete and steel          lower costs by identifying efficiencies and sharing common storage cylinder stands about 19 feet tall and is about IT        services with OPPD's 514-megawatt Fort Calhoun nuclear feet in diameter. The outside cask encases a stainless steel     plant, located about 2S miles north of Omaha, Nebraska.
canister that holds the spent fuel. Between the canister and           In December 2000, Energy Northwest learned that cask is a space to provide air circulation to cool the spent     OPPD decided to form an inter-local agreement to operate fuel and canister.                                               the Fort Calhoun Station and the Cooper Nuclear Station, Construction of the facilities and the handling system     owned by Nebraska Public Power District. Surprised and is now under way. A specially designed maintenance shop          disappointed by the turn of events, Energy Northwest will house ancillary equipment and garage both a dolly           leadership immediately suspended all efforts to develop a tractor and the tracked crawler vehicle that will carry the      service company.
loaded casks to the concrete storage pad. During the initial phase of the project, 18 storage-shipment casks will be delivered to the plant and filled with assemblies of spent       Packwood Lake Hydroelectric Project fuel. Current planning allows for a second phase that would During 2001, on behalf of Packwood's stakeholders, bring total storage capacity to 90 casks.
Energy Northwest successfully negotiated a revised power purchasing agreement with Bonneville Power How it works...                                                  Administration. This new agreement is expected to significantly increase revenues that will be reinvested in An empty cask will be submerged in a corner of the facility reliability enhancements and other regional power pool and loaded with 68 spent fuel assemblies. The cask          initiatives being undertaken by member utility districts.
will then be removed from the pool, placed on the refueling The region is in the midst of a serious drought. Lack of floor and the water pumped out. A sheet covered with              snow pack and rainfall has resulted in less than 60 percent boron, which captures neutrons, is incorporated into the          of normal production at the Packwood station. The annual casks to avoid criticality. The lid of the cask will be welded    maintenance outage is scheduled to begin October 1.
shut, and then the cask will be lowered by crane to ground Normally a 30-40 day duration, this outage will be extended level and transported by the crawler vehicle to the concrete by three weeks to repair tunnel leakage and make additional storage pad.                                                     reliability and efficiency enhancements. The facility will The ISFSI will allow for the safe and efficient storage of be back in service and generating electricity by Columbia Generating Station's spent fuel until such time         Thanksgiving, when seasonal precipitation should be as it can be transported to a national repository. This          sufficient to return this valuable resource to the production solution will allow Energy Northwest to continue to provide      of environmentally friendly electric power.
inexpensive power for ratepayers of the Northwest for many years to come.
Nine Canyon Wind Project WNP- 1 FeasibilityStudy                                                During its regular June meeting, Energy Northwest's Executive Board passed a resolution that allowed Energy At the request of Congressmen Doc Hastings and Northwest to enter into a construction contract for the Nine George Nethercutt, Energy Northwest initiated a study to         Canyon Wind Project. Renewable Energy Systems will determine the potential feasibility and cost effectiveness of construct a turnkey wind farm consisting of thirty-seven completing WNP-1. The study will be completed in three 1.3-megawatt turbines on the Nine Canyon location steps: Bechtel will develop construction cost and timeline southeast of Finley. Member utilities and other public utility estimates; R.W. Beck will review Bechtel's report and provide districts will purchase the power from this project.
a power market forecast; and an Independent Review Team          Construction is expected to take place in Spring 2002, with will be identified to review and validate the Bechtel and electricity generation in Summer 2002.
R.W. Beck reports and provide a final analysis of the feasibility of completing the plant. Results of the study will be shared with the region once the full report is complete.
Page 6

White Bluffs Solar Demonstration Facility                    own the environmental credits associated with the renewable resource. Their payments to the environmental On Earth Day (April 2001), Energy Northwest joined foundation go to fund the next generation of new renewable the Bonneville Power Administration and the Bonneville energy resources.
Environmental Foundation in a plan to construct on the WNP-1 site the region's largest solar power station.
These organizations, with the addition of a DOE grant coordinated by Washington State University, will invest up NoaNet to $250,000 in the first phase, with a generating capacity        NoaNet is a fiber optic network developed to bring high between 35 and 50 kilowatts. While the annual output of      speed communications access to Northwest utilities and the solar station may seem like a small step in meeting the  communities. As a member of NoaNet, Energy Northwest region's energy needs, White Bluffs will demonstrate the     began providing broadband communications connections potential of solar power to the Northwest.                   in FY 2002 throughout the Pacific Northwest to assist While BPA will integrate the power into its system, the members in the efficient management of load, conservation Bonneville Environmental Foundation will market the          and acquisition of electrical energy as well as other utility "green" attributes separately in the form of an innovative   purposes.
product-Green Tags-that the environmental foundation              One of the NoaNet ports is located at the Ashe developed last year and now sells nationally. Buyers who     Substation. Energy Northwest sponsors another NoaNet want to offset the environmental effects of their power      port in Yakima.
consumption, such as C02 emissions, buy Green Tags and           Several PUDs are in the process of building out their Page 7

fiber optic local loops that will ultimately connect with the  Applied Process Engineering Laboratory NoaNet backbone providing the connectivity necessary for In its third year, the Applied Process Engineering delivering state-of-the-art telecommunications services to Laboratory (APEL) continues to host companies developing PUD customers in rural counties.
and demonstrating new technologies. Products and services Energy Northwest is in the process of exploring several are being developed to detect toxic materials and remove business opportunities involving wholesale tele contaminants from the air.
communication connections for companies and other APEL has expanded beyond toxic waste treatment; entities that have expressed interest in connecting to issues of energy, health and environment are principal areas NoaNet.
of focus. APEL hosts several advanced fuel cell projects, a solar energy project and the manufacture of power converters for renewable energy applications. Skin care Fuel Cells                                                     products are being manufactured for people whose skin is Energy Northwest was the lead agency in what became       sensitive to common household products. Also, work is a successful demonstration project of fuel cells under the     underway on fabricating prostate cancer treatment seeds, auspices of the Bonneville Power Administration.               and in treating warts and other virus-related illnesses Throughout the year, the fuel cell was demonstrated at         without surgery. The old computer center is being converted Energy Northwest member utilities and other public events. into a broadband communications center.
Participating members were: the city of Richland, Klickitat         Work has begun on a 4,000-square foot expansion of PUD, Grays Harbor PUD, Franklin PUD and Benton PUD.            APEL facilities to house equipment and supplies to maintain Fuel cells combine hydrogen with oxygen and harvest       the four buildings leased to tenants and the surrounding electricity created in the process. Because there is no        grounds.
combustion, there are no waste products, other than pure, warm water, which can be used as a heat source.
Diesel GeneratorProject Energy Northwest investigated the development of a Grays Harbor Energy Facility                                   diesel generation project that would have been located on Due to the ever-increasing demand for reasonably          the WNP-1 site. The plan was focused on supplying much priced electricity in our region, Energy Northwest opened      needed power in the region during the energy crisis-for discussions with several potential developers interested in    approximately 6-12 months depending on market building an electrical generating facility at the Satsop site. conditions. Financial projections indicated that the project As a direct result of these efforts, Duke Energy North         would generate some revenues, above the start-up and America, a subsidiary of Duke Energy, was selected to          operations costs, that would be funneled into the resource develop the (Satsop) combustion turbine facility.              development budget for use in supporting new renewable In January, Energy Northwest's Executive Board            electricity generation projects.
approved the sale of the Satsop site to Duke Energy North           Early in the project, however, it became clear that due America. Ground clearing for the 630-megawatt natural gas      to unforeseeable changes in weather and market conditions powered combustion turbine facility, located 29 miles          the responsible course of action was to discontinue the southwest of Olympia, began in June. Construction is           project.
expected to begin this fall. Energy Northwest is the intended operator for the facility, which is scheduled to begin commercial operation in late 2003. A portion of the output from the Grays Harbor Energy Facility is committed to public power at cost.
Page 8

GeneratingResources                                           software classes, and a number of other subjects in between-are made available to employees throughout the Our People                                                    organization.
Energy Northwest believes that to be successful over          In February 1999, Energy Northwest kicked off its time means managing its resources efficiently and leading     fledgling Leadership Academy. The academy is a five-week, its people effectively. With the understanding that           intensive course focused on building the leadership employees are the organization's greatest asset, and as such, competencies necessary for approaching and dealing with are the key to continued improvement and success, Energy      those issues over time. Since its inception, eight classes Northwest is committed to supporting its employees in         130 students-have graduated and the ninth class is reaching their educational and career goals, as well as to    scheduled to begin in late July.
developing leaders at all levels of the organization.              Consistent with its focus on developing leadership Energy Northwest offers tuition reimbursement to         throughout the organization, Energy Northwest has also employees who are working on degrees at accredited            initiated a formal succession management program. This community colleges and four-year colleges and universities. program will provide a flow of qualified candidates to fill In addition, a variety of internal and external training      key positions throughout the organization, ensuring long opportunities-from reactor operator training to computer      term business continuity.
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Board of Directors Beverley Cochrane, President                                Raymon Sieler, Member Commissioner Franklin County PUD                            Energy Services Director City of Richland RichardRiley, Vice President                                Roger Sparks, Member Commissioner, Wahkiakum County PUD                          Commissioner, Kittitas County PUD Vera Claussen, Secretary                                    Gary Zarker,Member Commissioner Grant County PUD                               Superintendent, Seattle City Light DarrelBunch, Assistant Secretary Commissioner Okanogan County PUD                            2002 Incoming Members Tom Casey, Member                                           Jack Janda, Member Commissioner, Grays Harbor County PUD                       Commissioner, Mason County PUD No. I Gregg Caudell, Member                                       Don Nuxoll, Member Commissioner Ferry County PUD                               Commissioner Asotin County PUD Mark Crisson, Member                                        John Whalen, Member Directorof Utilities, Tacoma Public Utilities               Commissioner, Mason County PUD No. 3 Robert Graves, Member Commissioner Benton County PUD Dan Gunkel, Member Commissioner K/ickitat County PUD ParkerKnight, Member Commissioner Skamania County PUD From left to right                             &#xfd;   1 FrontRow-Vera Claussen, Beverley Cochrane Back Row-Bob Graves, Darrel Bunch, Dan Gunkel, Richard Riley, Raymon Sieler Page 10

FinancialOperatingHighlights For the year ended June 30, 2001 (Dollarsin Millions)
Operating Statistics                                                                           COLUMBIA GENERATING STATION FY2001                    FY2000                     FY1999                     FY1998                   FY1997 7,996                       8,260                    6,975                       7,502                   6,965 Net Generation (1) 85.1%                      88.8%                    76.3%                        77.9%                   83.7%
Plant Availability (2) 81.8%                       79.3%                   71.9%                        71.9%                   60.0%
Plant Capacity (3)
Cost of Power (cents/kWh)                                                                                                                                                   1.72 1.99                       1.55                      1.60                         1.59 Production Expenses (4)                                                                                                                                               2.39 Industry Basis (5)                                            2.61                       2.14                      2.38                        2.30 PACKWOOD LAKE PROJECT FY2001                     FY2000                     FY1999                     FY1998                  FY1997 64                       113                        90                          98                     123 Net Generation (1)                                                                                                     91.4%                        92.2%                  88.5%
79.7%                      95.0%
Plant Availability (2)                                                                                                 37.3%                        37.4%                  51.9%
26.4%                      46.8%
Plant Capacity (3)
Cost of Power (cents/kWh)                                                                      0.21                      0.23                         0.25                  0.33 Production Expenses (4)                                       1.12 Investment Performance FY2001                     FY2000                   CHANGE Income                                                      $      38.5              $        38                          1.3%
Average Balance                                             $    631                 $      664                         -5.0%
Rate of Return                                                      6.11%                     5.71%                      7.0%
Bonds Outstanding                                                                      FY2000                   CHANGE FY2001 Nuclear Project No. 1 Fixed                                                $1,956                   $ 2,012                            -2.8%
5.8%                       5.8%                      0.0%
Weighted Average                                                              $                                    0.0%
                                                            $ 130                            130 Variable                                                                                                         -2.7%
3.6%                       3.7%
Average Rate Columbia Generating Station                                                                                             -7.5%
Fixed (6)                                             $1,919                  $ 2,074 5.5%                      5.6%                     -1.8%
Weighted Average (7)                                                                                               0.0%
                                                             $ 121                   $       121 Variable                                                                                                          -2.7%
3.6%                      3.7%
Average Rate Nuclear Project No. 3                                                                                                  13.7%
                                                             $1,300                   $ 1,506 Fixed (6)                                                                                                        -1.8%
5.5%                       5.6%
Weighted Average (7)                                                                                              0.0%
                                                             $ 184                    $      184 Variable                                                                                                         -2.7%
3.6%                       3.7%
Average Rate Packwood Lake Project                                                                                                   -8.6%
Fixed                                                $        5.4             $          5.8 3.7%                       3.7%                     0.0%
Weighted Average FY2000: 553; FY1999: 0; FY1998: 532; FY1997: 1,151.
Expressed in millions of kWh. Columbia's generation includes BPA economic dispatch credit of: FY2001: 68;
{2)                                                                                                                     hours.
Plant availability is defined as the ratio of the sum of source hours and reserve shut down hours to total period production capability.
: 3) Plant capacity factor is the ratio of the actual energy production over a given period of time to the nmaxiniuin energy F nergs Regulatory Commission (ItEROt.
(4) Includes operating, maintenance, and fuel amortization costs per the EIA-412 report submitted to the Federal capital additions, administrative and general, fuel-related costs and (5) Industry cost of power includes expenses associatedt with operations and maintenance, estimated cost associated with the economic dispatch generation credit.
(6) Lxcludes compound interest bonds accretion.
(7) Excludes compound interest bonds.
Page 11

Management Report on Responsibility for FinancialReporting The management of Energy Northwest is responsible          and the prevention and detection of fraudulent financial for preparing the accompanying financial statements and          reporting. These control procedures provide appropriate for their integrity. The statements were prepared in             division of responsibility and are documented by written accordance with generally accepted accounting principles         policies and procedures.
applied on a consistent basis, and include amounts that               Energy Northwest maintains an ongoing internal are based on management's best estimates and judgments.          auditing program that provides for independent assessment The financial statements have been audited by              of the effectiveness of internal controls, and for PricewaterhouseCoopers LLP, Energy Northwest's                   recommendations of possible improvements thereto. In independent accountants. Management has made available           addition, PricewaterhouseCoopers LLP, has considered the to PricewaterhouseCoopers LLP, all financial records and         internal control structure in order to determine its auditing related data, and believes that all representations made to     procedures for the purpose of expressing an opinion on IPricewaterhouseCoopers LLP, during its audit were valid and    the financial statements. Management has considered appropriate.                                                    recommendations made by the internal auditor and Management has established and maintains internal         PricewaterhouseCoopers LLP, concerning the control control procedures that provide reasonable assurance as to      procedures and has taken appropriate action to respond to the integrity and reliability of the financial statements, the  the recommendations. Management believes that, as of protection of assets from unauthorized use of disposition,      June 30, 2001, internal control procedures are adequate.
                     /!f J. Vic Parrish                                               G.J. Kucera Chief Executive Officer                                      Vice President, Administration/ChiefFinancialOfficer Audit, Legal, and Finance Committee Chairman'sLetter The Executive Board's Audit, Legal and Finance            overall scope and specific plans for their respective audits, Committee is composed of seven independent directors.
and reviewed Energy Northwest's financial statements and Members of the Committee are John F. Cockburn,                  the adequacy of Energy Northwest's internal controls.
Chairman; Rudi Bertschi, Ex Officio; Margaret Allen; The committee met regularly with Energy Northwest's Vera Claussen; Larry Kenney; Roger Sparks; and                  internal auditor and independent accountant to discuss the Louis Winnard. The Committee held 12 meetings during results of their examinations, their evaluations of Energy the fiscal year ended June 30, 2001.                            Northwest's internal controls, and the overall quality of The Committee oversees Energy Northwest's financial        Energy Northwest's financial reporting. The meetings were reporting process on behalf of the Executive Board. In          designed to facilitate any private communications with the fulfilling its responsibilities, the Committee discussed with   Committee desired by the internal auditor or independent the internal auditor and the independent accountants, the       accountant.
John F Cockburn Chairman, Audit, Legal and Finance Committee Page 12

Report of IndependentAccountants To the Executive Board of Energy Northwest We have audited the accompanying balance sheet of        to obtain reasonable assurance about whether the general Energy Northwest and the related individual balance sheets    purpose and related individual financial statements are free of Energy Northwest's internal service fund and business      of material misstatement. An audit includes examining, on units as of June 30, 2001, and the related statements of      a test basis, evidence supporting the amounts and operations and of cash flows for the year then ended. Energy  disclosures in the financial statements. An audit also Northwest's business units include the Columbia               includes assessing the accounting principles used and Generating Station, Packwood Lake Hydroelectric Project,      significant estimates made by management, as well as Nuclear Project No. 1, Nuclear Project No. 3, the Business    evaluating the overall financial statement presentation. We Development Fund, the CT Project Fund, the Nine Canyon        believe that our audits provide a reasonable basis for our Wind Project Fund, and the Temporary Diesel Generation        opinion.
Project Fund. These general purpose and individual financial statements are the responsibility of Energy Northwest's       In our opinion, the general purpose and related individual management. Our responsibility is to express an opinion       financial statements referred to above present fairly, in all on these general purpose and individual financial             material respects, the financial position of Energy Northwest statements based on our audits.                               and Energy Northwest's internal service fund and business units as of June 30, 2001, and the results of their operations We conducted our audits in accordance with auditing      and their cash flows for the year then ended in conformity standards generally accepted in the United States of America. with accounting principles generally accepted in the United Those standards require that we plan and perform the audits   States of America.
Portland,Oregon September 12, 2001 Page 13

Balance Sheets As of June 30, 2001 (Dollars in Thousands)
INTERNAL         COLUMBIA          PACKWOOD         NUCLEAR SERVICE        GENERATING            LAKE          PROJECT 01 lIOl         STATIO*N          PRO IFCT         NOA1
* FUND            STATION           PROJECT ASSETS UTILITY PLANT (NOTE B)
In service                                    $       43,348   $     3,418,892    $      12,817 Accumulated depreciation                             (26,022)       (1,692,186)         (11,360) 17,326         1,726,706            1,457 Nuclear fuel, net of accumulated amortization                          102,814 Construction work in progress                                            17.771 17,326         1,847,291            1,457 RESTRICTED ASSETS (NOTE B)
Special funds Cash                                                13,887                 11                6  $           9 Available-for-sale investments                       2,454            38,753             280          65,485 Accounts and other receivables                           42           93,772                           8,139 Prepayments and other                                  250                                                  1 Debt service funds Cash                                                                   4,099                 3             50 Available-for-sale investments                                      143,648              748        189,359 Other receivables                                                      1,562                             710 16,633           281,845           1,037         263,753 LONG-TERM RECEIVABLES (NOTE B)                                                        5,650 CURRENT ASSETS Cash                                                                        196                              29 Available-for-sale investments                        17,615            33,487               72         15,770 Accounts and other receivables                         2,261             4,316              237 Due from Participants                                                       145              67             435 Due from other business units                          3,388             3,899               14              12 Due from other funds                                                    36,918                19        20,569 Materials and supplies                                                  67,319 Prepayments and other                                     123               259                 1 Nuclear fuel held for sale                                                                                7,561 Plant & equipment held for sale                                                                          3,365 23,387           146,539              410         47,741 DEFERRED CHARGES Costs in excess of billings                                                               2,620      1,860,973 Unamortized debt expense                                                14,597                  3       16,297 Other deferred charges                                                         1                               1 14,598            2,623      1,877,271 TOTAL ASSETS                                    $      57,346    $     2,295,923    $       5,527    $ 2,188,765
* Project recorded on a liquidation basis See notes to financial statements Page 14

NUCLEAR      BUSINESS     COMBUSTION    NINE CANYON       DIESEL     COMBINED PROJECT    DEVELOPMENT       TURBINE        WIND       GENERATION       TOTAL NO.3
* FUND          PROJECT       PROJECT       PROJECT  (MEMORANDUM ONLY) 127 $         425                                              $   3,475,609 (119)                                                (1,729,687) 127           306                                                  1,745,922 102,814 508                       18,279 127           306                           508                    1,867,015 5                                                                   13,918 16,096                                                                  123,068 26                                                                  101,979 251 34                                                                    4,186 171,547                                                                  505,302 854                                                                    3,126 188,562                                                                  751,830 5,650 32                 $          4                                         261 9,389            30          1,682                                      78,045 303             22                                       7,139 346                                                                      993 1,546                                                      8,859 15,353                                                                   72,859 67,319 9                                                        392 7,561 3,365 25,120         1,888          1,708                                     246,793 1,614,299                                                                3,477,892 12,405                                                                   43,302 881                                          883 1,626,704                          881                                   3,522,077
$  1,840,513 $        2,194  $      2,589 $       508                   $   6,393,365 Page 15

Balance Sheets (continued)
As of June 30, 2001 (Dollarsin Thousands)
INTERNAL      COLUMBIA        PAC KWOOD        NUCLEAR SERVICE     GENERATING           LAKE         PROJECT FUND         STATION          PROJECT         NO.1
* FUND EQUITY AND LIABILITIES FUND EQUITY                                  $      1,218 BILLINGS IN EXCESS OF COSTS                                $        41,569 LONG-]TERM DEBT (NOTE E)
Revenue bonds payable                                        2,087,180   $        5,028   $ 2,086,585 Unamortized discount on bonds - net                             (10,085)             (14)        (1,403)
Unamortized gain/(loss) on bond refundings                      (49,026)              41       (53,043) 2,028,069            5,055     2,032,139 LIABILITIES-PAYABLE FROM RESTRICTED ASSETS (NOTE B)
Special funds Accounts payable and accrued expenses          15,717          94,213                         77,474 Due to other business units                                                                     2,164 Due to other funds                                             35,022                6        16,847 Debt service funds Accrued interest payable                                        3,362               65        54,807 Due to other funds                                              1,896               13          3,722 15,717        134,493                84      155.014 OTHER NONCURRENT LIABILITIES                                         4,652 CURRENT LIABILITIES Cash overdrafts                                   2,559 Current maturities of long-term debt                             45,615             343 Accounts payable and accrued expenses            32,132          40,358               45            705 Due to Participants                                               1,167                             846 Due to other business units                       4,422                                              61 39,113          87,140             388           1,612 DEFERRED CREDITS Advances from Members and others                      1 Other deferred credits                            1,297 1,298 COMMIHMENTS AND CONTINGENCIES (NOTE F)
TOTAL LIABILITIES                                   56,128      2,295,923            5,527     2,188,765 TOTAL FUND EQUITY AND LIABIILITIES            $     57,346 $    2,295,923   $        5,527   $ 2,188,765
* Project recorded on a liquidation basis See notes to financial statements Page 16

NUCLEAR        BUSINESS            COMBUSTION      NINE CANYON        DIESEL         COMBINED PROJECT      DEVELOPMENT             TURBINE           WIND        GENERATION           TOTAL NC 2t*         FIINF)               PRC IFCT         PRC IFCT       PRC rnrT NO 3
* FUND                PROJECT          PROJECT        PROJECT      'MEMORANDUM ONLY&#xfd;
                $        1,911        $        (47)                  $         (665)     $        2,417 41,569
 $ 2,033,665                                                                                6,212,458 (222,801)                                                                               (234,303)
(23,245)                                                                               (125,273) 1,787,619                                                                                5,852,882 187,404 2,164 12,763                                                                                   64,638 36,493                                                                                   94,727 2,590                                                                                     8,221 51,846                                                                                 35 7. 154 S ....                                                         357   154 4,652 2,559 45,958 454               74                   1  $             20                            73,789 284                                                                                     2,297 310             209                 540                488            665               6,695 1,048             283                 541                508            665           131,298 2,095                                                 2,096 1,297 2,095                                                 3,393 1,840,513              283               2,636               508             665         6,390,948
$  1,840,513   $        2,194         $     2,589   $           508  $                   $ 6,393,365 Page 17

Statements of Operationsand Fund Equity For the year ended June 30, 2001 (Dollarsin Thousands)
INTERNAL       COLUMBIA         PACKWOOD        NUCLEAR SERVICE      GENERATING           LAKE         PROJECT FUND          STATION           PROJECT        NO.1
* OPERATING REVENUES                                             $     421,152  $         1,741 OPERATING EXPENSES Nuclear fuel                                                       34,204 Fuel disposal fee                                                   7,542 Decommissioning                                                    16,246 Depreciation and amortization                                      96,026             363 Operations and maintenance                                        144,325           1,161 Administrative & general                                           16,125              99 Generation tax                                                      2,497              14 New business initiatives Total operating expenses                                          316,965           1,637 NET OPERATING REVENUES (EXPENSES)                                   104,187             104 OTHER INCOME & EXPENSE Non-operating revenues                     $       59,480                                       119,165 Investment income                                     383          23,643              95        14,714 Gain/(loss) on current bond redemption                                                   7         (250)
Interest expense and discount amortization                       (130,161)           (206)     (126,030)
Plant preservation and termination costs                                                         (6,708)
Depreciation and amortization                      (1,482)                                           (35)
Revaluation of site restoration                                                                    (856)
Services to other business units                  (57,111)
Other                                                               2,331 NET REVENUES (EXPENSES)                               1,270                0               0             0 Distribution & Contributions                       (1,260)
Beginning Fund Equity                               1,208                0               0             0 ENDING FUND EQUITY                         $        1,218    $           0 $             0 $           0
* Project recorded on a liquidation basis See notes to financial statements Page 18

NUCLEAR           BUSINESS     COMBUSTION         NINE CANYON     DIESEL           COMBINED DEVELOPMENT         TURBINE             WIND     GENERATION            TOTAL PROJECT NO.3
* FUND          PROJECT            PROJECT     PROJECT       (MEMORANDUM ONLY)
                 $        5,218                                                     $     428,111 34,204 7,542 16,246 210                                                             96,599 145,486 16,224 2,511 5,643                                                               5,643 5,853                                                           324,455 (635)                                                          103,656 97,019                      $            84                                         275,748 9,971                12                93                                           48,911 25                                                                                  (218)
(105,536)                                                                            (361,933)
(1,475)                                                                               (8,183)
(1)                                          (1,518)
(856)
(57,111)
(4)                             (223)                $         (665)              1,439 0             (623)              (47)  $          0           (665)                 (65) 1,110                                                                (150) 0            1,424                  0             0              0               2,632
$            0    $       1,911   $           (47)  $          0 $         (665)    $         2,417 Page 19

Statements of Cash Flows For the year ended June 30, 2001 (Dollars in Thousands)
INTERNAL        COLUMBIA          PACKWOOD         NUCLEAR SERVICE       GENERATING            LAKE          PROJECT FUND          STATION           PRO IFCT         Nfl 1
* STATION           PROJECT          NO 1
* CASH FLOWS FROM OPERATING AND OTHER ACTIVITIES Net operating revenues                                        $       104,187    S           104 Adjustments to reconcile net operating revenues to cash provided by operating activities:
Cash/cost incurred in excess of cash/cost                           19,782               (356)
Depreciation and amortization                                     128,672                 359 Decommissioning                                                     16,246 Other                                                                 2,183 Change in operating assets and liabilities:
Accounts receivable                                                 1,988             (112)
Materials and supplies                                             (7,070)
Prepaid and other assets                                            1,010                  2 Due from/to other business units, funds and Participants                                         16,156              (271)
Accounts payable                                                    9,717             (163)
Non-operating revenue receipts                 $        3,268                                     $     162,365 Cash payments for preservation, termination expense                                                                                    (7,371)
Cash payments for services                            (2,940)
Cash payments for new business                        (2,063)
Net cash provided (used) by operating and other activities                     (1,735)        292,871               (437)        154,994 CASH ]12OWS FROM CAPIIAI1 AND RELATED FINANCING ACTIVITIES Proceeds from bond refundings                                        244,124                            135,275 Refunded bond escrow requirement                                    (192,342)                         (109,684)
Payment for bond issuance and financing costs                          (2,976)                           (1,131)
Capital and nuclear fuel acquisitions                                 (33,571)
Interest paid on revenue bonds                                      (113,754)              (208)      (119,520)
Principal paid on revenue bond maturities                           (171,480)              (474)        (79,264)
Net cash used by capital and related financing activities                                  (269,999)              (682)      (174,324)
CASH FLOWS FROM INVESTIING ACTIV[TIES Purchases of investment securities                 (186,293)      (1,207,615)           (10,826)      (790,524)
Sales of investment securities                      186,358        1,166,211             11,781        792,423 Interest on investments                                1,856           18,867               134          12,674 Receipts from sales of plant assets                                                                          165 Net cash provided (used) by investing activities                                           1,921         (237)                1,089          14.738 NET INCREASE (DECREASE) IN CASH                               186               335               (30)        (4,592)
CASH AT JUNIE 30, 2000                                    11,142             3,971                 39          4,680 CASH AFJUNE 30, 2001 (NOTE B)                      S      11.328   S         4.306   $              9  S           88 88
* Project recorded on a liquidation basis See notes to financial statements Page 20

NUCLEAR         BUSINESS      COMBUSTION      NINE CANYON         DIESEL        COMBINED PROJECT      DEVELOPMENT        TURBINE           WIND         GENERATION         TOTAL NO.3
* FUND          PROJECT          PRCJJFCT        PRCHFr-T PROJECT                                                       I
              $        (635)                                                   $ 103,656 19,426 127                                                       129,158 16,246 2,183 (242)                                                           1,634 (7,070) 28                                                          1,040 435                                                          16,320 301                                                           9,855 127,974                    $       1,570                                        295,177 (5,180)                                                                       (12,551)
(2,940)
(2,063) 122,794                 14          1,570                0               0       570,071 243,608                                                                         623,007 (215,150)                                                                       (517,176)
(2,078)                                                                         (6,185)
(33,571)
(81,445)                                                                      (314,927)
(78,588)                                                                      (329.806)
(133,653)                                                                       (578,658)
(508,213)          (1,541)         (2,693)                                    (2,707,705) 506,018            1,511           1,042                                      2,665,344 8,529               12              62                                        42,134 165 6.334              (18I        (1,589)                                               (62)
(4,525)               (4)           (19)                                        (8,649) 4,596                 4             23               0               0        24,455 71  $                  $4                           0:              S*
4  $               c                     *?uvv Page 21

Outstanding Long-Term Debt As of June 30, 2001 (Dollarsin Thousands)
SERIAL COUPON                    OR TERM SERIES                         RATE                  MATURITIES                   AMOUNT COLUMBIA (NUCLEAR PROJECT NO. 2) REFUNDING REVENUE BONDS 1990A                        7.25%                     7-1-2006                           35,790 7.50                     7-1-2002                            6,310 1990C (A)                 7-1-2004/2005                          18,054 24,364 6.50-6.60               7-1-2002/2004                          53,415 1991A (A)                 7-1-2006/2007                          10,267 63,682 5.90-6.30               7-1-2004/2009                          76,085 1992A 6.25                    7-1-2012                           14,525 6.30                    7-1-2012                           50,000 140,610 1993A                       5.25-6.00              7-1-2002/2010                          94,520 5.75                    7-1-2012                           10,690 105,210 5.10-5.65              7-1-2004/2008                          61,645 1993B 5.55                    7-1-2010                           51,000 112,645 4.60-6.00              7-1-2002/2011                         511,870 1994A 5.40                    7-1-2012                          100,200 (A)                    7-1-2009                             4,776 616,846 5.00-6.00               7-1-2002/2012                        196,995 1996A 5.10-6.00               7-1-2004/2012                        124,255 1997A 5.00-5.50               7-1-2003/2011                          72,270 1997B Variable               7-1-2001/2012                        120,865 1997-2A-1, 2 1998A                      5.00-5.75               7-1-2002/2012                        224,900 (A) Compound interest bonds (B) Excludes amounts due July 1, 2001, which were paid as of June 30, 2001 (C) Includes amounts due July 1, 2001 (D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled (E) Auction Rate Certificates thereafter Page 22

OutstandingLong-Term Debt (continued)
As of June 30, 2001 (Dollarsin Thousands)
COLUMBIA (NUCLEAR PROJECT NO. 2) REFUNDING REVENUE BONDS (Continued) 2001A                        5.00-5.50%           7-1-2013/2017                    $     186,600 2001B                            5.50                7-1-2009                             48,000 (E)                7-1-2018                             48,000 Compound interest bonds accretion                                                             59,763 Revenue bonds payable                                                                 $    2,132,795 (B)
Estimated fair value at June 30, 2001                                                 $    2,228,120 (D)
PACKWOOD LAKE PROJECT REVENUE BONDS 1962                          3.625%                3-1-2012                      $       4,031 1965                            3.75                3-1-2012                              1,340 Revenue bonds payable                                                                  $       5,371 Estimated fair value at June 30, 2001                                                  $       5,285 (D)
NUCLEAR PROJECT NO. 1 REFUNDING REVENUE BONDS 1989A                           7.10%                7-1-2001                      $       3,705 1989B                            7.15                7-1-2001                              5,545 7.125                7-1-2016                             41,070 46,615 1990A                            7.40                7-1-2001                              6,925 1990B                            7.10                7-1-2001                              7,740 7.25                7-1-2009                             72,770 80,510 1990C                        7.625-7.75           7-1-2001/2003                           55,585 1991A                            6.30                7-1-2001                              4,745 1992A                         5.60-6.10           7-1-2001/2006                            3,765 6.25                7-1-2017                             63,420 67,185 (A) Compound interest bonds (B) Excludes amounts due July 1, 2001, which were paid as of June 30, 2001 (C) Includes amounts due July 1, 2001 (D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled (E) Auction Rate Certificates thereafter Page 23

OutstandingLong-Term Debt (continued)
As of June 30, 2001 (Dollars in Thousands)
NUCLEAR PROJECT NO. 1 REFUNDING REVENUE BONDS (Continued) 1993A                        5.25-7.00%           7-1-2001/2008               $          136,965 5.75                 7-1-2011                            80,000 5.70                 7-1-2017                           176,180 393,145 1993B                         5.00-7.00           7-1-2001/2010                           60,980 5.60                 7-1-2015                            94,635 155,615 1993C                         4.60-5.30           7-1-2001/2010                           18,455 5.40                 7-1-2012                            66,400 5.375                 7-1-2015                            75,650 160,505 1993-lA-1, 2, 3                     Variable           7-1-2001/2017                          130,200 1996A                         5.00-6.00           7-1-2001/2012                          345,330 1996B                         5.00-6.00           7-1-2001/2005                           29,365 1996C                         5.00-6.00           7-1-2001/2015                           88,180 5.50                 7-1-2017                            24,860 113,040 1997A                         5.00-6.00           7-1-2001/2008                           20,575 1997B                        5.00-5.125           7-1-2001/2017                          22,5200 1998A                         5.00-5.75           7-1-2001/2017                           92,970 2001A                         4.00-5.50           7-1-2001/2013                          104,770 2001B                            5.50                 7-1-2008                            23,600 (E)                 7-1-2017                            23,600 Revenue bonds payable                                                                 $    2,086,585 (C)
Estimated fair value at June 30, 2001                                                 $    2,208,216 (D)
(A) Compound interest bonds (B) Excludes amounts due July 1, 2001, which were paid as of June 30, 2001 (C) Includes amounts due July 1, 2001 (D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled (E) Auction Rate Certificates thereafter Page 24

OutstandingLong-Term Debt (continued)
As of June 30, 2001 (Dollarsin Thousands)
NUCLEAR PROJECT NO. 3 REFUNDING REVENUE BONDS 1989A                         7.10%                   7-1-2001                     $       3,595 (A)               7-1-2003/2014                           18,668 22,263 1989B                          7.15                   7-1-2001                            12,400 (A)               7-1-2004/2014                           70,580 7.125                   7-1-2016                            76,145 159,125 1990B                         7.375                   7-1-2001                             7,350 (A)               7-1-2001/2010                           38,685 46,035 1991A                          6.30                   7-1-2001                             3,990 1993B                       5.00-7.00             7-1-2001/2009                           87,540 5.625                   7-1-2012                            14,$55 5.60                  7-1-2015                             49,095 5.60                  7-1-2017                             37,795 5.70                  7-1-2018                             20,605 209,590 1993C                        4.60-7.50             7-1-2001/2010                          144,265 5.40                  7-1-2012                            105,000 (A)               7-1-2013/2018                           23,963 5.375                  7-1-2015                            188,335 5.50                  7-1-2018                             20,805 482,368 1993-3A-3                      Variable              7-1-2001/2018                           24,720 1996A                       5.00-6.00             7-1-2001/2009                           31,605 1997A                       5.00-6.00             7-1-2001/2018                          109,650 1997B                          5.00                  7-1-2002                              4,075 (A) Compound interest bonds (B) Excludes amounts due July 1, 2001, which were paid as of June 30, 2001 (C) Includes amounts due July 1, 2001 (D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled (E) Auction Rate Certificates thereafter Page 25

Outstanding Long-Term Debt (continued)
As of June 30, 2001 (Dollarsin Thousands)
NUCLEAR PROJECT NO. 3 REFUNDING REVENUE BONDS (Continued) 1998A                       5.00-5.125%           7-1-2001/2018                    $     148,665 1998-3A                        Variable            7-1-2001/2018                          159,500 2001A                          4.00-5.50           7-1-2001/2018                          208,755 2001B                            5.00             7-1-2003/2004                           15,000 5.50                7-1-2010                             10,675 (E)                7-1-2018                             25,675 Compound interest bonds accretion                                                            397,649 Revenue bonds payable                                                                 $    2,033,665 (C)
Estimated fair value at June 30, 2001                                                 $    1,934,034 (D)
(A) Compound interest bonds (B) Excludes amounts due July 1, 2001, which were paid as of June 30, 2001 (C) Includes amounts due July 1, 2001 (D) The estimated fair value shown has been reported to meet the disclosure requirements of Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled (E) Auction Rate Certificates thereafter Page 26

Debt Service Requirements As of June 30, 2001 (Dollarsin Thousands)
COLUMBIA GENERATING STATION                                    PACKWOOD LAKE PROJECT FISCAL YEAR              PRINCIPAL            INTEREST             TOTAL          PRINCIPAL               INTEREST          TOTAL 6/30/2001 Balance:*              $     7,100       $      3,362         $    10,462     $        172            $         65     $        237 2002                        45,615            110,262             155,877              523                     125              648 2003                       124,165            107,620             231,785              548                     171              719 2004                       163,609            112,604             276,213              574                     151              725 2005                       124,340            116,202             240,542              598                     130              728 2006                       140,186             98,926             239,112              624                     108              732 Balance Through 2012                                                                                 2,332                    208            2,540 2018                     1,468,017           374,874            1,842,891 Adjustment **               59,763            (59,763)                   0
                       $2,132,795         $ 864,087           $2,996,882       $      5,371           $        958        $   6,329 NUCLEAR PROJECT NO. 1                                        NUCLEAR PROJECT NO. 3 FISCAL YEAR               PRINCIPAL            INTEREST            TOTAL          PRINCIPAL                INTEREST         TOTAL 6/30/2001 Balance:*             $    85,740         $    54,807       $     140,547     $    70,695            $     36,493     $    107,188 2002                        79,850             113,054             192,904          78,527                  81,556          160,083 2003                        70,255             108,338             178,593          79,987                  79,670          159,657 2004                        81,610             104,462             186,072          62,906                  91,427          154,333 2005                        73,765              99,761             173,526          64,471                  91,989          156,460 2006                        91,195              95,620             186,815          65,392                  90,494          155,886 Balance Through 2017                    1,604,170              601,360          2,205,530 2018                                                                             1,214,038                 761,070       1,975,108 Adjustment **                                                                      397,649                (397,649)                0
                       $ 2,086,585        $1,177,402        $ 3,263,987        $2,033,665             $ 835,050        $2,868,715
* Bond Fund Account balances less accrued investment income
** Adjustment for Compound Interest Bonds accretion; Compound Interest Bonds are reflected at their face amount less discount on balance sheet Page 27

requirements are net-billed obligations of Nuclear Project Notes to Financial                                              No. 1. Nuclear Project No. 1 is wholiy-owned by Energy Northwest. Nuclear Project No. 3 was jointly-owned, 70 Statements                                                      percent by Energy Northwest and 30 percent by four investor-owned utilities until fiscal year 1999. In fiscal year 1999, the ownership agreements were terminated and the real and personal property interests were transferred to Fnergy Northwest. The financial effect of the termination Note A - General                                                of the ownership agreement was a write-off for Nuclear Project No. 3 of a $3.7 million receivable from the former joint owners.
Organization lach Energy Northwest business unit is financed and F'nergy Northwest, a municipal corporation and joint            accounted for separately from all other current or future operating agency of the State of Washington, was organized      business units.
in 1957. It is empowered to finance, acquire, construct and operate facilities for the generation and transmission      All electrical energy produced by Energy Northwest business of electric power. On June 30, 2001, its membership             units is ultimately delivered to electrical distribution consisted of 10 public utility districts and the cities of      facilities owned and operated by the Bonneville Power Richland, Seattle and Tacoma. All members own and               Administration (BPA) as part of the Federal Columbia River operate electric systems within the State of Washington.        Power System. BPA in turn distributes the electricity to F.nergy Northwest is exempt from federal income tax.            electric utility systems throughout the Northwest, including Fnergy Northwest has no taxing authority.                       participants in Energy Northwest's business units, for ultimate distribution to consumers. Participants in Energy Northwest's business units consist of publicly-owned Energy Northwest Business Units                                 utilities and rural electric cooperatives located in the western United States who have entered into net-billing agreements Energy Northwest operates Columbia Generating Station, wvith Energy Northwest and BPA for participation in one or a 1, 153 MWe (Design Electric Rating, net) generating plant more of Energy Northwest's business units. BPA is obligated completed in 1984. On April 27, 2000, Energy Northwest's by law to establish rates for electric power which will recover executive board approved a name change from Nuclear the cost of electric energy acquired from Energy Northwest Project No. 2 to Columbia Generating Station (Columbia).
and other sources as well as BPA's other costs. See Note E, Energy Northwest has obtained all permits and licenses Security - Nuclear Projects Nos. 1, 3 and Columbia, for required to operate Colunmbia, including a Nuclear discussion of BPA's obligations with respect to Nuclear Regulatory Commission (NRC) operating license which Projects Nos. 1, 3 and Columbia.
expires in December 2023. Energv Northwest also operates the Packwood Lake Hydroelectric Project (Packwood), a Energy Northwest also manages the Business Development 27.5 MIVe generating plant completed in 1964. Packwood Fund, Nine Canyon Wind Project, Combustion Turbine (CT) operates under a fifty-year license from the Federal Energy Project, Temporary Diesel Generation Project, and the Regulatory Commission (FERC) that expires on February Internal Service Fund. The Business Development Fund 28, 2010.
was established in April 1997 to pursue and develop new energy-related business opportunities. The Nine Canyon Nuclear Project No. 1, a 1,250 MWe plant, was placed in Wind Project was established in January 2001 for the extended construction delay status in 1982, when it was 65 purpose of exploring and establishing a wind energy project.
percent complete. Nuclear Project No. 3, a 1,240 MWVe plant, Finalization of the project agreements and construction of was placed in extended construction delay status in 1983, when it was 75 percent complete. On May 13, 1994, Energy         the project are expected to take place in fiscal year 2002.
Northwest's Board of Directors adopted resolutions "The CT Project was established in July 1990 to collect advances and contributions to pay the costs of investigating terminating Nuclear Projects Nos. 1 and 3 (see Note I new generating projects, including the feasibility of a Nuclear Projects Nos. 1 and 3 Termination). In fiscal year combustion turbine near Satsop, Washington. The 1999, the assets and liabilities of Hanford Generating Project Temporary Diesel Generation Project was established in were consolidated into Nuclear Project No. 1. The Hanford May 2001 to provide immediate additional electrical Generating Project site is being restored and all funding Page 28

generation using temporary diesel generators. Changing           receivable from Energy Northwest business units are circumstances have since resulted in the stoppage of this        recorded under current liabilities - Due to other business project after initial expenditures but prior to finalizing an    units, or current assets - Due from other business units on order for the diesel generators. The negative equity of the      the Internal Service Fund balance sheet.
Temporary Diesel Generation Project will be absorbed by the Business Development Fund in FY 2002. The Internal          The Combined Total (Memorandum Only) column on the Service Fund (formerly General Fund) was established in         financial statements is for presentation only as each Energy May 1957. It is currently used to account for the central       Northwest business unit is financed and accounted for procurement of certain common goods and services for the        separately from all other current and future business units.
business units on a cost reimbursement basis. It is also        There are no eliminations for transactions between business used to account for the performance fees paid by BPA to         units in the Combined Total column.
Energy Northwest for achieving performance goals related to the operation of Columbia.                                   Pursuant to Statement No. 20 of the Governmental Accounting Standards Board (GASB), "Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Note B - Summary of Significant                                 Accounting," Energy Northwest has elected to apply all Financial Accounting Standards Board statements and Accounting Policies                                              interpretations, except for those that conflict with or contradict GASB pronouncements. Specifically, Statement of Governmental Accounting Standard No. 7 and No. 23 Basis of Accounting                                            conflict with Statement of Financial Accounting Standard (SFAS) No. 125. As such, the guidance under Statement of Energy Northwest has adopted accounting policies and Governmental Accounting Standard No. 7 and No. 23 is principles that are in accordance with accounting principles followed. Such guidance governs the accounting for bond generally accepted in the United States of America.
defeasances and refundings.
Accounts are maintained in accordance with the uniform system of accounts of the FERC. Separate funds and books        The preparation of Energy Northwest financial statements of account are maintained for each business unit. Payment       in conformity with accounting principles generally accepted of obligations of one business unit with funds of another in the United States of America necessarily requires business unit is prohibited, and would constitute violation     management to make estimates and assumptions that of bond resolution covenants.                                   directly affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the Energy Northwest maintains an Internal Service Fund for date of the financial statements and the reported amounts centralized control and accounting of certain fixed assets of revenue and expenses during the reporting period. Actual such as data processing equipment, and for payment and results could differ from these estimates. Certain incurred accounting of internal services, payrolls, benefits, expenses and revenues are allocated to the business units administrative and general expenses, and certain contracted based on specific allocation methods and management services on a cost reimbursement basis. In addition, it is considers the allocation methods to be reasonable.
used to account for performance fees paid by BPA to Energy Northwest for achieving performance goals related to the Energy Northwest's fiscal year begins on July 1" and ends operation of Columbia. The performance fee is a general on June 30"'.
asset of Energy Northwest not allocable to other funds.
Other assets of the Internal Service Fund are owned by Energy Northwest's business units and are held in trust by the Internal Service Fund and reflected as due to and from Utility Plant other business units. Depreciation relating to fixed assets     Utility plant is stated at original cost. Plant in service is is charged to the appropriate business units based upon an      depreciated by the straight-line method over the estimated allocation formula. Liabilities of the Internal Service Fund    useful lives of the various classes of plant, which range from represent accrued payrolls, vacation pay, employee benefits,    five to 40 years.
and common accounts payable which have been charged directly or indirectly to business units and will be funded     During the normal construction phase of a project, Energy by the business units when paid. Net amounts owed to or         Northwest's policy is to capitalize all costs relating to the Page 29

project, including interest expense (net of interest income),   issued in the amount of the replacement value of the loaned and related administrative and general expense.                 uranium product, adjusted semiannually. The cost of the loaned uranium, $34 million, is included in the carrying Nuclear Projects Nos. I and 3 have been reduced to their        amount of Columbia's nuclear fuel.
estimated net realizable values due to termination. A write down of Nuclear Projects Nos. 1 and 3 was recorded in fiscal    Until June 30, 2002, Columbia has an option to purchase year 1995 and is included in Cost in Excess of Billings.        the remaining fuel at Nuclear Project No. 1. At June Nuclear Project No. 3's utility plant value consists of the     30, 2001, the market value is $8.3 million, including escalation.
land owned by the project. Interest expense, termination expenses and asset disposition costs for Nuclear Projects Nos. I and 3 have been charged to operations.                   Restricted Assets In accordance with project bond resolutions, related agreements, or state law, separate restricted funds have been Nuclear Fuel                                                     established for each business unit. The assets held in these funds are restricted for specific uses including construction, All expenditures related to the purchase of nuclear fuel for Columbia, including interest, are capitalized and carried at     debt service, capital additions, extraordinary operation and maintenance costs, termination, decommissioning and cost. When the fuel is placed in the reactor, the fuel cost is workers' compensation claims.
amortized to operating expense on the basis of quantity of heat produced for generation of electric energy.
Accumulated nuclear fuel amortization (the amortization          Long-Term Receivables of the cost of nuclear fuel assemblies in the reactor used in    Long-term receivables include minimum guaranteed the production of energy) is $106 million as of June 30,         amounts adjusted annually pertaining to future discounts 2001, for Columbia.                                             for certain goods and services to be provided to Columbia as the result of a litigation settlement and subsequent Energy Northwest has a contract with the Department of           revisions.
Energy (DOE) that requires the DOE to accept title and dispose of spent nuclear fuel. Although the courts have ruled that the DO had the obligation to accept title to Accounts and Other Receivables spent nuclear fuel by January 31, 1998, the repository is not expected to be in operation before 2010. Columbia            Accounts and other receivables for the Internal Service Fund has capacity to store spent fuel in existing facilities until    include miscellaneous receivables outstanding for other November 2004. lo accommodate the spent fuel discharges          business units that have not yet been collected. The after this date, Energy Northwest has initiated a project to     amounts due to each business unit is reflected in the due store the spent fuel in commercially available dry storage       to/from other business units account.
casks on a concrete pad at the Columbia site. Effective fiscal year 2000, Energy Northwest began accruing the fuel cask obligations based on the rate of fuel consumption ($1.4          Decommissioning and Site Restoration million for fiscal year 2001). l'o recognize the cask costs Energy Northwest established decommissioning and site associated with fuel consumed in FY 2000 and prior years, restoration funds for Columbia and monies are being
 $25.0 million was charged to operations in fiscal year 2000.
deposited each year in accordance with an established Current period operating expense for Columbia includes a funding plan.
 $7.5 million charge for future spent nuclear fuel storage and disposal to be provided by the DOE in accordance with the The NRC has issued rules to provide guidance to licensees Nuclear Waste Policy Act of 1982.
of operating nuclear plants on decommissioning the plants at the end of each plant's operating life. In September 1998, IEnergy Northwest has entered into an agreement to transfer the NRC approved and published its "Final Rule on Financial enriched uranium to General Electric Company in exchange Assurance Requirements for Decommissioning Power for equivalent amounts of uranium at reload enrichments Reactors." As provided in this rule, each power reactor in future years and usage/loan fees. Energy Northwest has licensee is required to report to the NRC the status of its transferred approximately 488,151 pounds of UF6 and decommissioning funding for each reactor or share of a 263,137 SWU of Columbia uranium. The exchange reactor it owns. This reporting requirement began on March agreement has been secured by an irrevocable letter of credit Page 30

31, 1999 and reports are required every two years thereafter. Materials and Supplies Energy Northwest submitted its most recent report to the NRC on March 23, 2001.                                           Materials and supplies are valued at cost, using weighted average methods.
Energy Northwest's current estimate of Columbia's decommissioning costs is approximately $345 million (in 1999 dollars). This current estimate is based on the NRC        FinancingExpense, Bond Discount, and minimum amount required to demonstrate reasonable                Deferred Gain and Losses financial assurance for a boiling water reactor with the Financing expenses and bond discounts are amortized over power level of Columbia.
the terms of the respective bond issues using the bonds Site restoration requirements for Columbia are governed         outstanding method.
by the site certification agreements between Energy Northwest and the State of Washington and regulations           In accordance with the Statement of Governmental Accounting Standard No. 23 effective for periods afterJune adopted by the Washington Energy Facility Site Evaluation Council (EFSEC). Energy Northwest submitted a site               15, 1994, losses on debt refundings have been deferred and restoration plan for Columbia that was approved by the          amortized as a component of interest expense over the EFSEC on June 12, 1995. Energy Northwest's current              shorter of the remaining life of the old or new debt. The estimate of Columbia's site restoration costs is                balance sheet includes the original deferred amount less recognized amortization expense and is included as a approximately $54 million (in 1999 dollars).
reduction to the new debt.
Both decommissioning and site restoration estimates (in 1999 dollars) are used as the basis for establishing a funding plan that includes escalation and interest earnings until       Current Maturitiesof Revenue Bonds decommissioning activities occur. Payments to the               Current maturities of revenue bonds payable from restricted decommissioning and site restoration funds have been made       assets are reflected in Long-Term Debt. Current maturities since January 1985. The fair value of cash and investment        of bonds for which funds have not yet been restricted are securities in the decommissioning and site restoration funds     reflected in Current Liabilities.
as of June 30, 2001, totaled approximately $68.0 million and $5.5 million, respectively. Since September 1996, these amounts have been held and managed by BPA in external trust funds in accordance with NRC requirements and site Accounts Payable and Accrued Expenses certification agreements.                                        Restricted Liabilities - Internal Service Fund accounts payable and accrued expenses include $13.9 million for Energy Northwest's accrued liability for decommissioning         unclaimed bearer bonds. Columbia includes $93.7 million and site restoration for Columbia is $93.7 million as of June    for decommissioning and site restoration. Nuclear Project 30, 2001. Per the net-billing agreements, BPA is obligated      No. 1 includes $59.2 million for its own site restoration and to provide for the entire cost of decommissioning and site       $13.5 million for Hanford Generating Project site restoration. A corresponding receivable has been established    restoration.
within Restricted Assets reflecting amounts owed to Columbia by BPA. The decommissioning and site restoration       Current Iiabilities - Internal Service Fund accounts payable liability is not based on the funding plan. Annual              and accrued expenses include $1.3 million for payroll and decommissioning and site restoration expense is accounted       related benefits, $13.6 million for compensated absences, for on a pro-rata basis over the life of the plant and is based and $4.5 million for outstanding warrants. Columbia on the total estimated decommissioning and site restoration     includes $4.7 million for fuel casks, $11.9 million for services costs, adjusted for inflation.                                  from one contractor, $2.2 million for arbitrage rebate (as defined by the Internal Revenue Code) and $2.6 million for fuel sales tax. Nuclear Project No. 1 includes $705 thousand for arbitrage rebate. Nuclear Project No. 3 includes
                                                                $275 thousand for arbitrage rebate.
Page 31

Fair Value of FinancialInstruments                                  Concentrationof Credit Risk The fair value of financial instruments has been estimated          Financial instruments which potentially subject Energy using available market information and certain                      Northwest to concentrations of credit risk consist of assumptions. Considerable judgment is required in                   available-for-sale investments, accounts receivable, other interpreting market data to develop fair value estimates and        receivables, long-term receivables and costs in excess of such estimates are not necessarily indicative of the amounts        billings. Energy Northwest invests exclusively in U.S.
that could be realized in a current market exchange. The            Government securities and agencies. Energy Northwest's following methods and assumptions were used to estimate             accounts receivable and costs in excess of billings are the fair value of each of the following financial instruments.      concentrated with project Participants and BPA through the net billing agreements. See Note E, Security - Nuclear Financial instruments for which the carrying value is               Projects Nos. 1, 3 and Columbia and Security - Packwood considered a reasonable approximation of fair value include:        Lake Hydroelectric Project. The long-term receivable is with cash, accounts and other receivables, accounts payable and          a large and stable company which Energy Northwest accrued expenses, advances from Members and others, other           considers to be of low credit risk. Other large receivables noncurrent liabilities and due to/from Participants, funds,         are secured through the use of letters of credit and other and other business units. The fair values of investments            similar security mechanisms or are with large and stable (see Note C) and revenue bonds payable (see Outstanding             companies which Energy Northwest considers to be of low Long-Term Debt Schedule) have been estimated based on               credit risk. As a consequence, Energy Northwest considers quoted market prices for such instruments or based on the           the exposure of the business units to concentration of credit fair value of financial instruments of a similar nature and          risk to be limited.
degree of risk.
Revenues                                                            Statements of Cash Flows Energy Northwest accounts for expenses on an accrual basis,         For purposes of the statements of cash flows, cash includes and recovers, through various agreements, actual cash               unrestricted and restricted cash balances. Short-term, highly requirements for operations and debt service for Columbia,          liquid investments are not considered cash equivalents.
Packwood, Nuclear Project No. 1 and Nuclear Project No.
: 3. For these business units, Energy Northwest recognizes revenues equal to expenses for each period. No net revenue          Note C - Cash and Investments or loss is recognized, and no equity is accumulated. The Cash and investments for each business unit are separately difference between cumulative billings received and maintained. Energy Northwest's deposits are insured by cumulative expenses is recorded as either billings in excess federal depository insurance or through the Washington of costs (liability) or as costs in excess of billings (asset), as Public Deposit Protection Commission. Energy Northwest appropriate. Such amounts will be settled during future resolutions and investment policies limit investment operating periods.
authority to obligations of the United States Treasury, Federal National Mortgage Association and Federal Home Energy Northwest accounts for revenues and expenses on Loan Banks. All investments are held for the benefit of the an accrual basis for the remaining business units. The individual Energy Northwest business units by safekeeping difference between cumulative revenues and cumulative agents, custodians, or trustees.
expenses is recognized as net revenue or losses and included in fund equity for each period.
Investments are classified as available-for-sale and are stated at fair value with unrealized gains and losses reported in investment income. Available-for-sale investments at June Deferred Revenues                                                  30, 2001, are categorized below to give an indication of the Advances of $1.2 million to the CT Project for the sale of          types and amounts of investments held by each business land and licenses which is not complete, are included in           unit at year end. (See the following tables) the Advances from Members and others account and were not included in current year income.
Page 32

AVAILABLE-FOR-SALE INVESTMENTS (Dollarsin Thousands)
Amortized Cost Unrealized Gains Unrealized Losses   Fair Value Columbia                    $     66,135  $         1,585   $          (135) $     67,585 U.S. Government Securities       147,337            1,075             (109)    -148,303 U.S. Government Agencies    $    213,472  $        2,660    $         (244)  $   215,888 Total Packwood Lake Project U.S. Government Securities  $      1,100  $             0   $             0  $      1,100 Total                        -$     1,100  $             0   $             0  $      1,100 Nuclear Project No. 1 U.S. Government Securities  $     37,304  $           793   $             0  $    38,097 U.S. Government Agencies          232,052              532               (67)     232,517 Total                       $     269,356  $        1,325    $           (67) $   270,614 Nuclear Project No. 3 U.S. Government Securities  $      31,722  $           690   $             0  $    32,412 U.S. Government Agencies          164,461              172               (L3)     164,620 Total                       $     196,183  $           862   $           (13) $   197,032 Business Development Fund U.S. Government Agencies    $          30  $             0   $             0  $         30 Total                       $          30  $             0  $              0  $         30 CT Project U.S. Government Agencies    $       1,680  $             2  $              0  $      1,682 Total                       $       1,680  $             2  $              0  $      1,682 Internal Service Fund U.S. Government Securities  $      11,100  $           167  $                 $    11,267 U.S. Government Agencies            8,797                5                    $      8,802 Total                       $      19,897  $          172   $              0  $    20,069 Page 33

At June 30, 2001, the contractual maturities of available-for-sale investments are:
                                       < 1 Year           1-5 Years         5- 10 Years      > 10 Years         TOTAL Columbia U.S. Government Securities           $     17,637       S     24,920        $     25,028    $          0      $   67,585 U.S. Government Agencies                  103,611             21,678              13,340           9,674         148,303 Total                                $    121,248       $     46,598        $     38,368    $      9,674      $ 215,888 Packwood Lake Project U.S. Government Securities           $      1,100       $           0       $           0   $          0      $     1,100
                                     $      1,100       $           0       $           0   $          0      $     1,100 Total Nuclear Project No. 1 U.S. Government Securities           $      8,951       $     28,432        5           0   $        714      $   38,097 U.S. Government Agencies                  205,102             17,934               9,035             446         232,517 Total                                $    214,053       S     46,366        $      9,035    $      1,160      $ 270,614 Nuclear Project No. 3 U.S. Government Securities           $     17,922       $     13,052        $           0   S      1,438      $   32,412 U.S. Government Agencies                  153,944              6,648               4,028                0        164,620 Total                                $    171,866       $     19,700        $      4,028    $      1,438      $ 197,032 Business Development Fund U.S. Government Agencies             $          30      $           0       $           0   $           0     $        30
                                     $                  $                   S               $           0     $        30 "Total                                          30                  0                   0 CT Project
                                     $       1,682      S           0       S           0   $           0     $     1,682 U.S. Government Agencies
                                     $       1,682      $           01      $           0   $           0     $     1,682 Total Internal Service Fund
                                                         $           0      $           0   S           0     $    11,267 U.S. Government Securities           $     11,267 U.S. Government Agencies                    8,802                   0                   0               0           8,802
                                                         $           0      $           o    $          0     $   20,069 Total                                S     20,069 Note D - Retirement Benefits Substantially all Energy Northwest full-time and qualifying       report (CAFR) that includes financial statements and part-time employees participate in one of the following          required supplementary information for each plan. The statewide retirement systems administered by the                 DRS CAFR may be obtained by writing to: Department of Washington State Department of Retirement Systems, under         Retirement Systems, Administrative Services Division, P.O.
cost-sharing multiple-employer public employee defined           Box 48380, Olympia, WA 98504-8380. The following benefit and defined contribution retirement plans. The           disclosures are made pursuant to GASB Statement No. 27, Department of Retirement Systems (DRS), a department             Accounting for Pensions by State and Local Government within the primary government of the State of Washington,        Employers.
issues a publicly available comprehensive annual financial Page 34

Public Employee's Retirement System                             the contribution requirements are established under state statute in accordance with chapters 41.40 and 41.45 Revised (PERS) Plans 1 and 2 Code of Washington.
Plan Description The required contribution rates expressed as a percentage of current year covered payroll, as of June 30, 2001, were:
PERS is a cost-sharing multiple-employer defined benefit pension plan. Membership in the plan includes: elected PERS Plan 1 PERS Plan 2 officials; state employees; employees of the Supreme, Appeals, and Superior courts (other than judges in a judicial            Employer                  4.44%*    [    4.44%*
Employee                  6.00%,/        2.43%
retirement system); employees of legislative committees;
                                                                 *`theemployer rates do not include the employer administrative expense college and university employees not in national higher fee currently set at 0.231.
education retirement programs; judges of district and municipal courts; non-certificated employees of school districts; and employees of local government. The PERS          Both Energy Northwest and the employees made the system includes two plans. Participants who joined the          required contributions. Energy Northwest's required system by September 30, 1977, are Plan 1 members. Those         contributions for the years ended June 30 were:
joining thereafter are enrolled in Plan 2. Retirement benefits are financed from employee and employer contributions                                        PERS Plan 1       PERS Plan 2 and investment earnings. Retirement benefits in both                         2001              $410,640        $3,100,152 Plan 1 and Plan 2 are vested after completion of five years                  2000              $415,538        $2,929,576 of eligible service.                                                         1999              $718,527        $4,697,392 Plan 1 members are eligible for retirement at any age after    In addition to the pension benefits available through PERS, completing 30 years of service, or at age 60 with five years    Energy Northwest offers post-employment life insurance of service, or at age 55 with 25 years of service. The annual   benefits to retirees who are eligible to receive pensions under pension is two percent of the average final compensation        PERS Plan 1 and Plan 2. One hundred twenty-six retirees per year of service, capped at 60 percent. The average final    have elected to participate in this insurance. In 1994, Energy compensation is based on the greatest compensation during       Northwest's Executive Board approved provisions which any 24 eligible consecutive compensation months. If             continued the life insurance benefit to retirees at 25 percent qualified, after reaching age 66, a cost-of-living allowance    of the premium for employees who retire prior to January is granted based on years of service credit and is capped at    1, 1995, and charged the full 100 percent premium to three percent annually.                                         employees who retired after December 31, 1994. The life insurance benefit is equal to the employee's annual rate of Plan 2 members may retire at age 65 with five years of          salary at retirement for non-bargaining employees retiring service, or at age 55 with 20 years of service, with an         prior to January 1, 1995. The cost of coverage for employees allowance of two percent per year of service of the average     who retired after January 1, 1995, is $2.33 per $1,000 of final compensation. Plan 2 retirements prior to age 65 are      coverage. Employees who retired prior to January 1, 1995, actuarially reduced. There is no cap on years of service        contribute $.58 per $1,000 of coverage while Energy credit and a cost-of-living allowance is granted, capped at     Northwest pays the remainder. Premiums are paid to the three percent annually.                                         insurer on a current period basis.
At the time each employee retires, Energy        Northwest accrues Funding Policy                                                  a liability for the actuarial value of           estimated future Each biennium, the state Pension Funding Council adopts         premiums, net of retiree contributions.          The total liability Plan 1 employer contribution rates and Plan 2 employer          recorded at June 30, 2001, was $1.291            million for these and employee rates. Employee contribution rates for Plan        benefits.
1 are established by statute at six percent and do not vary from year to year. The employer and employee contribution       During fiscal year 2001, pension costs for Energy Northwest rates for Plan 2 are set by the director of the Department of   employees and post-employment life insurance benefit costs Retirement Systems based on recommendations by the              for retirees were calculated and allocated to each business Office of the State Actuary to continue to fully fund the       unit based on direct labor dollars. Approximately 92 percent plan. All employers are required to contribute at the level     of all such costs were allocated to Columbia during fiscal established by state law. The methods used to determine         year 2001.
Page 35

401 (k) Deferred Compensation Plan                               and Columbia, respectively. The debt service on the 2001 A Bonds is $156.1 million, $345.1 million and $330.9 Energy Northwest provides a 401(k) Deferred Compensation         million for Nuclear Projects Nos. 1, 3 and Columbia, Plan (the 401(k) Plan). The 401(k) Plan is a defined             respectively. Columbia's debt service increases because the contribution plan that was established to provide a means        final maturity date was extended from 2012 to 2017. Net for investing savings by employees for retirement purposes.      proceeds from the Series 2001-A Bonds were deposited in a All permanent, full-time employees are eligible to enroll in     separate irrevocable trust for each Project under the control the Plan. Each participant may elect to contribute up to         of the trustee/escrow agent bank to provide all required 1 7 .5% of pre-tax annual compensation, subject to current       future debt service payments on the refunded bonds until Internal Revenue Service limitations. Energy Northwest           the dates of redemption. As a result, the refunded bonds matches 50% of the portion of the participant's salary           are considered to be defeased and the liability of these bonds deferral amount, which does not exceed 3% of the                 has been removed from long-term debt.
participant's 401(k) eligible earnings for the 401(k) Plan year.
Participants direct the investment of their contributions.       The Series 2001-B Bonds, in the aggregate principal amount Participants are immediately vested in their contributions       of $97.3 million, were issued as "Auction Rate Certificates".
plus actual earnings thereon. During FY 2001, Energy             The interest rates on the Series 2001-B Bonds ranged from Northwest contributed $1,030,512 in company matching             5.00% to 5.50% for the "Initial Interest Periods". The Series funds.                                                           2001-B Bonds refunded $101.1 million of outstanding bonds, all of which, except for $230,000 Nuclear Project No. 3 bonds, matured on July 1, 2001. Net proceeds from Note f - Long-Term Debt                                          the Series 2001-B Bonds were deposited in the Principal Accounts in the Bond Funds and the Debt Service Accounts Each Fnergy Northwest business unit is financed separately.
for each Project under the control of the trustee banks to The resolutions of Energy Northwest authorizing issuance provide all required remaining deposits for principal of revenue bonds for each business unit provide that such payments on the refunded bonds until the dates of bonds are payable from the revenues of that business unit.
redemption.
All bonds issued under Resolutions Nos. 769, 775 and 640 for Nuclear Projects Nos. 1, 3 and Columbia, respectively, In prior fiscal years, Energy Northwest also defeased certain have the same priority of payment within the business unit revenue bonds by placing the net proceeds of new bonds (the "Prior Lien Bonds"). All bonds issued under Resolution in irrevocable trusts to provide for all future debt service Nos. 835, 838 and 1042 for Nuclear Projects Nos. 1, 3 and payments on the refunded bonds. Accordingly, the trust Columbia, respectively, are subordinate to the Prior Lien account assets and the liability for the defeased bonds are Bonds and have the same subordinated priority of payment not included in the financial statements in accordance with within the business unit (the "Electric Revenue Bonds").
GASB No. 7 and No. 23. Including the fiscal year 2001 In conjunction with the sale of the Series 2001-A and Series defeasements, approximately $400.9 million, $170.8 million 2001-B Refunding Electric Revenue Bonds, in March and May 2001, respectively, Energy Northwest agreed with the        and $495.1 million of defeased bonds were not called or had not matured at June 30, 2001, for Nuclear Projects Nos.
owners of Electric Revenue Bonds not to issue any more 1, 3 and Columbia, respectively.
Prior Lien Bonds or any other obligations having a lien on parity with the Prior Lien Bonds. The variable rate debt instruments issued for Nuclear Projects Nos. 1, 3 and           Outstanding revenue bonds for the various business units as of June 30, 2001, and future debt service requirements Columbia are Electric Revenue Bonds.
for these bonds are presented at the end of the Financial section of this report.
During the year ended June 30, 2001, Energy Northwest issued, for Nuclear Projects Nos. 1, 3 and Columbia, the Series 2001-A Bonds and the Series 2001-B Bonds. The Series      In October 2000, Energy Northwest's Executive Board 2001-A Bonds, in the aggregate principal amount of $500.1        adopted the 2000 Refunding Plan. Under the 2000 Refunding Plan, Energy Northwest expects to continue its million, are fixed rate bonds with an average coupon interest "Traditional Refinancing Program" by refinancing higher rate of 5.42%. The Series 2001-A Bonds refunded $499.5 interest rate outstanding bonds, previously issued for million of outstanding bonds having an average coupon Nuclear Projects Nos. 1, 3 and Columbia, when rate of 5.70QO. Remaining debt service on the refunded economically feasible. Additionally, Energy Northwest bonds prior to the refunding was $162.9 million, $354.9 million and $255.7 million for Nuclear Projects Nos. 1, 3        expects to continue to issue refunding bonds to extend the final maturity of Columbia debt from 2012 to 2018.
Page 36

Subsequent Event                                                   Security - Packwood Lake Hydroelectric Energy Northwest's Executive Board, on August 23, 2001,            Project authorized the issuance of Promissory Notes and the Energy Northwest and BPA signed an agreement which execution of Credit Agreements for Nuclear Projects Nos.
became effective on October 1, 1996, for the period through 1, 3 and Columbia, respectively. Under the Credit July 1,2001, and states that BPA will pay Energy Northwest Agreements, Energy Northwest may borrow, on a taxable in exchange for the project's total output of electric capacity basis to the issuer, up to $55.6 million, $55.2 million and and energy delivered from the project. BPA will pay
   $36.7 million for the purpose of providing a portion of the 17.5 mills per kWh for the first 86,750 megawatt hours funds necessary to refund the principal of outstanding delivered to the interconnections and S mills per kWh for bonds maturing on July 1, 2002, for Nuclear Projects Nos.
any energy delivered to the interconnections in excess 1, 3 and Columbia, respectively. This transaction anticipates of 86,750 megawatt hours during the fiscal year. In the sale of refunding bonds in the Spring of 2002, the net addition, BPA pays to Energy Northwest its Lewis County proceeds of which will pay off the Promissory Notes and all PUD No. 1 transmission costs and Energy Northwest remaining deposits for principal payments on the refunded receives generation credit for spill requested by BPA.
bonds until their maturity date of July 1, 2002.
Packwood is now a "certified resource" in BPA's environmental foundation pool. When Packwood's Security - Nuclear Projects Nos. 1, 3 and                          generation is marketed as "green" power, a stipend of 2.5 Columbia                                                          mills per kWh will be received from BPA. The Packwood Project participants have purchased all of the capability of       participants are obligated to pay annual costs of the project Nuclear Projects Nos. 1, 3 and Columbia. BPA has in turn           including debt service, whether or not the project is acquired the entire capability from the participants under         operable, until the outstanding bonds are paid or provision contracts referred to as net-billing agreements. Under the         is made for the retirement in accordance with provisions net-billing agreements for each of the business unit's,           of the bond resolution.
Participants are obligated to pay Energy Northwest their pro rata share of total annual costs of the respective projects, including debt service on bonds relating to each business         Note F - Committments and unit, and BPA in turn is obligated to pay the Participants identical amounts by reducing amounts due to BPA by                 Contingencie.s Participants under BPA power sales agreements. The net-billing agreements provide that Participants and BPA           Nuclear Project No. 1 Termination are obligated to make such payments whether or not the Since the Nuclear Project No.1 termination, Energy projects are completed, operable or operating and Northwest has been planning for the demolition of Nuclear notwithstanding the suspension, interruption, interference, Project No. 1 and restoration of the site, recognizing the reduction or curtailment of the projects' output.
fact that there is no market for the sale of the Project in its entirety and to date, no viable alternative use has been On May 13, 1994, Energy Northwest's Board of Directors found. A study has been initiated on the feasibility of adopted resolutions terminating Nuclear Projects Nos. 1 and completing the Project. The study is expected to be
: 3. The Nuclear Projects Nos. 1 and 3 project agreements completed late in the fall of 2001. Funding for the Project and the net-billing agreements, except for certain sections has continued for administrative efforts associated with which relate only to billing processes and accrued liabilities termination and planning of demolition activities for the and obligations under the net-billing agreements, ended Project. Preservation activities have been continued for upon termination of the projects. Energy Northwest entered certain high-value assets to maximize the return on their into an agreement with BPA to provide for continuation of expected resale. At this time, the eventual disposition of the present budget approval, billing and payment processes.
the Project is unknown.
With respect to Nuclear Project No. 3, the ownership agreement among Energy Northwest, Puget Sound Power
& Light Company, PacifiCorp, Portland General Electric Company and AVISTA Corporation was terminated in fiscal year 1999. The ownership of all real and personal property interests was transferred to Energy Northwest.
Page 37

Nuclear Project No. 3 Termination                                 Business Development Fund Interest in Injune 1994, the Nuclear Project No. 3 Owners Committee Northwest Open Access Network voted unanimously to terminate the Project. In February           The Business Development Fund is a member of the 1999, Energy Northwest entered into a transfer agreement          Northwest Open Access Network ("NoaNet"). Members with the Satsop Redevelopment Project (SRP) to transfer           formed NoaNet pursuant to an Interlocal Cooperation the real and personal property at the site of Nuclear Project     Agreement for the development and efficient use of a No. 3 and Nuclear Project No. 5. The SRP also agreed to           communication network in conjunction with BPA for use assume regulatory responsibility for site restoration.            by the Members and others.
Therefore, Energy Northwest is no longer responsible to the State of Washington and Washington EFSEC for any site             The Business Development Fund has a 7.38% interest in restoration costs.                                                NoaNet with an additional 25% step-up possible for a maximum 9.23%. In July 2001, NoaNet issued $27 million of bonds. The members are obligated to pay the principal Nuclear Projects Nos. 1 and 4 Site                                and interest on the bonds when due, in the event and to the extent that NoaNet's Gross Revenue (after payment of Restoration                                                       costs of Maintenance and Operation) is insufficient for this Site restoration requirements for Nuclear Projects Nos. 1         purpose. The maximum principal share (with step-up) that and 4 are governed by site certification agreements between       the Business Development Fund could be required to pay is Energy Northwest and the State of Washington and                  $2,490,800.
regulations adopted by the Washington EFSEC, and a lease agreement with the DOE. Energy Northwest submitted a site restoration plan for Nuclear Projects Nos. 1 and 4 to        Other Litigation and Commitments EFSEC on March 8, 1995, which complied with EFSEC Energy Northwest is involved in various claims, legal actions requirements to remove the assets and restore the sites by and contractual commitments and in certain claims and demolition, burial, entombment, or other techniques such contracts arising in the normal course of business. Although that the sites pose minimal hazard to the public. EFSEC approved Energy Northwest's site restoration plan on June          some suits, claims and commitments are significant in amount, final disposition is not determinable. In the 12, 1995. In its approval, EFSEC recognized that there is opinion of management, the outcome of such litigation, uncertainty associated with Energy Northwest's proposed plan. Accordingly, EFSEC's conditional approval provides           claims or commitments will not have a material adverse for additional reviews once the details of the plan are            effect on the financial positions of the business units or finalized.                                                         Energy Northwest as a whole. The future annual cost of the business units, however, may either be increased or decreased as a result of the outcome of these matters.
Based on current estimates for site restoration, Energy Northwest has accrued liabilities of $59.2 million for Nuclear Project No. 1. Funding for this liability will be provided by BPA. No source of funding has been identified         Nuclear Licensing and Insurance for site restoration of Nuclear Project No. 4, which is located    Energy Northwest is a licensee of the Nuclear Regulatory approximately one-half mile from Nuclear Project No. 1.            Commission and is subject to routine licensing and user Energy Northwest believes that although Nuclear Project            fees, to retrospective premiums for nuclear liability No. 1 has no legal obligation to fund Nuclear Project No. 4,       insurance, and to license modification, suspension, or it is possible that claims may be asserted against Nuclear         revocation or civil penalties in the event of violations of Project No. 1 to pay the costs of site restoration for Nuclear     various regulatory and license requirements.
Project No. 4. Energy Northwest currently estimates that the cost of site restoration for Nuclear Project No. 4 is $40.1    The Price Anderson Act currently provides for nuclear million. Nuclear Project No. 1 has not accrued any costs           liability insurance of over $9.54 billion per incident, which for Nuclear Project No. 4.                                        is covered by a combination of commercial nuclear insurance and mandatory industry self-insurance. Energy Northwest has purchased the maximum commercial insurance available of $200 million, which is the first layer of protection. The second layer of protection is provided Page 38

through a mandatory industry self-insurance plan wherein        at the time of initial recognition. Upon adoption of the each licensed nuclear facility required to participate in the   Statement, an entity will use a cumulative-effect approach plan (currently 106) may be assessed up to $88.1 million         to recognize transition amounts for any existing ARO per incident, subject to a maximum annual assessment of          liabilities, asset retirement costs, and accumulated
 $10 million per year.                                           depreciation. The impact on Energy Northwest's financial statements is expected to increase Utility Plant by Nuclear property damage and decontamination liability            approximately $325 million and Accounts Payable and insurance requirements are met through a combination of          accrued expenses by a like amount.
commercial nuclear insurance policies purchased by Energy Northwest and BPA. The total amount of insurance                 GASB No. 34, Basic Financial Statement and MD&A for State purchased is currently $2.7S billion. The deductible for         and Local Governments, as amended by GASB Nos. 37 and this coverage is $S million per occurrence.                      38, establishes requirements for the basic financial statements and required supplementary information (RSI) for general purpose governments. Such financial statements Note G - New Accounting                                          and RSI will include 1) Management's discussion and analysis (MD&A), and 2) Basic Financial Statements. MD&A Pronouncements                                                   will introduce the basic financial statements and provide The FASB has recently issued SFAS No. 143, Accounting for        an analytical overview of the government's financial Obligations Associated with the Retirement of Long-Lived         activities before the basic financial statements. The basic Assets, which is effective for fiscal years beginning afterJune  financial statements will consist of government-wide 15, 2002. Energy Northwest has chosen not to adopt the           financial statements (statement of net assets and statement Statement early. This Statement will require an entity to        of activities), fund financial statements (a series of recognize the fair value of a liability for an asset retirement  statements that focus on information about the obligation (ARO), such as nuclear decommissioning and            government's major funds, including its blended site restoration liabilities, in the period in which it is       component units), notes to the financial statements and incurred, rather than using a cost-accumulation approach.        RSI. Interfund activity will be reported separately in the Asset retirement costs will be capitalized as part of the cost   fund financial statements and eliminated in the aggregated of the related long-lived asset, then allocated to depreciation  government-wide financial statements. This statement is expense over the life of that asset. The fair value of the       effective for Energy Northwest's fiscal year beginning July liability will be discounted initially, then accreted with a     1, 2001, and Energy Northwest has elected not to adopt charge to expense based on the risk-free interest rate in effect early.
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CURRENT DEBT RATINGS (Unaudited)
ENERGY NORTHWEST (Long-Term)
RATING OUTLOOK Fitch                                         AA    Stable Moody's Investors Service, Inc. (Moody's)     Aal Standard and Poor's Rating Services (S & P)   AA    Stable VARIABLE RATE DEBT                           S&P   MOODY'S Letter of Credit Banks Bank of America Long-Term                               AA     Aal Short-Term                             A-I+     P-1 Morgan Guaranty Trust Company Long-Term                               AA     Aa3 Short-Term                             A-i+     P-1 Bond Insurance (Long-Term)
MBIA Insurance Corporation                AAA     Aaa Bank Credit Facility (Short-Term)
Credit Suisse First Boston             A-I+     P-1 Page 40

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